Q3 2023 Maravai Life Sciences Holdings LLC Earnings Call

Speaker 1: Ladies and gentlemen, thank you for standing by. My name is Tammy and I will be your conference operator today. As this time, I would like to welcome everyone to the third quarter, 2020, Mara Vy, Life Science and Learning Conference call.

Ladies and gentlemen, thank you for standing by my name is Danny and I will be conference operator today.

At this time I would like to welcome everyone to the third quarter 'twenty two I have three miles I life Sciences earnings Conference call.

Speaker 2: All lines have been placed on mute to prevent any background noise.

All lines have been placed on mute to prevent any background noise.

Speaker 3: After the speaker's remarks, there will be a question and answer session.

After the Speakers' remarks, there will be a question and answer session.

Speaker 4: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Speaker 5: If you would like to withdraw your question again, press the star 1.

If you would like to withdraw your question again.

The star one.

Speaker 6: I would now like to turn the conference over to Ms. Deb Hyde.

I would now like to turn the conference over to.

Ms Deb Hot.

Please go ahead.

Good afternoon, everyone. Thanks for joining us on our third quarter 2023 earnings call. Our press release and the slides that accompany today's call are posted on our website and are available at investors that Martin.

Speaker 7: Good afternoon, everyone. Thanks for joining us on our third quarter, 2023 earnings.

Speaker 8: Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com.

Speaker 9: As you can see on the agenda on slide two, joining me today are Trey Martin, Chief Executive Officer, and Kevin Hrdy, Chief Financial Officer.

As you can see on the agenda on slide two joining me today are tray, Martin Chief Executive Officer, and Kevin Hardy Chief Financial Officer.

Speaker 10: Drew Birch, President of Nucleic Acid Production, and Becky Buzio, our Executive Vice President and Chief Commercial Officer, will join the call for the question and answer session.

Drew birch president of nucleic acid production and Becky <unk>, our executive Vice President and Chief Commercial Officer will join the call for question and answer session. Following our prepared remarks.

Speaker 11: We remind you, management will make forward-looking statements.

We remind you management will make forward looking statements and we refer you to GAAP and non-GAAP financial measures during today's call. It.

Speaker 12: And we refer you to GAP and non- GAAP financial measures during today.

Speaker 13: It is possible that actual results could differ from management.

It is possible that actual results could differ from management's expectations.

Speaker 14: We refer you to Slide 3 for more details on forward-looking statements and our use of non-GAAP financial statements.

We refer you to slide three for more details on forward looking statements and our use of non-GAAP financial measures.

Speaker 15: Our just issued press release provides reconciliations to the most directly comparable gap.

Our just issued a press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to my advice SEC filings for additional information on the risks and uncertainties that may impact our operating results performance and financial condition.

Speaker 16: Please also refer to Marvi's 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 Trey.

Speaker 17: Thank you, Deb. And good afternoon, everyone. We appreciate having you join us for our call.

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

Speaker 18: Let me give a quick recap of the third quarter, provide some color on the cost-cutting initiatives we announced today, and highlight a few business updates before turning the call over to Kevin.

Let me give a quick recap of the third quarter and provide some color on the cost cutting initiatives, we announced today and highlight a few business updates before turning the call over to Kevin.

Speaker 19: Let's start with our third quarter results on slide five.

Let's start with our third quarter results on slide five.

Speaker 20: Today, we reported $67 million in revenue for the quarter. $12 million in total.

Today, we reported $67 million in revenue for the quarter 12.

$12 million and total adjusted EBITDA.

Speaker 21: and a loss of one cent in adjusted fully diluted EPS for the quarter. Q3 results.

The loss of <unk>, <unk> and adjusted fully diluted EPS for the quarter.

Q3 results were below our expectations with persistent macroeconomic and industry specific conditions impacting the top line.

Speaker 22: persistent macroeconomic and industry-specific conditions impacting the top.

As we mentioned during our last quarterly update and as referenced by many of our peers. We've seen continued softness as customers adjust their spending priorities in the wake of broader economic uncertainty and lower levels of venture and private equity backed investment.

Speaker 23: As we mentioned during our last quarterly update and is referenced by many of our peers, we've seen continued softness as customers adjust their spending priorities in the wake of broader economic uncertainty and lower levels of venture and private equity back to investment.

Speaker 24: As a result, key customers continue to focus on capital conservation efforts, which is concerned.

As a result key customers continue to focus on capital conservation efforts, which is constrained research and development budgets.

Speaker 25: This continues to result in a longer decision making process.

This continues to result in a longer decision, making process, causing customers to strategically prioritize and stage their programs.

Speaker 26: causing customers to strategically prioritize and stage their.

Speaker 27: We are not seeing signs of near-turn recovery that we expected when we provided prior guide.

We are not seeing signs of near term recovery that we expected when we provided prior guidance and expect those trends to persist at least through the end of 2023.

Speaker 28: and expect those trends to persist at least through the end of 2023. Unfortunately, they do not.

Unfortunately, this has been a consistent theme throughout our industry.

Speaker 29: Our nucleic acid production site and it had revenue of $51 million in cutes.

Our nucleic acid production segment had revenue of $51 million in Q3.

Speaker 30: This includes an estimated 36 million of base nucleic acid production.

This includes an estimated $36 million of base nucleic acid production revenue.

Speaker 31: The biologic safety testing revenue was $16 million in the third quarter.

The biologic safety testing revenue was $16 million in the third quarter.

Turning to slide six.

Speaker 32: As you're all aware, Marvi grew at an exceptional rate during

As Youre all aware Moreover grew at an exceptional rate during the pandemic as we scale the manufacturing with clean cap to unprecedented quantities for mrna based COVID-19 vaccines and the global pandemic response.

to be scaled the manufacturing of clean cap to unprecedented quantity.

for mRNA-based COVID-19 vaccines in the global pandemic response.

We rose to serve a critical global need and are mentally proud of our accomplishments in the

We rose to surface critical global need and are immensely proud of our accomplishments in that regard.

During this period, we were also able to significantly scale our GMP capabilities to build four new facilities, to increase R&D and commercial

During this period, we were also able to significantly scale, our GMP capabilities to build four new facilities.

To increase R&D and commercial investments into.

And to acquire than like him and <unk> businesses.

As we evolve our revised post pandemic industry needs have changed upon taking over as CEO at the end of July the leadership team and I have taken a hard look at our requirements moving forward.

As we evolve Marvi post-pandemic, industry needs have changed.

Upon taking over as CEO at the end of July , the leadership team and I have taken a hard look at our requirements moving forward.

The actions we announced today will enable us to rebalance the organization by significantly reducing labor and discretionary costs, and to focus on key strategic areas of investment to accelerate long-term and sustainable growth.

The actions, we announced today will enable us to rebalance the organization by significantly reducing labor and discretionary costs.

And to focus on key strategic areas of investment to accelerate long term and sustainable growth.

We've made several difficult decisions.

including resizing and reorganizing many teens throughout.

Including the re sizing and reorganizing many teams throughout the company to ensure we're serving our customers' needs and the most nimble inefficient ways possible.

to ensure we're serving our customers' needs in the most nimble and efficient ways possible.

Please refer to slide 7 for details on the restructuring initiative.

Refer to slide seven for details on our restructuring initiatives.

We are eliminating approximately 100 positions.

and making significant reductions to other non-labor expense areas to enable more efficient operations while continuing to support investment in our high-growth focus.

<unk> significant reductions to other non labor expense areas to enable more efficient operations, while continuing to support investment in our high growth focus areas.

We are targeting at least $30 million in annualized cost reduction.

We are targeting at least $30 million in annualized cost reductions to be realized over the course of 2024 from these actions.

to be realized over the course of 2024 from these.

It is difficult to say goodbye to the many talented and committed colleagues who are integral to our success through the pandemic.

It is difficult to say goodbye to the many talented and committed colleagues who were integral to our success through the pandemic. And I want to thank them.

And I want to thank them for their many contributions.

We will actively support them as they identify their next opportunity.

We will actively support them as they.

Identify their next opportunities and we look forward to what they will achieve as they bring their experience from <unk> to their next rolls.

And we look forward to what they will achieve as they bring their experience from Moravai to their next level.

Let's move to slide 8 to provide more color on the organization's shape moving.

Let's move to slide eight to provide more color on the organization shape moving forward.

we resize the organization, we are streamlining and clarifying our organizational structure.

As we resize the organization, we are streamlining and clarifying our organizational structure roles and responsibilities to support our strategy.

roles, and responsibilities to support our strategy, enable sustainable growth, and better serve our customers.

<unk> sustainable growth and better serve our customers.

Morabai has a strong reputation of making smart acquisitions.

Moreover, <unk> has a strong reputation of making smart acquisitions in each of our company brands have a long history of being best in class.

And each of our company brands have a long history of being best in class.

Customers rely on trilink sickness, clean research, and alpha-sign to support their scientific endeavor.

Customers rely on train link sickness, Glenn research and <unk> to support their scientific endeavors.

Moving forward, operating divisions have been redefined and remained to reinforce our strong brands, where we've specialized expertise, insight, and experience needed by our customers to advance their work.

Moving forward operating divisions have been redefined and renamed to reinforce our strong brands, where we have specialized expertise in science and experience needed by our customers to enhance their work.

And our nucleic acid production segment.

In our nucleic acid production segment, or NAP, we now have four business units.

We now have four business units trailing discovery.

Trilink GMP, Glenn Research and Health.

Try and link G&P, Glenn research and our design.

Drew Birch has been promoted to the role of president for the nucleic acid production.

<unk> has been promoted to the role of president for the nucleic acid production segment.

Each business unit within the NAP segment will be led by a general manager who will drive focus around developing solutions that meet customer needs at the appropriate stage of their development.

Each business unit within the <unk> segment will be led by a general manager, who will drive focus around developing solutions that meet customer needs at the appropriate stage of their development.

Our TriLink Discovery and TriLink GNP business units are now better positioned to respond to those.

Our trailing discovery internally G&P business units are now better positioned to respond to those different needs.

Diving into the different needs of our customers, the TriLink Discovery Business Unit will be focused on working with customers at the front end of the facility.

Diving into the different needs of our customers. The triangle discovery business unit will be focused on working with customers at the front end of the funnel.

TriLink Discovery will include all research use only for RUO products.

Trailing discovery will include all research use only for argue with products and services, including all reagents, the mic and custom chemistry business and mrna manufacturing for screening and target discovery.

including all reagents, the MyChem custom chemistry business, and mRNA manufacturing for screening and targeting.

This is where the majority of our trialing customers are today in the discovery and preclinical position.

This is where the majority of our trailing customers are today and the discovery and preclinical position.

Our clients typically start working with us by purchasing research use only grade mRNA or reagent.

Our clients typically start working with us by purchasing research use only grade mrna or reagents.

Many customers start with us in discovery before they have identified the target.

Many customers start with us in discovery before they have identified their targets.

With these inputs, they're screening, developing, scaling up their processes, and overcoming development challenges. They want to get to market faster.

With these inputs they are screening developing scaling up their processes and overcoming development challenges.

They want to get to market faster with the best possible candidates.

They need rapid turnaround and would like to run larger screens at smaller scale.

Need rapid turnaround and we'd like to run larger screens at smaller scales.

Once our customers have refined their targets and selected lead candidates, that is when TriLink GMP can step in seamlessly and help them progress through their clinical.

Once our customers have refined their targets and selected lead candidates that has been triangle G&P can step in seamlessly and help them progress through their clinical phases.

Trailing G&P products and services are extremely important and highlight how we are partnering with customers throughout their journey into late phase GMP manufacturing.

Trilink GMP products and services are extremely important and highlight how we are partnering with customers throughout their journey into late phase GMP manufacturing.

We ensure that RUO grade material provided in discovery can translate right to RGNP suites, including the New Flanders.

We ensure that our UO grade material provided and discovery can translate right to our GMP suites, including the new Flanders one into facilities.

Our Trileaks GMP includes GMP Clean Cap Analogs, GMP Intuos,

Our triangle G&P includes GNP clean cap analogs G&P in TPS analytical services and GMP mrna production services.

Analytical services and GMP mRNA production.

Our biologic safety testing segment still comprises sickness technologies.

Our biologic safety testing segment still comprises sickness technologies and includes the market fee brand Cigna continues to be led by executive Vice President Christine Dolan.

CYGNSS continues to be led by Executive Vice President Chris

We believe these changes better define roles and responsibilities for our leadership teams, for decision-making agility, and accountability for change.

We believe these changes better defined roles and responsibilities for our leadership teams for decision, making agility and accountability for business success.

Moving to slide nine.

Our commercial team, led by our Chief Commercial Officer, Becky Buzzi.

Our commercial team led by our Chief commercial Officer, Becky Boggio is evolving to ensure they are a comprehensive strategic organization that can provide critical functional and system support across all businesses.

is evolving to ensure they are a comprehensive strategic organization that can provide critical functional and system support across all.

Our traditionally founder-based acquisitions are generally product and technology-led and do not have mature commercial organizations.

Our traditionally founder based acquisitions are generally product and technology led and do not have mature commercial organizations or funnel systems. So.

So we expect our new commercial organization to accelerate growth and increase.

So we expect our new commercial organization to accelerate growth and increased visibility.

This consolidated commercial engine will provide key enabling resources and tools.

This consolidated commercial engine that will provide key enabling resources and tools to all of the more of our businesses.

Becky oversaw the genesis of Trilink GMP, formerly referred to as Nucleic Acid Services, and helped recruit its general manager, Kevin Lynch. I want to thank Becky and her team for their hard work, and I look forward to working with them in the future.

Becky oversaw the Genesis of trailing G&P, formerly referred to as nucleic acid services.

And helped recruit its general manager, Kevin Lynch I want to thank her for pulling double duty over the past year and.

And now this new structure will allow her to focus solely on sales and commercial.

And now this new structure will allow her to focus solely on sales and commercial execution.

We will also continue to invest in our unique analytical capability.

We will also continue to invest in our unique analytical capabilities. We have launched <unk> analytical Sciences center of excellence, a centralized hub for advancing testing of nucleic acids to simplify mrna drug substance characterization and accelerated critical therapeutic development.

We have launched tri-link analytical science and center of excellence.

centralized hub for advancing testing of nucleic acids to simplify mRNA drug substance characterization and accelerate critical

Leaning on decades of technical expertise, TriLink continues to lead the market with MRNA-specific analytical services.

Leading with decades of technical expertise truly continues to lead the market with mrna specific analytical services, having developed and qualified 10 types of unique methods for the characterization of mrna covering 40 various constructs.

Having developed and qualified 10 types of unique methods for the characterization of mRNA, covering 40 various cons-

With this expansion, the Center of Excellence builds upon Trialink's comprehensive method development for content.

With this expansion the centre of excellence builds upon trailing as comprehensive method development for construct specific assays and has added new instrumentation to enable an EMR next gen sequencing and lipid nanoparticle characterization.

and has added new instrumentation to enable NMR, next-gen sequencing, and lipid nanoparticle characterization.

The Center of Excellence will continue to be responsible for developing cutting-edge analytical methodologies, including MR&S.

Our center of excellence will continue to be responsible for developing cutting edge analytical methodologies, including mrna fingerprinting and sequencing.

We believe these changes better reflect our core strengths highlight our best in class brands support the different <unk> and GMP needs of our customers and enable all of our teams to work effectively and grow sustainably.

We believe these changes better reflect our core strengths, highlight our best in class brands, support the different RUO and GNP needs of our customers, and enable all of our teams to work effectively and grow sustainably.

Moving into our future growth on slide 10.

We see many opportunities ahead and as we outlined at our Investor R&D day in September we have identified a path over the five year term to greater than $700 million in organic revenue.

We see many opportunities ahead. And as we outlined that our investor are in D-Day in September , we have identified a path over the five-year turn to greater than $700 million in organic revenue.

We will continue to focus on driving improvements to regain our industry-leading adjusted EBITDA

We will continue to focus on driving improvements to regain our industry, leading adjusted EBITDA margin.

and we believe the cost-realignment initiatives we are taking now will allow us to realize that goal even at today's volumes.

And we believe the cost realignment initiatives. We are taking now will allow us to realize that goal even at todays volumes.

Our partnership agreements continue to expand.

We entered into five new agreements in the third quarter. Two for new-

We entered into five new agreements in the third quarter two for new Kids, one clinical licensing agreement and two CD <unk> enablement agreements.

one clinical licensing agreement, and two CDMO enablement agreements. On slide.

On slide 11, we highlight a few of these agreements.

Our newly signed partnership agreement with ThermoFisher has clean cap incorporated into their bench scale in Vitergen message machine in Viter transcription heads. For those of you who are in the process,

Our newly signed partnership agreement with Thermo Fisher has clean cap incorporated into their bench scale in vitro and message machine in vitro transcription keds.

For those of you not familiar with these kids the products are used by many researchers for in vitro transcription of R&D synthesis for a variety of purposes, including in vitro functional studies labeling and tagging.

products are used by many researchers for an vitro transcription of RNA synthesis for a variety.

including in vitro functional studies, labeling and tagging.

Small animal studies and therapeutics development.

These types of partnerships allow Mooravai to expand our product and technology.

These types of partnerships allow <unk> to expand our product and technology reach and get into more customer workflows early to partner from discovery through commercialization.

and get into more customer workflows early to partner from discovery through commercial.

We also signed a clinical license agreement with Precision Bios.

We also signed a clinical license agreement with precision biosciences for them to utilize GMP inputs and Theyre mrna ARCUS genome editing platform.

for them to utilize GMP inputs in their mRNA Arcus genome editing.

In vivo gene editing has the potential to permanently cure genetic diseases ARCUS is a precise and versatile genome editing technology with the distinct potential to insert <unk> size or eliminate DNA in a broad spectrum of genetic diseases.

Indyrogen editing is a potential to permanently cure it.

Arcus is a precise and versatile genome editing technology.

state potential to insert, excise, or eliminate DNA in a broad spectrum.

In late September , we entered into a non-exclusive supply agreement for several of our clean cap analogs to be used in the Elixirgen Scientific Japan Incorporated MRNA Development and Manufacturing Services.

In late September we entered into a nonexclusive supply agreement for several of our clean cap analogs to be used in the <unk> scientific Japan incorporated.

<unk> development and manufacturing services for preclinical through phase III programs, including.

including CleanCap M6, CleanCap AG, and CleanCap AEG 3-pronged.

Including clean cap and six clean cap AG and clean cap of AG three primary metal.

This agreement aligns with our objective to enable greater access worldwide to all clean-capped mRNA tech.

This agreement aligns with our objective to enable greater access worldwide to all kleen capped mrna technologies.

In addition, we also reviewed a multiyear supply agreement with <unk> therapeutics, a pioneering genome editing company.

In addition, we also reviewed a multi-year supply agreement with Intelli of therapeutics. A part of the...

This strategic collaboration ensures the consistent provision of cap analogs and other reagents.

This strategic collaboration ensures the consistent provision of cap analogs and other reagents and strengthens our partnership devoted to advancing the development of mrna based solutions in gene editing.

strengthens our partnership devoted to advancing the development of mRNA-based solutions in gene-

We, along with Intelia, recognize the transformative potential of mRNA technologies in gene editing and a resolute

We along with Intel you recognize the transformative potential of mrna technologies in gene editing and are resolute in our joint endeavor for groundbreaking innovations.

By combining our expertise in nucleic acid-based products with Intellia's groundbreaking genome editing capabilities, we are poised to make significant strides in shaping the future of medicine, bettering global human health.

By combining our expertise and nucleic acid based products with Intelius groundbreaking genome editing capabilities, we are poised to make significant strides in shaping the future of medicine Bettering global human health.

Moving to slide 12.

My life innovation and people continue to receive recognition. In this quarter. We were honored with several awards.

We'll revise innovation and people continue to receive recognition and this quarter, we were honored with several awards.

Signus Technology received a 2023 R&D 100 Award from R&D World Magazine in the Analytical Test Category for the Mock V.R.V.L.

Cigna technology received the 2023, R&D 100 award from R&D World Magazine, and the analytical test category for the mock <unk> kit.

The Mock V. RVLP kit enables bioprocess scientists to determine retrovirus like particle or RVLP removal during biopharmaceutical manufacturing in Chinese hamster ovary or chose cell lines. Bye.

They might be RV LP kit enables bioprocess scientists to determine retro virus like particle or RV LP removal during biopharmaceutical manufacturing in Chinese hamster ovary, our Cho cell lines.

By using the <unk> kit scientists can gain actionable insight into retro viral clearance whenever they wish from their own lappage, rather than requiring the use of a contract research organization.

Scientists can gain actionable insight into retrovital clearance whenever they wish, from their own lap edge, rather than requiring the use of a contract research organization.

and do their own testing at a fraction of the costs associated with prior viral clearance.

And do their own testing at a fraction of the costs associated with prior viral clearance studies.

Clean cap and six our next generation cap analogue received the 2023 pharma Innovation award from pharma manufacturing.

Clean Cap M6, our next generation cap analog, received the 2023 Pharma Innovations Award from Pharma Manufacturing. We spoke about M6 during our last conference call and also...

We spoke about <unk> six during our last conference call and also highlighted its benefits during our R&D day.

But suffice to say, we are really excited by the product and expect M6 to help developers and researchers maximize the impact of their mRNA programs while reducing overall manufacturing costs, ultimately bringing life-changing medicines

But suffice to say we are really excited by the product and expect <unk> to help developers and researchers maximize the impact of their mrna programs, while reducing overall manufacturing costs.

Ultimately, bringing life changing medicines to the market faster.

Drew birch release, our nucleic acid production segment was named to the San Diego business terminals 2023 list of leaders of influence in life Sciences.

was named to the San Diego Business Journal's 2023 list of leaders of influence and life.

and our Chief Innovation Officer, Dr. K. Progrick, was named to the 2023 Farm of Voice 100 list, which recognizes the most inspiring leaders in the life.

And our Chief Innovation Officer, Dr. Kate Brodrick was named to the 2023 Pharma voice 100 list, which recognizes the most inspiring leaders in the life Sciences.

We couldn't be more proud of Drew and Kate and their accomplishments, and for the industry's recognition of our innovative products.

We couldnt be more proud of drew and team and their accomplishments and for the industry's recognition of our innovative products.

Turning to slide 13.

As we look ahead to the completion of 2023 and prefer for 2020

As we look ahead to the completion of 2023 and prepare for 2024, we believe we have the right technologies and are in the right markets to achieve long term growth.

We remain focused on growing our base business across all business units and on expanding margins.

We remain focused on growing our base business across all business units and on expanding margins through significant operating leverage.

I remain excited about our future, our capabilities, and what we can achieve together with the mission to make a meaningful impact improving human health through the next generation of medicines. I'm confident that with the realignment of our businesses, we can make a difference.

I remain excited about our future our capabilities and what we can achieve together with submission to make a meaningful impact to improving human health through the next generation of medicines.

I am confident that with the realignment of our businesses, we have the team the organizational structures technologies and talent to deliver on our long term objectives.

technologies and talent to deliver on our long-term objectives.

As we close out the third quarter of the year, we remain focused on expanding our product portfolio advancing our market leadership in the mrna space and continuing to strategically invest in innovative R&D and our commercial operations to support our base business growth.

and our commercial operations to support our base business growth.

Our revised outlook for 2023, which Kevin will discuss in greater detail in a moment considers the Q3 results and more modest expectations for the fourth quarter due mainly to the broader market headwinds previously discussed.

A revised outlook for 2023, which Kevin will discuss in greater detail in a moment, considers the Q3 results and more modest expectations for the fourth quarter, due mainly to the broader market headwinds previously.

I'll now ask Kevin to provide the details on our third-quarter performance and our updated guidance. Kevin? Kevin? Kevin? Kevin?

I'll now ask Kevin to provide the details on our third quarter performance and our updated guidance Kevin.

Thank you Trey and good afternoon, everyone.

Starting on slide 15.

As per our press release this afternoon, our Q3 2023 revenues were $67 million, below our expectations for the quarter as the ongoing macro and industry-specific softness continues to pressure the base business across both segments. As for earnings per share,

As per our press release. This afternoon, our Q3 2023 revenues were $67 million below our expectations for the quarter as the ongoing macro and industry specific softness continues to pressure the base business across both segments.

As for earnings per share, both our GAAP basis basic and diluted EPS were at <unk> <unk> per share loss.

Basic and diluted EPS were at five cents per share loss while adjusted fully diluted EPS was a penny per share loss

Adjusted fully diluted EPS was a penny per share loss for the quarter.

Our GAAP based net loss before the amount attributable to Noncontrolling interests was $15 1 million for the third quarter of 2023.

our gap-based net loss for the amount attributable to non-controlling interests was $15.1 million for the third quarter of 2020.

Adjusted EBITDA, a non-GAAP measure, was $11.9 million for Q3, up from $9.1 million in the most recently completed second quarter of 2020.

Adjusted EBITDA, a non-GAAP measure was $11 9 million for Q3 up from $9 1 million in the most recently completed second quarter of 2023.

Our justice, Eva Dahmarjan was 18% into the record.

Our adjusted EBITDA margin was 18% in the third quarter.

For the first nine months of 2023, our adjusted EBITDA, a non-GAAP measure, was $44.8 million, resulting in an adjusted EBITDA margin of 21%.

For the first nine months of 2023, our adjusted EBITDA, a non-GAAP measure was $44 $8 million, resulting in an adjusted EBITDA margin of 21%.

As discussed in the last quarter, we remain focused on balancing our investment in our facilities and our labor to best position us for the future. While also actively managing our expense structure to address our current revenue outlook.

As discussed in the last quarter, we remain focused on balancing our investment in our facilities and our labor to best position us for the future, while also actively managing our expense structure to address our current revenue outlay.

As we continue to see the soft market conditions, we decided it was necessary to realign our cost structure more aggressively to the current demand environment.

As we continue to see the soft market conditions, we decided it was necessary to realign our cost structure more aggressively to the current demand environment.

As Trey previously covered, today we announced a structured initiative that is targeting at least a $30 million reduction in our annualized spend based on recent expenses.

As Trey previously covered today, we announced a structured initiative that is targeting at least a $30 million reduction in our annualized spend based on recent expense levels.

These decisions are never easy, but we feel reflect a necessary adjustment to address the broader business pressure we've all been faced with in 2023 and heading into 2020.

These decisions are never easy but.

But we feel reflect a necessary adjustment to address the broader business pressure they've all been faced with in 2023 and heading into 2024.

We will be actively reducing our labor force by approximately 15% or about 100 employees, primarily in the new clay-casted production operations areas, and in our supporting general and in the new clay-casted production operations areas.

We will be actively reducing our labor force by approximately 15% or about 100 employees, primarily in the nucleic acid production operations areas and in our supporting general and administrative functions.

This reduction yields roughly $23 million in lower labor expenses that will be realized in 2020.

This reduction yields roughly $23 million in lower labor expenses that will be realized in 2024 and.

In addition to these reductions, we've identified another $7 million in non-labor expense.

In addition to these reductions we've identified another $7 million in non labor expense reductions to achieve a minimum of $30 million in total annualized cost savings.

to achieve a minimum of $30 million total annualized cost.

We believe these cost reductions help to align our cost structure to the current environment and our prudent actions as we wait the broader market conditions to improve and return to revenue growth over time that we are confident in, given the markets we serve and the strength and quality of our technology, products, and services.

We believe these cost reductions helped to align our cost structure to the current environment and our prudent actions as we wait the broader market conditions to improve and our return to revenue growth over time that we are confident given the markets, we serve and the strength and quality of our technology products and services.

Now, let's turn to slide 16.

We ended Q3 with $580 million in cash, a level flat to the end of the second quarter.

We ended Q3 with $580 million in cash a level flat to the end of the second quarter.

Gross debt, which has a term until late 2027, is at $534 million.

Gross debt, which has a term until late 2027 is at $534 million.

Our adjusted pre-cash flow for the quarter was $0.4 million.

Our adjusted free cash flow for the quarter was <unk> 4 million adjusted free cash flow is a non-GAAP measure that we define as adjusted EBITDA less capital expenditures.

Adjusted free cash flow is a non-GAAP measure that we define as adjusted EBITDA, less capital expended.

The free cash flow in the quarter reflected our adjusted EBITDA less net capital expenditures of 11.5 million tied to the ongoing outfitting of our nucleic acid production GMP facilities at our Flanders location in San Diego.

Free cash flow in the quarter reflected our adjusted EBITDA less net capital expenditures of $11 5 million tied to the ongoing outfitting of our nucleic acid production GMP facilities at our Flanders location in San Diego.

Now turning to slide 17, I'll now provide some more insights into our business segment financial performance for the quarter.

Now turning to slide 17. I'll now provide some more insights into our business segment financial performance for the quarter.

The nucleic acid production business revenues were $51 million in the third quarter, down slightly from the $53 million for the second quarter.

The nucleic acid production business revenues were $51 million in the third quarter down slightly from the $53 million for the second quarter.

and play a gas production represented 77% of the company's total revenue in the quarter and generated 17 million in adjusted EBITDA on the quarter, a segment margin of 32.

Blake asset production represented 77% of the company's total revenue in the quarter and generated $17 million and adjusted EBITDA in the quarter a segment margin of 32%.

On a year-to-date basis, adjusted EBITDA for this segment was $59 million, a margin of 35% on the nine-month revenues of $166 million.

On a year to date basis adjusted EBITDA for the segment was $59 million a margin of 35% on a nine month revenues of $166 million.

Included in the results of the nucleic acid production segment for the 3rd quarter is our estimate of clean cap revenues for our large COVID-19 vaccine customers.

Included in the results for the nucleic acid production segment for the third quarter is our estimate of clean cap revenues from our large COVID-19 vaccine customers up $15 million consistent with our previously discussed expectations for the quarter.

of $15 million consistent with our previously discussed expectations.

Our biologic safety testing business revenues were $16 million in the third quarter contributing 23% of our total revenues.

our biologic safety testing business revenues were $16 million in the third quarter, contributing 23% of our total revenue.

Our biologic safety testing business contributed $11 million just to EBITDA in the quarter, a margin of 72%.

Our biologic safety testing business contributed $11 million adjusted EBITDA in the quarter a margin of 72%.

For the first nine months of 2023, our BSG segment recorded adjusted EBITDA of 35 million on revenues of $49 million, a 72% adjusted EBITDA margin.

For the first nine months of 2023, our BST segment recorded adjusted EBITDA of $35 million on revenues of $49 million, a 72% adjusted EBITDA.

Corporate expenses that are not included in the segment of just the EBITDA totals I just spoke were $16 million in the quarter in line with recent average.

Corporate expenses that are not included in the segment adjusted EBITDA totals I just spoke were $16 million in the quarter in line with recent averages.

Now turning to slide 18 and our updated financial guidance for 2023.

Now turning to slide 18, and our updated financial guidance for 2023.

We are lowering our expected range of total revenues for 2023 to between $275 million to $285 million at the midpoint. This is slightly more than a $30 million reduction in revenue.

We are lowering our expected range of total revenues for 2023 to between 275 million to $285 million at the midpoint. This is slightly more than a $30 million reduction in revenues for the year.

This is disappointing given the reduction in the full year 2023 guidance from our last quarter call, but reflects our view that we are a little less optimistic about signs of near-term recovery in the broader

This was disappointing given the reduction in our full year 2020 guidance from our last quarter call that reflects our view that we're a little less optimistic about signs of near term recovery in the broader markets. We expect our base business to remain around the recent quarterly levels in Q4.

We expect our base business to remain around the recent quarry levels.

To break this down a little further on the top line, we see the nucleic acid production segment at around $213 million to $221 million, which includes an estimate of $61 million in clean cap sales for COVID-19 related vaccine demand.

To break this down a little further, on the top line, we see the nucleic acid production segment at around 213 million to 221 million, which includes an estimate of 61 million in clean-cap sales for COVID-related vaccines.

As you recall on our prior call, we had stated we had 65 million in clean cap POs for the year and that those POs all remain. However, one customer has communicated that they anticipated using about half of their orders to support non-COVID programs that are advancing in clinical trials. Thus, we have adjusted our estimate for the fiscal year down 4 million to best reflect what we understand to be our customers COVID vaccine specific demand.

As you recall on our prior call. We had stated we had $65 million in clean cap for the year and that those all remain however, one customer has communicated that they anticipated using about half of their orders to support non COVID-19 programs that are advancing in clinical trials. Thus we have adjusted our estimate for the fiscal year down $4 million to best reflect what.

We understand to be our customers' COVID-19 vaccine specific demand for clean cap.

As we have discussed previously, our CleanCat franchise has multiple chemical analogs, which are not target-specific, and thus can be used across indications by our end customers.

As we have discussed previously our clean cat franchise has multiple chemical analogs, which are not target specific and thus can be used across indications by our end customers. We feel this dynamic likely extended the usage of existing inventory by our customers across their mrna programs. Thus further complicating the.

We feel this dynamic likely extended the usage of existing inventory by our customers across their mRNA program.

thus further complicating the assessment of end-market demand and future large-volume clean caps.

The end market demand and future large volume clean cap disability.

Now, removing the 61M estimated COBA demand, our base NAP segment is estimated about 156M in projected revenues for fiscal year 2023 at this time.

Now, we're moving to 61 million estimated COVID-19 demand our base.

Segment is estimated about $156 million in projected revenues for fiscal year 2023 at the midpoint.

This reflects the decline of roughly 27% from 2022.

This reflects the decline of roughly 27% from 2022 levels.

We expect our biologic safety testing revenues this year to be about $62 million to $64 million, shifting slightly lower than our previous estimate of $65 million to $70 million.

We expect our biology safety testing revenues this year to be about $62 million to $64 million shifting slightly lower than our previous estimate of $65 million to $70 million for 2023.

The business continues to see the leveling of demand in the $15 million to $18 million per quarter ranges that we've seen since Q2 of 2022.

The business continues to see the leveling of demand in the 15 million to $18 million per quarter ranges that we've seen since Q2 of 2022.

We've also seen fourth quarter levels dip a little bit historically tied to speedy ML manufacturers.

And we've also seen fourth quarter levels dip a little bit historically tied to CDN low manufacturing cycles.

Based on this updated full year guidance and the nine months that are in the books, the resulting expectations for the fourth quarter are for total revenues of between 60 million and 70 million with the NAP segment at around 51 million at the midpoint of our range, including an estimate of 18 million of clean cap COVID vaccine revenue.

Based on this updated full year guidance and the nine months that are in the books, the resulting expectations for the fourth quarter or for total revenues of between $60 million and $70 million with EAP segment at around $51 million at the midpoint of our range, including an estimate of $18 million of clean cap Covid vaccine revenues and.

and our BST segment to be around 14 million or so at the midpoint of our.

In our BSG segment to be around $14 million or so at the midpoint of our range for Q4.

Due to lower revenue expectations for 2023, we're updating our estimated earnings metric.

Due to the lower revenue expectations for 2023, we are updating our estimated earnings metrics. We now anticipate adjusted fully diluted EPS in the range of a penny loss to a penny per share in earnings.

We now anticipate adjusted fully diluted EPS in the range of a penny loss to a penny per share earning.

and our adjusted EBITDA to be between $55 million and $60 million, an adjusted EBITDA margin of about 20% to 21% on our updated revenue guide.

And our adjusted EBITDA to be between $55 million and $60 million and adjusted EBITDA margin of about 20% to 21% on our updated revenue guidance.

Additionally, we expect the following financial expectations as listed on slide 19.

Additionally, we expect the following financial expectations as listed on Slide 19.

Interest expense and net of interest income between $16 million and $18 million. Depreciation and amortization between $40 million and $42 million.

Interest expense net of interest income between $16 million and $18 million depreciation and amortization between $40 million and $42 million.

Stock-based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA, to be between $34 million and $36 million.

Stock based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA to be between $34 million and $36 million.

This also includes an as-if fully converted share count of about 252 million shares and an adjusted effective tax rate of about 24%.

This also includes an as if fully converted share count of about 252 million shares and an adjusted effective tax rate of about 24%.

Now, before I turn it back over to Trey, I want to mention that due to the limited 2024 demand visibility from our larger customers, combined with the ongoing work surrounding our cost realignment initiative, we do not yet have the level of competence to provide initial guidance for next year, as we have historically done on our Q3.

Now before I turn it back over to Trey I want to mention that due to the limited 2024 demand visibility from our larger customers combined with the ongoing work surrounding our cost realignment initiative, we do not yet have a level of confidence to provide initial guidance for next year as we had historically done on our Q3 call. We believe it prudent to focus on closing.

We believe it prudent to focus on closing out the current year, executing our cost reduction work, and continuing to work with our customers to understand their 2020.

The current year executing our cost reduction work and continuing to work with our customers to understand their 2024 needs.

anticipate providing 2024 guidance in the early part of next year. I will now turn the call back over to Trey. Trey? Thanks, Kevin.

Anticipate providing 2020 for guidance in the early part of next year.

I'll now turn the call back over to Trey.

<unk>.

Thanks, Kevin.

So to wrap up our prepared remarks on slide 21.

We believe the cost-cutting initiatives we announced, while difficult, position us well for the future. Our overall base of customers has grown.

We believe the cost cutting initiatives, we announced while difficult position us well for the future.

Our overall base of customers is expanding and diversifying.

This, along with our new corporate structure that is better equipped to serve those customers needs, will support a future of sustainable growth.

This along with our new corporate structure that is better equipped to serve those customers needs will support a future of sustainable growth.

Though market conditions remain challenging in the near term, we are confident in the expected long-term growth rates for biologics, for mRNA medicines, for gene editing, and for gene sequencing.

Though market conditions remained challenging in the near term we are confident in the expected long term growth rates for biologics for mrna medicines for gene editing and gene and cell therapy.

We believe our serviceable addressable market will double over the next five years, and we expect to be able to outpace market growth with differentiated technology products and services.

We believe our serviceable addressable market will double over the next five years, and we expect to be able to outpace market growth with differentiated technology products and services.

We will continue to put our cash flow and balance sheet to work with select organic investments in our facilities in analytics and product innovations.

We will continue to put our cash flow and balance sheet to work with select organic investments in our facilities and analytics.

We will also continue to look for opportunities for inorganic investment to bolster our market position and provide our customers with additional.

We will also continue to look for opportunities for inorganic investment to bolster our market position and provide our customers with additional solutions.

We are committed to building a strong foundation for a long-term, profitable and sustainable growth for our basin.

We are committed to building a strong foundation for long term profitable and sustainable growth for our base business.

Kevin, Becky, Drew, and I are all happy to answer your questions. So now I'll turn the call back over to the operator for

Kevin Becky drew and I are all happy to answer your questions.

Now I will turn the call back over to the operator for instructions.

Okay.

The floor is now open for your questions. To ask a question, this time, please press star, then the number one on your telephone keypad.

The floor is now open for your questions.

To ask the question. This time. Please press Star then the number one on your telephone keypad.

You'll be provided the opportunity to ask one question and one further follow-up question.

You'll be provided the opportunity to ask one question and one follow up question.

We'll pause for just a moment to compile the Q&A raw file.

No pause for just a moment to compile the Q&A roster.

Okay.

Your first question comes from the line of Kajal Savant with Morgan Stanley .

Your first question comes from the line of Digest event with Morgan Stanley.

Your line is open.

Hey guys, good evening and thanks for the time here. Maybe I'll start with one big picture one on Trey and just the visibility, particularly into the pharma customer base, right? So emerging biotech I believe is about 30% of your total revenue exposure. Can you share just some color on the customer conversations there that you're hearing, especially through November here? And you also mentioned some key customers focusing on capital conservation. So it sounds like it's a very similar dynamic at your larger biopharma customers as well. Is that a fair interpretation?

Hey, guys good.

Good evening and thanks for the time.

Maybe I'll start with one big picture, one entre and just the visibility, particularly into the pharma customer base right. So emerging biotech I believe is about 30% of your total revenue exposure.

Can you guys just some color on the customer conversations that you're hearing, especially through November you are.

And you also mentioned some key customers focusing on capital conservation. So it sounds like it's a very similar dynamic at your larger biopharma customers as well is that a fair interpretation.

Hi, Yes. Thank you bet. Your number is about right for a small thats big public company exposure around 30% of our revenue year to date.

Hi, Tejas. Yes, thank you. That your number is about right for a small and mid-public company exposure, around 30% of our revenue year to date. And also correct that the, you know, the activity through large cap pharma has continued consistently. There have been actually quite a few recent licensure announcements, but I'm sure everyone has noticed.

And also correct.

The.

The activity through.

Large cap pharma has continued consistently there have been actually quite a few.

Recent licensure announcements that I'm sure.

Everyone has noticed.

But we see, again, that rationalization of program progression and, of course, a completely different timeframe expectation than we experienced through the pandemic for that progression and a return to normalcy that I think we all in the industry hope is.

But we.

We see again that rationalization of program progression and of course, a completely different timeframe expectation than we experienced through the pandemic.

Or that progression and a return to normalcy that I think we all the industry Coke is.

somewhere in between the rapid progression of the pandemic and the time before.

Somewhere in between.

The rapid.

The rapid progression of the pandemic.

Before.

But.

I would say.

Probably probably the best person for me to add color a tab add color there might be Becky who has just recently had some pretty high level large farm and customer visits

Probably the best person for me to add color to tab at color there might be Becky.

Becky has just recently had some pretty high level.

<unk> pharma customer visits.

Hi, there.

Yes.

You know, it's we've been talking to many clients, you know, big pharma, small biotech.

We've been talking to many clients from big pharma.

<unk> biotech.

even academic clients, for sure, budgets are tight.

Even after debit clients for sure.

Budgets are tight.

We also are getting a lot of information around program rationalization, so slowing new entrants into their pipeline and really progressing programs that have the best view of a positive outcome. Thank you.

We also are getting a lot of information around program rationalization so slowing.

New entrants into the pipeline and really progressing programs that have the best.

You bet.

A positive outcome.

There are continual conversations around de risking program.

There are continual conversations around de-risking programs.

So many times what this means is getting additional development data packages so that the filing is successful. So with that, we're seeing some delay in filing those initial INDs and instead, you know, kind of going back and doing further optimization on sequences and analytics.

No.

Many times what this means is getting additional development data packages. So that the filing is.

Successful so with that we are seeing some delay and.

And filing those initial ind's and instead kind of going back and doing further optimization on sequences.

Analytics.

Next question.

Comes from the line of Jessica Mitchell.

With big.

Your line is open.

Hi, thanks. This is Tom Peterson on for Catherine. I appreciate you taking the time for our questions today. I was wondering to start if you could first speak to what you saw throughout the business as the quarter progressed, particularly in September . I guess what was the exit rate in the quarter and what have you seen into October ?

Hi, Thanks This is Bob.

Peterson on for Catherine I. Appreciate you taking the time for a question today I was wondering to start if you can first speak to why you saw throughout the business as the quarter progressed and particularly in September.

What was the exit rate in the quarter.

Are you seeing into October.

Yes sure.

Good.

We haven't been a third month defect. I think we've described that previously, where we have prescheduled shippenins that go out of the individual order. Largely speaking, though, part of the reason for our guidance is,

We have a bit of a third month. The fact I think we've described.

Previously where.

We're re.

Reschedule shipments that go out at the end of each quarter.

Largely speaking, though part of the reason for our guidance is.

I would say a particularly soft July .

I would say, particularly soft July.

And August More in line with that July So September again with the third month effect was relatively strong actually But we are now guiding to essentially a constant rating for the rest of the year Of what we saw in q3

And August.

More in line with that July So September again with the third months effect was relatively strong actually but we are now guiding to essentially a constant rate through the rest of the year.

What we saw in Q3.

Our next question comes from the line of Matt LaRue with William Blair. Your line is open.

Our next question comes from the line of Matt <unk> with William Blair.

Your line is open.

Hi, good afternoon. You know, 1 thing you reiterated today was.

Hi, good afternoon.

One thing you reiterated today was built.

the long-term guidance through 2028 and, you know, assuming that the COVID contribution you gave at the R&D day holds.

The long term battles through 2028.

And.

Assuming that the Covid contribution you gave at the R&D day holds.

that would require a base business CAGR of 25% over that time frame. The base business grew around 23% from 2018 to 2022, so this would be a faster CAGR on a larger base through 2028. Given how much uncertainty there is in the end market, could you maybe speak to the confidence level in the long-term trajectory and understand

That would require that both business <unk> of 25% over that timeframe and.

Base business grew around 23% from 2018 to 2022, so this would be.

Faster tanker on a larger base through 2028.

Given how much uncertainty there isn't.

End markets could you just maybe speak to the confidence level.

In the long term trajectory.

Understanding you're not giving <unk>.

2024 guidance, if it hit those levels, we have to start growing again at some point. When do you really start tracking back or working your way back to that level of growth that's required to hit those long-term targets?

For guidance.

Hit those levels, we have start growing again at some point so.

When do you really start tracking back or working away back to that level of growth.

To hit those long term targets.

Yeah sure. Thanks, Matt.

Yeah, sure. Thanks, man. This has obviously been a bit of a correction here. And we are, you know, I think

This has obviously been a bit of a correction year and.

We are.

<unk>.

I think.

From a correction standpoint, the TAM and SAM markets, you know, that estimates that people use, including us, will probably be adjusted down for a bit of a step down, and as you say, then it's about what the growth rates are coming back out.

From a correction standpoint.

The Tam in single markets.

The estimates that people use including us will probably be adjusted down for.

For a bit of a step down and as you say that it's about what the growth rates are coming back out.

And as you identified, we have our base business and we have the COVID program.

And as you identified we have our base business that we have the Covid program.

material, I would say the example we took a single digit millions out of the COVID is a good example of how we see activity already starting to shift across a broader pace.

Material I would say it would be.

The example, where we took it.

The single digit millions out of the Covid is.

He is a good example of how we see activity already starting to shift across a broader base.

of non-COVID programs and again our material inputs are fungible in that way.

Non COVID-19 programs.

Again, our material inputs are fungible in that way.

We do definitely have 2023's COVID clean cap to work around, but we also have a lot of confidence in the long-term growth rates. In particular, look forward to, as we announced two partnerships that are in the CRISPR gene editing area today.

We do definitely have <unk>.

And 'twenty threes.

Covid clean talent to work around.

We also have a lot of confidence in the long term growth rates.

And in particular look forward to as we announced two partnerships that are in the CRISPR gene editing area today.

We look forward to what we think will be a very exciting growth and market uptake for CRISPR gene editing, which is both a therapy in itself and a tool, you know, to make cell and gene therapy.

We look forward to what we think will be a very exciting growth and market uptake for CRISPR gene editing.

Which is both a therapy in itself is a tool.

To make cell and gene therapies.

And I think a lot of the activity there has been well publicized, so we're looking forward to, you know, a much broader and less concentrated customer base with many more programs progressing and are very optimistic about the growth of the mRNA gene and cell therapy and CRISPR gene editing markets over that five-year period.

And I think a lot of the activity. There is has been well publicized so we're looking forward to a.

Much broader.

And less concentrated customer base with many more programs progressing and are very optimistic about the growth in the mrna.

Gene and cell therapy, and CRISPR gene editing markets over that five year period.

Okay.

Our next question comes from the line of Michael Wrightkin with Bank of America.

Our next question comes from the line of Michael Wright.

With Bank of America Your line.

Okay.

Great. Thanks, I'm actually going to ask a two part or first I want to follow up on exactly the last point, but maybe I'll just drill in on the near term a little bit more on the non COVID-19.

Great, thanks. I'm actually going to ask a two-parter. First, I want to follow up on exactly the last point, but maybe I'll just drill in on

near-term a little bit more on the non-COVID piece.

Piece.

I mean, you've had, just on dollar terms, declines there for three or four quarters in a row now, and you're cutting to another decline in 4Q, I believe.

I mean, you've had just on dollar terms declines there for three or four quarters in a row now and youre guiding to another decline.

And <unk> I believe.

Can that segment grow next year or have you sort of, you know, zeroed out all the adjustment and all the?

Can that segment grow next year or have you sort of.

Zero it out all the adjustments and all the re basing that needs to happen.

Just because there was a period of such elevated growth in the prior years, and especially, as you say, some of that stuff can move between cobit and non cobit pretty easily. You know, I'm just trying to figure out what the right floor for that is when when that can start growing again and this year in the one fifties is that a floor or is there still some more?

Because there was a period of such elevated growth in the prior years and especially as you say some of that stuff can move between COVID-19 and non COVID-19 pretty easily.

I'm just trying to figure out what the right floor for that is when when that can start growing again this year in the $1 <unk>.

Is that a floor or is there still some more.

Some more access.

Non colbert to come out of that and then if I can squeeze in.

And then if I can squeeze in a second part, I want to ask about the cost cuts the 30 million.

Second part I want to ask about the cost cuts the $30 million.

First, I want to make sure, is any of that having a benefit in 4Q or is it only really kicking in next year?

First I want to make sure. It is any of that having a benefit in <unk> or is it only really kicking in next year.

And if you could just provide a little bit more specifics, you know, is it on the, it sounds like it was pretty heavily on the, on the manufacturing side, but also on if you could just sort of break that through across the different buckets, how we should think about.

And if you could just provide a little bit more specifics is it on.

It sounds like it was pretty heavily on that on the manufacturing side.

But also on SG&A, if you could just sort of break out there across the different buckets, how we should think about it that'd be helpful. Thanks.

Yeah, Mike, I'll start with the second part of your question on the cost realignment initiative.

Yes, Michael I'll start with the second part of your question on the cost.

Alignment initiative, yes, I would say geographically on the P&L, it's roughly going to be 50% hitting the Cogs line and the operational reductions primarily in our nucleic acid production segment sort of right size those operations.

Yeah, I would say geographically on the P&L, it's roughly going to be 50% hitting the COGS line.

the operational reductions primarily in our nucleic acid production segment sort of right sides of those operations to the post-pandemic volumes that we're seeing.

Post pandemic volumes that we're seeing and the other 50% predominantly in our SG&A line, we'll focus a little bit more on the G&A component of that to continue to see the appropriate investments in our commercial channel.

and the other 50% predominantly is going to hit our SG&A line to focus a little bit more on the G&A component of that.

continue to see the appropriate investments in our commercial channel paying dividends for us over time. So basically a 50-50 split between costs.

It ends for us over time, so basically a 50 50 split between Cogs and SG&A.

and SG&A. We have been cognizant certainly of the revenue declines throughout the course of this year and investors have cut back certain discretionary spend items and actually yesterday was the primary day in which we took action on the elimination of roughly the 100 positions.

We have been cognizant certainly of the revenue declines throughout the course of this year and invested cutback.

Certain discretionary spend items and actually yesterday was the primary day in which we.

Took action on the elimination of roughly the 100 decisions.

So those certainly will incur a one-time severance charge here in our fourth quarter and roughly be out of our ongoing P&L for a portion of this quarter. So that's why I think when you see the decline in our revenue guidance, you see that coming in with a little less dynamic impact to the EBITDA guidance that we had previously given in previous quarters, partially mitigated.

So those are certainly will incur a one time severance charge here in our fourth quarter and roughly out of ours are ongoing P&L for a portion of this quarter. So that's why I think we've seen a decline in our revenue guidance you see that coming in.

With a little less dynamic impact EBITDA and 17 previously it has been.

Previous quarters, partially mitigated by some of that.

conscientious cost controls as well as the impact of the layout that we did yesterday.

And just cost controls as well as the impact of the last subject in yesterday.

I don't know if you want to comment on the revenue progression.

Yeah, I mean, a big part, admittedly, in the first 90 days here for me has been looking at our monthly, you know, revenue progression and performance and focusing really on the reorg and restructure activity.

Yes, I mean, a big part admittedly in the first 90 days here for me has been.

Looking at our mostly revenue progression and performance and focusing really on.

Okay.

Re org and restructure activities.

uh, with, with, you know, facing the reality that we see today. Uh, we are certainly optimistic, uh, that this, the, the, let's say the, the leg down in July and August will be, uh,

Got it.

With facing the reality that we see today.

We are certainly optimistic.

Got it.

This.

Let's say the delay.

<unk> down in July and August will be.

Yes.

We will set the stage for the next level of growth.

will set the stage for the next level of growth, but are certainly not ready to call that pivot point.

But.

Certainly not ready to call that pivot point.

So, again, the realignment has been based on the first three months where I've been in seat here, which unfortunately have been.

So.

Again, the rework the realignment has been based on the.

The first three months, where I've been in the seat here.

<unk>.

Unfortunately, our bid.

three lower months of revenue compared to the past, but we're on a, you know, we're on a, I think, a relatively stable keel now going forward and have

<unk> lower months of revenue compared to <unk>.

But we're on a we're.

I think a relatively stable yield now going forward.

It has taken.

Basically a more of the same approach for Q4 for the rest of the year, which is the reason for the guide down

Basically a more of the same approach for Q4 for the rest of the year.

Which is the reason for the guidance the guide down.

Yes.

Our next questions come from the line of Connor McNamara with RBC Capital Markets.

Our next question.

From the line of condo Machimura with RBC capital markets.

Your line is open.

Hey, guys, thanks for taking the questions. I think I've got 1 for each of you around the 30 million dollar cost cuts 1st. Tracy, if you think about those cost cuts, I mean, it sounds like they're in manufacturing and probably some in sales. Does that.

Hey, guys. Thanks for taking the questions.

One for each of you around the $30 million cost cuts first.

Tracy if you think about those cost cuts I mean, it sounds like they are in manufacturing to Robert Symons sales does that.

How does that, if any, impact your ability to hit the growth rates that you've talked about historically and at your R&D day, if you're still going to hit that target?

How does that if any impact your ability to hit the growth rates that you've talked about historically.

At your R&D day, if youre going to still going to hit that target.

Um, will these cuts allow that and then as a follow up, Kevin, just, you know, assuming you still can't hit your revenues that, you know, should we just think about that? 30Million helps that. Whatever your margin target was that you had outlined. For those plans.

Will these cuts.

Allow that and then as a follow up Kevin just assuming you still can't get your revenues should we just think about that $30 million helps that whatever your EBITDA margin target was that you had outlined for those plants.

Yeah, I'll take the first part of that and just touch on it. Yeah, again, those reductions are about half in the operating lines and about half in the SG&A line, but predominantly more in G&A and not on the commercial side, as again, we continue to invest. That's also important, I think, as we went through this exercise. It was, you know, we.

Yes.

I'll take the first part of that and just touch again those reductions are about happened that the operating lines and about happen and.

And the SG&A line, but predominantly more on G&A and not on the commercial side.

Again, we continue to invest that's also part and I think as we went through this exercise.

It was we looked at the business in a couple of smart manner as we looked at the overall reduction in cash costs, which are predominantly labor and variable costs and its around 20% reduction of those of the company, but we're very specific in targeting areas that we thought.

And a couple of different manners, you know, we looked at the overall reduction in

kind of cash costs, which are predominantly labor and variable costs. And it's around the 20% production of those.

but we are very specific in targeting areas that we thought.

we could reduce without impacting our ability to grow at the rates in the modeling in which we're projecting going forward. I think we've done that and that all the teams across the company and the new leadership that we have, you know, came together to, you know, agree on a plan.

We could reduce without impacting our ability to grow at the rates in our modeling and which we're projecting going forward I think we've done that.

All the teams across the company and the new leadership that we have came together to agree on the plan that both had financial targets, but also makes sense operationally and made sense to try sc's reorganizing the company in a manner that demand move going forward, Yes, I think we feel we've made the right reductions.

that both had financial targets but also made sense operationally and made sense.

to Trey as he's reorganizing the company in the manner that we want.

forward. So, yes, I think we feel we've made the right reductions that are realistic and prudent based on where revenue currently has, but does not hamstring us to hit our long-term growth objectives. So I'll just, I'll leave that component of the question there.

Our real estate on crude based off of our revenue currently as does not hamstring us to hit our long term growth objectives.

Just I'll leave that component of the question there.

Yes.

Yeah, and I'll add, it's an insightful question, I would say that really our, and again, 50-50 between operations and GNA, so there are two elements to it. From an operations footprint perspective, this is all essentially fixed labor where you set up shifts and have capacity available, whether it's chemistry production or contracting or a, and so on.

And it's an insightful question.

I would say that really our.

And again 50 50 between operations and G&A. So there are two elements to it.

From an operations footprint perspective. This is all essentially fixed labor, where you set up shifts.

Capacity available, whether its chemistry production or contracted more of a work.

And so on.

And I would say the level that we made changes there is really a function of two overlapping principles, one being that we were holding some capacity for residual COVID business.

And I would say the level that we made changes there is really a function of two overlapping.

Principally as one being that we were holding some capacity or.

Residual COVID-19 business.

And the decline of the residual, you know, legacy time pandemic, COVID business is faster than expected over the last two quarters.

The decline of the residual legacy tiny David Covid business is faster than expected over the last two quarters.

So that's a faster decline, and then the diversified next-generation model by business, we're essentially dialing in.

So thats a faster decline.

The diversified base the next generation of our business, we're essentially done.

a slower potential growth rate of that in conjunction with the faster decline of COVID.

A slower potential growth rate of that in conjunction with the faster decline of Covid. So it is an insightful question, because we certainly have the capacity and capability needed for the broader and more diversified customer group to do many more things.

So it is an insightful question because we certainly have the capacity and capability needed for the broader and more diversified customer group to do many more things with.

Alrighty.

Yes.

Unfortunately, it will not be, you know, 70% of sales for one compound for one customer like it was, you know, in 21 and 22.

Unfortunately, it will not be 70% of sales for one compound for one customer like it was in 'twenty one 'twenty two.

It will be.

a much more diversified group of smaller projects, which I hope brings stability and predictability in business.

A much more diversified group of smaller projects, which I hope brings stability and predictability of the business.

On the DNA side, it's a similar, I would say, realization that our company and its current size that you're all aware of.

G&A side.

It's a similar I would say a realization that.

Our company in its current size that you all are well aware of.

that can't afford or sustain necessarily the level of corporate shared services that we had imagined, you know, in a size 3 to 4x.

Doug cannot afford or sustained necessarily the level of corporate shared services.

We had imagined with the size three to Forex our current size. So we will we do obviously it tends to be a high growth.

our current size. So we do obviously intend to be a high growth, i.e. high-adjusted ecodoc company. And as we grow at a smaller rate back from this place, we will have the ability to incrementally add.

Hi, adjusted EBITDA company.

As we as we grow.

Slower rate back from this place we will have the ability to incrementally add.

But our fundamental structural capabilities and operations are still there where they need to be strategically alert. Yeah, specific to the question on margin, Connor, I mean, certainly one way to look at this is to certainly look at this as if it sort of had occurred at the beginning of this year, you know, which would take sort of on an adjusted basis are roughly, you know, low 20% margin that we're talking about today in our guidance.

Individuals structural capabilities and operations are still there where does it need to be strategically aligned and.

Specific to the question on margin corner, I mean, certainly one way to look at this as certainly look at this as sort of had occurred at the beginning of this year.

Which would take sort of an adjusted basis.

Roughly low 20% margin that we're talking about today, and our guidance and increasing that to roughly 30% or so.

And increasing that to roughly 30% or so, um, you know, and I think that from, from our perspective, you know, it's the right thing to do in the current environment, I will tell you that, you know, we are not a big cost structure company, so, you know, this was a big, a big reduction for us. Um, and a lot of our ability to drive Argent expansion from the levels we're at now will certainly come from top line growth, um, and that will continue to be the case.

And I think that from our perspective.

The right thing to do in the current environment I will tell you that and we are not a big cost structure. The company. So this was a big big reduction for us.

And a lot of our ability to drive margin expansion from the levels. We're at now certainly come from top line growth and now will continue to be the case.

But we did feel, obviously, that...

And but we did feel obviously that it is prudent to adjust our cost structure.

and it is prudent to adjust our cost structure.

and be able to reset, streamline our operations in light of the tough macro environments.

And be able to reset streamline our operations in light of the tough macro environment and just frankly, because certainly the visibility to this return to growth it is still.

and just frankly because you know certainly the visibility to this return to growth is still

For most people in our industry and not overly clear I don't think anyone's assuming that there is a.

A spring back January 1st, 2024, I think it's going to continue to be working with our customers, understanding their needs.

Our spring back January one 2024, I think it's going to continue to be working with our customers understanding their needs and positioning ourselves to support that and that's what we're currently doing and that's certainly one of the main reasons. We are deferring our 2020 guidance until we complete those discussions and get as bit of an understanding.

and positioning ourselves to support that. That's what we're currently doing.

Certainly one of the main reasons we're deferring our 2024 guidance until we complete those discussions and get as good of an understanding as we can have heading into 2024.

We can have heading into 2004.

Net here.

Our next question comes from the line of Dan Arias with Stifle. Your line is open.

Our next questions comes from the line of Dan I switch.

Your line is now open.

Thanks for the questions here. Trey or Kevin, can you just maybe talk to biologic safety performance in China and then outside of China to kind of compare what's going on there and then how you might expect those two buckets to trend into year end?

Thanks for the questions here, Trey or Kevin can you just maybe talk to biologic safety performance in China, and then outside of China to be kind of compare what's going on there and then how you might expect those two buckets to trend into year end.

I imagine China is the softer of the two, but curious about what the difference might actually look like there. Yeah, yeah.

China is softer in the tier, but curious about what the difference might actually look like there.

Yes, yes. Thank you.

looking specifically at China BST, which again was a big growth driver for them in 21 and 22, really the difference between what we've been talking about so far and that is that the leg down for China in BST really started in the second half of last year.

Looking specifically at China, BST, which again was a big growth driver.

Then in 'twenty, one and 'twenty two.

Really the difference.

Basically what we've been talking to you about so far.

Is that the <unk>.

<unk> down for China in PST really started in the second half of last year.

And having just looked at a lot of the numbers, obviously, we are, I would say, relatively stable at this new level. So there are year over year comparisons.

And having just looked at a lot of the numbers obviously.

I would say relatively stable at this new level.

So there are year over year comparisons from growth.

that are now stating that were harder for us.

<unk> are now steady that were harder for us certainly in the second half last year in the first half of this year. So.

certainly in the second half last year and first half this year, so we see China not so far.

So we see China.

So far.

Not taking any further steps down, but at a relatively stable rate for the past three quarters in BST specifically.

No.

Any further steps down but at a relatively stable rate for the past three quarters at BSG specifics.

Yeah, just to put some numerical context, in the second quarter of 2022, when we first saw this decline that Bray alluded to.

Yeah, and just to put some numerical context.

In the second quarter of 2000 22 billion first of August decline that Brian alluded to.

China was about 19.5% of revenues for our BST business. In the most recently completed quarter, China was 19.5% of the revenues in the BST business, and it's ranged from 18.4 to 22.9 in those periods that I just spoke to. So it's leveled out. We don't have, we believe, ongoing exposure to see that go much lower than that. I think that's the level that's gonna support the current environment that we're seeing for biologic.

I know it was about 19, 5% revenues for our BSD business in the most recently.

China was 19, 5% of the revenues in the BSG business and its range from 18, 4% to $22 nine in that in those periods that I just spoke to so it's leveled out we don't have we believe ongoing exposure to see that.

You go much lower than that that's the level thats going to support that.

An environment that we're seeing for biologic manufacturing in China.

Our next question comes from the line of Matthew Skyes with Goldman Sachs.

Our next questions comes from the line of Matthew Skies made Goldman Sachs Sharron.

Your line is open.

Hi, this is Evian for Matt. Any updates on the progress of Flounder's 2, and how are you thinking about bringing on additional capacity in a year where demand is being impacted by destocking, COVID rolling off, and weaker farmer spend?

Hi, This is <unk> on for Matt.

Any update on the progress of foreigners to and how are you thinking about bringing on additional capacity in a year, where demand is being impacted by destocking rolling off and weaker farmer spend.

Yes, I'll start, yes, certainly not ideal to bring online additional capacity in this year, but these are decisions you make.

Yeah, I'll start. Yeah, certainly not ideal to bring online additional capacity in this year, but you know, these are decisions you make.

at least two years in advance, just given the length it takes.

At least two years in advance just given a lot the length. It takes somebody needs facility and frankly.

Facilities and frankly that it's not it's still necessary and we still think was the right decision. We need to have

It is still necessary and we still think it was the right decision we need to have.

Redundancy for our manufacturing of clean-cap planters, one accomplishes that and obviously it was funded through our BART grant planters, too. Again, a big part of our commercial strategy, and I'll let the others in the room comment on that, but that's certainly something that, you know, we're not rushing to finish, obviously, given the demand, but it is certainly something that in the context of commercial discussions is an incredibly important asset that we need to have.

Redundancy for our manufacturing clean gas plant or spun accomplishes that honestly was funded through our Arctic brand planners to again, a big part of our commercial strategy and I'll, let you.

The others in the room comment on that but that's certainly something that we're not rushing to finished obviously given with the given the demand, but it is certainly something that in the context of commercial discussions as an incredibly important asset that we need to have an as is frankly tables based E&P.

frankly, table stakes to be a beacon, to be a competitor in the nucleic acid solutions part of our business.

And the nucleic acids solutions our business yes.

Yeah, so Flanders 2 specifically is where the mRNA services happen, you know, at phase 2 and beyond. We have our existing GMP services for chemistry and for mRNA all in the Waterridge facility that there's a nice picture of in our on our deck here.

Yes, so flanders to specifically is where the mrna services.

At phase two and beyond we have our existing GMP services for chemistry, and Bernie morning, all in the water Ridge facility that is a nice picture of our of our debt.

So as we talk through customer program progression.

So as we talk to your customer and program progression.

We have the ability to turn that on at the right time for the right customers And obviously with all the work we've done this quarter on Right sizing and realigning our operations footprint. We have not, you know proactively leaned into pointers to until we have solid bookings scheduled and I Becky can probably just add a few comments because that's been our primary focus here this last quarter

We have the ability to turn that on at the right time for the right customers and obviously with all the work we've done this quarter already.

Right sizing and realigning our operations footprint, we have not.

<unk> leaned into flavors to until we have solid bookings schedule.

Becky can probably just add a few comments because thats been.

Primary focus here this last quarter.

Yeah, sure. I mean, look, we're incredibly excited about the Flanders 2 building, and I think that, you know, you're always going to be building ahead.

Yes, sure I mean look we're incredibly excited about the Flanders tail.

Building and I think that.

Youre always going to be building ahead.

when you're offering more of that GMP manufacturing facility footprint.

When you are offering more of that GMP manufacturing facility footprint, we have a number of customers that had come through our research use only manufacturing services, then progressed to file an IND D and we've made that GMP material.

We have a number of customers that have come through our research use only manufacturing services. They then progress to file an IND and we've made that GMP material for them and now they have interest and they're going into phase two and then sometimes it's a phase two, three combo. And so in those cases where it lines up that we're going to be, you know, GMP ready mid next year, those are the customers that we're engaging with that are on that same pathway to need that clinical material for phase two or a phase two, three combo. And so we continue to progress that and I think that's a, you know, definitely a great development in our ability to continue to service customers and be best in making clean cap mRNA, which is what, you know, it's really what we do well.

For them and now they have interest in there going into shale and then sometimes at the phase II III combo and so in those cases, where it lines up that we're going to be GMP ready mid next year.

Those are the customers that we're engaging with that are on that same pathway.

You need that clinical material for phase two or tier three combo and so we continue to progress that and I think that's a.

Definitely a great development and our ability to continue to service customers.

And it would be best and making clean cap mrna, which is what is really what we do well.

The next question comes from Devin.

Next question comes from the line of Justin Bores, Reed, Ducha Bank. Your line is open.

Justin Boys.

Deutsche Bank your line is open.

Hi, good afternoon, everyone. As you look at the composition of the NAP revenue to date and the funnel that you have now, is there a way to help us think about what proportion is sort of recurring revenue or a way to think about visibility going forward that's sort of like part one?

Hi, good afternoon, everyone.

As you look at the composition.

The napp revenue to date and in the funnel that you have now is there a way to help us think about.

What proportion.

Sort of recurring revenue.

Or a way to think about visibility.

Going forward, that's sort of like part one.

And then part two would be just any thoughts on the competitive landscape I know that your lead.

And then part two would be just any thoughts on the competitive landscape. I know that, you know, your lead times have come down a lot. And there's also been a lot of capacity that has come online across the industry as well. Just be helpful to Have a sense of your perspective on on the landscape there as well.

Lead times have come down a lot and there's also been a lot of capacity has come online.

Across the industry as well it'd just be helpful.

Do you have a sense of your perspective on the landscape there as well.

I'll take a quick stab at the competitive landscape and then hand it to Drew.

Yes, I'll take a quick stab at the competitive landscape.

Drew.

What were your first questions? So the, you know, as we focus on the front end of the development funnel, there's more diffuse competition there where the competition in services specifically has come up significantly is really at the, you know, large CDMO level.

For your first question so it would be.

As we focus on the front end of the development funnel.

As more diffuse competition, there where they can constant competition services, specifically has come up significantly is really at the large CMO level.

where there are fewer programs. So, you know, the competitive landscape is sort of meeting in the middle with large CDMOs who have recently brought mRNA capacity to the market, reaching back into earlier phases, and discovery folks such as us progressing through from discovery through phase 1, through phase 2, and so on.

Where there are fewer program so.

The competitive landscape is sort of meeting in the middle with large senior most who have recently brought in more R&D capacity to the market reaching back into earlier basis.

Discovery folks such as us progressing through broke discovery through phase one through phase II and so on.

Since about two-thirds of our Tri-Link revenue is discovery, we are really, I think, being more affected there by new project starts, slowdowns, or delays than specific competition. That's the middle.

Since about.

Two thirds of our trailing revenue is discovery.

We are really I think being more affected there.

New projects start slowdowns were delays than specific competition.

So then I'll hand to drew for the first part of your question.

Sure. Thanks, Trey. Look, I think it's difficult to put a precise percentage on it in recurring revenue terms. I think we have, you know, there are customers in discovery order from us on a regular basis and that tends to recur. We have some platforms that we're built into that do order on a quarterly basis and we supply regularly as you get further into clinical trials.

Sure. Thanks Trey.

It's difficult to put a precise percentage on an annual recurring revenue terms I think we have.

There are customers in discovery order from us on a regular basis.

Tends to recur.

We have some platforms that were built into that quarter.

Quarter on a quarterly basis.

That was quite regularly as you get further into clinical trials.

you know, whether we're supporting with reagents like CleanCap or whether we're supporting with clinical trial services, you know, it may be a recurring piece of business so long as that program continues to advance through the clinic, but the advancement of that program through the clinic.

Whether we're supporting with reagents like clean cab or whether we're supporting with clinical trial services.

It may be a recurring piece of business. So long as that program continues to advance through the clinic.

The advancement of that program through the clinic.

May not occur on a, you know, regularly quarter, regular quarterly basis. So there may be stocking events.

That occur on a regularly quarter regular quarterly basis. So there may be stocking of beds.

at certain phases of the clinical trial, and there may be manufacturing events at certain phases of the clinical trial. So hopefully that helps get to your question, but it's really a mix of both, and not always in a consistent quarterly pattern on that.

For certain phases of the clinical trial.

And there may be and there may be manufacturing events in certain phases of the clinical trial. So hopefully that helps get to your question, but it's it's really a mix of both.

And not always been a consistent quarterly pattern on that on the clinical trial activities.

We are now out of time. I'd like to turn the call back over to Deb Hart, Senior Director, Investor Relations.

We are now out of time I'd like to turn the call back over to Deb <unk> Senior director Investor Relations.

Thank you, Jimmy, and thanks everyone for your time today and for joining the call. We'll be at a couple of conferences next week and hope to catch up with many of you there. Have a good evening.

Thank you Jenny and thanks, everyone for your time today and joining the call.

A couple of conferences next week and hope to catch up with many of you there.

Great.

This concludes today's conference call you may now disconnect.

This concludes today's conference call. You may now disconnect.

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