Ginkgo Bioworks Holdings Inc

Good evening. I'm Megan LeDuc, Manager of Investor Relations 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 will 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. Today, in addition to updating you on the quarter, we are going to dive deeper into a few case studies of how we are seeing our mission to make biology easier to engineer come to life, as well as provide further details on our diverse program pipeline and the growth opportunities we see in biosecurity business. 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 at hashtag GinkgoResults or email us at investors at ginkgobioworks.com. All right, over to you, Jason.

I'm super excited to be chatting with you all today. I always start with a reminder that our mission at Ginkgo is to make biology easier to engineer. As we dig into the strategic sections, you'll see the progress we're making on that mission, particularly with our AI efforts and our strong pipeline of active programs. We pursue this mission on behalf of a diverse group of customers. This is one of my favorite slides. Having a customer list that ranges from agriculture to consumer goods to chemicals to therapeutics is common for a horizontal tech platform, but it's pretty unique in biotech. It makes sense because all these diverse programs benefit from the scaling of the same underlying technology at Ginkgo. We've added programs with several new customers this quarter, including smaller companies like Nosh Bio Foods in the industrial biotech field and Xacta Biosciences in the ag space, as well as large companies like Pfizer and Pharma, in addition to new programs with many of our existing customers. We took a view early on at Ginkgo that scale would be needed to drive our mission. And you see that reflected in our business model as a platform service provider. We had 116 active programs on the platform this quarter, representing 36% growth over last year and our highest active program count ever. As our foundry scales, our data generation capabilities scale in turn. You can see this on the slide comparing some of our internal assets to public data assets. Our ability to generate data at scale for customers paired with our existing code base is a big part of the reason customers choose to work with Ginkgo, particularly as leveraging generative AI becomes a bigger priority for our customers. For those of you that tuned into our investor day, and I encourage you to watch the YouTube recording if you didn't, you know that we are using this data to build AI foundation models and fine tune applications for biological engineering. Our recent partnership with Google is helping fuel this in the last quarter, and I'm proud of the progress the team is making on track with our plans. In fact, we've already achieved the first milestone in our partnership with Google. The reality is that biology is getting easier to engineer. We're really excited about that, what that opens up for our customers, better medicines, more resilient food systems, cleaner industry. But it is not lost on us that the advancement of biological engineering tools, particularly when coupled to advancements in AI, creates risk. We are sitting at the intersection of several exponentially improving techs, and the world is grappling with how to keep up with the pace of change and limit the risks these technologies create. Our biosecurity business works hand in hand with our cell programming business to address this challenge. Helping build early warning systems and decision support for national security and public health is going to be critical to protecting against the potential misuses of these technologies, along with anything Mother Nature throws at us. I can't emphasize enough the synergies between these businesses. It's clear that there's an unmet need for biosecurity, but the question is, who's best positioned to grow into this large addressable market? We think Ginkgo is well positioned to do it as the tools we're building in our cell engineering business help provide the foundation for biosecurity. Likewise, our close connection to a biosecurity platform that is highlighting emerging threats allows us to be a better partner to our vaccine and therapeutic partners, ideally enabling us to make more effective countermeasures earlier in the risk cycle. And you're going to hear from me a bit in the strategic session about how we're building all that in biosecurity. 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 with the cell engineering business. We added 21 new cell programs and supported a total of 116 active programs across 76 customers on the cell engineering platform in the third quarter of 2023. This represents a 36% increase in active programs year over year with significant growth in the biopharma and the food and agriculture verticals. Notably, we added 10 new biopharma programs in the quarter, a record number of new programs for any particular market segment in one quarter. Cell engineering revenue was $37 million in the quarter, up 51% compared to the third quarter of 2022, driven by our significantly expanded customer base. Now, turning to biosecurity. Our biosecurity business generated $18 million of revenue in the third quarter of 2023 at a gross margin of 62%. Both revenue and gross margin benefited in the quarter as we close out our last remaining K-12 COVID testing contracts. We're continuing to gain traction on an international scale, now totaling 14 countries with either active programs, pilots, or MOUs. And Concentric is also progressing its bio radar offering with multi-pathogen detection and new efforts in zoonotic disease monitoring, while also building a suite of next-generation biological intelligence capabilities, including AI-based epidemic forecasting. 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 $74 million in the third quarter of 2022 to $123 million in the third quarter of 2023, representing growth in capabilities, particularly from our acquisitions in the fourth quarter of last year. G&A expense, excluding stock-based comp, increased slightly from $59 million in the third quarter of 2022 to $62 million in the third quarter of 2023, supporting the growth of cell engineering revenue and the integration of prior year acquisitions. You will also see that we recorded a $96 million non-cash impairment charge on a Zymergen lease facility, which Zymergen exited in the third quarter. While our full accounting for the Zymergen bankruptcy is not yet complete, we expect to deconsolidate the Zymergen financial statements effective October 3rd, 2023. And so in the fourth quarter, our accounting is expected to result in removing Alzheimer's and multi-year lease liabilities, along with its other financial accounts. Stock-based comp, you'll notice a significant drop in stock-based comp this quarter, similar to what we saw in Q1 and Q2 of this year. As a reminder, this is because of the catch-up accounting adjustment relating to the modification of restricted stock units when we went public has mostly rolled off at this point. While the bulk of that adjustment is done, about half of the total $54 million stock comp expense in the quarter is still related to RSEs 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 ebitda is a more indicative measure of our profitability we've also included a reconciliation of adjusted ebitda to net loss in the appendix Adjusted EBITDA in the quarter was negative $84 million compared to negative $72 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 third quarter of 2023 was $4 million. Moving on to our outlook for the full year, in terms of big picture, we are expecting total revenue of $250 to $260 million in 2023 in line with previous guidance. Now, looking at the details and starting with new programs, Based on third quarter results and pacing of new opportunities, we are now targeting 80 to 85 new cell programs in 2023. We continue to see growth in pipeline opportunities. However, the pacing of pipeline conversion has been impacted by both macroeconomic conditions, as well as the fact that our cell programs are a complex enterprise sale. While we have undertaken several initiatives in the past year to address these two challenges, including process improvements to our contracting cycle, success based pricing and a focus on the biopharma segment, all of which have helped drive our metrics in the right direction overall. We have not yet fully solved the pacing issue, particularly as deals get into the final stages. I'll also note that in addition to our formal new program target, Ginkgo signed several tech licensing evaluation agreements in the third quarter, which allow customers to evaluate more advanced assets, such as the capsids we acquired from StrideBio. These customers might then execute a license agreement to continue using the asset. We did not include these deals in our program count as they do not involve foundry work. However, they do represent a new potential source of revenue for Ginkgo. Moving on to revenue, we are updating our cell engineering revenue outlook to be in the range of $145 to $150 million. This is inclusive of $4 million in downstream value share we have recognized year-to-date through September 30th. As for biosecurity, based on year-to-date results, we are increasing our revenue guidance to land in a range of up to $110 million. Fourth quarter revenue will be driven by federal and international partnerships supporting pathogen monitoring and biosecurity infrastructure development as the K-12 COVID testing business ended in the third quarter. In summary, we are pleased with the overall direction of progress and continue to focus on scaling the business as we finish out the year. We remain focused on driving new programs to the platform in this challenging macro environment. We are excited about the significant traction we have made in the biopharma segment, and we continue to manage our balance sheet and cash flows to maintain a long runway runway while maintaining flexibility to capitalize on near-term strategic opportunities with over one billion dollars of liquidity at quarter end and now jason back to you