Earnings Call: Q1 2021

May 10, 2021

Good day, and thank you for standing by. Welcome to the Q1 2021 Maravai Life Sciences Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Deb Hart. Please go ahead. Thank you, Mary. Good afternoon, everyone. Thanks for joining us on our Q1 2021 earnings call. Our press release and the slides that accompany today's call are posted on our website and are available at investors. Maravai.com under Financial Information, Quarterly Results. On today's call, we will cover our financial results and business highlights and will provide updated financial guidance for 2021. As you can see on Slide 2, Carl will first provide you with a business update Kevin will review our financial results and guidance. Then we'll open up the call for your questions. On Slide 3, we'd like to remind you that the forward looking Statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release we issued earlier Today, as well as those that are more fully described in our various filings with the SEC. Today's comments reflect our current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update these forward looking statements, except as required by law. During this call, we will be using non GAAP measurements of certain of our results and in providing guidance. Reconciliations of GAAP to non GAAP financial measures are included in the press release we issued this afternoon, which is posted to Maravai's website and available via the EDGAR filings on the SEC website. The metrics we will be discussing in today's call include net income, Adjusted EBITDA, income tax expense and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to GAAP measures, that are intended to better enable investors to benchmark our current results against historical performance and the performance of our peers. Now I'll turn the call over to Carl. Well, thank you, Deb, and good afternoon, everyone. I'd like to take a moment to welcome our newest group of investors who participated in the company's recent follow on offering, which closed in April. We are very pleased to have you with us today. In addition, I'd like to take this opportunity to extend my personal thanks To each and every member of the Maravai team who continue to execute at an incredibly high level as you will shortly see. If We can start with Slide number 5. As we shared in our pre announcement, Maravai had a very strong start to 2021 with the largest and most profitable quarter in our history. Today, we formally reported $148,200,000 in revenue, growing 191% compared to the prior year and up 50% sequentially over last quarter. Our record top line performance also contributed to outstanding EBITDA, earnings per share and free cash flow generation. I'll walk through some of the trends we're seeing across our end markets and geographies, and then Kevin will provide you with some additional color on our Q1 results and our thoughts for the remainder of the year. Turning now to Slide 6. In our nucleic acid production business, Demand for CleanCap messenger RNA continues to accelerate in all areas: CleanCap reagents themselves, GMP Manufacturing Services and Custom mRNA Constructs. MRNA is an established platform for Seanes continues to be incredibly successful clinically and commercially due to its flexibility, Revenues and what the future holds for Maravai. Let me try to address this upfront and share with you some of our very latest thinking. As I said last quarter, it is our belief that COVID-nineteen vaccinations will continue to be needed for years to come Pressure on the virus is intensified by numerous partially completed immunization programs. We expect COVID-nineteen to become an endemic disease, not dissimilar to influenza that will require ongoing public health interventions for years And we fully expect that reoccurring messenger RNA vaccinations will be an essential part of these continuing interventions. The clinical efficacy of both of the mRNA COVID-nineteen vaccines in widespread use today has not been equaled by any of the other types of vaccines currently authorized. In fact, the European Commission President, Ursula von der Leyen, herself a physician recently said, and I quote, We need to focus on technologies that have proven their worth. MRNA vaccines are a clear case in point. This followed the announcement that the EU was in negotiations with Pfizer for 1,800,000,000 additional doses of vaccine for delivery beginning in 20222023. Those negotiations were concluded successfully over this past weekend, resulting in the largest single contract to deliver COVID-nineteen vaccines to a governmental authority over a multiyear period. It also seems clear that the ultimate share of the vaccine market held by messenger RNA vaccines through global programs such as COVAX We'll further increase beyond initial expectations as alternative vaccine modalities consent with concerns, however unfounded about their own safety profiles. The development of new generations of vaccines that either offer protection against emerging vaccine variants or that enhance immunity by offering booster doses of the 1st generation vaccines are well underway. Regulatory authorization of mRNA vaccine usage across all groups of the population, Adolescents, pediatric patients and pregnant women as examples appear imminent And we'll also further expand demand in late 2021 and throughout 2022. We also anticipate increasing demand for CleanCap in 2022 as our other customers own mRNA COVID-nineteen vaccines receive their own Emergency use authorizations and as those customers ramp up for full scale manufacturing, just as Pfizer and BioNTech have already done. These multiple concurrent tailwinds and well beyond what was originally expected in 2021. For Maravai specifically, We expect continued strong demand from our existing COVID-nineteen Clean Cap customers in 2021 and 2022 as they dramatically increase their manufacturing capacity for existing vaccines. Pfizer confirmed this expansion of capacity in their recent earnings call indicating then that they expected to be able to manufacture 3,000,000,000 doses in 2022, up 20% from their 2021 projections. And in an open letter released just last Friday, Albert Bourla stated that Pfizer's internal objective is now to reach 3,000,000,000 dose capacity in 2021 and to expand even further to 4,000,000,000 doses during 2022. Yesterday, Shanghai Fosun Pharma announced the formation of a $200,000,000 joint venture with BeyondTech To produce a to build a manufacturing facility in China capable of producing 1,000,000,000 doses of COVID-nineteen vaccine each year. And this morning, BioNTech announced that it will also build a 1,000,000,000 dose Plant in Singapore scheduled to begin operations in 2023. As you can see, We have a great deal of confidence in the growing demand for clean cap we will see this year, next year and beyond from our largest customers. In addition, global investment in messenger RNA as a platform technology for several other COVID-nineteen vaccines is rapidly accelerating. Pfizer raised its guidance for R and D spending in 2021 by some $600,000,000 last week to reflect its increased investment in additional mRNA based development programs and COVID-nineteen antivirals. More and more industry experts are projecting that mRNA represents the future of vaccine development efforts. The infrastructure and expertise now exists to further expand beyond COVID variants into new infectious disease targets, such as seasonal influenza, malaria or HIV and the race for an mRNA vaccine for Flu has clearly already begun. Immuno oncology applications that make direct use of mRNA or gene editing capabilities now include therapeutic cancer vaccines and advanced immunotherapies such as CAR T cell therapies. Some of the earliest applications of mRNA therapeutics addressed other high value unmet clinical needs for enzyme replacement therapies and glycogen storage disorders. Many of these early stage clinical Programs were put on hold due to the pandemic and a number of our customers are now resuming activity in these areas. Now turning to Slide 7. In addition to our nucleic acid products, Maravai's other businesses complement and round out our product portfolio. In our biologics safety testing business, customers choose our Cygnus brand Due to the breadth of our test kit menu and our reputation as the gold standard when it comes to detecting impurities and the Biologics manufacturing process. We saw strong demand for all categories of kits during the quarter From generic and custom host cell protein assays to other ELISA impurity detection kits. 1st quarter revenues for our biologic safety testing products were at an all time high and increased 23.5 percent from the prior year. Our protein detection business saw 7% revenue growth versus the prior year, driven by both our custom and catalog business. We are back to historical pre COVID sales levels as research labs have reopened and resumed new discovery and development work. Finally, I'd like to comment briefly on the M and A landscape. As you know, we built our business by acquiring established and emerging companies with strong scientific foundations in our target markets And with them by investing in their systems, processes and people in order to accelerate their growth and expand the applications for their technologies. Going forward, we will continue to seek a balance between driving our substantial organic growth with opportunistic acquisitions that meet our stringent financial and operational requirements. And now moving on to Slide 8, I'll now ask Kevin to cover our Q1 performance in some detail and to provide our updated guidance for 2021. Kevin? Thank you, Carl, and good afternoon, everyone. I'm happy to review our financial results for the Q1 and to provide our revised financial guidance for the full year of 2021. Turning to Slide 9 of our presentation. As you've seen in our press release this afternoon, our record Q1 revenues of 148 point $2,000,000 represented 191 percent reported growth from Q1 2020. Our GAAP based net income Before the amount attributable to non controlling interests was $75,900,000 for the Q1 of 2021. Moving to slide 10. Adjusted EBITDA, a non GAAP measure, was $101,900,000 for Q1 compared to 29.6 for Q1 2020 $64,300,000 in the most recent Q4 of 2020. This represents a 2 44% increase year over year and a 58% sequential quarterly increase from Q4. Our EBITDA margin was 69%, up from both the 58% in Q1 2020 and the most recent 65% result in Q4 2020. The increase in adjusted EBITDA was primarily driven by overall sales volume increases and margin improvements from our nucleic acid production business. On Slide 11, we present basic EPS, fully diluted EPS and adjusted fully diluted EPS. Basic EPS is GAAP net income attributable to our Class A shares divided by the weighted average Class A shares. Our fully diluted EPS equals GAAP net income prior to non controlling interest divided by the weighted average for both Class A and B shares and other dilutive securities such as equity awards. Adjusted fully diluted EPS equals adjusted net income divided by the weighted average of both Class A and Class B shares and other dilutive securities. Both our basic and fully diluted EPS for the Q1 were $0.24 while adjusted diluted EPS was $0.26 per share. Moving to Slide 12. We continue to have a strong balance sheet and cash flows. Our cash and cash equivalents, which are GAAP metrics, totaled $248,000,000 at March 31, 2021. Our strong EBITDA performance led to robust free cash flow for the quarter of $97,000,000 Adjusted free cash flow is a non GAAP measure that we define as adjusted EBITDA less capital expenditures. So with $548,500,000 in long term debt, about $248,000,000 in cash and trailing 12 month adjusted EBITDA of $241,000,000 we sit at a 2.3x gross debt to adjusted EBITDA ratio and a 1.3 times net debt to adjusted EBITDA ratio. Now to provide some more insights into our business segment financial performance for the quarter. Turning to Slide 13. As Carl mentioned earlier, our nucleic acid production business fueled the most significant portion of the revenue growth for the Q1. Nucleic acid production represented 84% of the company's total revenue in the quarter and generated $95,600,000 in adjusted EBITDA in the quarter. The 77% adjusted EBITDA margin in this business is a record margin for nucleic acid production and reflects the increasing value of our unique products as well as the productivity gains and efficiencies from our state of the art San Diego manufacturing facility. Clean cap revenues from our major COVID-nineteen vaccine customers were approximately $91,000,000 in the Q1 of 2021, a sequential increase of 76% from Q4 2020. Our Biologics Safety Testing business contributed 12% of the company's revenue in the Q1. Our Cygnus branded products, It's comprised virtually all of the segment's business, grew to a record $17,600,000 in the quarter, representing growth of 23% from Q1 2020. This growth was driven by the increasing number of biologics and biosimilar drug development programs as well as new customers gained in the quarter attributable to the high quality and breadth for host cell protein ELISA kits. This included strong growth from our HEK kits using vaccine and gene and cell therapy programs as well as increasing contributions from BSA, bovine serum albumin and endonuclease offerings. Further, we saw a strong quarter for our E. Coli products used in biosimilar programs. Our Biologic Safety Testing business delivered $14,300,000 of Our protein detection business based on the different growth rates for each of our businesses represented a smaller part of our overall business accounting for just 4% of revenues in the Q1 and only 2% of our adjusted EBITDA. Corporate expenses that are not included in this segment adjusted EBITDA totals I just discussed were $10,300,000 in the quarter, increasing from Q1 twenty twenty levels of Now moving to Slide 14 and our updated 2021 guidance. Today, we are raising our 2021 full year revenue guidance to $680,000,000 to $720,000,000 up from our prior guidance of $580,000,000 to 630,000,000 a $95,000,000 increase at the midpoint. Included in that range is our estimate for 2021 CleanTAP revenues directly attributable to our major COVID-nineteen vaccine customers, which we are estimating at $440,000,000 to $470,000,000 up $70,000,000 at the midpoint from our prior guidance. This total revenue guidance for the full year of 2021 reflects the expectation of 20% annual growth for our biologics safety testing business. Coming off the record last quarter for this business, we continue to see solid market dynamics across our segments and geographies, fueling global growth in biologics. That combined with new customer wins that build on the already strong base of repeat customers is clearly supporting more bullish outlook for this business segment in 2021. We also see protein detection growing by 20% this year off the lower 2020 basis as this business has returned to pre pandemic quarterly revenue totals. Now since all of you listening to this call are really good at math, I'll jump straight to what this implies for our nucleic acid production business. This guidance at the midpoint implies that the nucleic acid production segment revenues will be around $600,000,000 for 2021. Also, Subtracting the midpoint of the COVID-nineteen Clean Cap revenue guidance, you will see that our base nucleic acid business is shaping up to be roughly $150,000,000 for the year, which would represent growth of over 35% versus the comparable total in 2020. We continue to see good momentum and traction across our offerings here With strong clean cap demand coming from outside of the major COVID-nineteen players as well including initial orders for non COVID Vaccine development. Furthermore, our blue chip customer base of gene and cell therapy companies represent exciting mid to long term opportunities. The validation of mRNA as a development We are extremely busy here and we are very excited about our role as a key contributor to these new mRNA platforms for the foreseeable future. As Karl mentioned, we continue to see growing interest in a number of our other nucleic acid products, particularly for some of these mRNA based platforms. We see that as being really exciting for the long term growth prospects for Maravai. Now turning to the quarterly gating of revenues. Because of the continually evolving demand for CleanCap as well as the inherent choppiness in supporting our gene and cell therapy customers through their development phases, We will not be providing quarterly estimates for revenues at this stage. However, we do see the 2nd quarter being up meaningfully from Q1 based primarily on our book of Cleancap orders that continue to grow as a result of our major customers' commercial successes and the expanding global rollout of vaccines. Given the size and fluidity of these forecasts for CleanCap to address global vaccine demands, we are working closely with all our customers to develop the most accurate forecast possible. We currently project 2nd quarter total revenues for all of Maravai to be up at least over 30% from our current record Q1 levels. As discussed on our last call, our revenue guidance is in large part based on our largest customers' rolling forecasts that extend out Several quarters and are further supported in the shorter term by binding POs, which may go out for several months. On top of that, we have a forecast funnel for our GMP suites, which are used to mainly support builds for our customers' nucleic acid therapeutics programs. Based on these factors, our fiscal year 2021 revenue guidance comes with a considerable degree of forward visibility, but will be subject to some quarterly fluctuations. Based on those revenue fluctuations, we have our expectations, We have updated our internal forecast and guidance for other key financial metrics. We expect our non GAAP adjusted EBITDA, A non GAAP measure to be in the range of $440,000,000 to $470,000,000 which at the midpoint of that range represents growth of nearly 170% and implied adjusted EBITDA margin percentage of 65% at the midpoint of our revenue range. This margin is slightly lower than our mostly recently Reported EBITDA margins since it reflects some level of focused organic investment in our business to continually reinforce our ability to support long term growth. Adjusted fully diluted EPS, a non GAAP measure, is expected to be in the range of $1.04 to $1.12 per share. Moving to Slide 15. Adjusted fully diluted EPS is based on the assumption that All Class B shares are converted to Class A shares, which results in a forecasted fully diluted share count of 260,000,000 shares for the full year of 2021. The net income included in the adjusted fully diluted EPS has been adjusted to eliminate any net income or loss attributable to non controlling interest as a result of an assumed full conversion of Class B to Class A shares. Additionally, our adjusted fully diluted EPS, Including certain adjustments that do not reflect our core operations are based on an adjusted effective tax rate of 23% to 25%. The effective tax rate reflecting some forecast improvement based on the geographical distribution of our growing revenue base. As it relates to certain other adjustments needed to get to our non GAAP adjusted EBITDA range, we see the following items in 2021: Interest expense of between $30,000,000 $35,000,000 depreciation and amortization also between $30,000,000 35,000,000 An adjusted tax rate of 23% to 25 percent equity based compensation, which we show as a reconciling item from GAAP to non GAAP EBITDA, $10,000,000 to $12,000,000 in 2021. And for 2021, we expect to invest an estimated $20,000,000 to $25,000,000 for capital expenditures, is approximately 3.5 percent of total revenues. Our reconciliation of net income to GAAP EBITDA and from GAAP EBITDA to adjusted EBITDA is presented in our press release. In addition, our segment related information will be detailed in our Form 10 Q, which we plan to file in the coming days. Lastly, I'd like to continue to express my personal gratitude to all employees, vendors and service providers of Maravai that continue to be incredibly committed and are such a great part of our overarching mission to support our customers with quality products that are enabling them to make such great So thank you for your time today. Thank you for your support of Maravai. And now I'll turn it back to Carl for some final remarks. Thank you, Kevin. So to wrap up with Slide 17, we're off to an incredibly strong In 2021, in our 1st full year as a public company, we feel very good about the momentum we're seeing across all of Maravai. It is clear that this momentum is building across our entire global customer base as mRNA research and development moves to the forefront of modern medicine. We have a direct line of sight into the book of clean cab demand for 2021, which continues to grow and our 2022 outlook is building nicely. With additional mRNA vaccines coming to market and with the expansion of our strong existing partnerships with industry leaders in mRNA therapeutics. While we still aren't in a position to provide guidance for 2022, we are seeing customers already booking production capacity throughout the first half of that year. And in the category of even more late breaking news, We have been on the receiving end of a number of inbound calls about the reports last week that the U. S. Government is supportive of some As yet unspecified, waiver of intellectual property rights concerning COVID-nineteen vaccines. The stated intent of this effort is to promote the availability of more vaccine doses globally more rapidly. Maravai is fully committed to working with all of our current and potential partners to ensure the broad global production of and widespread access to vaccines as quickly as we can. In fact, we are supplying vaccine programs based In the U. S, Europe, Japan, Thailand and China already, We would note that the availability of our mRNA capping reagents has never been a rate limiting factor for vaccine production by any of our partners. While we don't yet know any details about what the Biden administration is prepared to support at the World Trade Organization, Our understanding is that any direct negotiations on this issue will take time and will ultimately require unanimous consensus among the 164 members of the WTO. Ambassador Tai, the U. S. Trade Representative, was quoted in a statement last week as saying, Those negotiations will take time. While IP waivers might have the potential to enable a more diverse set of global vaccine suppliers over a long period of time, Access to IP is only one element of a complex set of requirements needed to produce mRNA based vaccines of quality and at scale. A Pfizer spokesperson recently noted that the company's vaccine requires 280 components from 86 Suppliers in 19 Different Countries. Making 100 of millions of doses of mRNA based vaccines Also demands highly specialized equipment and personnel, both of which are in short supply and complex and time intensive It is absolutely critical that whoever may be producing the vaccines and those supplying the raw ingredients for them We believe that the waivers being discussed will not meaningfully expand the supply of COVID-nineteen vaccines in the next 2 years. With the pandemic still raging today, particularly in the unvaccinated corners of the developing world, We believe that increased investment in the production capacity and distribution channels of the proven manufacturers From COVID-nineteen vaccines to vaccines for influenza to cell and gene therapies battling cancer, The transformative impact mRNA will have on global human health is only accelerating, and we at Maravai I would now like to turn the call back over to Mary to open the line for your questions. Mary? Thank you. Your first question comes from the line of Tejasavan from Morgan Stanley. Your line is now open. Hey, guys. Good evening. Kyle, just one Opening question for you in terms of what's included versus what would represent upside to your revised guidance here. So the FDA apparently just issued an EUA on approving the vaccine for 12 to 15 year olds. Was that contemplated in your guide? I know you mentioned in the prepared remarks that these new vaccine categories, including pregnant women And pediatric vaccinations are now imminent. So that's the first part. And the second part is, to the extent that Your customer CureVac, their vaccine is expected to be stable at I believe it's around 5 degrees for 3 months. And BioNTech is also working on a vaccine that's potentially stable in the 2 to 8 degree range for up to 6 months, which suggests that there is room here for adoption In emerging markets down the road, is that something that's contemplated in sort of your comments around 2022 and beyond? Well, thanks for the questions, Tejas. And let me start by saying that it's hard to look at any So, I would like to ask a question on the question and answer session. We're operating obviously at an aggregated level of demand from our big customers. But I think it's fair to say that those big customers are highly focused on their own capacity and what their needs are to support the regulatory plans and approvals That they know they have in process. So my answer to your first part of your question is, yes, I think it's reasonable to assume Those expansions of coverage would have been anticipated by our partners, and that's then reflected in the orders that we get And in the way we build our guidance, as Kevin explained. And then on the second question, I absolutely believe that You will see much more use of mRNA vaccines in the developing world than we ever thought even 3 or 4 months ago. Before the first cold chain, changes were approved by the FDA. That seemed like a momentous hurdle or monumental hurdle to get over, but right now it looks like that's becoming much more manageable. So I would expect that you're going to see mRNA vaccines will be used in a large number of places that were not previously anticipated. As to whether that's incorporated or not, I think it's less likely that those changes have been fully anticipated or baked in. Perfect. And then Carl, on the EU contract expansion commentary that you made, obviously, Ursula von der Leyen's Comments are pretty supportive of the mRNA approach and 1,800,000,000 doses is a lot of doses. Is that all upside starting in 2022 or will some of that help later this year as well? And then second, there was also a comment she made around a push to So with that in mind, I mean, is a European Clean Cap expansion something that You would need to consider or do you feel pretty comfortable that Pfizer and BioNTech can continue sort of sourcing the ingredients from your current facility here in the States? Yes. Look, on the latter question, I simply don't know, Tejas. I think there's probably An admirable motivation by stating that, but if you look at Pfizer's commentary That they source components from 19 different countries. It seems quite unlikely to me that there's duplicate supply of every one of those 280 components, All in the EU. So as a practical matter, that may be a little bit more difficult to handle. Now with respect to the timing, what we heard is obviously this is $909100,000,000 so it's a purchase obligation for 900 1,000,000 doses and then an option for the EU on the additional 900,000,000 doses. I've heard that the very first shipments under this Expanded order might occur in December, which would suggest you would have some ramp in the Q4 of this year, But the vast majority of the demand is in 20222023. Got it. Very clear. Helpful. And then Carl, one final one. The comments you made around the IP waiver, that helps clarify A couple of inbounds we had gotten as well. But can you just sort of put a finer point on it in terms of how you expect that to play out in terms of the price Per dose for Cleancap, is it fair to assume that given that the price per dose is so small relative to the overall Sort of like COGS of the vaccine and the final price point as well, perhaps at least the one in the developed world, You should not see much of an impact or is that something that you might need to revisit for emerging market production? Well, are you asking, if we would not see impact because of the IP waiver proposal? Was that correct? Yes, exactly, exactly. Yes. Look, Tatus, I don't see how those two things can possibly be linked together. If somebody Suspended the IP on all the components that are being used in vaccine today. You'd still have to have suppliers geared up and capable Of producing that exact compound, and then you'd have to go through the regulatory submissions related to changing compounds. I just don't see that as being a terribly likely occurrence and thus I don't think we would see price pressure. Perfect. Thank you. Next question comes from the line of Matt Sykes of Goldman Sachs. Your line is now open. Great. Thanks for taking my questions. Just my first one, just pivoting away from COVID for a minute. You actually gave some additional color on some of the other Non COVID mRNA vaccines and therapies you're working on flu, potentially malaria and some other indications. Can you just give a little bit more color? It sounds like some of these projects are coming back Line post sort of the more strict COVID lockdowns. Could you just give us a little more color in terms of maybe These areas or any other new programs that you're involved with on a non COVID basis? Well, yes, Matt, obviously, it's our customers who are doing all this We wouldn't propose to take credit for that. But at the end of the day, I think that the vaccine work has been accelerated with the most noise and the most around seasonal influenza vaccine alternatives and those can be combos, multivalent, However you want to look at it. So I think that, that one is the most obvious and has had the most commentary around it. The other programs, including malaria and HIV, Have been vaccine targets that have been resistant to alternate ways of doing vaccines for a long, long time. So the validation of the mRNA platform has caused a lot of experts in the field to feel that these represent valid next targets for the mRNA platform and we do know that there are people working on those. In addition, there are a large number of, I'll call them lesser prevalent diseases, again similarly resistant or would perhaps Hyper variability that mRNA was being used for, these include things like Ebola, rabies, etcetera. I think it's the other infectious disease vaccine targets are now in full swing. And those other programs that might have been put on hold as people concentrated on COVID are also reemerging. Great. Thanks for that. And then just on the CapEx, I know you guys had put a lot of money into the TriLink facility to get it up to, I think, a capacity of about $1,000,000,000 in sales. Are you shifting 1, are you continuing to focus on that to prepare for the type volumes you might see even on a longer basis or are you shifting CapEx to other areas? If so, where are you shifting your CapEx towards? Kevin, would you like to start it up? Sure, Matt. Yes. I mean, right now, really the focus has been predominantly on The completion of the San Diego based facility for nucleic acid production, again, we had built out all of the square footage available to us now, I think, Except for about 5,000 square feet and are making sure those lines are up and doing the size runs that we need and we have all the equipment. So that's really as far as The recent focus in the last quarter as well as this recent Q1. And from this point forward, I think we're going to continue to look at a lot of different Certainly, the Biologics business continues to expand a little bit above our expectations. So we're evaluating that. Also as we've talked about with our free cash flow and outside of the kind of M and A that Carl mentioned, the organic investment in our It's going to continue to be something we evaluate. So whether that's additional facilities or additional infrastructure and additional geographies, As we continue to expand, as we look forward, as we always have for several years to make sure we have the capacity to meet this growing demand, That's something we're turning our attention to. We previously talked about the capacity of nearly $1,000,000,000 here in San Diego output. But if you take Where we are today and you look at how we're growing, at least from a percentage perspective, even with the non COVID related vaccines, that's potentially a couple of years away. So we have to stay In front of that as well and those are all things that we're currently looking at. But what you've seen in the last couple of quarters is predominantly focused on the NAP segment. Great. Thanks for the time guys. Appreciate it. Thank you, Matt. Next question comes from the line of Brandon Couillard of Jefferies. Your line is now open. Hey, thanks. Good afternoon. Good afternoon. Carl, Maybe shifting gears back over to Cleancap. Is it reasonable to think about Cleancap pricing coming down somewhat in 'twenty two? Or would that be premature based on your conversations with Your biggest customers today? I think it would be premature. Very clear. Maybe shifting gears over to the plasma DNA build out. Can you just give us an update now that you're several months into that launch, anything tangible you can share with us terms of number of customers to date? Yes, I mean, it's in its early stages. We didn't have high expectations right out of the box in terms of contribution given the rapid growth of Clean Cap on the side, But it's tracking along well and particularly for customers who want end to end services to go from sort of a custom mRNA construct All the way through to finished product, the story is resonating in the capacity that we think will be well utilized. Very good. Thank you. Thank you. Next question comes from Matt Larew of William Blair. Your line is open. Hi, good afternoon. Carl, you alluded to sort of the complexity or fragility of the global supply chain with respect to the Pfizer Vaxteen, obviously, brand has asked about the plasma offering, but just curious if the COVID experience as a supplier has highlighted any other bottlenecks, In particular, what do you think scale and manufacturing expertise could be particularly helpful? Well, I mean, certainly when you think about the mRNA Right now, the biggest challenge is just the supply of enough lipids to go into the manufacture of the lipid nanoparticle And the equipment needed to formulate this high volume of demand. So that's certainly a consideration that I'm sure is consuming a lot of our customers' As the demand grew and making sure that we have viable backup suppliers in case something happened with our primary And I'm pleased to say that, that effort has gone well. We haven't had any massive delays in getting components, Obviously, being a U. S.-based manufacturer and all of this stuff being under the rubric of the Defense Production Act at some level, Then our ability to get the materials that we need hasn't been in question. So we feel pretty good about how it's set up today. That doesn't mean that there aren't other problems that other folks are having. Okay. And then Kevin maybe touched on this a bit, but just wanted to follow-up in terms of thinking about infrastructure. You mentioned you're scaling to $1,000,000,000 perhaps faster than you may have thought 6 months ago. Carl, you alluded to the Fosun partnership and BeyondTech expand in Singapore. Just curious within that context and then thinking about COVID perhaps as an endemic, if there's thought to redundancy that you're thinking about and other kind of global Yes, Certainly, there are. I mean, certainly redundancy is something that our customers certainly want to see, and we think is also very important. We're evaluating that and that could take several forms, right? It could be organic investment in additional buildings. It could be partnering or enabling someone to Help us with overflow capacity as needed long term either domestically or internationally. So we're constantly evaluating that. We have Several different conversations ongoing and I think that whether it be strictly organic or via partnership or Getting additional capacity through M and A, those are all opportunities. And again, we're looking at each one of them. We're very sensitive The fact that we want to continue to ensure that we are supplying all of the demand that's out there, that's been something we've been focused on for years now and So we're going to continue to invest in ourselves and move that capacity long term. Okay. Thanks for the time. Thank you. Next question comes from Derik De Bruin of Bank of America. Your line is open. Hi, good afternoon. Hey, Derek. Hey. So, Brendan sort of asked it, but I'm going to ask it a different way. Looking at, you're talking about a 65 percent EBITDA margin in 2021. Does that hold into 2022? Is that a good way to think of that initial model? Okay. I was going to say, yes, I mean, certainly to the extent the mix stays the same, I think it will continue to be around that level. I mean, again, we're not going to Necessarily squeeze the P and L to force a certain margin at the extent that sacrifice the long term growth. I think what you're seeing now is sort of The natural margin that the business has been generating, as I said in my remarks, we're continuing to invest in the right areas, be it Commercial marketing, be it quality, be it R and D, I think you'll see some of that as we get into the second half of the year, and that's going to continue to be important for us long term. But The business is throwing off really high margins because of the growth that we have in nucleic acid production and the infrastructure and the cost controls that we have in place. As Carl mentioned, we feel a little bit about pricing and where those contracts stand, we feel a little bit about our supply chain and where the inbound stands. So Given most of that's being driven by the gross margin, I think those margins right now are pretty sustainable. Got it. And is that still assuming a $30,000,000 to 35,000,000 Depreciation and amortization for the year? Yes, dollars 30,000,000 to $35,000,000 D and A for the year, correct. Got it. And given the demand and obviously there's a huge interest here. I mean, are you actually going to be able to take pricing up as people sort of like rush to go down this pathway of mRNA projects? Yes. Look, I don't think we would, in the current situation, expect to take pricing up in a systematic way, I think a large number of people involved in these critical programs, we'll look for opportunities to enhance the products to make them individual customers' workflows or applications better and to the degree those improvements contribute added value to the customer, You could expect that they'll pay for some portion of that. But systematically, no, I don't see this as being a business where we take 3% or 4% Price per year across the board and keep in mind that we have multiyear material service agreements Or material supply agreements with some of our big customers that would preclude activities outside of the contract. Great. And then just one final one. Any incremental color on M and A? Basically, adjacencies, new verticals, Just sort of your general thoughts as you look at it, what's the right strategy for the company or what's your current thinking for the company? Look, it's still the Same. We're focused on adding more capabilities to meet the needs of our existing customers. That would be in each of the 3 verticals that Right now, I can tell you we've been super active over the last few months in looking Had some potential add ons or significant acquisitions within those spaces. Don't think we have Anything happening short term there, but it is a continued focus for us and we'll always try to balance The super high organic growth that we're seeing with M and A that reflects what we've done in the past, which is To look for those target companies with great science in our target markets and then to be able to conclude deals. And Next question comes from Don Brennan of UBS. Your line is open. Great. Thank you. Thanks for taking the questions. Maybe just thinking about 2022, you kind of talked about the EU contract and Pfizer coming out and talking about 4,000,000,000 doses. Can you just remind us again, like how far in advance Do you typically see orders come in? And then number 2, can you just remind us your capacity? I know you talked about The supply chain and you've kind of set that up and you're prepared to ramp, but like do you currently have capacity to meet potentially 4,000,000 doses in 2022 if that unfolds? Kevin, would you like to try that? Yes, certainly. I mean, the straight question to your second part of your question there, yes, And we do have the ability to meet that capacity. Probably right now as we look at where we're at, we're probably 50% to 60% capacity. So we certainly have the ability to ramp up substantially from where we're at. And that just comes with flexing in labor and lot build sizes and those sort of things. And that comes into long term production planning and that's why we work with our customers to look at their demand a year forward. I mean that's they have Forecasts are sort of kind of in a collaboration with us in the MSAs that Carl mentioned that give us 1 year worth of visibility. And again, that's for us to plan and make sure we can meet their demand. And then we use that and they typically will place orders based on the contracts And binding POs out for a few months, if not a couple of quarters. Some of our customers provide those rolling forecast and place a PO Going out all the way into 2022 already, some of them want to I guess they just really want to make sure they have their slots. So it's a little bit The requirements are a little bit in the shorter term, but again, nice visibility looking forward and it's just been a great relationship with many of these High volume customers and working with them to make sure we meet the demand and that's certainly been something we've been able to do and we'll continue to be able to do as we look forward. Great. And then is there any risk around a volume scale? I'm just wondering whether or not an enzymatic approach could potentially become more economical. I don't know what higher volumes maybe. There are some cost savings. I'm just wondering, whether or not Clean Cap gets more locked in or is there any risk of kind of some of the vendors looking to switch? I think we believe that the cost of switching here, especially regulatory re registration costs are frankly much more significant than any differences in costs and methodologies. And as our customers are getting More experience with their processes, they're getting greater yields and they're able to be more efficient overall. So I would think that this is not a point in time at which you'll see somebody switch from clean up enzymatic or vice versa. And kind of to date, I guess, have you faced any challenges yourself in terms of being able to scale? Can you just walk through how Things have gone according to plan. It's been an unprecedented volume ramp that an mRNA seems to be just capturing more and more share given the issues we've seen in some other modalities. I'm just wondering How do you characterize your own kind of commercial scale to date? Yes. Well, look, I don't want to minimize the efforts of Brian Neal and his team at TriLink, but we have not had problems in our ability to meet this growing demand. Keep in mind that in addition to Purpose design, brand new facilities with lots and lots of space to grow, which we started with, Brian and team are focused very heavily on process improvements and specifically that means doing things in larger So if you wind the clock back a year and a half, a 5 gram or a 10 gram order for Cleancap would have been a significant Today, we're operating at scales that have us filling orders for multiple kilograms Of that material. So a lot goes into it and they all contribute, but we've been doing several things simultaneously that have allowed us to keep pace with the demand and we still see further room for improvement opportunities. And kind of you mentioned flu and that came up a few times and we've kind of looked into that as well. Obviously, there's been a lot of discussion from some of the sponsors about using mRNA for flu. With the pricing of Clean Cap vary at all when you think about the content of Clean Cap in flu, How would we think about the opportunity set versus COVID? I think it may be a little bit too early to So if there are opportunities for us to make modifications to Cleancap that make it work better in a flu vaccine, Then you might have a different basis for pricing. I don't think it's going to be step functions or orders of magnitude different, but there may be some added value we can deliver. And of course, it also depends on the quantity of material that you need to do. So how much mRNA do you need to use? Is this a And maybe final one just on IP. Is there any risk around Maravai having to open up its own IP for COVID Clean Cap If the sponsors are being potentially forced to do that, is that something that potentially is a risk to yourselves that knockoffs could just Honestly, Dan, we don't know. There's not enough specificity in the A little bit of information that's been provided about some of these initiatives. And so we stand by what I said earlier about this And with that, I think Deb will turn it back over to you. Great. Well, thanks everyone for joining us today. I just wanted to tell you we'll be at the Bank of America Conference this Wednesday, May 12. We'll also be participating at the UBS Healthcare Conference later in the month. Both presentations will be available both live and replay on our website. Feel free to contact me if you have any questions and we look forward to staying in touch with you during the course of 2021. Thanks for your time. Bye bye. That concludes today's conference call. Thank you all for your participation. You may now disconnect.