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. Thanks again for joining us, and we look forward to providing you with an update on our last quarter. As a reminder, during the presentation today, we'll be making some 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. We'll follow our standard agenda for these calls. We'll provide an update on our financial progress while also taking an opportunity to dive deeper into an area of strategic importance as folks continue to develop a deeper understanding of what we're building. As I've said before, if there are topics you'd like to see in a future deep dive, just let us know. We'd love to include those in the future. As usual, 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, including right now via Twitter. That hashtag is Ginkgo Results or via email at investors at GinkgoBioworks.com. And now I'll hand it over to Jason to kick things off.

Thanks, Anna Marie. As a reminder, Ginkgo's mission is to make biology easier to engineer, right? And this sort of focus on the tools and technologies of synthetic biology is really what led to the platform business model that we're really pushing here at Ginkgo. And the way that works is a customer brings ideas to Ginkgo for a cell that they want to engineer to do something. And we use our platform. to engineer, to program that cell for them to meet their specification, right? And the reason customers want to work with us is there are two core assets in that platform. The first is our foundry, right? So this is a highly automated lab and the sort of key value proposition for our customers is we can take what is typically an underutilized fixed cost investment, i.e. their internal R&D labs at their site, and turn that into a highly efficient variable cost for them if they instead engage with Ginkgo's Foundry as a service provider of that sort of lab activity. And the analogy here is something similar to what you saw where companies made the choice to outsource on-prem servers and IT to cloud server providers. That sort of transition is similar in spirit and those scale economics also similar in spirit to what we're trying to achieve with the Foundry. The second asset we have at the company is what we call our code base. And the code base is a data asset. And it's basically as we do these projects for customers, we're accumulating physical strains, data, genetics, various learnings. We're training models, machine learning models and so on that we can then make available so that we don't need to reinvent the wheel for every new cell program when a customer comes to us. We get to leverage the experience of our previous work. And so for the potential customers that might be tuning into the call today, our whole model is to make that platform available for your project as fast as possible. So if you see something we've done in your industry or related project, and you say, oh, that's similar to something I'm interested in, that means that's the type of thing Ginkgo's getting better at. That might be a good opportunity to reach out. If you see a technology we've acquired, we'll talk today about You know, we completed an acquisition of FGENs, really interesting tech. You know, if that's of interest to you for your project, we can make that available quickly, specifically for your work. And so it is an idea of making these things available fast so that you don't have to make those investments yourself. One of the most important metrics for our success coming up, and we've had a great quarter here, is seeing new customers choose to work with Ginkgo for their R&D efforts. So in this first quarter, we added 11 diverse new cell programs, including some that'll push us deeper into new areas of engineering for the company. One I think is Really exciting is a company called LightBio that's engineering plants to glow. And so this is a project where we're working to improve the brightness of these petunias they have. There's a project in anaerobic bacteria for microbiome applications, so being able to work with cells that grow without the presence of oxygen, right? And so that requires the different types of investments on our platform that we've been making. Our biosecurity efforts, which we view as a critical component of our platform and we'll talk about, continued to grow well in the first quarter of 2022, particularly as new variants threatened to disrupt schools opening after the holidays with Omicron. Concentric, our biosecurity and public health business, has continued to build real trust in the market, has now served well over 5,000 organizations, and generated $147 million in the first quarter alone. We spent a lot of time in our last earnings call talking about the many challenges of building a business on the back of hard technology, like what we're developing here. We're fortunate to have a strong financial foundation with about a billion and a half dollars in cash, which gives us the runway we believe we'll need to achieve our mission. In the process, we will aim to become the obvious partners for the world's self-programming. One opportunity that our financial position unlocks is M&A. We're ramping up our M&A activities in 2022. And since our last call, we closed our acquisition of FGEN, as I mentioned, and welcomed that team led by Andreas Meyer to Ginkgo. We also announced a series of planned transactions with Bayer, including the acquisition of their West Sacramento R&D team and facility. and a large new collaboration with them, which is super exciting. So I'm excited to talk about that transaction, and we'll spend a fair bit of time coming up talking about that. So with that, I'm going to hand it off to Mark to walk through our first quarter financial performance.

Thanks, Jason. Our first quarter financial results reflect strong growth driven by continued execution of our biosecurity business. We also continue to see a new cell program growth and diversification in our foundry. Total revenue in the first quarter of 2022 increased to $168 million, representing growth of nearly four times the first quarter of 2021. I'll start by discussing our cell programming business, which we also describe as our Foundry. We added 11 new cell programs to the Foundry platform in the first quarter of 2022. As a reminder, our new cell program count is a key KPI that we're particularly focused on. Adding more programs benefits us strategically by driving our scale economics, diversifying customers and programs, accumulating code base, and accumulating potential sources of answering value share. We only count a program that has a certain expectation of scale and are often doing several proof of concept programs as well, which can ultimately lead to larger paid programs. We supported a total of 64 active programs in the first quarter of 2022 across 32 customers on our Foundry platform. This represents substantial growth and diversification in programs relative to the 44 active programs in the first quarter of 2021, with strong growth coming from the pharma and biotech industry in particular. Foundry revenue was $21 million in the quarter, a decrease of 5% when compared with the first quarter of 2021. When compared to the prior sequential quarter or the year over year comparable quarter, boundary revenue was impacted by the timing of the answering value share and the mix shift driven by new programs still ramping up versus certain large programs completing in 2021. It typically takes some time for new programs to reach mature run rates, and due to our contract structures, we often recognize an outsized portion of a contract's revenue in the later stages of a contract. As expected, we also see some impact from our active decisions to tune deal structures to optimize for future downstream value share in our customer collaborations, sometimes in exchange for lower upfront usage fees. To be clear, this type of volatility is not unexpected at our stage. And as we'll share later, we are reiterating our full year Foundry revenue guidance. Also as a reminder, in the third and fourth quarters of 2021, we recognize sizable milestone payments relating to our collaboration with Kronos. In the first quarter of this year, we did not recognize revenue from any material milestones. And so this is an example of where timing of downstream value share can affect trend lines. Again, something we consider in our annual guidance. And one additional comment on related party versus third party revenue next. Related parties represented 63% of foundry revenue in the first quarter of 2022, compared to 56% in the first quarter of 2021. This mix shift primarily represents the timing of revenue relating to certain programs, and it's not a reversal in the general trend that we saw last year with related party revenue mix decreasing. As a reminder, though, we do not manage the business around related party revenue mix or set particular targets for this metric, as related party revenue simply highlights certain companies in which we are granted a significant equity position in lieu of royalties as compensation for downstream value. And as we've discussed in the past, this type of transaction is a part of our business model, which we view as strategic and which we intend to continue. Now, turning to biosecurity. Our concentric offering continued its strong upward momentum in the first quarter of 2022, generating $147 million of revenue in the quarter. 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 continued ramping up in Q1 due to the Omicron variant and the demonstrated benefits of pooled testing in schools. Biosecurity gross margin was 42% in the first quarter, consistent with the prior fourth quarter performance. We're extremely proud of what we've accomplished thus far in biosecurity. It's remarkable what our team has built in such a short time, and it's a privilege to be able to provide this service and help communities save. But in this nascent market, we've been consistently cautious about projecting forward revenue due to uncertainty. You'll see that conservatism reflected in our updated guidance, and we'll continue to provide regular updates as the business evolves. Jason will talk in more detail about what we're doing to build on the foundation we have in biosecurity. And now I'll provide more commentary on the rest of the P&L. Where noted, these figures exclude stock-based compensation expense, which is shown separately. Also, I want to draw your attention to a new segment reporting schedule that we are including in our financials going forward and which is replicated in the appendix to this presentation. R&D expense excluding stock-based comp declined from $60 million in the first quarter of 2021 to $56 million in the first quarter of 2022. We incurred a significant amount of R&D expense relating to our biosecurity offering in the first quarter of last year, approximately $23 million, which was substantially phased out by the second half of 2021. R&D expense related to the foundry increased as expected year over year, driven by expansion of foundry capacity and increased breadth of capabilities to support both current and future collaborations. G&A expense, excluding stock-based comp, grew to $42 million in the first quarter of 2022, compared to $18 million in the first quarter of 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 very extensive public company readiness efforts. It is important to note that our net loss includes a number of non-cash income and or expenses as detailed more fully in our financial statements, including one, stock-based compensation, two, mark-to-market adjustments on equity investments where we have elected the fair value option, three, reductions in the carrying value of those platform ventures accounted for as equity method investments, which we typically record in the quarter that equity is issued to us, And four, 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 and other non-recurring items, we look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was negative $2 million compared to negative $51 million in the comparable prior year period. 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 growth in our biosecurity business in the quarter. And finally, CapEx in the first quarter of 2022 was $4 million, reflecting foundry capacity and capability investments. CapEx was impacted by timing of equipment purchases and projects, and so we would expect to see significantly higher CapEx in future quarters this year. One final comment on stock-based compensation expense. As a reminder, we provided extensive disclosure in our Q4 earnings release relating to GAAP accounting for the modification of restricted stock units issued prior to Ginkgo becoming a public company. Our Q4 disclosures indicated that as of December 31, 2021, we expected a further $2.2 billion of stock comp expense to be booked in 2022 and beyond relating to this adjustment. The calculation of which was based on the stock price of $13.59 on November 17, 2021. Substantially, all of the $659 million stock compensation expense in the first quarter relates to this wind down, and we would expect most of the remainder to be booked in the rest of 2022 with a small tail that extends into 2023 and beyond. Now, I'd like to provide some commentary on our revenue outlook for 2022. We continue to expect to add an incremental 60 new cell programs with diversity in end markets as well as between new and existing customers in full year 2022. We are increasing our full year guidance for total revenue to $375 to $390 million, an increase of $50 million from our prior outlook. We are reiterating our foundry revenue outlook to be in a range of 165 to $180 million for full year 2022. We have line of sight to material downstream value share in the latter half of the year, which we expect to drive significant growth versus the prior year. In addition, we have launched over 30 new cell programs in the past three quarters. And as those programs ramp up, we expect to see a higher contribution of revenue from foundry usage fees. And of course, we expect our strong pipeline to contribute a significant number of new programs to be launched during the course of the year. Based on our strong performance in biosecurity in the first quarter, we now expect biosecurity revenue to be at least $210 million for full year 2022, an increase from our prior outlook of at least $160 million. As was the case throughout 2021, there still remains significant uncertainty in the biosecurity 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. Gingko is actively working on new opportunities in biosecurity, including internationally, However, the timing and amount of revenue from these opportunities is also uncertain. In summary, we are pleased with our overall progress. We are executing on new program growth on the Foundry platform, which drives scale economics, program diversity, accumulation of code base, and accumulation of potential future downstream value shares. Another strong quarter from biosecurity is contributing positively to cash flow and providing further signals that we are well positioned to capitalize on a longer-term business opportunity. And the company's total cash position of $1.5 billion remains strong and provides us with a multi-year runway to execute on our ambitious growth plan.