MRVI - NASDAQ

Greetings. Welcome to Maravai LifeSciences Fourth Quarter 2024 Results Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Deb Hart, Head of Investor Relations. Thank you. You may begin.

Good afternoon, everyone. Thanks for joining us on our fourth quarter and year-end 2024 earnings call. The slides accompanying today's call are posted on our website and available at investors.maravai.com. As you can see from the agenda on Slide 2, Trey Martin, Chief Executive Officer, and Kevin Herde, Chief Financial Officer, are joining me today. Following their prepared remarks, we'll open the call for the question and answer session. We remind you that management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from management's expectations. We refer you to Slide 3 for more details on forward-looking statements and our use of non-GAAP financial measures. Our press release provides reconciliations to the most directly comparable GAAP measures, and we also provide a reconciliation of non-GAAP financial information on our investor website. Please also refer to Maravai’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 Kevin.

Thank you, Deb, and good afternoon, everyone. Thank you for joining us today. We're holding this call later than we have in the past and appreciate your patience as we work to close out our 2024 audit and complete our 10-K filing. Let me walk through the items that caused the delay in the outcome of each. Please turn to Slide 5. First, an error was identified during the year-end financial close process with respect to revenue recognition timing associated with a single shipment that resulted in approximately $3.9 million in revenue being recorded in the final week of the second quarter of 2024 upon shipment when it should have been recorded in the first week of the third quarter of 2024 upon receipt by the customer. All contractual order terms typically result in revenue recognition upon shipment. However, the terms for this particular order were different, and that difference was not communicated timely to our accounting team. Based on the shipping teams for this order, we should have recognized revenue upon receipt of the shipment by the customer or about a week later than we did. This timing error had no impact to the full year results and did not result from any override of controls, misconduct, or fraud. As it relates to this error, we have revised our quarter results for the second and third quarters of 2024, basically for the shift in this revenue from Q2 to Q3, and those revised totals are presented in Note 18 in the notes to the consolidated financial statements in our Form 10-K. Secondly, we conducted an assessment of goodwill associated with our acquisition of Alphazyme and needed additional time to complete and conclude on the $11.9 million non-cash charge related to goodwill impairment. In connection with these matters, we determined that we did not maintain effective controls over our revenue process and our goodwill impairment assessment process, and thus have identified these as material weaknesses in internal control over financial reporting. I'll conclude on this topic by noting that our financial statements for 2024 received an unqualified opinion from our independent auditors, and I'd like to thank the hard work of our accounting team and audit committee to help get our 10-K filed within the 15-day automatic extension period provided by Rule 12B-25. Now, let's get to our Q4 and full year 2024 financial results on Slide 6. We reported fourth quarter revenues of $57 million, about at the midpoint of our expectations for the quarter. We reported revenue of $259 million for the full year, again near the midpoint of our stated revenue range of $255 million to $265 million, which we mentioned previously in early January of this year. Biologic safety testing segment contributed $15 million in Q4 and $63 million for the full year. Our nucleic acid production segment had revenue of $42 million in Q4. This includes approximately $14 million of high-volume CleanCap revenue for customers with commercialized vaccines. For the full year, the nucleic acid production revenue was $196 million, with the base GAAP revenue at $130 million. High-volume CleanCap revenues were $66 million for the year. This includes the $50 million in signed agreements at the beginning of 2024 and an additional $16 million for high-volume CleanCap shipped to customers with commercialized vaccines in the year. Breaking down our full-year revenues by customer type, we estimate that 48% of our 2024 revenue was from biopharma, 25% for life science and diagnostics, 5% from CROs, CMOs, and CDMOs, 4% from academia, and roughly 18% of our revenue was shipped through distributors, including to the customer categories I just mentioned. Let's turn to Slide 7. Our gap net loss before non-controlling interests was $46 million for the fourth quarter of 2024. This compares to a gap net loss of $110 million for the fourth quarter of 2023. GAAP net loss before non-controlling interests for the year was $260 million, compared to a gap net loss of $138 million for 2023. Adjusted EBITDA, a non-gap measure, was a negative $1 million for Q4 2024, compared to $21 million of positive adjusted EBITDA in Q4 2023. Our adjusted EBITDA in Q4 2024 lagged our expectations for the quarter by about $7 million or so. About half of this variance was tied to lower product gross margin contributions from slightly lower overall revenues, an unfavorable mix of product revenues, mostly lower GMP CleanCap, unfavorable manufacturing operations variances, and additional non-cash E&O reserve for inventory at Alphazyme. The other major components of the expense variance was led by $1.3 million in bad debt expense associated with one of our NAP customers that made the decision to wind down operations in late Q4 following a less than desirable preclinical outcome. The additional SG&A variance was further due to higher external fees, including legal fees tied to our initiation of litigation to protect our trade secrets and audit and professional fees tied to our year-end accounting work. Adjusted EBITDA for the year was $36 million and adjusted EBITDA margin of 14%, lower than anticipated as a result of the softer than anticipated Q4 bottom line performance as I just discussed. I will discuss EBITDA by segment in a few slides. Moving to Slide 8 and some additional financial highlights. We ended the year with $322 million in cash, $300 million in long-term debt, resulting in a $22 million net cash position. As a reminder, we voluntarily paid down $228 million of this term loan with cash on hand in December of 2024. This paydown was allowed under our debt agreement without penalty and is expected to lower our net interest expense for 2025. I will discuss 2025 guidance in a few slides. In the fourth quarter, we used $15 million in cash in operating activities and ended 2024 with $7 million in cash provided by the Operating Act. In 2024, we had gross capital expenditures of $30 million and received $7 million in BARDA offsets for a net total capital expenditure of $23 million for the full year of 2024. Now, overall, we've invested over $150 million in the past five years in building our capabilities across our purpose-built manufacturing facilities to support our business. We expect this intensive capital cycle to be winding down in 2025, but have positioned us with the facilities and capacity we expect to need to fully support the business over the foreseeable future. We view our state-of-the-art facilities, capacity, automation, and quality processes as unique assets and key differentiators enabling us to best serve our markets and provide for margin expansion with revenue growth over time. Depreciation and amortization ended the year at $48 million in line with our expectations in previous guidance. Interest expense, net of interest income, was $5 million in Q4 2024 and ended the year at $20 million in line with our expectations and guidance. Stock-based compensation, a non-cash charge, was $11 million in the quarter, $49 million for the year, consistent with our guidance of roughly $50 million for the year. We ended 2024 with 142 million Class A shares outstanding and 111 million Class B shares outstanding for a total of 253 million shares outstanding at 12/31/24. For adjusted EPS, the diluted weighted average share count was 255 million for Q4 and 254 million shares for the full year of 2024. Let's next turn to Slide 9 and discuss segment performance in the quarter. Our nucleic acid production segment, which includes both our Discovery and GMP products and services marketed under our TriLink, Glen Research, and Alpazant brands, had revenues in the fourth quarter of $42 million and adjusted EBITDA of $4 million. For the year, revenues for our NAP segment were $196 million with adjusted EBITDA of $51 million for a margin of 26%. Included in the revenues in the fourth quarter were the $14 million in high-volume CleanCap product sales. Moving to Slide 10, our biologic safety testing segment, which includes products and services of our Cygnus brand, had revenues of $15 million in the fourth quarter, adjusted EBITDA of $10 million for a margin of 66%. For the year, revenue for this segment was $63 million and adjusted EBITDA was $44 million for a margin of about 70%. As detailed in these segment results, the combined adjusted EBITDA of our operating segments prior to our corporate shared service expenses was $95 million for 2024, a combined margin of 37%. Corporate shared services impacting adjusted EBITDA, which includes centralized functions such as HR, finance, and accounting, legal information technology, and incremental expenses associated with being a public company, totaled $15 million in the quarter and $59 million for the year, down almost 10 percent from 2023 as a result of our cost reduction actions. Please let's turn to Slide 11. Now, overall, we've seen a high degree of variability in our revenues and our finance results in these past five years. The dynamics of the pandemic, followed by the post-pandemic market and various factors have created challenges in the accurate forecasting of finance results. That having been said, we sit here today with a collection of assets, product and service offerings, and market opportunities that we are very excited about. As we look at the sum of Maravai Life today, prior to the dynamics of high volume CleanCap, we had a 2024 base business of $193 million in revenue. We look forward to 2025, acknowledging that full year visibility continues to be a challenge and various market, political, and global events will continue to evolve. We are focused on returning our base business to growth. We anticipate our base business, which excludes high volume CleanCap to be about $185 million to $205 million or to grow in the low-single digits at the midpoint. We currently do not have any binding commitments from our top customers for high volume CleanCap demand for 2025. Thus, we believe it to be prudent to guide only to our base business, as discussed, without incorporating any high volume CleanCap into our initial 2025 revenue guidance. To the extent commitments are received for high volume CleanCap throughout the year, we will incorporate those into any guidance updates as we progress through 2025. Please note we are focused on our base business growth for all our business units. This includes our discovery offerings within our NAP segment, which represent revenue contributions from the acquisitions of TriLink, MyChem, Molecular Assemblies, and Officinae Bio. And further in our NAP segment are the GMP products and services under TriLink, the Oligo offerings branded under Glen Research, and the Alphazyme enzyme products. Finally, all of our products and services in our BST segment are branded as Cygnus. As a result of the overall revenue guidance and expectations here of $185 million to $205 million, we do not anticipate being in a positive adjusted EBITDA position at these levels, and thus we are not providing guidance for that profitability metric in 2025 at this stage. We remain committed to a combination of funding areas of growth and strategic value while maintaining cost containment in other areas. We continue to manage our overall business and cost structure in a manner that we believe is appropriate to allow us to support our strategy. In 2025, we will continue to invest in our commercial footprint expansion and intellectual property protection and prosecution. We expect to make those investments while also mindfully reducing spend in other areas. As for the cadence of estimated revenues, we are focused on execution across our business. We will see some variability, mostly in GMP services over the course of the year, as those bills will correspond to the timing needs of our customers and their corresponding clinical trial plans. We currently estimate our first quarter to be between $43 million to $45 million in total revenues, most likely slightly up from our most recent Q4 2024-based business total, which was $43 million. Our total reported revenue is $57 million, less than $14 million in high-volume CleanCap. Now turn to Slide 12, and we'll give you some additional full-year views for 2025. We expect interest expense, net of interest income, between $14 million and $16 million, appreciation and amortization between $50 million and $55 million, equity-based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA, to be between $45 million to $50 million, as if fully converted diluted share, weighted average share count for the year of 256 million shares. Finally, as we have discussed, capital expenditures are expected to decline to $15 million to $20 million in total for 2025, mostly tied to about a $10 million expansion of our enzyme manufacturing capabilities, and we foresee total CapEx decreasing even further going into 2026. I'll now turn the call back over to Trey.

Thank you, Kevin. 2024 was both a challenging and pivotal year for our company. We navigated multiple headwinds that impacted our financial performance, but remained laser-focused on building the foundation for future growth. We successfully delivered on key strategic initiatives, completing our multiyear facility expansions, improving our turnaround times, launching approximately 50 innovative new products, acquired complementary assets, and advanced critical partnerships. Although it may take more time for these efforts to be fully reflected in our financial performance, we've established many capabilities for future market growth. Let's turn to Slide 14. The pandemic was a transformative time for Maravai’s TriLink business that highlighted our CleanCap franchise and led to significant reinvestment in the company. As we were forecasting on only our base business for 2025, without high-volume CleanCap, we wanted to share a reminder that Maravai is a consolidation of several category-leading companies that roll up into our two reporting segments. Within our NAP segment, our TriLink Discovery products and services will benefit from the two acquisitions that we've closed here in the first quarter of 2025. Officinae Bio and Molecular Assemblies bring us unique assets and capabilities to create a new ecosystem in the life science tool space. Our TriLink GMP products and services, which are now utilizing our new Flanders 1 and 2 facilities and which are receiving excellent feedback from our customers, are prime for future growth in the genomic medicines market. Our commercial investments for the GMP business began in 2024, and the funnel continues to grow with an impressive list of opportunities. Our Alphazyme enzyme business is adding new customers at an exciting rate, and it's also enabling our vertical integration across our supply chain inputs. Finally, we continue to serve the oligonucleotide synthesis market, both research and diagnostic, with our Glen Research portfolio of products and TriLink Discovery oligoservices. Revenues by customer type within our NAP segment for 2024 were 56% biopharma, 32% life science and diagnostic, 5% academia, 1% CRO, CDMO, and about 6% through distributors. Our biologic safety testing segment, represented by the gold-standard Cygnus-branded products, along with the new innovative MockV line, continues to be an amazing business for Maravai and a true category leader. Revenues by customer type within our BST segment for 2024 were 22% biopharma, 3% life science and diagnostic, 1% academia, 17% CDMO, and about 58% through distributors. As we look ahead in 2025, we're focused on a return to growth for the business units that comprise our base business. The biotech funding environment and our clinical customers' current emphasis on later-stage programs remains an ongoing dynamic in which we need to manage our business. We've taken steps to improve visibility into our participation in customers' clinical programs to help us operate and predict our sales funnel with improved accuracy. I'll speak to this in a moment. To navigate this period responsibly, we continue to streamline our operations and corporate support cost structures while investing in key commercial and strategic initiatives. The capacity and capabilities that reside within our cost base should allow for a high rate of variable margin contribution as the business returns to growth. As a brief aside, we estimate that our Maravai-wide supply chain is over 95% sourced from vendors here in the United States, which should serve to protect us from any potential tariff policies that could impact the cost of sales profile. Our focus for 2025 will be to execute our return-to-growth strategy for all base businesses, regardless of market conditions. We are taking several steps to diversify our base business with new products and services. Importantly, our confidence and our abilities to respond to the market is unwavering. We believe the strategic investments we've made over the past several years and continue to make in ‘25 have positioned us to capitalize on our return-to-long-term growth opportunities. We're focused on building a diversified, growing, predictable franchise as a life science tool provider. Turning to Slide 15, let me walk you through these investments and our opportunities to drive further growth. First, our new Flanders 1 and 2 facilities are fully operational, built to support the GMP chemistry and mRNA businesses for the next decade, and ready to scale as demand accelerates. Despite fixed overhead costs, we expect improved margins as we bring in additional customers this year. In Flanders 2, we recently secured additional scope of work with an existing cell therapy customer, extending our support from their Phase 2/3 pivotal trial to now support their late-stage and commercial launch activities. This reinforces our new ability to support customers throughout the drug development pipeline and grow our revenue as their programs advance over time. Second, in 2024, we launched about 50 new products across our five brands, including expanded oligoservices, custom chemistries, new catalog chemistry and mRNA offerings, differentiated enzymes, and additional cell system and host cell DNA detection kits from Cygnus. We believe these innovations are crucial to strengthening our competitive position and driving revenue diversification. We will continue to add additional products, services, and capabilities at a high rate to drive base business growth. Third, our recent strategic acquisitions and newly acquired assets from Officinae and Molecular Assemblies are expected to give us the tools, technologies, and team to establish a best-in-class DNA and RNA design and discovery platform. This will enable us to offer an integrated solution for mRNA candidate design that accelerates our clients' work using our own chemistries, enzymes, and proprietary technologies as inputs. This vertical integration is unique in the industry and enhances our ability to reduce costs and improve margins while broadening our capabilities in a rapidly evolving market. Our customers benefit from working with one partner who has expertise in all the input areas. A key bottleneck in mRNA therapeutic discovery is the ability to execute high-throughput screens of many design variants to define the best possible lead candidates. We will now have an AI-driven bioinformatics platform that enables the design of experiments and the scaled-out manufacturing system to build as many combinations as possible of proprietary caps, modified chemistries, UTR sequences, and tailing strategies to meet our customers' needs and enhance their candidates' performance. Fourth, our recent partnerships, including a large new distribution agreement with VWR in Europe and additional CleanCap supply agreements allow for broader reach quickly. These will get CleanCap and our NAP product portfolio into more customers' hands. The velocity of CleanCap commercial license and supply agreements has increased. We executed 11 new agreements in 2024, bringing our total to 43 license holders. These licensees represent global customers spanning the spectrum from large pharma to innovative biotech and a mix of clinical, commercial, academic, CDMO enablement, and nucleic acid manufacturing platforms. These new agreements are expected to provide us with greater visibility into customers' phase advancement with disclosure requirements for IND and or BLA filings. With this added disclosure requirement, three customers reported to us IND or IND equivalent acceptance during Q4. All of these efforts should add to the revenue diversification of the company so that our future growth is not dependent on bulk CleanCap reagent inputs for COVID vaccines alone, but company-wide through the broad contribution from each of our businesses as we continue to build on our strong foundation, expand our customer relationships, and constantly improve our offerings. Because our entire business is 100% consumables and we have heavier exposure to early stage discovery work in NAP and clinical trial starts in BST, we believe we will be an early beneficiary as the macro environment for life science improves, which could provide additional tailwinds. Finally, I mentioned our challenges last year in forecasting demand. To address this, we've enhanced our ability to track and anticipate clinical market trends. Our clinical trial business intelligence platform, which we developed in-house over the last several quarters, provides real-time insights into mRNA and RNA-related programs, including new program starts and phase progression for clinical trials. This reduces our reliance on costly consulting services, but more importantly, brings us closer to the data and gives us proprietary insight when blended with our own commercial data. Please turn to Slide 16 to review our findings. We're seeing continued growth in mRNA and gene editing programs with roughly 1,500 discovery and development stage candidates currently in the pipeline we track. Focusing on discovery remains critical to our strategy to drive adoption of our technologies in customer programs, and we're engaging customers early in the development process. Our ability to support them from preclinical projects through GMP and commercialization gives us a strong competitive edge, which we've enhanced further with our recent acquisitions and new product innovations. Currently, we estimate that 70% of target programs are in the preclinical phase, while 30% have entered the clinic. We continue to estimate clean cap market share at approximately 30% for clinical stage programs we track, and closer to 40% at the discovery stage, which should drive increased future participation in clinical programs. The growing number of clinical mRNA programs now estimated at 447 with CleanCap customers representing about 30 percent indicates positive pipeline momentum. According to our data, of these 136 clinical programs, 43% are in Phase 1, 43% are in Phase 2 and 14% are in Phase 3 or 4. Despite fluctuations in preclinical candidate numbers due to the funding challenges and other market dynamics, the overall program count remains strong with over 1,000 programs estimated. Currently, we are engaged with customers representing about 40% of preclinical drug candidates. When funding conditions improve, we expect these programs to accelerate. However, even in the current environment, our market position remains strong. While not every preclinical program will advance, our discovery customers who buy products and service from us and enter the development pipeline have the potential to generate 7 to 10 times more revenue per program as they progress through clinical stages, presenting a significant opportunity for growth. As these programs progress, we are now well positioned to provide critical GMP services to these customers along with our GMP reagents. The recently completed capacity investments at Flanders 2 allow us to support the customers' program progression from Phase 2 clinical material through commercialization. Double-clicking into our pipeline data on Slide 17, for CleanCap customer programs, you'll notice that we're involved across multiple modalities, including gene editing. And, as the heat map on the right indicates, the top disease target of these programs is now cancer, which cumulatively makes up an estimated 38% of the programs in development. Today, 80% of the pipeline we track is for development programs other than infectious disease. As I mentioned earlier, we've also strengthened our license and supply agreements, requiring customers to disclose milestone achievements like IND and BLA submissions. All this provides us with greater visibility to forecast as the early stage programs advance. Turning to Slide 18, we will continue to focus on innovation to move the industry forward and build new revenue streams as a leading mRNA producer and raw material supplier. We know our ability to provide products and services supporting the entire customer lifecycle is a resounding value proposition for customer choice. With the acquisition of Officinae and the asset acquisition of Molecular Assemblies, plus our enzyme portfolio expansion through Alphazyme, our TriLink discovery products and TriLink GMP capabilities, we can incorporate raw materials and production expertise into our end-to-end service and supply offering, hailing from early research to clinical product, which is totally unique in this industry. We firmly believe in our ability to enable the next generation of medicines, and I'm confident that the foundation we've built can drive sustainable, profitable growth for our base business in the years ahead. This concludes our prepared remarks. Kevin and I are happy to answer your questions. So I'll turn the call back to the operator for instructions.

Thank you. [Operator Instructions] Our first question is from Matt Stanton with Jeffries. Please proceed.

Hey, thanks for taking the question. Maybe just for Kevin, as it relates to kind of the profitability picture here in ‘25, understand you're not guiding on EBITDA margins, but is there any kind of guardrails you can give us in terms of gross margins? Obviously $66 million coming out is a big headwind, but are there other cost actions and levers at your disposal? You've obviously had a lot of capacity over the last few years too, but I think people are trying to anchor to some type of profitability metric as we move forward on this base business revenue. So any more color you can give us, just maybe what you're thinking about on a gross margin level for ‘25 and other cost levers at your disposal as you kind of return to profitability or look to return to profitability. Thanks.

Yeah, thanks, Matt. I appreciate the question. Look, certainly, the cost structure is always on our mind. As we look at our cost structure for 2025, we see it looking very consistent with 2024. We're putting in cost measures to limit certain costs, reduce them, to offset the increases we're making in certain other areas. Certainly the acquisitions that we've made, the continued expansion of our commercial footprint. And the commitment to defend and prosecute our intellectual property around CleanCap are all strategic investments, and we're making offsets to keep our cost structure very consistent with how it looks versus 2024. When it comes to the overall margin profile, look, I'll tell you, you obviously can do the math in taking our ‘24 revenues of the 259 or just even our 36 and see we had a $223 million cost structure there. About $200 million of that or so we consider fixed, meaning it's a combination of those things that aren't necessarily the variable inputs to our revenue generation. And that area is going to, that $200 million is going to stay relatively flat year over year. And as we look at our variable component of our revenue, that generally ranges between 10% and 12%. So that kind of gives you a good sense of what the [technical difficulty] $230 million revenue range based on some of those inputs is roughly where we're adjusted, even down neutral as we sit here today.

Terry, can you go to the next question, please?

Yes. Our next question is from Doug Schenkel with Wolfe Research. Please proceed.

Hey, good afternoon, guys. Thanks for taking the questions. So improving visibility was a clear point of emphasis in your prepared remarks. I was just wondering if one beyond tracking market data, are you implementing processes with key customers to ensure better visibility there? Two, how do we get comfortable that the launch of 50 new products won't hinder these improvement efforts? And then third, does carving out high-value CleanCap essentially wall off your area of lowest visibility from the perspective of setting financial guidance for this year? Thank you.

Yeah, I think we can go in reverse order, and yes, you're absolutely right that the high-volume CleanCap, last year we had a firm commitment of about $50 million. We've reported that, ended up at $66 million, but these commitments are completely based on the timing of a handful of very large customers' clinical programs. We do have quarterly updates required, but obviously in the case of last year, we had dynamic movement in. At this point, as Kevin reported, we have no firm commitment for this year. And that has been the biggest swing and the biggest difficult dynamic for predictability that is obviously material. We mentioned that our updated agreements, and we're proud of the increase in the number of license agreements we've signed this year. Our updated agreements have mandatory disclosure requirements for certain clinical trial milestones that our legacy pandemic era agreements did not. And so we're hoping that that drives visibility with the larger, those would be GMP, CleanCap customers specifically. Obviously, when someone is using our new service offering, we have very, very intimate visibility of the timing of their program, their expected stage, and all things that are involved. So, all of those are ways that we hoped we can add significant visibility going forward to the clinical or the GMP business, which is of course, the material orders.

Our next question is from Matt Larew with William Blair. Please proceed.

Good afternoon. I was hoping we could speak a little bit to segment growth and cadence. Kevin you referenced $43 million to $45 million, in the first quarter, I think that's sort of down low-double digits at the midpoint to hit the midpoint of your guidance, it seems like you'd have to in the back after you're growing high single or low-double digits. So, maybe speak to the underlying market assumptions that are embedded in that? And if you could provide color in terms of GMP versus NAP, that would be helpful as well.

Yeah, happy to do that, Matt. Yeah, I think, as I mentioned the first quarter here on the base business, and we'll be referring to that a lot respectively be up a little bit from where the fourth quarter left us. We then see some increased timing based upon our forecast currently coming through Q2 and into the back half of the year. Some of that comes from the visibility we have with what's going on at Flanders and scheduling those GMP programs, and that's really going to be the largest driver of quarter-to-quarter volatility for us is when those programs come through and we do those builds. As you know, those are somewhat periodic. And then from there heading into the back half of the year, I think what we see is the completion of the integration of the two acquisitions we did in the first quarter and how those acquisitions bring a differentiated customer experience and offering for the discovery part of trialing. I think that's the one area that we're really looking to stabilize. It's probably been one of the more volatile. Again, that's where we have our UL [ph] products, chemistry products, oligo products, a lot of research products, and I think that's the one area that's been under pressure over the last couple of years particularly, and we look for the acquisitions and some of the work we've been doing with the new product as well as the new product introductions to drive some growth going into the back half of the year. And that kind of stacks up from that roughly $43 million to $45 million and stepping that up into those $50 million or so quarter revenue totals you need to get to the midpoint of our guide.

Our next question is from Subbu Nambi with Guggenheim. Please proceed.

Hi, this is Ricki on for Subbu. Thanks for taking our question. You made the large voluntary debt repayment at the end of the year, and so just wondering how we should think about your capital allocation priorities for the coming year in 2025. And also maybe as a follow-up for that too, what your appetite for M&A would be going forward. Thank you.

Yeah, we thought it was prudent to lower our cash interest expense for a couple of reasons. One, our interest rate cap that had served us very well in 2024 helped limit down our interest expense by a couple million dollars and provide us with good cash flow expired in January. And we did put in a new cap at this stage still assessing the rate of volatility. And we also didn't see M&A for us in the higher range of what we were generally looking at, so we didn't need that extra gross up that we've been carrying for a while. I think we're still interested in things, certainly. We have some more financial constraints than we probably used to have, but you can see that we've already printed two deals here in 2025 and continue to look to things that are complementary from a technology perspective at the right price point. For us, that price point is probably a lot smaller than it was, but we still see assets out there that are available. And we're very active in evaluating them in both sides of the business. And we think there's some opportunities there. We're not going to shy away from getting things done if the business case makes sense, and we can do it financially. Certainly, with CapEx coming down and interest rates coming, or interest expenses coming down, that frees up a little cash for us as well to address those. We're going to continue to evaluate things. I would say, fundamentally, though, we're happy with the collection of assets. We do have a good lift and a lot of activity to integrate the two businesses that we just took on, and really look forward to seeing how those will drive a better customer experience and revenue in the discovery area. Trey, you want to expand on that at all?

No, that was excellent. As was asked in the previous question, there is a bit of staging. We're tucking in the assets of Molecular Assemblies and the front end of Officinae onto TriLink. And as Kevin said, both of those projects are expected to be finished right around the midpoint of the year and start to drive further growth specifically in the discovery area in both of those cases in the back half.

Our next question is from Tejas Savant with Morgan Stanley. Please proceed.

Hey, guys. Good evening. Maybe, Kevin, one for you on the guide. Can you just elaborate a little bit on any sort of headwinds you're baking in from the ongoing changes at NIH and FDA in the context of your academic or biotech customer spending? And what are you assuming for China growth this year?

Yeah, I'll take both of those there, Tejas. Thanks for the questions. Yeah, as you know, our academic exposure is pretty small directly. There's certainly a halo and trickle-down effect of that spend from a government perspective that will impact some of the research part of our business. But again, that's relatively small as we look at the different components of our business. So we don't have a direct tie to NIH funding. So I don't see that as a huge headwind, but we do contemplate that certainly on the lower end of our guidance range. And again, we would see that more in the discovery area as we move forward there. And the second part of the question was? China. China, yeah. So China, just getting to China specifically, we saw China do $13.6 million over the full year. That was split $11.9 million in BST, $1.7 million in nucleic acid production. And really our exposure there, as you know, is really in the BST part of the business. That really didn't, it's been bouncing around a little bit, didn't move all that much if we look at it specifically. We did $3.4 million in China in BST and Q4. And if I look back over the last four quarters before that, going back to Q3 and then back to Q4 2023, it's bounced around between $2.1 million and $4.2 million. So it kind of, it's been leveling out more in that $3 million range. We see that as, we're calling that basically flat for 2025. And if there is any churn there, I think we're seeing churn within the region within anything. So we've already seen some examples of some CDMO-type business flexing out of China and going to other parts of the Asia-Pac region and the Cygnus kits moving with that business. So it might be some temporary shifts, but we're not anticipating any growth. We think based, working with our distributor, as you know, most of our -- all of our revenue there through the Cygnus segment is through one of our distributors and has been for a while. They're calling the year flat. We're keeping a close eye on it. And the only disruption we've seen thus far was picked up in another region very quickly. So we feel that there's not a lot of exposure there.

Got it. That's super helpful. And then, one on just philosophical question on that fixed cost structure. I know you've talked about it in the past as, something that opens up the possibility of significant leverage as the top line recovers. But I guess my question is just more on why such a high fixed cost structure and why you've taken this sort of strategic decision to keep that $200 million run rate intact. Are there any levers you can pull if things get worse for some reason, in the context of what you're seeing in the near term in your end markets?

Yeah, there certainly are. We are pulling some of those levers incrementally, as Kevin implied. The fundamental decision, roughly the $200 million cost structure is to keep all the capabilities that we have built over the last couple years available for market expansion. That's really the fundamental part of the strategy, and we realize that this is different situation than we've been in before, but that's fundamentally it to make a material change in that cost structure where we are basically running one building unit per business unit would require compromising our ability to respond to any market return.

Yeah, to break that cost structure down just a little bit more for everyone, that breaks down roughly half of that cost structure is our labor force, roughly 580 employees as we sit here today. And even at the midpoint of our ‘25-base business guide, that's right around $340,000 in revenue per head so very consistent with the universe of life science tools companies that are out there. So we don't, we think we're in decent shape there, but we need to continue to invest in expansion of our commercial, and we're continuing to do that and getting that more intimacy with the customer there that we believe is serving us well and filling up the pipeline nicely. And the other large part of that, as Trey mentioned, is roughly $40 million or so in annual facility costs. And that's spread over seven facilities, none of which have a single cost that's much more significant than the average. So we feel all of those building expenses are really part of why we have the leverage and the capabilities that we have. And I think all of them have revenue profiles that recover that quickly. So I think that when you look at that, we think the cost structure there is reasonable. We are looking at other things, though, and always will, and certainly to the extent. We don't return to growth, we'll continue to look at the cost lever to be able to extend the time for which we do return to growth, but with the base set of assets that we have.

Our next question is from Dan Arias with Stifel. Please proceed.

Hi, guys. Thanks for the questions. Kevin, when you say that you're forecasting the base business only and excluding high-volume CleanCap. Does that mean that COVID vaccine contributions have been scrubbed from the forecast entirely, or is it just the obvious customers that have been taken out? I mean, how much of anything within the forecast really has anything to do with COVID marketed, development stage, combo vaccine, and sort of anything in between?

Yeah, I mean, we think it's basically zeroed down. I mean, we're taking out everyone that has a commercialized vaccine in their demand. We're not taking it out. They're not giving us any forecast, so we're by default taking it out. As you know, we've never had a year where that's roughly been less than $60 million going back to 2020, so it's certainly unique to have zero. We don't feel there's anything else out there. I mean, we don't know of course, when we ship CleanCap to a customer if it's a small order what they're potentially using it for, but when we look at our clinical data insights, when we take that and put it against our active customer base, we don't see any indications that there's any material amount of COVID that could be in those numbers given that our product is fungible and not marked for the end indication. We think that what we're doing in the guide that we're giving is reflective of no COVID revenue for ‘25.

Okay. And then maybe just what percentage of revenue did the top 10 customers come to comprise for ‘24, and what do you think that that will be for ‘25?

Yeah, if you'll give me a second, I have that. I just don't want to misquote it here. Yeah, I've got it. I'll let Kevin look at the ‘25. We were, top 10 was 48% in ‘23, 46% in ’24. And so I think we're showing a gradual diversification there.

Our next question is from Catherine Schulte with Baird. Please proceed.

Hey guys, thanks for the questions. Maybe first, just what are you assuming for revenue contribution from your recent acquisitions that you mentioned? And then second, if we back out the $66 million of high volume CleanCap in ‘24, and I think it was $61 million in ’23. That implies base NAP was down about 20% for the year. And I think down close to 30% in the fourth quarter. So, are those COVID numbers comparable? Is that the right math? And if so, what makes you confident in that base business stabilizing here in ‘25?

Yeah, I'll take the latter half of that. Thank you, Catherine. The Q4 ‘23 number had a pretty large multimillion dollar essentially take or pay chemistry order in it that skewed the Q4 results in comparison here. There's not a large overriding similar order in Q4 ‘24. And we do view that well, not COVID specific, but specific of the era that within ’23. We had contracts for take or pay on more things than just CleanCap. And that was specifically in Q4 ‘23. And then, Kevin, the other side of that was our contribution for the small acquisitions.

Yeah. So, Molecular Assemblies is really more of a supply chain technology vertical integration play for us and I think specific on the revenue line there other than how it's going to complement what we're doing in discovery. We're looking at low single digit millions, $1 million or $2 million distinctly from that company. We didn't buy them for their revenue contribution. We bought them for their software platform. And basically the revenues they have today, their cost structure. So we'll be looking for both their contributions and helping us take their very unique website capabilities and e-commerce capabilities over to TriLink Discovery and then as well continue to support them in the marketing of their AI platform.

Great. And then, no, you don't want to guide to adjust city, but anyway, just put some guardrails on how you think about cash burn for the year.

Yeah, I mean, look, I think we gave you a pretty good view of what our variable cost base is. So I think that's a pretty simple math equation. When you look at the CapEx cash interest that we gave you and then you layer in the two acquisitions. I think some of those pieces will get you a relatively direct total. And again, the larger variable there is do we end up getting any drop-ins for vaccine revenues that toggle that one way or the other. And we'll update you each quarterly as that comes through.

Our next question is from Matt Sykes with Goldman Sachs. Please proceed.

Good afternoon. Thanks for asking my questions. Maybe just shifting the focus to BST. I know that the growth hasn't necessarily achieved what it had historically even in the pre-IPO financials. Just given the amount of EBITDA contribution it now represents, it's getting close to where NAP is to EBITDA in ‘24. Could you just maybe talk a little bit about the strategy to try to drive further growth? Maybe talk a little bit about what your current penetration and market share is? And then are there any strategies like doing more direct less distribution, or anything that you've come up with to help drive growth in that segment just given how important that level of profitability is going to be over the course of this year?

Yeah, thank you. Those are good observations because you can see from the numbers that we reported that a significant part of the channel for Cygnus is distribution. And a significant reason that it's so profitable is that it's not a direct -- the direct sales force is essentially U.S. based. So we see opportunity for Cygnus in, as Kevin sort of hinted, specifically in Europe and APAC outside of China as I think projects shift from China, things go with them, but that creates a little bit of a disruptive lag. The other we're getting traction year-over-year here on MockV, which is a brand new method of doing viral clearance. And we're seeing good signs there, and of course recently announced that we're moving into host cell DNA detection, which is another large chunk of the biologics market. So both of those two growth vectors, in addition to the services which have grown nicely and have honestly helped buffer that period of geographic shift, those growth vectors, those three growth we're seeing increase in the demand picture issues.

And really helpful. And then just for my follow-up, just going back to the high volume CleanCap customers, I can understand the demand picture issues that exist there, but I'm also wondering, do you have visibility into what inventories they're carrying of things that you shipped maybe last year or even the year before. And is that part of the issue that they just have overstock and they just need to work through that, or do you not have visibility into what levels of inventory those specific customers are holding?

It's the latter still. It's still the pandemic era agreements and the communication people, because of strategic supply chain concerns, people certainly bought as much as they could. And they're not keen to give us exact inventory totals as you might imagine. But all of our -- we have been improving significantly our interactions with all of our pandemic era high volume CleanCap customers and trying to drive that intimacy working with them not only just as a reagent supplier but hopefully as a deeper partner.

Our next question is from Brandon Coulliard with Wells Fargo. Please proceed.

Thanks. Good afternoon, guys. Kevin, can you share the high volume CleanCap revenue numbers for the first, second and third quarter so we can get to a base business baseline?

If we're looking at ‘24, basically in round numbers here, first quarter, fourth quarter, 9, 10, 20, 5, 17, 14.

Okay. Got it. And then, Trey, be helpful if you can maybe talk a little bit more about how the pipeline of Flanders 2 is developing? How it may stack up right now, maybe compared to where you thought it would be three or six months ago.

Absolutely, yeah. That is some good news. The funnel has been growing significantly. We were really proud, I mentioned in our public comments before that it's not trivial to get people to jump into a brand-new facility. Many of you, all 15 of our sell side folks have seen this facility in person. We were able to get some Phase 2 and 2/3 commitments early as we announced in the prepared remarks. We have now a commitment to go through commercial. That's just a really good response to a brand-new facility in that industry. The funnel there is working well but at the same time, one of our reasons for caution there is what we talked about last year with customer programs sliding out for reasons that have nothing to do with our partnership, but their clinical interactions with regulatory agencies or their funding, et cetera. The good news is that the funnel has built really nicely. The dynamic there is that we look to -- the predictability is a little better there. Because if we're talking about a Q3 or Q4 program we're booking that now. You're usually booking a couple quarters ahead in that business.

Terry, we'll take one last question and then we'll the next question. And then Trey have some closing remarks.

Thank you. Our final question will be from Anna Snopkowski with KeyBanc Capital Markets. Please proceed.

Hi, thanks for taking my question. This is Anna on for Paul Knight. I have two questions, but maybe to start. How is traction of new products such as CleanScribe and what is the overall strategy of new products? Are they more commercial facing or would you view them as preclinical focused?

Yeah, largely preclinical focused. You could say that the ability to support Phase 3 in commercial was a new product in quotes, but that's a service business obviously. So the 50 new products we call out there are across all of the other business units, essentially Cygnus and TriLink Discovery, Alphazyme, and so on. And yeah, we've been really excited by the traction of CleanScribe. There's clearly market demand. This is one thing we've identified before. In the pandemic, people did not necessarily have time for process improvement. They had to scale what they had. We're really happy about the early look at CleanScribe being a differentiated enzyme that improves process and lowers impurity. And the uptake of that has been great. Alphazyme has added more customers there than any other product in our history together. And that starts, as you asked, in the Discovery area. And we're hopeful that like M6, which took just one year from Discovery launch to GMP that this can move very quickly as well. And as Kevin has mentioned, our last large CapEx project for the company is to essentially extend the capability for Alphazyme to make enzymes that will be used in late phase programs. So with that, I see we're at time. So I'll just make a few closing remarks here. I'd like to thank everybody for your time today and your patience as we work with the independent auditors to close the books for 2024, to get our materials filed within the grace period, and to schedule and execute this call. We feel that despite the ongoing challenges and uncertainty in the biopharma and life science sectors, we're encouraged by pipeline progression we see for mRNA gene editing and cell therapy. We're laser focused on what we can control, which is driving innovation, expanding our customer base, protecting our IP and managing our costs effectively. We're confident in our differentiated technologies, our products, and our world-class services. We have a strong balance sheet, we have a net cash position and a manageable debt position that gives us flexibility, and we will remain diligent in our cost control as we've mentioned several times today. Through organic and inorganic investments, we believe we've built a solid foundation for long-term profitable, sustainable growth and value creation across our base businesses. We're a unique player here in the genomic medicine space, and we have a vertical U.S. supply chain and truly differentiated performance with our proprietary technologies. We remain committed to executing our strategic vision and delivering strong results to unlock the full potential of our business for all shareholders. Thank you.