MARAVAI LIFESCIENCES HOLDINGS INC
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
MRVI$7.52+7.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001823239-24-000095
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001823239-24-000118
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 173 previous paragraphs and 185 current paragraphs.
119 unchanged; 42 reworded; 22 added; 9 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 14 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (22)
Current report
Recent Developments
Current report
In connection with preparing our financial statements for the quarter ended September 30, 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. We revised our long-term forecast to reflect lower projected near term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. As such, we performed a quantitative goodwill impairment test on each of our four reporting units and as a result, we concluded that the TriLink reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $154.2 million on the condensed consolidated statements of operations. No impairment was recorded for any of our remaining three reporting units. See Note 3 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
Our results of operations and cash flows substantially benefit from high-volume sales of our proprietary CleanCap® analogs for commercial phase vaccine programs. We estimate that revenue from high-volume sales of CleanCap for commercial phase vaccine programs represented approximately 25.4% and 19.7% of our total revenues for the nine months ended September 30, 2024 and 2023, respectively. The amount, timing and durability of future high-volume CleanCap orders have become increasingly difficult to forecast because historical customers for such orders have been unable or unwilling to provide visibility into their anticipated future needs and plans to purchase CleanCap. If high-volume orders for CleanCap do not materialize in the future at similar or greater levels than they have in the past it will significantly decrease our revenue and cash flow which, in turn, could have a material adverse impact on our operating results and financial condition in the future.
Current report
Goodwill impairment is recorded in connection with the impairment testing of our goodwill, and is performed at least annually and more frequently if changes in facts and circumstances indicate that the fair value of our reporting units may be less than the carrying amount. In connection with the preparation of our financial statements for the quarter ended September 30, 2024, we performed a quantitative goodwill impairment test which resulted in goodwill impairment of $154.2 million. See Note 3 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
Total revenue was $65.2 million for the three months ended September 30, 2024 compared to $66.9 million for the three months ended September 30, 2023, representing a decrease of $1.7 million, or 2.5%.
Current report
Total revenue was $202.8 million for the nine months ended September 30, 2024 compared to $214.8 million for the nine months ended September 30, 2023, representing a decrease of $12.0 million, or 5.6%.
Current report
Nucleic Acid Production revenue decreased from $165.9 million for the nine months ended September 30, 2023 to $154.4 million for the nine months ended September 30, 2024, representing a decrease of $11.5 million, or 6.9%. The decrease in Nucleic Acid Production revenue was primarily driven by lower demand for research and discovery products.
Current report
(5)Refers to transaction costs related to the refinancing of our long-term debt that are not capitalizable.
Current report
(8)Refers to goodwill impairment recorded for our Nucleic Acid Production segment.
Current report
Cost of revenue increased by $0.1 million from $36.7 million for the three months ended September 30, 2023 to $36.8 million for the three months ended September 30, 2024, or 0.4%, which was not significant.
Current report
Gross profit margin decreased by 1.6% from 45.1% for the three months ended September 30, 2023 to 43.5% for the three months ended September 30, 2024, which was not significant.
Current report
Gross profit margin decreased by 3.0% from 47.1% for the nine months ended September 30, 2023 to 44.1% for the nine months ended September 30, 2024. The decrease in gross profit margin was primarily attributable to higher stock-based compensation, facilities, and depreciation expense as a percentage of sales.
Current report
Selling, general and administrative expenses increased by $0.2 million from $38.9 million for the three months ended September 30, 2023 to $39.1 million for the three months ended September 30, 2024, or 0.6%, which was not significant.
Current report
Research and development expenses were $4.3 million for each of the three months ended September 30, 2024 and 2023.
Current report
In connection with preparing our financial statements for the quarter ended September 30, 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. We revised our long-term forecast to reflect lower projected near term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. As such, we performed a quantitative goodwill impairment test on each of our four reporting units and as a result, we concluded that the TriLink reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $154.2 million during the three and nine months ended September 30, 2024. See Note 3 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
We evaluate goodwill at the reporting unit level on an annual basis and on an interim basis if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such indicators could include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate, operational performance of the business or loss of key personnel. We perform our annual impairment test in the fourth quarter.
Current report
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, management performs a quantitative goodwill impairment test. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
Current report
In connection with preparing our financial statements for the quarter ended September 30, 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. We revised our long-term forecast to reflect lower projected near term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. As such, we performed a quantitative goodwill impairment test and compared our reporting units’ fair values to their respective carrying values to determine whether goodwill was impaired. We performed the impairment test using a combination of the income and the market approach to evaluate whether the fair value of each reporting unit was less than its carrying value. The income approach utilizes a discounted cash flow model, incorporating both internal estimates and market-based data, while the market approach utilizes comparable company information. The significant assumptions in the discounted cash flow models vary amongst, and are specific to, each reporting unit and include, but are not limited to, discount rates, projected revenue growth rates (including terminal growth rates) and operating margin percentages. Discount rates were determined using a weighted average cost of capital specific to each reporting unit and other market and industry data. These assumptions were formulated with consideration of prevailing market conditions and anticipated developments, including new product and service initiatives, competitive dynamics, and broader economic factors. The result of the quantitative analysis indicated that the fair value of the TriLink reporting unit did not exceed its carrying value and consequently resulted in a $154.2 million impairment charge.
Current report
The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for the three reporting units not impaired, ranged from approximately 28% to approximately 245%. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair values of each reporting unit and compared those hypothetical values to the reporting unit carrying values. Based on this hypothetical 10% decrease, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for the three reporting units not impaired, ranged from approximately 16% to approximately 211%. However, to the extent that we continue to experience declines in financial performance or experience other impairment indicators, such as industry and market considerations, or that the fair values of our reporting units are less than their carrying values, there could be a risk of goodwill impairment of our reporting units in future periods. For the TriLink reporting unit, the impairment loss recognized during the period was equal to the total amount of goodwill included in the reporting unit.
Current report
Recoverability and Impairment of Long-Lived Assets
Current report
We review the recoverability of our long-lived assets (including finite-lived intangible assets) if events or circumstances indicate the assets may be impaired. We measure recoverability of assets by comparing the respective carrying value of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. If our analysis indicates that the carrying value of these assets is not recoverable, we recognize an impairment based on the amount by which the net carrying amount of the assets exceeds the fair values of the assets.
Current report
In conjunction with the goodwill impairment assessment performed in preparing our financial statements for the quarter ended September 30, 2024, we also evaluated the recoverability of our long-lived assets (including finite-lived intangible assets). Based on the interim impairment test, the carrying value of the assets did not exceed the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. As a result, we determined a fair value analysis was not necessary as of September 30, 2024. However, to the extent that we continue to experience declines in financial performance or experience other impairment indicators, such as industry and market considerations, or that the fair values of our assets are less than their carrying values, there could be a risk of impairment of our long-lived assets in future periods.
Removed paragraphs (9)
Previous report
Total revenue was $73.4 million for the three months ended June 30, 2024 compared to $68.9 million for the three months ended June 30, 2023, representing an increase of $4.5 million, or 6.5%.
Previous report
Nucleic Acid Production revenue increased from $53.3 million for the three months ended June 30, 2023 to $58.5 million for the three months ended June 30, 2024, representing an increase of $5.2 million, or 9.8%. The increase in Nucleic Acid Production revenue was primarily driven by higher demand for GMP CleanCap analogs, GMP mRNA, and our Glen Research product portfolio.
Previous report
Total revenue was $137.6 million for the six months ended June 30, 2024 compared to $147.9 million for the six months ended June 30, 2023, representing a decrease of $10.4 million, or 7.0%.
Previous report
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 report
Gross profit margin increased by 10.7% from 37.2% for the three months ended June 30, 2023 to 47.9% for the three months ended June 30, 2024. The increase in the gross profit margin was primarily attributable to an overall decrease in the cost of revenue as a percentage of sales as the result of lower personnel costs and lower direct labor and overhead expense absorption incurred into cost of revenue in the period.
Previous report
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 report
Research and development expenses increased by $1.1 million from $4.2 million for the three months ended June 30, 2023 to $5.3 million for the three months ended June 30, 2024, or 26.0%. The increase in expenses compared to the prior year was primarily driven by increases of $0.9 million in supplies and materials primarily for chemicals, $0.5 million in stock-based compensation expense, and $0.4 million for professional service fees for external analytic studies. These were partially offset by a decrease of $0.7 million in personnel costs.
Previous report
Other expense was $1.8 million for the three months ended June 30, 2023 compared to $7.4 million for the three months ended June 30, 2024, representing an increase of $5.7 million, or 323.7%. The increase was primarily attributable to a $4.9 million increase in interest expense primarily due to changes in the fair value of our interest rate cap agreement. The increase was further driven by $0.9 million relating to adjustments to the indemnification asset recorded in connection with the acquisition of MyChem.
Previous report
Net cash used in financing activities for the six months ended June 30, 2023 was $62.3 million, which was primarily attributable to $42.2 million of payments to MLSH 1 and MLSH 2 pursuant to the TRA, $9.7 million payment of an acquisition consideration holdback relating to the acquisition of MyChem, $9.6 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement, and $2.7 million of principal repayments of long-term debt. This was partially offset by proceeds from the interest rate cap agreement of $1.9 million.
Reworded paragraphs (42)
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 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.
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 53.2% and 49.5% for the three and nine months ended September 30, 2024, respectively. The percentage of our total revenue derived from customers in North America was 51.6% and 50.9% for the three and nine months ended September 30, 2023, respectively.
Previous 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.
Current wording
We generated revenue of $65.2 million and $202.8 million for the three and nine months ended September 30, 2024, respectively, and $66.9 million and $214.8 million for the three and nine months ended September 30, 2023, respectively.
Previous 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.
Current wording
Total revenue by segment was $49.9 million in Nucleic Acid Production and $15.3 million in Biologics Safety Testing for the three months ended September 30, 2024, compared to $51.2 million and $15.6 million, respectively, for the three months ended September 30, 2023.
Previous wording
Total revenue by segment was $104.5 million in Nucleic Acid Production and $33.1 million in Biologics Safety Testing for the six months ended June 30, 2024, compared to $114.7 million and $33.2 million, respectively, for the six months ended June 30, 2023.
Current wording
Total revenue by segment was $154.4 million in Nucleic Acid Production and $48.3 million in Biologics Safety Testing for the nine months ended September 30, 2024, compared to $165.9 million and $48.9 million, respectively, for the nine months ended September 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 $40.6 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.
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 $39.1 million and $120.5 million for the three and nine months ended September 30, 2024, respectively, and $38.9 million and $112.9 million for the three and nine months ended September 30, 2023, respectively.
Previous wording
Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $5.3 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.
Current wording
Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $4.3 million and $14.7 million for the three and nine months ended September 30, 2024, respectively, and $4.3 million and $12.7 million for the three and nine months ended September 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
While we believe that the long-term trend of biopharmaceutical customers relying on outside parties to provide important inputs and services for their clinical research and manufacturing remains a long-term growth driver for us, we believe that recent industry trends and uncertainties, including changes in our customers’ spending priorities and budgetary policies and practices, which negatively impacted our revenue and operating results in the year ended December 31, 2023, may continue and result in slower growth and/or cause a further decline in our revenues during the year ending December 31, 2024. These trends and uncertainties, which we primarily attribute to lower levels of investment in the research and development funding of early-stage biotechnology companies and declines and uncertainties in the capital markets amidst ongoing negative macroeconomic challenges, has and may continue to cause those companies to take action to conserve capital, resulting in a potential reduction in research and development spending across the markets in which we participate.
Current wording
While we believe that the long-term trend of biopharmaceutical customers relying on outside parties to provide important inputs and services for their clinical research and manufacturing remains a long-term growth driver for us, lower demand for research and discovery products within our Nucleic Acid Production business coupled with a slower than expected mRNA clinical trial progressions negatively impacted our revenue and operating results in the nine months ended September 30, 2024, may continue and result in slower growth and/or cause a further decline in our revenues in the future.
Previous wording
Our businesses also continue to see headwinds from a general contraction in economic activity in Asia, particularly in China, which may negatively impact our revenue derived from those markets.
Current wording
Our businesses also continue to see headwinds from a general contraction in economic activity in Asia, particularly in China, which has negatively impacted our revenue derived from those markets.
Previous 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.
Current wording
Our revenue consists primarily of product revenue and, to a much lesser extent, service revenue. We generated total consolidated revenue of $65.2 million and $202.8 million for the three and nine months ended September 30, 2024, respectively, and $66.9 million and $214.8 million for the three and nine months ended September 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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023.
Previous 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.
Current wording
For the nine months ended September 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
Nucleic Acid Production revenue decreased from $114.7 million for the six months ended June 30, 2023 to $104.5 million for the six months ended June 30, 2024, representing a decrease of $10.2 million, or 8.9%. The decrease in Nucleic Acid Production revenue was primarily due to lower demand in research and discovery products and timing of GMP-related mRNA builds for customers.
Current wording
Nucleic Acid Production revenue decreased from $51.2 million for the three months ended September 30, 2023 to $49.9 million for the three months ended September 30, 2024, representing a decrease of $1.3 million, or 2.5%. The decrease in Nucleic Acid Production revenue was primarily driven by lower demand for research and discovery products.
Previous wording
Biologics Safety Testing revenue decreased from $15.6 million for the three months ended June 30, 2023 to $14.9 million for the three months ended June 30, 2024, representing a decrease of $0.7 million, or 4.7%. The decrease from the prior year was primarily due to lower demand trends in China.
Current wording
Biologics Safety Testing revenue decreased from $15.6 million for the three months ended September 30, 2023 to $15.3 million for the three months ended September 30, 2024, representing a decrease of $0.4 million, or 2.5%. The decrease in Biologics Safety Testing revenue was primarily driven by lower demand in the bioprocessing market.
Previous wording
Biologics Safety Testing revenue decreased from $33.2 million for the six months ended June 30, 2023 to $33.1 million for the six months ended June 30, 2024, representing a decrease of $0.1 million, or 0.4%, which was not significant.
Current wording
Biologics Safety Testing revenue decreased from $48.9 million for the nine months ended September 30, 2023 to $48.3 million for the nine months ended September 30, 2024, representing a decrease of $0.5 million, or 1.1%, which was not significant.
Previous 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.
Current wording
(1)For the three months ended September 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 nine months ended September 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 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.
Current wording
There was no intersegment revenue during the three and nine months ended September 30, 2024. During the three and nine months ended September 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 nine months ended September 30, 2024 and 2023.
Previous wording
(2)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, including retention payments related to integration that were negotiated specifically at the time of, the Company’s acquisition of MyChem, LLC (“MyChem”) and Alphazyme, LLC (“Alphazyme”), which were completed in January 2022 and January 2023, respectively. These retention payments arise from the Company’s agreements executed in connection with its acquisitions of MyChem and Alphazyme and provide incremental financial incentives, over and above recurring compensation, to ensure the employees of these companies remain present and participate in integration of the acquired businesses during the integration and knowledge transfer periods. The Company agreed to pay certain employees of Alphazyme retention payments totaling $9.3 million as of various dates but primarily through December 31, 2025, as long as these individuals continue to be employed by the Company. The Company agreed to pay the sellers of MyChem retention payments totaling $20.0 million as of the second anniversary of the closing of the acquisition date as long as two senior employees (who were also the sellers of MyChem) continue to be employed by TriLink. The Company considers the payment of these retention payments as probable and is recognizing compensation expense related to these payments in the post-acquisition period ratably over the service period. Retention payment expenses were $0.8 million (Alphazyme $0.8 million) and $4.3 million (MyChem $1.8 million; Alphazyme $2.5 million) for the three and nine months ended September 30, 2024, respectively. Retention payment expenses were $3.1 million (MyChem $2.4 million; Alphazyme $0.7 million) and $8.6 million (MyChem $6.8 million; Alphazyme $1.8 million) for the three and nine months ended September 30, 2023, respectively. Retention expenses for MyChem concluded in the first quarter of 2024, and following the payments in the first quarter of 2024, there are no further retention expenses payable for MyChem. The remaining retention accrual for Alphazyme is $4.2 million, expected to be accrued ratably each quarter through December 31, 2025, with payments expected to be made in the first quarter of 2026. There are no further cash-based retention payments planned, other than those disclosed above, for acquisitions completed as of September 30, 2024.
Previous 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.
Current wording
(6)Refers to non-cash (income) expense associated with adjustments to the indemnification asset recorded in connection with the acquisition of MyChem.
Previous 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.
Current wording
(7)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
(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.
Current wording
(9)Refers to restructuring costs (benefit) associated with the Cost Realignment Plan, which was implemented in November 2023. For the nine months ended September 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 September 30, 2024, such amount was immaterial.
Previous 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.
Current wording
(10)For the three and nine months ended September 30, 2024, refers to loss on abandoned projects, severance payments, inventory step-up charges and certain other adjustments in connection with the acquisition of Alphazyme, and other non-recurring costs. For the three and nine months ended September 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 decreased by $0.3 million from $76.9 million for the six months ended June 30, 2023 to $76.6 million for the six months ended June 30, 2024, or 0.4%. The decrease in cost of revenue from the prior year was not significant.
Current wording
Cost of revenue decreased by $0.2 million from $113.6 million for the nine months ended September 30, 2023 to $113.4 million for the nine months ended September 30, 2024, or 0.2%, which was not significant.
Previous 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.
Current wording
Selling, general and administrative expenses increased by $7.6 million from $112.9 million for the nine months ended September 30, 2023 to $120.5 million for the nine months ended September 30, 2024, or 6.7%. The increase was primarily driven by increases of $10.9 million in stock-based compensation expense and $5.2 million in depreciation expense driven by new facilities and an increase in assets placed in service during the current year. These were partially offset by a decrease of $6.7 million in professional service fees primarily driven by lower expenses related to merger and acquisitions, legal costs, and contract services, as well as further decreases of $1.3 million in marketing expenses and $0.5 million in personnel expenses primarily as a result of the Cost Realignment Plan, which was implemented in November 2023.
Previous 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.
Current wording
Research and development expenses increased by $2.0 million from $12.7 million for the nine months ended September 30, 2023 to $14.7 million for the nine months ended September 30, 2024, or 15.6%. The increase in expenses compared to the prior year was primarily driven by increases of $1.8 million in stock-based compensation expense, $1.2 million in professional service fees for external analytic studies, $0.8 million in supplies and materials, and $0.3 million in depreciation expense.
Previous wording
The decrease in change in estimated fair value of contingent consideration of $1.1 million for the three and six months ended June 30, 2023 was due to a decrease in estimated fair value of the liability for the contingent payments associated with the acquisition of Alphazyme.
Current wording
The decrease in change in estimated fair value of contingent consideration of $1.4 million for the nine months ended September 30, 2024 was due to a decrease in estimated fair value of the liability for the contingent payments associated with the acquisition of Alphazyme.
Previous wording
Comparison of Three and Six Months Ended June 30, 2024 and 2023
Current wording
Comparison of Three and Nine Months Ended September 30, 2024 and 2023
Previous 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.
Current wording
For the nine months ended September 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 $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.
Current wording
Other expense was $14.0 million for the nine months ended September 30, 2023 compared to $17.5 million for the nine months ended September 30, 2024, representing an increase of $3.5 million, or 25.4%. The increase was primarily attributable to a $5.9 million increase in interest expense primarily due to changes in the fair value of our interest rate cap agreement and higher interest costs on our finance lease liabilities. 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 $2.3 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 $1.1 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 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.
Current wording
As of September 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 our Board of Directors and all other corporate decisions.
Previous 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.
Current wording
We made cash distributions of $0.6 million and $9.6 million during the nine months ended September 30, 2024 and 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. No such cash distributions were made during the three months ended September 30, 2024 and 2023.
Previous wording
We recognize the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current. As of June 30, 2024, our current liability under the TRA was $7.1 million.
Current wording
We recognize the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current. As of September 30, 2024, our current liability under the TRA was $7.2 million.
Previous wording
We made payments of $42.6 million in the aggregate to MLSH 1 and MLSH 2 pursuant to the TRA during each of the three and six months ended June 30, 2023, of which $0.4 million was related to interest. No such payments were made during each of the three and six months ended June 30, 2024.
Current wording
We made payments of $42.6 million in the aggregate to MLSH 1 and MLSH 2 pursuant to the TRA during the nine months ended September 30, 2023, of which $0.4 million was related to interest. No such payments were made during the three months ended September 30, 2023 or the three and nine months ended September 30, 2024.
Previous 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.
Current wording
As of September 30, 2024, we had cash and cash equivalents of $578.2 million and retained earnings of $167.0 million. We had positive cash flow from operations of $22.1 million for the nine months ended September 30, 2024.
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. 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.
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 $7.2 million. This determination is based on our 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 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.
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 and $9.6 million during each of the nine months ended September 30, 2024 and 2023. No such cash distributions were made during the three months ended September 30, 2024 and 2023.
Previous 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.
Current wording
As of September 30, 2024, the effective interest rate on the Term Loan was 8.28% per annum. There were no outstanding borrowings under the Revolving Credit Facility as of September 30, 2024.
Previous wording
As of June 30, 2024, our current liability under the TRA was $7.1 million, representing 85% of the calculated tax savings we expect to utilize for the year ended December 31, 2023. We may record additional liabilities under the TRA when LLC Units are exchanged in the future and as our estimates of the future utilization of the Tax Attributes, net operating losses and other tax benefits change. We expect to make payments under the TRA, to the extent they are required, within 125 days after the extended due date of our U.S. federal income tax return for such taxable year. Interest on such payments will begin to accrue from the due date (without extensions) of such tax return at a rate of LIBOR (or, if LIBOR ceases to be published, a Replacement Rate) plus 100 basis points. Generally, any late payments will continue to accrue interest at LIBOR (or a Replacement Rate, as applicable) plus 500 basis points until such payments are made. Given the cessation of LIBOR, we have transitioned to the Secured Overnight Financing Rate ("SOFR") as the applicable Replacement Rate as allowable under the Tax Receivable Agreement.
Current wording
As of September 30, 2024, our current liability under the TRA was $7.2 million, representing 85% of the calculated tax savings we expect to utilize for the year ended December 31, 2023. We may record additional liabilities under the TRA when LLC Units are exchanged in the future and as our estimates of the future utilization of the Tax Attributes, net operating losses and other tax benefits change. We expect to make payments under the TRA, to the extent they are required, within 125 days after the extended due date of our U.S. federal income tax return for such taxable year. Interest on such payments will begin to accrue from the due date (without extensions) of such tax return at a rate of LIBOR (or, if LIBOR ceases to be published, a Replacement Rate) plus 100 basis points. Generally, any late payments will continue to accrue interest at LIBOR (or a Replacement Rate, as applicable) plus 500 basis points until such payments are made. Given the cessation of LIBOR, we have transitioned to the Secured Overnight Financing Rate ("SOFR") as the applicable Replacement Rate as allowable under the Tax Receivable Agreement.
Previous wording
Net cash provided by operating activities for the six months ended June 30, 2023 was $104.3 million, which was primarily attributable to a net cash inflow from the change in our operating assets and liabilities of $86.9 million, non-cash depreciation and amortization of $18.5 million, non-cash amortization of operating lease right-of-use assets of $4.2 million, non-cash amortization of deferred financing costs of $1.4 million, non-cash stock-based compensation of $15.3 million, and non-cash loss on the revaluation of liabilities under the TRA of $1.3 million. These were partially offset by a net loss of $13.3 million, non-cash gain on the change in estimated fair value of contingent consideration of $2.3 million, and non-cash deferred income taxes of $4.3 million.
Current wording
Net cash provided by operating activities for the nine months ended September 30, 2024 was $22.1 million, which was primarily attributable to non-cash depreciation and amortization of $36.0 million, non-cash amortization of operating lease right-of-use assets of $6.3 million, non-cash amortization of deferred financing costs of $2.2 million, non-cash stock-based compensation of $38.9 million, and non-cash goodwill impairment of $154.2 million. These were partially offset by a net loss of $213.1 million, non-cash gain on the change in estimated fair value of contingent consideration of $1.4 million, and net cash outflow from the change in our operating assets and liabilities of $2.6 million.
Previous wording
Net cash used in investing activities for the six months ended June 30, 2023 was $93.9 million, which was primarily comprised of the net cash consideration paid for the acquisition of Alphazyme and cash outflows of $32.9 million for property and equipment purchases, offset by proceeds from government assistance allocated to property and equipment of $8.7 million.
Current wording
Net cash used in investing activities for the nine months ended September 30, 2024 was $19.4 million, which was primarily comprised of cash outflows of $23.8 million for property and equipment purchases, offset by proceeds from government assistance allocated to property and equipment of $5.4 million, and cash outflows of $1.0 million for the purchase of technology.
Previous wording
Net cash used in financing activities for the six months ended June 30, 2024 was $0.3 million, which was primarily attributable to $1.5 million of tax payments for shares withheld under employee equity plans, net of proceeds from the issuance of shares of our Class A common stock, $2.7 million of principal repayments of long-term debt, and $0.6 million of cash distributions for tax liabilities to MLSH 1, as required pursuant to the terms of the LLC Operating Agreement. These were partially offset by proceeds from the interest rate cap agreement of $4.7 million.
Current wording
Net cash provided by financing activities for the nine months ended September 30, 2024 was $0.5 million, which was primarily attributable to proceeds from the interest rate cap agreement of $7.1 million. This was partially offset by $4.1 million of principal repayments of long-term debt, $1.5 million of tax payments for shares withheld under employee equity plans, net of proceeds from the issuance of shares of our Class A common stock, $0.6 million of cash distributions for tax liabilities to MLSH 1, as required pursuant to the terms of the LLC Operating Agreement, and $0.5 million of payments of finance lease liabilities.
Showing the first 40 of 42 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The increase in change in estimated fair value of contingent consideration of $2.4 million for the three months ended September 30, 2023 was due to an increase in estimated fair value of the liability for the contingent payments associated with the acquisition of Alphazyme.
Current report — wording carried from elsewhere
Other expense was $5.1 million for the three months ended September 30, 2023 compared to $6.5 million for the three months ended September 30, 2024, representing an increase of $1.4 million, or 26.9%. The increase was primarily attributable to a $2.0 million increase in interest expense primarily due to changes in the fair value of our interest rate cap agreement. The increase in Other expense was further driven by a $0.4 million decrease in interest income earned on our cash and cash equivalent balances, which included short-term investments in money market funds. These increases were offset by the change in payable to related parties pursuant to the Tax Receivable Agreement of $1.0 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.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Selling, general and administrative expenses increased by $5.2 million from $35.4 million for the three months ended June 30, 2023 to $40.6 million for the three months ended June 30, 2024, or 14.6%. The increase was primarily driven by increases of $3.4 million in stock-based compensation expense and $2.0 million in depreciation expense driven by new facilities and an increase in assets placed in service during the current year.
Previous report — wording carried elsewhere
Net cash provided by operating activities for the six months ended June 30, 2024 was $9.0 million, which was primarily attributable to non-cash depreciation and amortization of $24.1 million, non-cash amortization of operating lease right-of-use assets of $4.2 million, non-cash amortization of deferred financing costs of $1.5 million, and non-cash stock-based compensation of $25.8 million. These were partially offset by a net loss of $37.2 million, non-cash gain on the change in estimated fair value of contingent consideration of $1.2 million, and net cash outflow from the change in our operating assets and liabilities of $8.4 million, of which $19.4 million was driven by a decrease in accrued expenses and other current liabilities for the retention payments relating to the acquisition of MyChem.
Previous report — wording carried elsewhere
Net cash used in investing activities for the six months ended June 30, 2024 was $10.4 million, which was primarily comprised of cash outflows of $15.2 million for property and equipment purchases, offset by proceeds from government assistance allocated to property and equipment of $4.8 million.