Maravai LifeSciences (MRVI) Stock: Growth Catalysts Remain

In November 2020 I concluded that Maravai LifeSciences (NASDAQ:MRVI) was a real Covid-19 beneficiary, as the market gave the company a welcome debut when it went public.

The company plays a crucial role in drug development and even played a role in the Pfizer (PFE)/BioNTech (BNTX) vaccine, the talk of the day of course. With the growth prospects looking sound with or without a pandemic, I believed that the outlook for the business was sound, yet it simply felt as if valuations were pushed up a bit too much at the time.

An Overview

At the time of the public offering, Maravai was a life science business which provided critical products to be used by biopharmaceutical names which use these products in the development of drugs, diagnostics, vaccines and research. With more than 5,000 customers, Maravai has seen impressive growth after it was only founded in 2014.

The company targeted 20% growth as the company has exposure to cell and gene therapy, encouraging segments to cater given their growth prospects. The company went public at $27 per share, as 258 million shares outstanding gave the company a $7 billion equity valuation at the time, as some $360 million in net debt was reported at the time.

This valuation was applied to a business which generated a mere $124 million in sales in 2018, albeit that the company posted a solid operating profit of $16 million on those revenues. Revenues rose a modest 15% to $143 million in 2019, as operating profits rose further to $24 million. At the time of the public offering, the company already generated $185 million in sales in the first nine months of the year, for a run rate close to a quarter of a billion.

Moreover, operating earnings already came in at $64 million in the first three quarters of the year, as it was hard to disentangle the driver behind the growth, with that I mean that it was hard to see how much growth stemmed from the pandemic or its related impacts.

With shares up 10% to $30 on the first day of trading, an $8 billion valuation worked down to a 32 times sales multiple, a huge valuation multiple by all means. While the 2020 growth was spectacular, I noted that 2019 (a year in which we of course did not have an impact on the pandemic) growth was not too spectacular.

Boom – Bust

After the company went public and immediately traded around the $30 mark late in 2020, shares hit a high around $60 per share late in the summer of 2021, as existing investors kept on selling shares while the shares ticked higher. Ever since it has been all downhill with shares having lost about three quarters of their value to just around $16 per share here.

The company ended 2020 on a very strong note with fourth quarter revenues of $98 million being very strong, for full year sales of $284 million, as the company was incredibly profitable. The company guided for strong momentum set to continue with 2021 sales seen more than doubling to $580-$630 million.

In January of this year, the company announced a $240 million acquisition of MyChem, a provider of proprietary, ultrapure nucleotides. In February, the company posted far stronger than expected results with revenues up 181% to $799 million, some two hundred million ahead of the original guidance which was quite inspiring already.

The company was incredibly profitable with operating profits posted at $555 million, albeit that net earnings only came in at $812 million after large minority interests, as this still translated into earnings of $1.56 per share. After this very strong year, the company guided for much more modest, yet still solid growth in 2022. Revenues for the year were initially seen at $920-$960 million, with adjusted EBITDA seen at a midpoint of $650 million, up from the $583 million number reported in 2021.

After the company hiked the EBITDA guidance in a modest fashion in the first quarter, the company actually cut the guidance alongside the second quarter earnings release. Full year sales are now seen at a midpoint of $895 million with EBITDA seen at a midpoint of $650 million, reverting the increase in the guidance following the first quarter earnings report. Net debt has been eliminated now following the profits generated in the past years, albeit that the company still has large payables in relation to Tax Receivables Agreements with some related parties.

The trouble now is that the company is set to generate some $600 million in sales tied to the pandemic, about two-thirds of total revenues, as the company sees 2023 revenues from this segment at just $200-$300 million. So outside the pandemic the company sees revenues at nearly $300 million, as the cut in the full year guidance implied some weakness in the sales of the non-Covid-19 business as well, as that might be the most painful observation of all.

Concluding Thought

With shares trading at just around 9 times earnings here, the reality is that there are a lot of moving parts. Besides any pandemic related revenues, the company would lose two-thirds in revenues and likely a similar, or larger profit share as well, and hence the 9 times earnings multiple does not tell much.

While the company will likely still see a substantial portion of Covid-19 related sales in 2023, and this could pick up if the pandemic returns, the reality is that the comparables will be tough for some time to come.

In the meantime the company is facing some tough times related to its CEO. Early in October, Maravai announced that William Martin III would become its CEO. A few weeks later it became apparent that his former employer Danaher (DHR) claimed that he was in breach with its non-competition agreement.

The reality is that right now shares are derisked a great deal. The company has a flattish net cash position, is still hugely profitable, shows growth outside its pandemic related business, and earnings multiples remain quite low. On the other hand: revenues could fall if the pandemic reverts, which is a big if and likely we have still some revenues in the intermediate time. Of course the softer performance and issues relating to its leadership position still provide near term distractions, yet now seems the time to slowly warm up to Maravai here.