Maravai Lifesciences Holdings, Inc. Q3 FY2024 Earnings Call

Good afternoon, everyone, and welcome to the Maravai LifeSciences Third Quarter 2024 Earnings Conference Call. All lines are muted to minimize background noise. Following the speaker’s comments, there will be a question-and-answer session. Thank you. I will now pass the call to Deb Hart. Please proceed.

Thank you. Good afternoon, everyone. Thanks for joining us on our third quarter 2024 earnings call. Our press release and the slides accompanying today's call are posted on our website and available at investors.maravai.com. As you can see from our agenda on Slide 2, Trey Martin, Chief Executive Officer; and Kevin Herde, Chief Financial Officer, are joining me today. Drew Burch, President of Nucleic Acid Production; and Becky Buzzeo, our Executive Vice President and Chief Commercial Officer, will join the call for the question-and-answer session following the prepared remarks. We remind you that management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from management's expectations. We refer you to Slide 3 for more information about those forward-looking statements and our use of non-GAAP financial measures. Our just issued press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to Maravai's SEC filings for additional information on the risks and uncertainties that may impact our operating results, performance and financial condition. Now I'll turn the call over to Trey.

Thank you, Deb, and good afternoon, everyone. We appreciate you joining our call today. I'll give a quick recap of the third quarter and provide some commentary on the market dynamics we are experiencing. I'll then provide a few business updates and discuss our plans to acquire the DNA and RNA business of Officinae Bio. Let's start with our third quarter results on Slide 5. Today, we reported $65 million in revenue, $13 million in total adjusted EBITDA and a loss of $0.02 in adjusted fully diluted earnings per share. Our Nucleic Acid Production or NAP segment had revenue of $50 million. Biologics Safety Testing or BST had revenue of $15 million. Q3 results were slightly below our expectations, primarily due to a few customer requested program timing shifts, muted demand in research and discovery products within our NAP businesses and persistent softness in the global biologics market, which impacted our BST segment. In our NAP businesses, we recently achieved a key milestone, celebrating our largest service build to date at our Wateridge site, consisting of 26 grams of mRNA material for a preclinical cell and gene therapy customer. This program was initially slated for completion during Q3, but was delayed by one week into Q4 at the customer's request. Therefore, only a portion of the service revenue was recognized in Q3 versus the full amount we had assumed in our forecast. We will recognize the remainder of the revenue related to this program in Q4. This is an example of the way customers' clinical program timing can affect our service revenue realization. We also commenced our first customer build at Flanders 2, meeting another major milestone in our NAP segment. You'll see some photos on Slide 6. This program is for a cell and gene therapy customer using mRNA as an ex vivo tool to create the therapy. The engineering run is complete and work is underway preparing for batch 1 of GMP during Q4. We remain committed to advancing the field by playing a key role in the development of mRNA-based in vivo gene editing, gene-edited cell therapies, protein replacement therapies, cancer vaccines and infectious disease vaccines. Flanders 2 codifies this commitment to our customers through Phase III and commercial production. The fact that this customer chose to be the very first in our new facility is a testament to their confidence in our team's capabilities, expertise and commitment to high quality, and we are delivering on all fronts. We've built a robust funnel for GMP services for our Flanders 2 facility and are excited to be underway producing our first revenue in Q3. In the near term, I would expect the revenue contribution from Flanders to be a bit lumpy as we scale up. Similar to the customer requested delay at Wateridge in Q3, a Flanders 2 customer with a Q4 scheduled service build has requested to move the program to early 2025 due to clinical trial delays on their end. Our enhanced commercial team is working diligently with our customer funnel to fill capacity in the near term. We're encouraged by research that shows improved biotech financing and healthy new program starts in the industry related to our NAP businesses. However, we continue to transition through a period of contracting mRNA clinical trial starts, led by the steady annual decreases of new COVID mRNA vaccine and therapeutic clinical trials. Let's turn to Slide 7 to understand what I mean by that. The chart on the left side of the slide shows mRNA clinical trials initiated each year. As you can see, 2021 saw the highest number of trials initiated, but a very high percentage, 77% of those were related to COVID-19 vaccines and therapeutics. You can see those decline by about 20% each year for the past few years. The good news is that during this time frame, the non-COVID mRNA trials represented by the orange portion of the chart have steadily increased each year and are up 29% year-to-date through Q3. At some point, indication diversity will overcome the impact of the COVID-driven decline in starts, and we believe the COVID program proportional impact is nearly behind us. We believe we are the innovation leader and well positioned to service the growing segments of mRNA therapeutics discovery and development. The right chart shows clinical trials initiated for guide RNA-mediated gene editing, which is an exciting emerging opportunity for us. This market has been primarily CAR-Ts using lentiviral delivery approaches. However, developers are increasingly choosing mRNA as the preferred Cas delivery vehicle. We can and do support this market from RUO to GMP inputs and with RUO to commercial scale production across Wateridge and now Flanders 2. As you can see, this market growth is far outpacing prior years, up 75% year-to-date through Q3. Gene editing is a market we're excited about as a driver for our future growth potential. In both charts, this data reflects new program starts, not total active programs. Our research shows that total mRNA programs continue to increase, and we are now tracking close to 1,500 active programs. We will continue to focus on innovation to move the industry forward and build new revenue streams as a leading supplier, mRNA producer and raw material supplier. In that regard, I'd like to highlight 3 areas on Slide 8. Within our NAP business segment, we've introduced 21 new products year-to-date and continue to drive innovation as a critical KPI for our return to growth strategy. We've expanded our discovery mRNA synthesis services offerings with new custom sets of mRNA, providing flexible options that customers need for screening and hit-to-lead optimization. This plate-based mRNA launch supports our efforts to enable and lead the field by launching sets of up to 96 mRNA constructs. These custom mRNA construct libraries enable the testing of multiple candidate sequences with different combinations of 5 prime caps, modified NTPs and poly(A) tails, all with industry-leading cost and turnaround times. This new service enables our customers to optimize the performance of their specific targets, accelerating their development and improving the efficacy of life-changing mRNA-based therapeutics. Notably, this quarter, Alphazyme and TriLink collaborated to launch CleanScribe RNA Polymerase. The CleanScribe RNA Polymerase is a novel enzyme that catalyzes the in vitro transcription or IVT of a recombinant gene regulated by the T7 promoter. During the IVT reaction, dsRNA can be produced as a byproduct and trigger undesirable inflammatory responses in the cells. The CleanScribe enzyme dramatically reduces double-stranded RNA formation during the IVT compared to wild-type T7 RNA Polymerase, which is the current industry standard. This new product reduces double-stranded RNA by up to 85% and is positioned to help our customers develop safer, more potent mRNA therapeutics. Furthermore, we and our customers have found that this product is a very natural and easy substitution into existing IVT protocols and does not require extensive rework or further workflow optimization to achieve the exceptional performance. This product's robustness, reproducibility and double-stranded RNA reduction make it ideal for mRNA synthesis, self-amplifying RNA synthesis, RNA probe preparation and RNA construct development for additional studies. In addition to improving the final product, it further improves the economic and process advantages that already make co-transcriptional capping with CleanCap, the preferred approach for producing mRNA. Initial feedback on CleanScribe has been very positive. In fact, a top pharma customer shared that they saw a 50% reduction in double-stranded RNA in their self-amplifying IVT process. This impressed them so much they plan to switch over to CleanScribe as their default enzyme for self-amplifying RNA production. Alphazyme continues to work closely with TriLink and external partners to collaborate on the next generation of enzymes. As with CleanScribe, next-generation enzymes have the potential to boost the efficiency, yield and cost-effectiveness of mRNA manufacturing, and we are committed to being the innovation leader in this area. Finally, we expanded our TriLink-owned IP around co-transcriptional capping technology with the issuance of an additional patent in the U.S. We now hold over 20 U.S. and international patents on our CleanCap capping technology. Let's turn to Slide 9. We continue to foster key academic partnerships to enhance innovation and accelerate market adoption of the latest technologies. We currently have active research collaborations with 9 top-tier academic institutions, some of which are listed here. The most recent is our collaboration with the University of California, San Diego. We believe investing in new product innovation and partnering with leading academic and industry partners is a key driver for creating long-term value. Now let's turn to Slide 10 and discuss the pending acquisition of Officinae Bio. We have signed a definitive agreement to acquire the DNA and RNA businesses of Officinae Bio. Officinae is a provider of precision DNA and RNA services through an AI-driven digital platform that automates and iteratively improves large and complex DNA assembly from oligos to gene fragments, mRNA synthesis and downstream cell-based screening. The team includes bioinformatics and data scientists developing end-to-end software and synthesis automation solutions, enabling the design, build, test cycles for mRNA therapeutics candidate discovery. During the discovery phase, customers need to be able to experiment and develop multiple constructs as they test to find the most promising candidate to advance to the next phase. Today, there are many barriers to efficiently and effectively moving through these phases, and Officinae has created a solution set that enables this process. Just as our Alphazyme acquisition expanded our offering for mRNA transcription tools and key enzymes, Officinae will enhance our mRNA offering for early phase discovery work. The addition of Officinae's front-end development and production expertise is expected to add complementary capabilities to Maravai's NAP product portfolio and allow us to offer our customers even more complete and timelier mRNA solutions. As has been the case with our past acquisitions, Officinae is a founder-led and comprised of an experienced team focused on cutting-edge science, bioinformatics and software services. We expect this acquisition will accelerate and derisk our e-commerce roadmap, enable mRNA discovery offerings and portfolio attachment and access differentiated mRNA design and bioprocess optimization capabilities to enhance our customer experience using AI and machine learning. As many of you are aware, our TriLink Discovery business unit is focused on working with customers at the front end of the drug development funnel. TriLink Discovery includes all research use only products and services, including all reagents, our custom chemistry business and mRNA manufacturing for screening and target discovery. This is where the majority of our TriLink customers are today in the discovery and preclinical stage and why this acquisition fits so well. The Officinae front-end ordering platform is expected to provide TriLink customers with a home for construct design and integrates a full catalog of cap and novel chemistries. We believe the addition of this e-commerce and AI offering will help our TriLink Discovery customers get to the next stage of development faster and more effectively with the best possible candidates. We know our ability to provide end-to-end service from sequence to drug product is a resounding value proposition for customers' choice. With the acquisition of Officinae, our enzyme portfolio expansion through Alphazyme, our TriLink Discovery products and TriLink GMP capabilities, we can incorporate raw materials and production expertise into our end-to-end service and supply offering, which is totally unique in the industry. Now let's turn to Slide 11 and highlight innovation within the Biologics Safety Testing segment. In collaboration with the TriLink team, Cygnus launched the first kit in their new generation of DNA quantification products, the CHO AccuRes kit. This residual host cell DNA quantification kit and all future kits in this portfolio include a probe-based master mix that contains TriLink's CleanAmp dNTPs and the Hot Start Taq DNA Polymerase. The assay has higher sensitivity and specificity than the industry standards, and the kits will help biopharma manufacturers ensure drug safety and stability for their patients. The Cygnus DNA extraction kit, which is sold separately, can be used to isolate the residual DNA from any cell line. The resulting purified DNA can be quantified in its corresponding DNA amplification and quantification kit. The CHO AccuRes kit is the first of many products we have in development to grow our host cell DNA portfolio, and we expect to launch 2 more products in this portfolio by the end of the year. Like the Alphazyme and TriLink launch of the CleanScribe RNA Polymerase, this new product demonstrates collaboration between our brands as the Cygnus DNA extraction kits use TriLink's CleanAmp technology. Now turning to Slide 12. We've continued to evolve through what we knew would be a transition year in 2024. As we prepare for 2025, we believe we have innovative technologies, have built the right capabilities and infrastructure and are in the right markets to position us to achieve long-term growth. We've expanded our market position throughout the year with the industry and academic partnerships and look forward to welcoming the Officinae team when the acquisition closes. I remain excited about our future, our capabilities and what we can achieve together with the mission to make a meaningful impact in improving human health through the next generation of medicines. I'll now ask Kevin to provide details on our third quarter performance and our updated guidance.

Thank you, Trey, and good afternoon, everyone. Starting on Slide 14, our Q3 2024 revenues were $65 million, slightly below our expectations. Both business segments fell short, with the NAP segment affected by reduced demand for CleanCap in both RUO and GMP areas and a delay requested by a customer on a preclinical program build. Additionally, our BST performance faced challenges due to a sluggish bioprocessing market. In the third quarter, we recorded a GAAP noncash goodwill impairment charge of $154 million as we reassessed our long-term model assumptions for all business units. This write-down pertains to our TriLink business unit within the NAP segment, specifically related to the goodwill from the acquisitions of TriLink and MyChem. Our GAAP-based net loss attributable to noncontrolling interests was $176 million for the third quarter of 2024, with $154 million related to the noncash goodwill impairment charge. In terms of earnings per share, both our GAAP basic and diluted EPS were a loss of $0.70 per share, while adjusted fully diluted EPS registered a loss of $0.02 per share for the quarter. Adjusted EBITDA, a non-GAAP measure, was $13 million for Q3 2024, up from $12 million in Q3 2023, with an adjusted EBITDA margin of 20% for the quarter. Year-to-date adjusted EBITDA, another non-GAAP figure, stands at $37.5 million with an adjusted EBITDA margin of 18%. Turning to Slide 15, we concluded Q3 with $578 million in cash, an increase of $5 million since the second quarter, attributed to $13 million in cash flow from operations during the quarter and CapEx of $8 million. Gross debt, maturing in late 2027, is currently at $529 million, resulting in a net cash position of nearly $50 million. In October, we amended and extended the revolving credit facility, increasing its maturity by up to five years while slightly reducing the overall amount from $180 million to $167 million. Given the changing interest rate landscape, the upcoming expiration of our interest rate cap in Q1 2025, and our perspective on the M&A environment, we are actively reviewing our current debt structure as our term loan matures in approximately three years. Our structure allows us flexibility for M&A and offers the option to voluntarily pay down our term loans. For the first nine months of 2024, our net interest expense reached $15 million on an average debt balance of around $530 million, resulting in an annualized effective rate of under 4%. Moving on to Slide 16, I will provide insights into our business segment financial performance for the quarter. Our Nucleic Acid Production business generated $50 million in revenue, accounting for 77% of the company’s total revenue, with $15 million in adjusted EBITDA and a segment margin of 31%. Our Biologics Safety Testing business contributed $15 million in revenue, representing 23% of total revenues, with $11 million in adjusted EBITDA and a margin of 72% for the quarter. Corporate expenses exclude these segment adjusted EBITDA totals and amounted to $14 million in the quarter, continuing to decline from recent periods. Now, regarding updated financial guidance for 2024, it's been a challenging year regarding our overall financial performance, especially concerning revenue. Despite achieving many operational and strategic goals, these have not yet translated into our financial results. In 2024, we have exceeded targets for new product launches, customer mRNA turnaround times, and on-time deliveries while bolstering our position in the key academic market and enhancing capabilities through the Officinae acquisition. We believe our core product market share remains robust, but we face global market weakness in bioprocessing and a tough NAP market due to the absence of large orders expected from pipeline progress. Customer program timelines have also posed challenges. Overall, the space continues to feel the effects of global macro pressures, impacting buying decisions and complicating efforts to return to growth. However, we are dedicated to making strategic decisions that will ensure Maravai's long-term success. We are positioning our company as a key player in the broader ecosystem we are part of and will continue to pursue the significant opportunities available in our addressable markets. Consequently, we are revising our expected revenue range for 2024 to between $255 million and $265 million, which reflects a $15 million or 5% decrease in anticipated revenue for the year. This adjustment is due to a $5 million shortfall from our internal expectations for Q3 and about a $10 million lower outlook for Q4, stemming from the postponement of certain customers' GMP programs from 2024 to 2025. Additionally, the expected large CleanCap orders did not materialize at the anticipated pace, leading to a more cautious outlook for Q4 in our NAP segment. Although revenue from our BST segment in China increased nearly 30% from Q2 2024, it remains below historical levels. We expect Q3's lower BST revenues to also be affected by typical year-end manufacturing slowdowns. For the updated full-year revenue forecast, we anticipate the Nucleic Acid Production segment to generate around $193 million to $202 million. We project Biologics Safety Testing revenues for the year to be approximately $62 million to $63 million, resulting in a decline in low single digits compared to 2023. Based on this updated guidance and the $203 million already recognized, we expect total revenues for Q4 to range between $52 million and $62 million, with the NAP segment around $43 million and the BST segment around $14 million at midpoint estimates. Due to the reduced revenue expectations, the high variable contribution margins of our business, and anticipated slightly higher cost of sales, we have updated our estimated earnings metrics for 2024. We now project an adjusted EBITDA margin of 16% to 18%, a 400 basis point drop from the previous midpoint of 21%, primarily due to lower revenue projections in our higher-margin products, including GMP offerings in NAP and reduced revenues in our high-margin BST segment. Additionally, our financial expectations include net interest expense between $20 million and $25 million, depreciation and amortization between $45 million and $50 million, and stock-based compensation, which we reconcile from GAAP to non-GAAP EBITDA, to be about $50 million. This encompasses a fully converted share count of approximately 254 million shares and an adjusted effective tax rate of 24%, alongside expected net capital expenditures for the year of around $30 million. Before I pass it back to Trey, I want to mention that we plan to close the acquisition of Officinae at the start of 2025, which we expect will not affect our financial results for 2024. For fiscal year 2025, we believe it is wise to focus on concluding the current year and collaborating with our customers and leadership teams to better evaluate 2025 before providing financial forecasts with our first quarter reports in 2025.

Thanks, Kevin. So to wrap up our prepared remarks on Slide 19, though market conditions remain challenging in the near term, we are confident in the long-term growth rates of our target markets and believe we offer differentiated technology, products and services. We expect to close the Officinae acquisition early next year, and we'll continue looking for inorganic investments and additional partnerships to bolster our market position and provide our customers with additional solutions to accelerate our growth. We are encouraged by the pipeline progression we see for mRNA, gene editing and cell and gene therapies, and we believe the new clinical trial starts bode well for long-term growth in our markets. Our strong balance sheet, strong cash position and manageable debt position gives us strategic flexibility, and we will remain diligent in our cost control and operational efficiency. We are committed to building a strong foundation for long-term profitable and sustainable growth of our base businesses. Kevin, Becky, Drew and I are happy to answer your questions. So now I'll turn the call back to the operator for instructions.

Your first question comes from Dan Leonard with UBS.

You've talked about a firm commitment number throughout the year. How much of that firm commitment is now left by Q4?

Yes. So Dan, it's coming in as anticipated here in the third quarter and then the fourth quarter. We have roughly another $14 million to ship in the fourth quarter tied to committing to fulfilling that original expectation, Dan.

Okay. As a follow-up, Kevin, regarding the sequential decline in NAP from about $49 million in Q3, rounding from $50 million to $43 million at the midpoint for Q4, can you clarify how much of this is due to the project push you mentioned into 2025 versus a weaker market?

Yes, the project push likely accounts for a couple of million dollars as we prepare to go to market with the remainder.

Your next question comes from the line of Justin Bowers with Deutsche Bank.

Justin, are you there?

Pardon, I was on mute. Can you discuss some of the swing factors for the fourth quarter related to the NAPs business? Realistically, there are probably 6 or 7 weeks left in the quarter in the Western world. Additionally, is there any revenue expected from the acquisition for 2025, or is it solely a technology acquisition?

Sure, I will begin by addressing the second question first. Officinae is mainly a software acquisition for us, and we plan to integrate their front end into our TriLink Discovery platform. This aligns with our strategy of buying rather than building, especially considering their excellent platform and our timing for market integration. They do have a business and generate revenues, albeit low single-digit millions, and it is self-funding, which means it won't dilute our overall business. Although it's a small team, they've developed something truly unique that fits well into our model of acquiring innovative, founder-driven companies with strong technology in this space, and we believe it will add significant value. We will provide more details as we finalize the deal and work on integrating them into Maravai in the first quarter of 2025. Regarding the potential sensitivities, we are continuously monitoring the performance of our discovery business. We anticipate about a million dollars of flexibility on either side of that business depending on how orders are received, given that they typically come in smaller volumes over time. This year, we haven't experienced the larger drop-in orders from the RUO and GMP sides that we usually see when companies transition through phases or require CleanCap for various programs, which have typically ranged from $0.5 million to $5 million. These larger orders have not materialized, so we are not relying on them going forward. That said, we do have a variety of outcomes for our GMP builds as we progress through this year, likely amounting to a couple of million in either direction. The rest of our businesses experience their usual volatility within those ranges. However, the high-volume CleanCap figure mentioned by Dan is secured. We still see some flexibility with the remaining NAP business, primarily due to the absence of those larger purchase orders, which adds volatility given that we're relying more on smaller orders. Additionally, we will encounter some variability with our GMP services, revenue recognition, and mass specs. We expect to see some fluctuations throughout the year in the BST segment, although it operates within a tighter range.

Your next question comes from the line of Tejas Savant with Morgan Stanley.

This is Yuko on the call for Tejas. While you know that you'll be providing a formal guidance at a later date, in light of your business being largely skewed towards nondiscretionary cost items, how should we think about guardrails for margin expansion next year?

I will provide a general overview. Our company’s margin expansion is closely linked to our revenue base. Currently, we are projecting approximately $260 million in revenue, with a corresponding cost base of around $235 million to $240 million. A significant portion of this cost, about half, is related to labor, which tends to be semi-fixed in the short term and more variable in the long term. Additionally, facility costs are a major factor; we operate across six to seven different facilities, which represent substantial fixed costs but also support our business model moving forward. We don’t need to construct more buildings, as we have the necessary capabilities to scale and improve our margins. The variable costs associated with our cost of goods sold are minimal. We have a high variable margin, and the largest costs involve general and administrative expenses and legal costs associated with protecting CleanCap and our intellectual property. Success for us hinges on maximizing factory utilization and leveraging our existing cost structure. Earlier in the year, a report highlighted our strong revenue per employee, indicating that we maintain a lean cost structure and excel in efficiency. If we continue to grow profitably at the top line, the positive impact will be apparent, as it has historically. None of these factors have changed.

Yes, I will add to Kevin's point that the transition to the new capabilities of Flanders 1 and 2 has increased our costs, which we have maintained for the past four quarters. The variations we experience each quarter are why we mention lumpiness, as the cost structure for these capabilities is primarily fixed and the margin increase becomes notable as we exceed those costs. The range appears significant, especially when comparing a quarter that approaches the cost basis to the previous quarter.

Okay. And then just do you expect any changes to government contracts, including the one with BARDA based on the recent election outcome?

I don't think so. In fact, BARDA was recently here celebrating the opening of Flanders 1 and the pandemic preparedness capacity that comes from that and reiterated that that's a 10-year arrangement. So I think that should not be subject to any political changes.

Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Maybe first one, I was hoping to dig in a little bit on your commentary regarding the soft bioprocessing backdrop. Obviously, there's been some mixed reports so far this earnings season. Some, I guess, more on the consumable side outside of China have commented that the market is showing signs of improvement. Others where it's more equipment heavy or more Asia Pacific, China related are still seeing headwinds. What are you seeing? And when you were saying the soft bioprocessing backdrop, I guess, kind of what exactly are you referring to?

That's a thoughtful question, and I appreciate how you've broken it down. We look at all our competitors in bioprocessing, including those who sell equipment and contract development and manufacturing organizations. A significant part of the Cygnus customer base is related to CDMOs. We pay close attention to program starts, particularly at the early stages. Phases such as preclinical, Phase I, and Phase II use more of the Cygnus host cell protein detection kits compared to late Phase II projects. As companies shift their focus to downstream or late-phase projects and deprioritize early-phase projects, it has a greater impact on Cygnus kit sales. Overall, the peers we monitor are experiencing flat year-over-year to declines in the mid- to high single digits. Cygnus is performing within that range this year according to our new guidance, which suggests they are in line with the overall bioprocessing industry standards across the various types of companies, whether capital equipment-focused, consumable-based, or CDMOs.

That's really helpful. And then maybe separately regarding the Officinae Bio acquisition, obviously, software. But I'm just curious, when you look at that, is there some customer overlap? Is what drove you to start those conversations? Was it a customer asking for it? Was this you looking at your portfolio saying, boy, we could really use some help in this area? Just any more color on the why there?

You're absolutely right about your previous comment regarding the need for assistance. We have the ability in terms of input chemistry and the range of chemistry options, and now with our new 96-well plate-based mRNA screening product, we can enable people to conduct combinatorial optimization like never before. What we were missing at TriLink was a front-end design environment, one that was guided by bioinformatics and specifically one that could enhance and accelerate the design efficacy through AI and machine learning. Officinae Bio started with that idea, providing Software-as-a-Service and a design framework that we plan to integrate into our front end, connecting to e-commerce and directly to our LIMS. This integration will create a smooth design experience for customers and significantly speed up high-throughput experimentation and optimization of mRNA constructs. That was the core motivation behind this acquisition. I would also point out that there is no customer overlap; they have a distinct go-to-market strategy for their DNA and RNA construct services that will expand our reach into a slightly different target market compared to our pure-play service business.

Your next question comes from the line of Dan Arias with Stifel.

Trey, in rough terms, what percentage of the gRNA trial starts that you have on that bar chart there are being sponsored by companies that are our customers or do you think have a good chance of being customers? And do you see that activity as needle moving for NAP next year?

I think we do see it as needle moving for NAP. We have reported, as you know, many times, the overall active mRNA program percentage of CleanCap, which, by the way, remains 30%. We haven't disclosed and frankly, it's rather new data for the guide RNA portion of that. So keep in mind, those trials include 2 shots on goal for us. The existing mRNA that would express the Cas endonuclease in vivo and the newer area, which is for GMP guide RNA. I'll pass that to Drew for a few more comments.

Yes, certainly. We don't notice any change in the percentage of CleanCap participation. Not all programs utilize mRNA, but it seems that participation is likely consistent. Anecdotally, we observe significant activity in that area. The involvement of mRNA appears to be increasing compared to other modalities, but our perspective is limited to what we can observe. Percentage-wise, we don't detect any differences.

Yes. Okay. And then just a follow-up, Kevin, on the EBITDA guidance, how derisked do you think the 4Q outlook there is? And then performance has been pretty tied to the hip with revenues, which you've talked about. Do you think as you come off of some of these things that are going on in 2024, that can maybe decouple a bit? Do you see yourself having some additional flexibility that just sort of gives you some wiggle room if the top line doesn't materialize the way that you forecast? Or is the P&L relationship pretty much what it is to Trey's point, there is a lot of fixed cost there?

Yes. I think following our restructuring in the fourth quarter of last year, I think we've got the cost structure to a place that we find is appropriate. It's lean. It allows us to best care for our customers and do what we want to do while not only staying lean, but also continuing to make some incremental investments in commercial. I think that continues to be the one area that we never really came out of the box very strong in most of our acquisitions. And as we formed this company, it's been very science-based, very operational, and I think in a much more competitive landscape today. And I think having those feet on the street and getting customer intimacy will continue to be important. So we're going to continue to invest there as we have been over the last couple of years. I don't see the business model changing such that we'll have more discretionary spend to offset changes in revenue. I think the model is a good one, frankly. It's about filling up the factory and driving the top line. And I think that's going to be our continued focus here for the fourth quarter and as we move into 2025.

Okay. Well, everyone, it appears we're having some technical difficulties. I apologize to anyone still in the queue. We will try to follow up with you individually. Thank you for your time. Again, apologies for this technical issue, and we hope we can connect with you. We'll be at a couple of conferences during the month of November and hope to see you there.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.