MARAVAI LIFESCIENCES HOLDINGS INC

Previous wording

As of March 31, 2024, we employed a team of over 570 full-time employees, approximately 26% of whom have advanced degrees.

Current wording

As of June 30, 2024, we employed a team of over 580 full-time employees, approximately 27% of whom have advanced degrees.

Previous wording

We primarily utilize a direct sales model for our sales to our customers in North America. Our international sales, primarily in Europe and Asia Pacific, are through a combination of third-party distributors as well as via a direct sales model. The percentage of our total revenue derived from customers in North America was 52.0% and 51.3% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We primarily utilize a direct sales model for our sales to our customers in North America. Our international sales, primarily in Europe and Asia Pacific, are through a combination of third-party distributors as well as via a direct sales model. The percentage of our total revenue derived from customers in North America was 44.0% and 47.7% for the three and six months ended June 30, 2024, respectively. The percentage of our total revenue derived from customers in North America was 49.8% and 50.6% for the three and six months ended June 30, 2023, respectively.

Previous wording

We generated revenue of $64.2 million and $79.0 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We generated revenue of $73.4 million and $137.6 million for the three and six months ended June 30, 2024, respectively, and $68.9 million and $147.9 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Total revenue by segment was $46.0 million in Nucleic Acid Production and $18.2 million in Biologics Safety Testing for the three months ended March 31, 2024, compared to $61.5 million and $17.6 million, respectively, for the three months ended March 31, 2023.

Current wording

Total revenue by segment was $58.5 million in Nucleic Acid Production and $14.9 million in Biologics Safety Testing for the three months ended June 30, 2024, compared to $53.3 million and $15.6 million, respectively, for the three months ended June 30, 2023.

Previous wording

We focus a substantial portion of our resources supporting our core business segments. We are actively pursuing opportunities to expand our customer base both domestically and internationally by fostering strong relationships with both existing and new customers and distributors. Our management team has experience working with biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies as well as academic and research scientists. We also intend to continue making investments in our overall infrastructure and business segments to support our growth. We incurred aggregate selling, general and administrative expenses of $40.9 million and $38.7 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We focus a substantial portion of our resources supporting our core business segments. We are actively pursuing opportunities to expand our customer base both domestically and internationally by fostering strong relationships with both existing and new customers and distributors. Our management team has experience working with biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies as well as academic and research scientists. We also intend to continue making investments in our overall infrastructure and business segments to support our growth. We incurred aggregate selling, general and administrative expenses of $40.6 million and $81.4 million for the three and six months ended June 30, 2024, respectively, and $35.4 million and $74.0 million for the three and six months ended June 30, 2023, respectively.

Previous wording

Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $5.0 million and $4.1 million for the three months ended March 31, 2024 and 2023, respectively. We intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.

Current wording

Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $5.3 million and $10.3 million for the three and six months ended June 30, 2024, respectively, and $4.2 million and $8.3 million for the three and six months ended June 30, 2023, respectively. We intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.

Previous wording

Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for interest, provision for income taxes, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA reflects further adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance. We also present Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures.

Current wording

Adjusted EBITDA is a non-GAAP financial performance measure that we define as net loss adjusted for interest, provision for income taxes, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA reflects further adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance.

Previous wording

Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA and Adjusted Free Cash Flow because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry and they facilitate comparisons on a consistent basis across reporting periods. Further, we believe they are helpful in highlighting trends in our operating results because they exclude items that are not indicative of our core operating performance. Adjusted EBITDA is also a component of the financial covenant under the Credit Agreement that governs our ability to access more than $63.0 million in aggregate letters of credit and available borrowings under the Revolving Credit Facility. In addition, if we borrow more than $63.0 million under the Revolving Credit Facility, we are required to maintain a specified net leverage ratio. See“Liquidity and Capital Resources—Credit Agreement” below for a discussion of this financial covenant.

Current wording

Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA because we believe this performance measure is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and they facilitate comparisons of performance on a consistent basis across reporting periods. Further, we believe this performance measure is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance. Adjusted EBITDA is also a component of the financial covenant under the Credit Agreement that governs our ability to access more than $63.0 million in aggregate letters of credit and available borrowings under the Revolving Credit Facility. In addition, if we borrow more than $63.0 million under the Revolving Credit Facility, we are required to maintain a specified net leverage ratio. See“Liquidity and Capital Resources—Credit Agreement” below for a discussion of this financial covenant.

Previous wording

Adjusted EBITDA and Adjusted Free Cash Flow have limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA and Adjusted Free Cash Flow do not reflect:

Current wording

Adjusted EBITDA is not a GAAP-based measure and, therefore, may have limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA do not reflect:

Previous wording

In addition, Adjusted EBITDA and Adjusted Free Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Current wording

In addition, Adjusted EBITDA is not a measure of financial performance under GAAP and may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Previous wording

Our revenue consists primarily of product revenue and, to a much lesser extent, service revenue. We generated total consolidated revenue of $64.2 million and $79.0 million for the three months ended March 31, 2024 and 2023, respectively, through the following segments: (i) Nucleic Acid Production and (ii) Biologics Safety Testing.

Current wording

Our revenue consists primarily of product revenue and, to a much lesser extent, service revenue. We generated total consolidated revenue of $73.4 million and $137.6 million for the three and six months ended June 30, 2024, respectively, and $68.9 million and $147.9 million for the three and six months ended June 30, 2023, respectively, through the following segments: (i) Nucleic Acid Production and (ii) Biologics Safety Testing.

Previous wording

Cost of revenue associated with our products primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, stock-based compensation expense, inventory write-downs, costs of materials, labor and overhead, packaging and delivery costs and allocated costs, including facilities, information technology, depreciation and amortization of intangibles. Cost of revenue also includes adjustments for excess, obsolete or expired inventory, and idle capacity. Cost of revenue associated with our services primarily consists of personnel and related costs, stock-based compensation expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material for the three months ended March 31, 2024 and 2023.

Current wording

Cost of revenue associated with our products primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, stock-based compensation expense, inventory write-downs, costs of materials, labor and overhead, packaging and delivery costs and allocated costs, including facilities, information technology, depreciation and amortization of intangibles. Cost of revenue also includes adjustments for excess, obsolete or expired inventory, and idle capacity. Cost of revenue associated with our services primarily consists of personnel and related costs, stock-based compensation expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material for the three and six months ended June 30, 2024 and 2023.

Previous wording

For the three months ended March 31, 2024, restructuring costs (benefit) primarily consist of the stock-based compensation benefit recognized for the forfeiture of stock awards upon the termination of certain impacted employees resulting from the Cost Realignment Plan, which was implemented in November 2023.

Current wording

For the six months ended June 30, 2024, restructuring costs (benefit) primarily consisted of the stock-based compensation benefit recognized for the forfeiture of stock awards upon the termination of certain impacted employees resulting from a Cost Realignment Plan, which was implemented in November 2023.

Previous wording

Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income or loss of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities. Income or loss attributed to the non-controlling interests is based on the LLC Units outstanding during the period and is presented on the condensed consolidated statements of operations. As of March 31, 2024, we held approximately 52.7% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 47.3% of the outstanding LLC Units of Topco LLC.

Current wording

Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income or loss of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities. Income or loss attributed to the non-controlling interests is based on the LLC Units outstanding during the period and is presented on the condensed consolidated statements of operations. As of June 30, 2024, we held approximately 56.1% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 43.9% of the outstanding LLC Units of Topco LLC.

Previous wording

(1)For the three months ended March 31, 2024, stock-based compensation benefit of $1.2 million related to forfeited stock awards in connection with the restructuring is included on the stock-based compensation line item.

Current wording

(1)For the three months ended June 30, 2024, there was an immaterial amount of stock-based compensation expense in connection with the restructuring included in the stock based-compensation line item. For the six months ended June 30, 2024, stock-based compensation benefit of $1.2 million related to forfeited stock awards in connection with the restructuring is included on the stock-based compensation line item.

Previous wording

There was no intersegment revenue during the three months ended March 31, 2024 and 2023. Any intersegment sales and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes. Internal selling prices for intersegment sales are consistent with the segment’s normal retail price offered to external parties. There was no commission expense recognized for intersegment sales for each of the three months ended March 31, 2024 and 2023.

Current wording

There was no intersegment revenue during the three and six months ended June 30, 2024. During the three and six months ended June 30, 2023, intersegment revenue was immaterial between the Nucleic Acid Production and Biologics Safety Testing segments. Any intersegment revenue and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes. Internal selling prices for intersegment sales are consistent with the segment’s normal retail price offered to external parties. There was no commission expense recognized for intersegment revenue for each of the three and six months ended June 30, 2024 and 2023.

Previous wording

A reconciliation of net loss to adjusted EBITDA, which is a non-GAAP measure, is set forth below (in thousands):

Current wording

A reconciliation of net loss to adjusted EBITDA, which is a non-GAAP financial performance measure, is set forth below (in thousands):

Previous wording

(1)Refers to incremental costs incurred to execute and integrate completed acquisitions, and retention payments in connection with these acquisitions.

Current wording

(2)Refers to incremental costs incurred to execute and integrate completed acquisitions, and retention payments in connection with these acquisitions.

Previous wording

(2)Refers to non-cash expense associated with stock-based compensation.

Current wording

(3)Refers to non-cash expense associated with stock-based compensation.

Previous wording

(3)Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were pursued but not consummated.

Current wording

(4)Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were pursued but not consummated.

Previous wording

(4)Refers to non-cash income associated with adjustments to the indemnification asset recorded in connection with the acquisition of MyChem, LLC (“MyChem”), which was completed in January 2022.

Current wording

(5)Refers to non-cash expense associated with adjustments to the indemnification asset recorded in connection with the acquisition of MyChem, LLC (“MyChem”), which was completed in January 2022.

Previous wording

(5)Refers to the adjustment of the Tax Receivable Agreement liability primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate.

Current wording

(6)Refers to the adjustment of the Tax Receivable Agreement liability primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate.

Previous wording

(6)Refers to restructuring costs associated with the Cost Realignment Plan, which was implemented in November 2023. Stock-based compensation benefit of $1.2 million related to forfeited stock awards in connection with the restructuring is included on the stock-based compensation line item.

Current wording

(7)Refers to restructuring costs (benefit) associated with the Cost Realignment Plan, which was implemented in November 2023. For the six months ended June 30, 2024, stock-based compensation benefit of $1.2 million related to forfeited stock awards in connection with the restructuring is included on the stock-based compensation line item. For the three months ended June 30, 2024, such amount was immaterial.

Previous wording

(7)For the three and three months ended March 31, 2024, refers to inventory step-up charges and certain other adjustments in connection with the acquisition of Alphazyme, LLC, which was completed in January 2023, and other non-recurring costs. For the three months ended March 31, 2023, refers to severance payments, legal settlement amounts, inventory step-up charges in connection with the acquisition of Alphazyme, LLC, and other non-recurring costs.

Current wording

(8)For the three and six months ended June 30, 2024, refers to severance payments, inventory step-up charges and certain other adjustments in connection with the acquisition of Alphazyme, LLC (“Alphazyme”), which was completed in January 2023, and other non-recurring costs. For the three and six months ended June 30, 2023, refers to severance payments, legal settlement amounts, inventory step-up charges in connection with the acquisition of Alphazyme, certain working capital and other adjustments related to the acquisition of MyChem, and other non-recurring costs.

Previous wording

Cost of revenue increased by $4.7 million from $33.7 million for the three months ended March 31, 2023 to $38.3 million for the three months ended March 31, 2024, or 13.8%. The increase in cost of revenue was primarily attributable to an increase of $4.7 million due to lower direct labor and overhead expense absorption, an increase of $0.5 million in supplies and materials, and an increase of $0.5 million in facilities costs driven by new facilities. These increases were partially offset by a decrease of $1.0 million in personnel costs primarily driven by a decrease in headcount as a result of the Cost Realignment Plan.

Current wording

Cost of revenue decreased by $5.0 million from $43.3 million for the three months ended June 30, 2023 to $38.3 million for the three months ended June 30, 2024, or 11.6%. The decrease in cost of revenue was primarily attributable to a decrease of $8.7 million due to lower direct labor and overhead expense absorption and a decrease of $1.7 million in personnel costs primarily driven by a decrease in retention payment expense associated with the acquisition of MyChem. These decreases were partially offset by increases of $2.9 million in direct product costs, $0.7 million in depreciation expense, $0.7 million in supplies and materials, $0.5 million in stock-based compensation expense, and $0.3 million in facilities costs.

Previous wording

Gross profit decreased by $19.5 million from $45.3 million for the three months ended March 31, 2023 to $25.8 million for the three months ended March 31, 2024. The decrease in the gross profit margin as a percentage of sales was primarily attributable to an overall increase in the cost of revenue as a percentage of sales as the result of higher supplies and materials, higher facilities costs, and lower manufacturing throughput and related absorption which increased the direct labor and overhead expenses incurred into cost of revenue in the period.

Current wording

Gross profit margin decreased by 3.7% from 48.0% for the six months ended June 30, 2023 to 44.3% for the six months ended June 30, 2024. The decrease in the gross profit margin was primarily attributable to an overall increase in the cost of revenue as a percentage of sales as the result of higher supplies and materials, higher stock-based compensation expense, higher depreciation expense, and lower manufacturing throughput and related absorption which increased the overall direct labor and overhead expenses incurred into cost of revenue in the period.

Previous wording

Selling, general and administrative expenses increased by $2.2 million from $38.7 million for the three months ended March 31, 2023 to $40.9 million for the three months ended March 31, 2024, or 5.7%. The increase was primarily driven by increases of $4.4 million in stock-based compensation expense, $2.5 million in depreciation expense driven by new facilities, and $0.4 million in certain adjustments related to the acquisition of MyChem recognized in the prior period. These were partially offset by a decrease of $3.7 million in professional service fees primarily driven by consulting services incurred in the prior period related to the acquisition of Alphazyme and a decrease of $1.4 million in certain personnel costs primarily driven by a decrease in headcount as a result of the Cost Realignment Plan.

Current wording

Selling, general and administrative expenses increased by $7.4 million from $74.0 million for the six months ended June 30, 2023 to $81.4 million for the six months ended June 30, 2024, or 10.0%. The increase was primarily driven by increases of $8.7 million in stock-based compensation expense, $4.5 million in depreciation expense driven by new facilities and an increase in assets placed in service during the current year, and $0.4 million in certain adjustments related to the acquisition of MyChem recognized in the prior period. These were partially offset by a decrease of $6.8 million in professional service fees driven by consulting services incurred in the prior period primarily related to merger and acquisition related expenses and contract services.

Previous wording

Research and development expenses increased by $0.9 million from $4.1 million for the three months ended March 31, 2023 to $5.0 million for the three months ended March 31, 2024, or 21.4%. The increase in expenses compared to the prior year was primarily driven by an increase of $0.5 million in professional service fees for external analytic studies, $0.2 million in personnel costs, and $0.1 million in information technology costs.

Current wording

Research and development expenses increased by $2.0 million from $8.3 million for the six months ended June 30, 2023 to $10.3 million for the six months ended June 30, 2024, or 23.7%. The increase in expenses compared to the prior year was primarily driven by increases of $1.2 million in stock-based compensation expense and $0.9 million in professional service fees for external analytic studies.

Previous wording

For the three months ended March 31, 2024, restructuring costs (benefit) primarily consists of the stock-based compensation benefit recognized for the forfeiture of stock awards upon the termination of certain impacted employees resulting from the Cost Realignment Plan, which was implemented in November 2023. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Current wording

For the six months ended June 30, 2024, restructuring costs (benefit) primarily consists of the stock-based compensation benefit recognized for the forfeiture of stock awards upon the termination of certain impacted employees resulting from a Cost Realignment Plan, which was implemented in November 2023.

Previous wording

Other expense was $7.1 million for the three months ended March 31, 2023 compared to $3.5 million for the three months ended March 31, 2024, representing a decrease of $3.5 million, or 49.7%. The decrease in Other expense was primarily attributable to the change in payable to related parties pursuant to the Tax Receivable Agreement of $1.4 million in the prior year as a result of changes in our estimated state income tax apportionment and a corresponding change in our estimated state income tax rate. The decrease was also attributable to a $1.2 million increase in interest income earned on our cash balances and short-term investments in money market funds. The decrease was further driven by a $1.0 million decrease in interest expense primarily due to changes in the fair value of our interest rate cap agreement and interest rates.

Current wording

Other expense was $8.8 million for the six months ended June 30, 2023 compared to $11.0 million for the six months ended June 30, 2024, representing an increase of $2.2 million, or 24.5%. The increase in was primarily attributable to a $3.9 million increase in interest expense primarily due to changes in the fair value of our interest rate cap agreement and a higher effective interest rate. The increase was further driven by a $1.0 million adjustment to the indemnification asset recorded in connection with the acquisition of MyChem. These increases were offset by the change in payable to related parties pursuant to the Tax Receivable Agreement of $1.3 million in the prior year as a result of changes in our estimated state income tax apportionment and a corresponding change in our estimated state income tax rate, and a $1.5 million increase in interest income earned on our cash and cash equivalent balances, which included short-term investments in money market funds.

Previous wording

As of March 31, 2024, investment entities affiliated with GTCR collectively controlled approximately 56% of the voting power of our common stock, which enables GTCR to control the vote of all matters submitted to a vote of our shareholders and to control the election of members of the Board and all other corporate decisions.

Current wording

As of June 30, 2024, investment entities affiliated with GTCR collectively controlled approximately 52% of the voting power of our common stock, which enables GTCR to control the vote of all matters submitted to a vote of our shareholders and to control the election of members of the Board and all other corporate decisions.

Previous wording

We made distributions of $8.3 million during the three months ended March 31, 2023 for tax liabilities to MLSH 1, which is controlled by GTCR and is the only holder of LLC Units other than us and our wholly owned subsidiaries. No such distributions were made during the three months ended March 31, 2024.

Current wording

We made distributions of $0.6 million during each of the three and six months ended June 30, 2024, and $1.3 million and $9.6 million during the three and six months ended June 30, 2023, respectively, for tax liabilities to MLSH 1, which is controlled by investment entities affiliates with GTCR and is the only holder of LLC Units other than us and our wholly owned subsidiaries.

Previous wording

As of December 31, 2023, the Company had derecognized the remaining $665.3 million non-current liability under the TRA after concluding it was not probable that the Company will be able to realize the remaining tax benefits based on estimates of future taxable income. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income in the future. If the Company concludes in a future period that the tax benefits are more likely than not to be realized and releases its valuation allowance, the corresponding TRA liability amounts may be considered probable at that time and recorded on the consolidated balance sheet and within earnings.

Current wording

As of December 31, 2023, the Company had derecognized the remaining $665.3 million non-current liability under the TRA after concluding it was not probable that the Company will be able to realize the remaining tax benefits based on estimates of future taxable income. There have been no changes to our position from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The impact of any activity for the fiscal year ending December 31, 2024, including any exchanges or changes to our estimated state tax rate, will be included in our Annual Report on Form 10-K for the fiscal year ending December 31, 2024 when amounts are determinable. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income in the future. If the Company concludes in a future period that the tax benefits are more likely than not to be realized and releases its valuation allowance, the corresponding TRA liability amounts may be considered probable at that time and recorded on the consolidated balance sheet and within earnings.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $561.7 million and retained earnings of $273.7 million. We had a net loss of $22.7 million and negative cash flow from operations of $8.5 million for the three months ended March 31, 2024.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $573.2 million and retained earnings of $266.1 million. We had positive cash flow from operations of $9.0 million for the six months ended June 30, 2024.

Previous wording

We have relied on revenue derived from product and services sales, and equity and debt financings to fund our operations to date.

Current wording

We have historically relied on revenue derived from product and services sales, and proceeds from equity and debt financings to fund our operations to date.

Previous wording

As a result of our ownership of LLC Units in Topco LLC, the Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Topco LLC and is taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations and we may be required to make payments under the TRA with MLSH 1 and MLSH 2. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to LLC Unitholders of Topco LLC pursuant to the TRA. We expect that probable future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the corresponding tax attributes will be approximately $7.1 million. This determination is based on our estimate of taxable income for the year ended December 31, 2023. During the year ended December 31, 2023, we determined that making a payment under the non-current portion of the TRA was not probable under Accounting Standards Codification 450 - Contingencies as a result of a valuation allowance having been recorded against our deferred tax assets and, therefore, that it is more likely than not that we will not generate sufficient future taxable income to utilize related tax benefits that will result in a payment under the TRA. If we had determined that making a payment under the TRA and generating sufficient future taxable income was probable, we would have also recorded a non-current liability pursuant to the TRA of approximately $665.3 million in the condensed consolidated balance sheet. Future payments in respect of subsequent exchanges or financings and tax attributes relating to the purchase by the Company of LLC Units from MLSH 1 would be in addition to this amount and may be substantial. The foregoing numbers are estimates and the actual payments could differ materially. We expect to fund these payments using cash on hand and cash generated from operations.

Current wording

As a result of our ownership of LLC Units in Topco LLC, the Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Topco LLC and is taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations and we may be required to make payments under the TRA with MLSH 1 and MLSH 2. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to LLC Unitholders of Topco LLC pursuant to the TRA. The foregoing numbers are estimates and the actual payments could differ materially. We expect to fund these payments using cash on hand and cash generated from operations. We expect that probable future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the corresponding tax attributes will be approximately $7.1 million. This determination is based on our estimate of taxable income for the year ended December 31, 2023.

Previous wording

In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 pursuant to the LLC Operating Agreement for the portion of income passing through to them from Topco LLC. We made distributions of $8.3 million during the three months ended March 31, 2023 for tax liabilities to MLSH 1 under the LLC Operating Agreement. No such distributions were made during the three months ended March 31, 2024.

Current wording

In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 pursuant to the LLC Operating Agreement for the portion of income passing through to them from Topco LLC. We made cash distributions of $0.6 million during each of the three and six months ended June 30, 2024, and cash distributions of $1.3 million and $9.6 million during the three and six months ended June 30, 2023, respectively, for tax liabilities to MLSH 1 under the LLC Operating Agreement.

Previous wording

As of March 31, 2024, the interest rate on the Term Loan was 8.31% per annum.

Current wording

As of June 30, 2024, the effective interest rate on the Term Loan was 8.33% per annum. There were no outstanding borrowings under the Revolving Credit Facility as of June 30, 2024.

Previous wording

The Credit Agreement also provides for a $20.0 million limit for letters of credit. As of March 31, 2024, the Company had a $0.5 million outstanding letter of credit as security for a lease agreement, which reduced the availability for letters of credit under the Revolving Credit Facility to $19.5 million.

Current wording

The Credit Agreement also provides availability under the Revolving Credit Facility for letters of credit with a limit of $20.0 million. As of June 30, 2024, the Company had a $0.5 million outstanding letter of credit as security for a lease agreement, which reduced the availability for letters of credit under the Revolving Credit Facility to $19.5 million.

Previous wording

The Credit Agreement contains certain covenants, including, among other things, covenants limiting our ability to incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes to the nature of the business. Additionally, the Credit Agreement also requires us to maintain a certain net leverage ratio if the outstanding debt balance on the Revolving Credit Facility exceeds 35.0% of the aggregate amount of available credit of $180.0 million. The Company was in compliance with these covenants as of March 31, 2024.

Current wording

The Credit Agreement contains certain covenants, including, among other things, covenants limiting our ability to incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes to the nature of the business. Additionally, the Credit Agreement requires us to maintain a certain net leverage ratio if the outstanding debt balance on the Revolving Credit Facility exceeds 35.0% of the aggregate amount of available credit of $180.0 million, or $63.0 million. The Company was in compliance with these covenants as of June 30, 2024.