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 and full year 22. 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. We've got a packed agenda for today, but we'll follow our standard format, providing an update on our financial progress and guidance for the year, while also taking the time to dig deeper on our strategic priorities. In particular, as we alluded to in our last call, today we'll be providing more information on the downstream value potential we see at Ginkgo. We'll end with a Q&A session, and we'll take questions from analysts, investors, and the public. You can submit those questions to us in advance via Twitter, hashtag GinkgoResults, or email at investors at ginkgobioworks.com. All right, over to you, Jason.

Thanks, Anna Marie. We always start with this slide because our mission drives much of our long-term strategy and even many day-to-day decisions in the company. Very simply, we want to make biology easier to engineer at Ginkgo, and we do that by scaling our platform for programming cells. So how does that work? An easy way to think about Ginkgo is that companies are outsourcing their research to us. In the biopharma industry, that would be called a CRO, a contract research organization. But for traditional CRO, biopharma companies, they're normally outsourcing simple research work that they really just don't want to do. Think like running an animal study or synthesizing a chemical. Whereas when they're coming to Ginkgo, it's really to outsource work that they can't do themselves internally. They want to access Ginkgo's automation scale, our data, other IP assets, again, that aren't available in-house. You can see a comment here from one of our biopharma partners, Novo Nordisk CSO Markus Schindler, saying they are open to external partners who bring new and complementary expertise and talking about our unique capabilities in SynBio. That's a similar refrain we're hearing in discussions and mirrors what we saw in our large deals with Bayer last year as well. The most obvious example of an asset we have that our customers don't have internally is the scale of our automation. So we've invested hundreds of millions of dollars to date to build out both physical hardware here in Boston, where I'm sitting today, as well as custom software to run our lab like a factory. As you can see a video on the right here of the newest technology that we're super excited to be integrating, the software and automation that's coming in via our acquisition of Zymogen that closed in October of 2022. For the potential customers listening on this call, this infrastructure is all available quickly to you as a service. I really like our no pipettes logo down here. You know, look, I spent five years during my PhD at MIT working at the lab bench with a pipette in my hand. There are brilliant scientists at our customers who are instead, you know, spending their time designing experiments or instead really running ultra low throughput experiments by hand with pipettes. It's clear to me that the future will be total automation of the lab work associated with cell engineering and Ginkgo is really hoping to lead in making that happen. Biotech scientists should put down their pipettes and make use of Ginkgo's automated lab services to do their work. The last point I'll make on the foundry is that it gets better with scale. In other words, unit costs fall as our output in the facility goes up. This is something you traditionally see in manufacturing of things like microchips or cars, but you don't normally see this in R&D. So by using Ginkgo services, we expect that year over year, the scientists that are customers will have more capacity, unlike those pipettes they have that aren't getting any better. All of that automation generates something really important. data. We call this data our code base, and because we retain rights to reuse the data generated when we do projects for customers, this asset grows each year. I'm sure you've been hearing a lot this year about new AI algorithms. The big secret is that these algorithms are mostly commodities. Everyone has access to largely the same tools. And what's really proprietary is the data you use to train the model. And Ginkgo has built a very unique asset there in the biological space and is adding to it every day. And again, for our customers, these types of AI models are available to you as a service. Most companies in the biopharma space would keep an asset like this to themselves to develop their own drug pipeline. But Ginkgo is a services company, not a product company. And so you won't see a drug pipeline here. We want to make this available to our customers. So Mark will discuss our financial performance in a minute, but I want to emphasize how proud I am of the team for adding 20 new programs in Q4, which took us to 59 programs for the full year toward the high end of our guidance range. On the right, compare this to the first quarter of 2021, where we only added four programs. This is a huge deal. Each new program at Ginkgo adds a combination of service revenue, downstream value, demand to drive the scale of our foundries, and IP data assets, like I just mentioned. The bulk of that program growth was driven by our penetration into the biopharma and ag industries, which you can see on the left side. This is awesome to see. These industries have large biotech R&D budgets, and they're some of the most valuable products in biotechnology. Overall, in 2022, we demonstrated diversification in both the markets we're signing up programs in and in the types of downstream value share we're closing. I think it's often underestimated how valuable that type of diversification is, especially for a services platform. This allows us to shift to where the action is. So if there's a lot of demand in a certain area in pharmaceuticals, we can go there. area industrial biotech or ad, we can go there. If the market conditions favor certain types of deals, whether it's royalties or milestones or equity or whatnot, we can move. So I really am excited about the range of diversification we had in 2022. I think it was a really an amazing year for us that sets us up well. Biosecurity had another solid quarter, and we're very excited about that business transitioning towards longer-term recurring monitoring contracts like we've been doing at airports. Mark will talk about some of the biosecurity financial highlights coming up, and I'll dig into that business in my strategic section as well. Finally, we ended this year with over $1.3 billion of cash on the balance sheet, which provides us with a multi-year runway and is an important source of competitive advantage in this market environment. All right, I'll hand it off to Mark now to go through the numbers and then we'll dig deeper into some of the things we're focused on.

Thanks, Jason. I'll begin with the discussion of our cell engineering business. Before I dive in, you may notice on the slide that we're referring to cell engineering revenue instead of foundry revenue, as we've done historically. We believe this is more reflective of the business and is the term we use internally. And so even if it is a bit of a mouthful, we'll be updating our filings to refer to it in this way going forward. that we did not make this decision in time to get it incorporated into this 10K. As Jason mentioned, we added 20 new cell programs to the cell engineering platform in the fourth quarter of 2022, which brought us to 59 new cell programs for the full year 2022. This represents 90% growth compared to the full year 2021 and is a key outcome as we believe new programs are a critical driver of Ginkgo's long-term value. We supported a total of 96 active programs in the fourth quarter of 2022 across 54 customers on our platform. This represents substantial growth and diversification in programs relative to the 60 active programs across 30 customers in the fourth quarter of 2021. Cell engineering revenue was $53 million in the quarter, up 56% compared to the fourth quarter of 2021. Cell engineering services revenue, which excludes the contribution from downstream value share, was $36 million in the fourth quarter of 2022 compared to $21 million in the fourth quarter of 2021, an increase of 73%. We saw a meaningful sequential increase in cell engineering services revenue compared to the third quarter of 2022, which demonstrates solid execution and platform scaling, including a contribution from the new Bayer programs. Cell engineering revenue was $144 million for the full year 2022, an increase of 27% compared to the full year 2021. Cell engineering services revenue was $106 million, an increase of 23% compared to the full year 2021. Now, turning to biosecurity. Our concentric offering continued to perform well in the fourth quarter of 2022, generating $45 million of revenue in the quarter. Biosecurity revenue for the full year 2022 was $334 million, an increase of 66% compared to the full year 2021. Full year 2022 biosecurity revenue exceeded our previously announced guidance and more than doubled the original guidance we provided back in March of 2022. primarily due to the durability of COVID testing services through the year. Biosecurity gross margin was 33% in the fourth quarter, an approximate eight percentage point decrease from the prior quarter performance. The sequential decrease in gross margin percentage was driven in part by an inventory reserve for purchased products. 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. Starting with OpEx, R&D expense excluding stock-based comp increased from $55 million in the fourth quarter of 2021 113 million dollars in the fourth quarter of 2022. gna expense excluding stock based com increased from 39 million dollars in the fourth quarter of 2021 to 78 million dollars in the fourth quarter of 2022. these operating expense items increased year over year as expected as we invested in our platform in various functions to support our growth layered in the four acquisitions we closed in the fourth quarter and had relatively high consulting expenses the latter of which we do not expect to continue at the same rate for example included in these numbers is approximately 26 million dollars of one-time m a and integration related expenses r d expense increased from 219 million dollars in the full year 2021 to 314 million dollars in the full year 2022 while G&A expense increased from $106 million in the full year 2021 to $228 million in the full year 2022. Included in these numbers, we incurred approximately $46 million of one-time M&A and integration expenses in the full year. As you think about 2023 R&D and G&A expenses, the fourth quarter 2022 levels excluding one-time costs is a decent starting point. By the end of 2023, we'll largely phase out Zymogen-related transition costs for instance, certain G&A support functions, and we'll also make some targeted investments in the core business, which could largely offset. 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 adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA on the quarter was negative $80 million compared to positive $1 million in the comparable prior year period. Nearly half of this decline is attributable to the biosecurity segment as demand for COVID testing services declined. Full year 2022 adjusted EBITDA was negative $173 million compared to negative $106 million in the full year 2021. This decrease was driven by higher operating expenses year over year, partially offset by higher revenues. A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release. And finally, CapEx in the fourth quarter of 2022 was $26 million, which was a sequential increase as expected as we invested in foundry capacity and capabilities. CAPEX in full year 2022 was $52 million, significantly below our initial expectations at the beginning of the year as we sought to optimize our capital efficiency. We expect CAPEX to remain at similar levels in 2023. Regarding stock-based compensation, as a reminder, we provided extensive disclosure in our Q4 2021 earnings release a year ago relating to the GAAP accounting for the modification of restricted stock units issued prior to becoming a public company. Our stock-based comp in the fourth quarter of 2022 was $111 million, a substantial step down sequentially as the gap impact of our pre-public company restricted stock units declined, and we expect a further normalization in 2023. Before I move on to 2023 guidance, I'd like to make two comments relating to the 2022 financials. First, we graduated from emerging growth company status shortly after going public. And so this is our first year filing on an accelerated timetable, 30 days earlier than last year. While we believe our numbers are finalized, we and our auditors at EY need some extra time to complete procedures and documentation. We are submitting a notification of late filing and intend to file our 10-K as soon as possible, but in any event within the 15-day automatic extension period. Second, this is also our first year in which we are required to formally report on our internal control environment under Sarbanes-Oxley sections 404A and 404B. While we did assess a material weakness in our SOX control environment, it had no bearing on the accuracy of our financial statements. The weakness was principally due to One, the fact that we rely extensively on external resources and specialists to supplement our internal team. And two, the level of documentation we need to produce in order to evidence the operation of certain controls. This is something we believe can be remedied in 2023 by expanding the team, further training, and investing in more automation of our data flows. I'd like to thank the team for the tremendous work done to date. SOX is not an easy lift for a new public company, And the progress we've made from where we were in Q1 to Q4 has been substantial, all during a year in which we grew the business significantly and completed multiple acquisitions. Now, I'd like to provide some commentary on our outlook for the full year 2023. We expect to add 100 programs in 2023. This guidance reflects another year of strong growth, 69% year over year. We remain excited about our new program pipeline despite the macro environment. And in some cases, that environment might even work to our advantage as customers look to outsource their R&D efforts. We expect total revenue for the full year 2023 to be at least $275 million. Our cell engineering revenue guidance is at least $175 million, which we expect to ramp meaningfully over the course of the year and excludes the impact of any downstream value share revenue. I want to pause here because our employees are listening to this call, and although this represents 65% growth in services revenue from 2022, we know that we have even more aspirational goals and that our internal targets are higher than this. However, maintaining credibility with the investment community is very important to us, and we want to commit to an outlook that reasonably reflects the business as we see it today. And we'll continue to remain nimble with operating expenses and cash preservation in this environment. I also want to be clear that we're still working toward the achievement of downstream value share in 2023, including additional Kronos milestones. But given the lumpiness of this potential revenue, we are only prepared to give services guidance at this time. To that point, our guidance of at least $175 million of cell engineering services revenue represents 65% growth over the full year 2022. And our fourth quarter 2022 performance is supportive of our growth expectations for that business in 2023. Our biosecurity guidance range is at least $100 million. Importantly, we expect nearly half of this revenue to come from emerging product lines that are expected to be more recurring in nature, such as federal and international partnerships, supporting pathogen monitoring and biosecurity infrastructure development beyond just COVID-19. For the remaining half of the revenue that primarily comprises our K-12 COVID testing businesses, we are approaching guidance similar to how we have during the past couple of years. Our guidance includes business that we have visibility into, specifically testing commitments that we expect to last through the remainder of this school year. We have included only a marginal contribution from the K-12 COVID testing business in the second half of the year, although we do have opportunities to continue working with state governments on testing services and other biosecurity projects. We reiterate the usual caveat that even where we have known contracts, our K-12 COVID testing business is inherently uncertain. In summary, we are pleased with our overall progress and outlook. We had a solid quarter of cell engineering execution and expect strong program growth and services revenue growth in 2023. Biosecurity continues to perform well and evolve as we expect a meaningful contribution from more recurring revenue streams in the coming years. And the company's total cash position of over $1.3 billion remains strong.