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 providing you with an update on the last quarter. 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 usual, we'll follow our standard agenda for these calls, providing an update on our financial progress while also taking time to dig deeper on our strategic priorities. We'll end with a Q&A session, and I'll take questions from analysts, investors, and the public. You can submit those questions as usual to us in advance on Twitter with the hashtag GinkgoResults or by email at investors at ginkgobioworks.com. All right, over to you, Jason.

Thanks, Annemarie. So we always start with this slide because our mission drives much of our long-term strategy at Ginkgo and even many of the day-to-day decisions in the company. So very simply, we want to make biology easier to engineer at Ginkgo, and we do that by scaling our platform for programming cells. So what does that look like? Right. So we work with our customers to define what they want to develop. In other words, the spec for the cell they want to engineer. And this is a key idea. We are operating our platform as a B2B service to enable our customers to develop end products for consumers. Right. And so our platform consists of two assets, our foundry and our code base. Our foundry is an automated lab. The key idea here is we're able to turn what is typically an underutilized fixed cost investment for most companies. In other words, the sort of physical R&D labs that our customers might have in their facilities into what's now for the customer, a variable cost available to them as a service. And that attribute is particularly attractive to our customers in a more challenging economic backdrop. Especially small companies might not even need to build these facilities in the first place. And so being able to turn that on and off R&D spending is a benefit. Our customers also benefit from the scale economics that we can generate as we invest in our platform. Our code base is a learning asset. It accumulates as we run more experiments and includes physical strains, data, and various tools for programming cells. We can reuse these learnings in incremental programs, which in turn increases the probability of program success and reduces program costs for customers. I know some potential customers may be listening right now as well as you follow our new program announcements and the new capabilities that we're building both organically and through acquisitions. And we do have four acquisitions that closed just this quarter. Please do reach out. We'd love to work with you. And again, we do operate as a service business. It's very easy to get on the platform. We'd love to get you on the platform. Okay, before I turn over the call to Mark to discuss our financials, I do want to highlight a few recent highlights at the company. So we continue to focus on attracting new programs to the platform. And I'll talk more about why that metric is so important to us a bit later. We were pleased to add 15 new programs in the third quarter. And I specifically want to highlight our Merck collaboration announcement because we've continued to see really strong momentum in the pharma and biotech vertical. So here we were able to leverage our fungal strains and other expertise to win an enzyme development project with a blue chip pharma customer with up to $144 million in milestone payments. In biosecurity, we executed well as the school year started. And as you'll see, we are once again increasing our financial guidance for this business. More importantly, we continue to see real traction across our long-term strategic initiatives. I'll have more to say on that topic later in the call as well. Finally, you'll see at the bottom of the slide that we closed four acquisitions in the month of October. I'd like to give a special call out to the Ginkgo team and also to the new team members that worked with us closely at the acquired companies. This was an enormous lift for a company Ginkgo's size, and the process went amazingly well. Importantly, we were able to close the Zymogen transaction more quickly than we initially anticipated, and I'll discuss why I think that presents a real strategic advantage for us. We completed the Bayer acquisition, strengthening our capabilities in the AgBiologics vertical, and also announced two smaller transactions, Circularis, which has a circular RNA and promoter screening platform that will help drive our work in cell and gene therapy, and Altar, a longtime partner of ours that has a screening platform that will drive adaptive laboratory evolution. These technologies both deepen and broaden our capabilities, and we're excited to welcome these teams to Ginkgo. I'll note that I think our recent M&A activity demonstrates our ability to play offense in the current market environment while still thoughtfully managing our cash balance and multi-year runway. That's something you've heard me talk about before, and I consider it strategically important to the company to maintain that. Okay, so we won't be able to do a deep dive on our biopharma work this quarter, but I do wanna call out some recent results we shared at the Society for Immunotherapy of Cancer Conference, CITC last week, just here in Boston, as we got a great reception from biopharma companies there about the data. So the ability of a CAR T cell, and this is, you know, many of you are familiar with this, but this is a type of immunotherapy for cancer to be able to persist post administration in a patient and continue to kill tumor cells is in part driven by the signaling domains of the CAR. And so what we did here was we built a 10,000-member CAR library. And you can see the library design on the left side of the poster here. And we introduced that library into primary human T cells to look for combinations of signaling domains that would improve on this challenge of T cell exhaustion, which is a big challenge just generally in the field. And we tested these by serially challenging the CAR T cells, both with hematological and solid tumors, and saw some nice results, including a number of designs that outperform canonical car signaling domain design such as bbz and 28z in head-to-head comparisons in our assays and you can see uh that data in the center panel uh so we're very happy to dive in on this more deeply with folks that are interested uh this is an internal work we've been doing at ginkgo that was really meant to showcase the muscles we've been building over the last four years as we expanded our foundry capabilities into mammalian cell engineering so again it's not us developing a new therapeutic of our own but really a chance to show to customers what the platform's capable of. And I found that when we announced this, we showed at CITSE, we encountered a bunch of folks who were just sort of surprised. They thought GIGO only engineered microbes and fungi, which is not the case. Again, we've been sort of building this infrastructure out the last four years. So expect me to be a bit of a broken record coming up on the applications of the platform in cell and gene therapy, as I want to get the word out to customers. I think there's a lot of great business for us there. So it's a great time to talk to us if you're a biopharma company. Everything you see here is all available as a service today to accelerate your drug development efforts. And I'll also be sharing more detail on all our biopharma platform capabilities at the JPMorgan conference later this year or early next year. So, okay, that's a quick overview of our recent highlights. And with that, I want to hand it off to Mark to walk through our third quarter financial performance.

Thanks, Jason. Our third quarter financial results reflect solid execution in both our self-programming and biosecurity businesses. Total revenue in the third quarter of 2022 was $66 million, representing a decline of 14% compared to the third quarter of 2021, primarily because we had a lump sum equity milestone in foundry revenue in Q3 last year. We've discussed in the past that quarterly lumpiness is inherent in foundry revenue, and you'll see that when you look at the past six quarters sequentially. That said, we're very pleased with how total revenue is landing on a year-to-date basis. I'll begin with the discussion of our cell programming business. We added 15 new cell programs to the Foundry platform in the third quarter of 2022. As a reminder, our new cell program count is an important long-term value driver, and Jason will talk more about why that is a bit later in this call. We supported a total of 85 active programs in the third quarter of 2022 across 43 customers on our Foundry platform. This represents substantial growth and diversification in programs relative to the 54 active programs across 27 customers in the third quarter of 2021. We continue to see strong growth coming from the pharma and biotech industry and the food and ag industry segments in particular. Foundry revenue was $25 million in the quarter, down 29% compared to the third quarter of 2021. As mentioned, the third quarter of 2022 did not include any large milestone payments, while third quarter of 2021, Foundry revenue benefited from downstream value share revenue related to the achievement of an equity milestone for Kronos. Now turning to biosecurity, our concentric offering continued to perform well in the third quarter of 2022, generating $42 million of revenue in the quarter. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID monitoring services, with the largest current driver being K-12 testing. Biosecurity is performing ahead of our expectations as COVID monitoring services are proving to have some level of durability as schools reopen and resume testing in late Q3 and other entities such as the CDC are extending contracts. We are also encouraged to see government investments being made in longer term biosecurity infrastructure. Biosecurity gross margin was 41% in the third quarter, an approximately 5 percentage point increase from the prior quarter performance. The sequential increase in gross margin percentage was driven in part by favorable revenue mix. 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. R&D expense, excluding stock-based comp, increased from $53 million in the third quarter of 2021 to $73 million in the third quarter of 2022. 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 $59 million in the third quarter of 2022, compared to $29 million in the third quarter of 2021, as we invested in business development and all other G&A functions to support the growth of new customers and programs, as well as a higher level of foundry activity, our biosecurity offering, and public company requirements. We also incurred approximately $12 million in transaction and integration costs related primarily to the four transactions we closed in October. In this environment, we are very focused on containing operating expense increases to areas that are customer facing and that drive growth, such as business development and initiatives that will drive foundry productivity. In Q4, you will also see the OPEX impact of the two large acquisitions we just closed. we will of course report out on that inorganic impact in detail when we report q4 results but as a high level outline you will see firstly new run rate opex related to the bayer transaction which we expect would be largely offset by the revenue from our new collaboration with bayer secondly new run rate opex related to the zymergen transaction which is largely just a pull forward of spend we would have incurred organically in 2023 and 2024 to build these capabilities. And thirdly, significant one-time transaction costs and near-term integration costs, particularly related to the Zymergen acquisition. As Jason will discuss later, we closed Zymergen with a significant cash balance, which significantly mitigates the above spend. Net loss. 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. Because of these non-cash and other non-recurring items, we look to adjust at EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was negative $70 million compared to negative $18 million in the comparable prior year period. A full reconciliation of adjusted EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA declined year over year due to the decline in revenue and increase in operating expenses. And finally, CapEx in the third quarter of 2022 was $13 million, reflecting foundry capacity and capability investments. We do expect an increase in CapEx in Q4 relative to prior quarters as we complete certain projects, including our BioWorks 7 facility. But in general, we are applying the same discipline to CapEx investments as we are to OpEx increases. One final comment on stock-based comp expense. As a reminder, we provided extensive disclosure in our Q4 2021 earnings release relating to the GAAP accounting for the modification of restricted stock units issued prior to becoming a public company. Substantially, all of the $563 million stock comp expense in the third quarter relates to this ongoing wind down. And we now expect significantly smaller amounts to be booked in the fourth quarter and in 2023 and beyond related to this wind down. Now I'd like to provide some commentary on our refined outlook for the full year 2022. We expect to add an incremental 16 to 21 new cell programs in the fourth quarter for a total of 55 to 60 for full year 2022. This guidance reflects very robust growth as we are almost doubling our new program additions year over year despite a challenging economic climate. Jason will further discuss our thinking and providing a range on new programs later in the call, but we are encouraged by both the depth and quality of our sales pipeline. We are increasing our full year guidance for total revenue by $35 to $40 million over our prior outlook to a new range of $460 to $480 million. We are revising our foundry revenue outlook to be in a range of $150 to $170 million for full year 2022. When we provided our initial full year 2022 guidance in March, we explained that the range was in part dependent on the timing of downstream value share and that we would update you all as we learn more. Now that we are closer to year end, we have a better sense of the potential timing of certain specific events. Our previous guidance included revenue in 2022 from several discrete milestone payments, three of which we have not yet earned. The low end of our new guidance range assumes that we receive one of those remaining milestone payments in 2022 with the remainder anticipated in 2023. The upper end of the new guidance range assumes that we receive all three remaining milestone payments in 2022. While this reflects our best estimate at this time, there is still some risk with respect to the achievement of any one or all three milestones. However, based on our significant technical progress to date, we remain highly confident that we will achieve them in the relatively near term. The guidance revision exemplifies the lumpiness that can arise from downstream value-share timing at a company of our size. Now on biosecurity, based on our strong performance in the quarter, we now expect biosecurity revenue to be at least $310 million for full year 2022, an increase of $50 million from our prior outlook. As was the case throughout 2021 and the first half of 2022, there still remains significant uncertainty in the biosecurity market in general, Although we saw an increase in testing volumes at the beginning of the fiscal school year relative to summer levels, visibility into near-term volumes remains quite limited. More importantly, we are seeing traction in our broader biosecurity efforts, including passive monitoring and international programs, though this remains a nascent business and is not yet a meaningful contributor to our guidance. In summary, then, we are pleased with our overall progress. We are executing on what is now a diverse portfolio of 85 programs on the Foundry platform. Biosecurity continues to perform very well, and the company's total cash position of over $1.3 billion remains strong. And now, Jason, back to you.