Ginkgo Bioworks Holdings Inc

Good evening, I'm Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. I'm joined by Jason Kelly, our co-founder and CEO, and Mark Dimitrick, our CFO. Thanks, as always, for joining us. We're looking forward to updating you on our progress. 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. Today, in addition to updating you on our strong quarter, we're going to dive deeper into our continued progress on driving operational efficiency across our platform, some recent customer successes, and our expanding government relationships. 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 via Twitter, hashtag GinkgoResults, or email at investors at ginkgobioworks.com. All right, over to you, Jason.

I'm super excited to be chatting with you all today and celebrating a strong quarter for our team at Ginkgo. I always start with a reminder that our mission here is to make biology easier to engineer. And as we dig into the strategic sections today, you'll see the progress we're making on that mission, particularly on our path to profitability by driving efficiency through the scaling of our platform. I'm also proud of the work the Ginkgo team has accomplished this quarter as we continue to scale our platform. We had 105 active cell engineering programs on the platform this quarter, representing 44% growth over last year. Alongside that, we are delivering more work for customers. So we saw 72% growth in cell engineering services revenue this quarter versus the same quarter last year, and we're driving that growth efficiently. We'll dive into what is enabling this productivity improvement in the next section. On the customer side, remember, in Ginkgo's business, customers are choosing to outsource some of the R&D work they might have considered doing in-house. And to state the obvious, that is a higher bar to meet at the largest, most sophisticated companies, where Ginkgo really has to showcase our scale of automation and data assets. They have to add something to the considerable resources those companies have already in-house. And so I'm super excited to see the progress at Nova Nordisk, Merck, and Sumitomo, who are among our most technically advanced customers. We've expanded our relationships with all of these customers in the last couple months on the basis of strong performance and delivery on their programs. You'll see us sharing more with you on these customer successes in the future. Our performance and balance sheet are unique in our market, and I'm really excited to capitalize on these assets in the coming months and years. We continue to have a strong multi-year runway with over $1.1 billion of cash on our balance sheet. That margin of safety gives us the runway to march towards profitability, both by improving the margin on our service fees via operational investments, and you're going to hear about those from me later on this call, and eventually as well by reaching downstream value potential from our portfolio of programs. One more piece of exciting news before I hand it back to Mark to dive into our performance more deeply. I'm really thrilled that Shams Sankar has agreed to be Ginkgo's board chair and provide his leadership. Shams is currently the CTO of Palantir and joined our board about eight years ago. So this will give you some perspective about a year after Ginkgo did Y Combinator. And so Shams has seen Ginkgo grow from about 50 people to our current scale as a public company today. And the intuition that he has built up over the last year is about that interface between biotechnology and what he's learned being on the board of Ginkgo and the tech industry that he's in natively at Palantir, I think is going to be particularly invaluable for Ginkgo coming up, especially now that you see new technologies like generative AI that are opening even more opportunities for biotech and tech to work together. Sean's experience building Palantir is going to be absolutely critical for us coming up And so we're super happy to have him taking over as board chair. I'm also happy to report that our current board chair, Merine Deckers, will be staying on our board as he hands the reins over of chair to Sham. I'd like to take a minute to personally thank Merine for the efforts he put into growing me and the senior management team at Ginkgo as leaders over the last four years. You know, in his first years on the board, Merine would spend a day or more a week at Ginkgo meeting with our executives, helping them grow as leaders, which has been absolutely critical as we took the company public and were able to have that sort of institutional knowledge stay with the company on our leadership team. Marijn was coming in at the time from being the CEO of Bayer in 2016. And I'll be honest, often large multinational company CEOs do not fit in fast growth company startup culture. But Marijn was quite special. In his 30s, he was tapped to turn around a struggling company. called Thermoelectron. And, you know, Merine led the acquisition of Fisher, created Thermo Fisher and designed really the dominant business model in the life science tools industry still to this day. You know, Ginkgo has similar ambitions to redesign how biotechnology R&D is conducted across the industry. And I really want to, I want to personally thank Merine for his contributions working with me directly to get our business model right here at gingko that is going to be a huge part of delivering on our mission of making biology easier to engineer and so i will always be thankful to marine for that contribution to gingko i i look forward to continuing to work with both marine and sham in the years to come all right now let me hand it over to mark to give a little more color on our financial performance this quarter

Thanks, Jason. I'll start by discussing our cell engineering business. We added 21 new cell programs and supported a total of 105 active programs across 63 customers on the cell engineering platform in the second quarter of 2023. This represents a 44% increase in active programs year over year with significant growth in the biopharma, food and agriculture, and industrial subsegments. Cell engineering revenue was $45 million in the quarter, up 2% compared to the second quarter of 2022, which had benefited from a large one-time milestone payment. Importantly, when excluding the impact of downstream value share, cell engineering services revenue was up 72% year over year. This is our largest ever quarter for cell engineering services revenue and demonstrates the strong progress we've made in adding new programs and customers, driving platform efficiency and program execution. Now turning to biosecurity. Our biosecurity business generated $35 million of revenue in the second quarter of 2023, a solid result in line with expectations as this business transitions away from K-12 COVID testing services. We are continuing to gain traction on an international scale, now totaling 11 countries with either active programs, pilots, or MOUs, and including a new MOU with Panama, our first program in Latin America and an important international hub. Biosecurity gross margin was 49% in the second quarter of 2023, which benefited from a mixed shift to higher margin product sales. We have also expanded our U.S. government partnerships domestically with new programs that span both our cell engineering and biosecurity priorities with IARPA and DARPA, which Jason will discuss in the strategic section. 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 $73 million in the second quarter of 2022 to $104 million in the second quarter of 2023, representing growth and capabilities, particularly from our acquisitions in the fourth quarter of last year, including Bayer's AgBiologicals facility and Zymogen. G&A expense, excluding stock-based comp, increased from $48 million in the second quarter of 2022 to $80 million in the second quarter of 2023. The increase in operating expenses and G&A in particular was impacted by several significant one-time costs in the quarter, the majority of which was non-cash. We provide additional details on this in our adjusted EBITDA reconciliation in the appendix. excluding these one-time items services revenue grew roughly twice as fast as operating expenses as we start driving efficiencies on our platform stock based comp you'll notice a significant step down in stock based comp again this quarter similar to what we saw in q1 of this year as a reminder this is because the catch-up accounting adjustment related to the modification of restricted stock units when we went public is starting to roll off. While the bulk of that adjustment is done, about 60% of the total $62 million stock comp expense in the quarter is still related to RSUs issued prior to us going public. Additional details are provided in the appendix to this presentation. 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 believe adjusted eva does a more indicative measure of our profitability we've also included a reconciliation of adjusted eva to net loss in the appendix Adjusted EBITDA in the corridor was negative $75 million compared to negative $24 million in the comparable prior year period. The decline in adjusted EBITDA was attributable to both the higher run rate of expenses in cell engineering and the as expected decline in biosecurity revenue. And finally, capex in the second quarter of 2023 was $14 million, which includes an expansion of our process engineering lab. In terms of our outlook for the full year, we continue to target 100 new cell programs. This represents rapid sequential growth and will require our team to launch more programs than we ever have before. This target is supported by a strong late stage pipeline, as well as operational investments we have made to improve our program launch process, which Jason will discuss in the next segment. We are, however, seeing a divergence between our program starts and our revenue due to both some market pressure in the industrial biotech segment affecting program size, as well as strategic decisions we have made to structure programs with more fixed pricing and milestones, which impacts the timing of revenue recognition. While we are excited about the work we're launching, we now expect our cell engineering services revenue to land in a range of $145 to $160 million for the year. A quick note on some of the strategic decisions we've made. As we've structured more customer contracts as fixed pricing with milestones, we recognize less revenue in the early phases of a program. For example, we have recently achieved an $11 million cash milestone from a customer as part of a larger contract, but because of the large size and relatively early stage of that program, Ginkgo will only recognize about 1 million of that as revenue in 2023, with the rest recognized over the course of a multi-year program. Similarly, we believe our success-based pricing model is a unique value proposition in the market and also a strong opportunity for Ginkgo to capture additional value on delivery. However, the nature of those programs means that revenue is only recognized at the end of the program. And so a subset of programs launching in Q2 and beyond will not have any revenue recognition in 2023. We remain confident in our pipeline and are seeing improvements in the unit economics of our programs, but are updating our guidance to reflect these timing and market dynamics. As for biosecurity, we maintain our original guidance of $100 million. As discussed in previous quarters, the end of the public health emergency represents a significant shift in the business, and the second half of the year is expected to look very different, with the K-12 business largely rolling off. We have restructured the business accordingly, refocusing our resources on the federal and international opportunities to build lasting biosecurity infrastructure. I'll also just mention that while we do not provide EBITDA or cash flow guidance, our internal forecasts for cash flow have not changed for the year, despite the lower revenue guide, because in some cases we receive cash ahead of revenue recognition. And in addition, we have moved to thoughtfully constrain cash expenditures as we've driven efficiencies across the platform. In summary, we're pleased with our overall progress in the business while navigating a challenging macroeconomic environment. We're continuing to scale our business with strong program additions and the largest quarter of cell engineering services revenue we've ever delivered. And we continue to manage our balance sheet and cash flows to maintain a long runway while retaining flexibility to capitalize on near-term strategic opportunities with $1.1 billion of liquidity at quarter end. And now, Jason, back to you.