Ginkgo Bioworks Holdings Inc

Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I'm joined by Jason Kelly, our co-founder and CEO, and Mark Dimitrick, our CFO. We thank you for joining us and look forward to updating you on our tremendous progress in the past year. Now, as a reminder, during the presentation today, we'll be making forward-looking statements which involve risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission to learn more about these risks and uncertainties. As we've shared before, during our quarterly earnings calls, we will of course be updating you on our financial progress, but we'll also use these opportunities to continue to build a deeper understanding of how Ginkgo works. And so after our financial updates, we'll spend time talking to you about our strategic positioning and the current environment. If there are topics you'd like to see in a future deep dive, please let us know. We'll end with a Q&A session, and I'll take questions from analysts, investors, and the public. You can submit those questions to us in advance via Twitter, hashtag GinkgoResults, or by email at investors at GinkgoBioworks.com. And now, without further ado, I'll hand it over to Jason to kick things off.

Thanks, Anna Marie. I'm going to hand it off to Mark in a second to walk through the numbers. But I wanted to start us off by acknowledging the world today looks very different than the one we were in just over six months ago when we took the company public. Equity markets, especially for growth companies, have been hit hard from inflation and changes in interest rates. Ginkgo stock is down over 60% from when we went public, and even more from our highs. As one of Ginkgo's largest shareholders, I can assure you it is not fun for me either. But when I step back, Ginkgo is in a stronger position by almost any measure than it has ever been. We've continued to grow and diversify our self-programming platform, and several of our customers have achieved important milestones with products that we have helped them develop. The platform is scaling well. We have deployed exciting new Foundry technologies and packaged some of our key code-based assets into what we're calling cell development kits. Our biosecurity initiative has scaled tremendously, growing from almost nothing in 2020 to over $200 million in revenue last year. And all that has led to strong financial performance, Ginkgo quadrupling our revenue last year. And perhaps more importantly, from a strategic perspective, we are extremely well capitalized in a market environment that is making capital scarce. This will give us opportunities coming up that many other growth stage companies simply won't have. Later in this session, I'm going to spend more time talking about the importance of scale and of our capital position as we drive that scale in the market. But just to ensure everyone is up to speed on the basics about Ginkgo, a quick reminder. So Ginkgo operates as a horizontal cell programming platform. With that model, scale drives everything we do. From the unit economics, we can drive in our foundry, which is our automated labs that i'm in here in boston to the breadth and value of our code base which is really our intellectual property assets that i'll talk about later importantly scale allows us to not be tied to the success of any single cell program this diversification is critical in biotechnology and it's one of the ways that we differentiate as a platform from product-based companies Scaling is not easy. I'm going to spend most of my time today telling you how hard it is to achieve breakaway scale as a self-programming platform. But we have a solid shot at Ginkgo. And if we're successful, I believe it'll have a global impact. And with that, I'm going to turn it over to Mark to share our numbers with you.

Thanks, Jason. Our fourth quarter financial results reflect the continued progress we've been demonstrating in our business model over the past year, with strong year-over-year growth in the Foundry platform and an outsized contribution from our biosecurity offering. Total revenue in the fourth quarter of 2021 increased to $148 million, representing growth of over four times the fourth quarter of 2020. For the full year 2021, total revenue grew to $314 million, also four times the prior year. Now, moving to cell programming highlights, we added 10 new cell programs to the Foundry platform in the fourth quarter of 2021, bringing the total number of new programs to 31 for the full year, well ahead of our original target of 23 programs for the year. As a reminder, our new cell program count is a KPI that we're particularly focused on as this metric drives both near-term Foundry revenue and potential future downstream value share. And we only count a program that has a certain expectation of scale and are often in addition doing several proof of concept programs as well, which can ultimately lead to larger paid programs. The 31 new programs we added in the full year 2021 period compares to 18 new programs added in full year 2020, representing 72% growth. We supported a total of 71 active programs in the full year 2021 period across 33 customers on our Foundry platform. As you saw earlier, these programs are running across a remarkably diverse set of end markets with strong growth in the past year coming from pharma and biotech, which is particularly encouraging given these are some of our most discerning customers, often with their own strong internal R&D teams. As a result of progress across our broad portfolio of customer programs, Foundry revenue increased to $34 million, in the fourth quarter of 2021 from $16 million in the fourth quarter of 2020, representing 108% growth. Similarly, foundry revenue for full year 2021 increased to $113 million, exceeding our outlook of $100 million and representing growth of 91% over full year 2020. As a reminder, Foundry revenue included equity-based payments of approximately $12 million in each of the third and fourth quarter of 2021 that we received for achieving commercial milestones with Kronos. We have a number of related parties by virtue of our business model, where for some customers, we take equity in lieu of royalties as compensation for downstream value, and in some cases for upfront fees. While we disclose related party revenues as required, we do not manage the business around this fact and as such do not make judgment or set targets around increasing or decreasing the proportion of our revenue that is categorized as related party. That said, related party revenue represented a meaningfully smaller portion of our total revenue in 2021 as compared to 2020. Related parties represented 30% of Foundry revenue in the fourth quarter of 2021, and 42% of full year 2021 foundry revenue. This compares to 78% of foundry revenue in the fourth quarter of 2020 and 72% of foundry revenue in the full year 2020. This shift toward more third-party revenue is due to both the downstream value share received from Kronos, which is not a related party, as well as continued diversification in the business. Now, turning to biosecurity, Our concentric offering had an extremely strong fourth quarter, generating $114 million of revenue in the quarter and bringing the full year 2021 revenue to $201 million. This result significantly exceeded our most recent expanded outlook of $110 million for the year from our Q3 earnings call. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID testing offering, and the growth was driven primarily by K-12 pooled testing, which ramped significantly in Q4 following the many state contracts we had been awarded earlier in the year. Biosecurity gross margin was 42% in the fourth quarter. Biosecurity gross margin in the second half of 2021 was significantly higher than in the first half of the year due to maturation of the business and the benefits of larger scale. When comparing the fourth quarter gross margin to the third quarter gross margin, the decline is primarily due to mixed shift in the composition of revenue as K-12 pool testing scaled significantly. As we've stated in the past, we will maintain a healthy level of conservatism as we navigate the constantly changing world of biosecurity. Many COVID testing operations shut down last summer because everyone assumed COVID was over. We have a long-term thesis on the importance of biosecurity, which has allowed us to continue to lean in when others lean out. But we also recognize that this market is shifting rapidly. and it is difficult to forecast more than a few months out. As the biosecurity industry matures, we will be able to forecast this business with more precision. But for now, we will provide regular updates as our positioning evolves. And now I'll provide a little more commentary on the rest of the P&L. All figures discussed here exclude stock-based compensation expense, which I'll provide more details on in a moment. R&D expense, excluding stock-based compensation, grew to $219 million in the full year of 2021, driven by expansion of foundry capacity and increased breadth of capabilities to support both current and future collaborations, along with further development of our biosecurity offering. The slight decrease that you see in R&D expense when comparing the fourth quarter of 2021 with the prior year is due to a significant amount of R&D we incurred in late 2020 relating to our biosecurity offerings. G&A expense grew to $106 million in the full year 2021 as we invested in business development and all other G&A functions to support the growth of new customers and programs, higher level of foundry activity, and our biosecurity offering, along with our extensive public company readiness efforts. Net loss. It is important to note that our net loss includes a number of non-cash expenses. It's detailed more fully in our financial statements, including, one, mark-to-market adjustments on equity investments where we have elected the fair value option. Two, reductions in the carrying value of those platform ventures accounted for as equity method investments, which we typically record in the quarter that that equity is issued to us. And three, mark-to-market adjustments on public and private placement warrants inherited as part of the DSPAC that are now classified as a liability on our balance sheet. Because of these non-cash items, we look to adjust at EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was positive $1 million and for the full year 2021 was negative $106 million. A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA was favorably impacted by the large increase in gross profit from biosecurity in the fourth quarter and by downstream value share, which typically drops straight to the bottom line. And finally, capex in the full year 2021 was $57 million, reflecting foundry capacity and capability investments. Examples of this include the completion of our new broad use foundry, Biowork 6, located in our Boston headquarters, as well as foundry space build out in Cambridge, Mass. We have an ambitious capex plan in 2022 and have already begun work on Biowork 7. I'd like to provide some additional information relating to stock-based compensation expense. This is a topic disclosed at length in our prior SEC filings. As a reminder, we have historically not booked any stock comp expense relating to our restricted stock unit grants dating back to 2015. As prior to going public, the RSUs contained a performance condition that required a change in control or an IPO in order to vest, and the de-SPAC event did not satisfy the performance condition as defined in the RSU plan. In the fourth quarter, the board of directors modified the vesting terms of the RSUs such that Ginkgo's business combination with Soaring Eagle was deemed to have met the performance condition for vesting. As is typical of new companies going public, this was accounted for as a modification and resulted in a one-time catch-up adjustment of approximately $1.5 billion of incremental stock-based compensation expense in the fourth quarter of 2021, which was calculated based on the total number of RSUs impacted, again, dating back to 2015. at the share price of $13.59 on November 17th, 2021. Stock-based compensation expense also increased by another $174 million related to RSU earn-out shares, which were also subject to the same performance condition as the underlying RSUs. In addition to the total catch-up entry in Q4, of over $1.7 billion. As part of the same calculation, we would expect to see approximately $2.2 billion of stock comp expense in 2022 and beyond relating to the service-based vesting of these legacy RSU awards and earn out RSUs. The substantial majority of this amount will be booked in 2022. Also, just for further clarification, the underlying shares relating to all of these RSEs have been accounted for in the pro forma financials that were included with all of our pre-DSPAC SEC filings. And now I'd like to provide some commentary on our revenue outlook for 2022. We expect to add an incremental 60 new cell programs in full year 2022. Based on our current pipeline, we would expect a reasonably balanced mix of these new cell programs to come from existing customers and new customers. We expect total revenue of $325 to $340 million in 2022. Of that, we are targeting foundry revenue to be in a range of $165 to $180 million. We expect this growth to be driven both by increased usage fees from a growing number of programs on the platform, as well as increasing downstream value from completed programs. And we expect biosecurity revenue to be at least $160 million for full year 2022. We are incredibly pleased with the performance of our biosecurity offering in 2021 and thus far in 2022. However, as was the case throughout 2021, there still remains significant uncertainty in this market in general. Many of the state K-12 testing contracts we are supporting are funded through the end of the school year, and there is uncertainty about the funding available and level of testing in the next fiscal school year. In addition, Ginkgo is actively working on new opportunities in biosecurity, including internationally. However, the timing and amount of revenue from these opportunities is uncertain. And before I hand it back to Jason, one final comment on 2022 outlook. While we don't provide guidance on adjusted EBITDA or cash flows, we would like to provide some color on how we think about operating cash burn and managing our cash resources. Particularly in these market conditions and prior to us achieving consistent profitability, we view our cash balance as a critical resource to be managed with careful consideration given to several objectives, such as the pace at which we're adding new programs and customers, advancing customer programs technically, improving the efficiency of our operations, investing in the right new tech and internal R&D to fuel future NITES logins, and investing ahead in foundry capacity. When we think about the range of adjusted EBITDA and potential operating cash burn, it will vary depending on how biosecurity plays out during the year. In addition, we may vary the level of planned foundry R&D expense and foundry CapEx depending on both near-term opportunities available to drive platform adoption and technical success, and then the longer term considerations of the many objectives I mentioned above. With respect to M&A transactions, we generally expect that we would not use existing cash resources to fund those transactions. So to sum up, when we think about our $1.5 billion cash balance at year end, our general approach in managing cash flow will be to advance company objectives as rapidly as we can while maintaining multiple years of cash runway. In summary, then, 2021 finished very strong financially across all dimensions. We have an ambitious growth plan in front of us and are very focused on continued execution as a new public company. And now, Jason, back to you.