MRVI - Maravai LifeSciences: Still Trying To Right The Ship

2024-01-09 14:03:03 ET

Summary

• Today, we revisit Maravai LifeSciences Holdings, Inc. for the first time since early in 2023.
• The company continues to see some buyout speculation and is still dealing with navigating the "Covid Cliff" that has deeply impacted revenues.
• Maravai recently announced some management changes and has implemented workforce reductions to reduce costs.
• What's ahead for this potentially promising life sciences company in 2024?  An updated analysis follows in the paragraphs below.

Good judgment comes from experience, and experience comes from bad judgment ."? Rita Mae Brown.

Today, we take our second look at Maravai LifeSciences Holdings, Inc. ( MRVI ) . When we first highlighted this small biopharma concern in March, the company was the subject of some speculative buyout speculation and also navigating through somewhat of a " Covid Cliff" as far as revenue growth was concerned. Four weeks ago, Bank of America upgraded the stock citing its valuation and takeout potential.

Company Overview:

This life sciences company is headquartered in San Diego, CA. The company provides products to enable the development of drug therapies, diagnostics, and novel vaccines, and support research on human diseases. Maravai's core business is delivering a reliable supply of reagents in the fields of nucleic acid production and biologics safety testing. The stock currently trades around seven bucks a share and sports an approximate market capitalization of $1.7 billion.

Third Quarter Results:

The company posted its Q3 numbers on November 7th. Maravai delivered a GAAP loss of a nickel a share, four cents worse than the consensus. The net loss for the quarter was $15.1 million. Revenues plunged 65% on a year-over-year basis to $69.9 million, some $8 million below expectations. As part of their efforts to right the ship, management announced initiatives to take $30 million out of the company's annual costs. This included a 15% workforce reduction. This impacts approximately 100 employees and was scheduled to be complete by year-end 2023. This action will result in a one-time cost leadership estimated to be $5 million in its upcoming Q4 results and will save approximately $23 million annually.

Management now sees basically break-even profits in FY2023 on sales of $275 million to $285 million. It is important to note, that when we last looked at Maravai in March, leadership was projecting sales in the range of $400 million to $440 for the 2023 fiscal year. That guidance had been lowered from $300 million to $325 million during the year.

The company saw sales fall over 70% at its core Nuclear Acid Production segment to $51.2 million. This still contained $15 million of Covid-related revenue. Revenues fell under five percent on a year-over-year basis to $16.3 million at its Biologics Safety Testing segment.

Analyst Commentary & Balance Sheet:

Since third-quarter results were posted, five analyst firms, including RBC Capital and Stifel Nicolaus, have reiterated Buy/Outperform ratings on the stock. Price targets proffered range from $7 to $12 a share. Both UBS ($6 price target) and Goldman Sachs ($7 price target) maintained Hold ratings on the stock.

Just over five percent of the outstanding float in the shares is currently held short. There has been no insider activity in this stock since late 2020. Maravai ended the third quarter with some $580 million in cash and marketable securities against $545 million in long-term debt.

Verdict:

The company made $1.80 a share in FY2022 on a Covid drive of $883 million worth of sales. The current analyst consensus has the company breaking even in FY2023 as revenues plunge to $280 million. They project a profit of a nickel a share in FY2024 as sales fall just five percent.

Management has some big goals for the company, including growing revenues to $700 million by FY2028. However, given how off their initial FY2023 sales guidance was, I would take these projections with a large grain of salt. It also might be prudent for management to use more of its cash to pay down debt, as leadership estimates net interest cost will come in between $16 million to $18 million in FY2023.

Management has taken steps to reduce costs, although one could argue these should have been implemented much earlier in the year along with the reduction of initial sales guidance for the year. Bottom line, more progress needs to be seen around stabilizing Maravai LifeSciences Holdings, Inc.'s core business and cost structure before the stock can be considered investable.

We should not judge people by their peak of excellence; but by the distance they have traveled from the point where they started. "? Henry Ward Beecher.

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