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, and 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 and full year, we are going to dive deeper into Ginkgo's evolution as a data generator and systems integrator within the biotech R&D ecosystem and biosecurity. 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 investors at ginkgobioworks.com. All right, over to you, Jason.

It's been a busy and exciting week here at Ginkgo, and it's a great week to remind everyone of our mission, which is to make biology easier to engineer. We don't take this mission lightly and achieving it requires not only our own infrastructure investments here at Ginkgo, but also truly to drive change across the culture of the industry. Fostering collaboration over competition, especially among tool developers. And I'm going to spend a bunch of time today talking about that. I'm really excited about our progress. And as we'll dig into the strategic sections, you'll see how we're building and integrating a set of capabilities we believe could really revolutionize how biotech R&D is done. Before we get to that, I want to say if you want to imagine a little bit of what a world would look like when biology gets easier to engineer, it looks a little something like this. So engineered biology becoming an everyday part of our lives, not just something we experience when we're sick in a hospital or things like that. And this photo is a real photo of the Firefly branded petunias that one of our customers, Light Bio, just launched. uh to the public uh and we're working with them to make these plants an order of magnitude brighter today to see them uh you have to be in a really in a dark room uh but uh now you may not think that uh bioluminescent flowers are gonna David McGoldrick, Jr.: : sort of change the world, like a blockbuster drug, but you know, the reason I got into biotech was really because of. David McGoldrick, Jr.: : Movies like jurassic park and if you look at some of the younger employees here at ginkgo they were inspired by things like avatar and this idea that we could start to to really design. David McGoldrick, Jr.: : Biology and and you know build more beautiful things in the world, I think, is going to be an inspiration, especially for kids that want to get. into biotechnology. And I promise you, if you fast forward 10 years, you're going to see high school students designing their own flowers in their DNA programming classes. And I think this first product from LightBio is the start of that. Okay, now the road to that consumer biotech world though leads through this this road and can get go continues to lead in b2b sales. To large r&d groups at both big and small biotech companies across the three major industries of biotech industrial agriculture and and, most importantly, for our conversation today biopharma. And I want to really take a minute and focus on our progress in biopharma in 2023. So we added several new biopharma programs in 23, including with Pfizer, Boehringer Ingelheim, Novo Nordisk, Merck, as well as successfully completing our first project with Biogen. All of these are hugely important for Ginkgo. First, it is a wide range of different projects we are doing with these companies. We're doing manufacturing R&D for Novo, biocatalytic enzyme development for Merck, RNA drug discovery for Pfizer, small molecule natural product drug discovery for Boehringer. And that breadth is a huge vote of confidence for Ginkgo's sort of core thesis of being a platform business model. So we believe that our robotics, our data, and you're going to hear today, our AI models will be relevant to product developers across all biotech, either modalities of drugs or different industries in biotechnology. And these deals represent that thesis being confirmed by customers in the biopharma industry, right? This is not Ginkgo getting into enzymes or Ginkgo getting into RNA drugs. These are customers who are experts in those fields choosing to look at our platform and see that it gives them leverage. And for potential customers on this call, I want to be very clear, we do not have our own product portfolio or drug pipeline at Ginkgo. Everything we build, we build to serve you, our customers, like the ones on this page. And we're looking forward to continuing to build the best platform we can to serve your needs going forward. Speaking of what's going to propel our business in 24, we plan to expand our capabilities. You've heard us talk about our foundry and code base, which is really our robotics and our data at Ginkgo. And we're going to continue to build that out with new rack deployments. This is the robotics technology from Zymogen, which I'll speak more about today, and the building of BioFab 1. which I'll get into more in the strategic section, our new big integrated facility. And yesterday, we announced three new M&A deals as well as our technology network that brings together over 25 companies from different parts of the industry, particularly focused on AI and biopharma, where we're seeing the most sort of inbound research demand. We made the choice many years ago to be a horizontal platform technology company, and inherent in that choice It means we're not gonna be able to specialize in everything. Our value really comes from scale and integration. To bring together these more specialized technologies through M&A and partnership, we think is key to driving success across the industry. And you're gonna hear a lot from me about that a bit later. But before I get too deep into that, I wanna hand it over to Mark to discuss our financials.

Thanks, Jason. I'll start with the cell engineering business. We added 23 new cell programs in the fourth quarter of 2023, which brought us to 78 new cell programs for the full year 2023. This represents a 32% increase over 2022. Importantly, we continue to be successful in adding new programs with large enterprise pharma customers. We will provide some additional detail in a moment on our penetration in biopharma, as this trend provides a critical new perspective on our aggregate new programs metric. We supported a total of 131 active programs in the fourth quarter of 2023 across 80 customers on our platform. This represents substantial growth and diversification in programs relative to the 96 active programs across 54 customers in the fourth quarter of 2022. On a full year basis, Cell Engineering Services revenue was $139 million in 2023 an increase of 31 percent compared to the full year of 2022. As discussed in prior quarters, the services revenue growth was offset by a decline in downstream value share from equity milestones achieved in 2022, resulting in total cell engineering revenue of $144 million in 2023 being approximately flat compared to 2022. When looking just at the fourth quarter of 2023, Cell engineering revenue was $27 million, down 49% compared to the fourth quarter of 2022, primarily due to the decline in downstream value share just mentioned. Services revenue, which excludes the impact of downstream value share, was also down year over year. As discussed in the past, we often see inter-quarter lumpiness in services revenue, even though the underlying foundry platform output is more level. And that is because of the timing of revenue recognition, the achievement of certain technical milestones, contract-specific factors, and related accounting adjustments. And so, for example, the actual platform work that we did for customers in Q4 was comparable to Q3, even though we had a significantly different revenue result. Now, turning to biosecurity briefly. Our biosecurity business generated $8 million of revenue in the fourth quarter of 2023 at a gross margin of 15%. Biosecurity revenue for the full year 2023 was $108 million with a gross margin of 50%. As a reminder, our K-12 COVID testing contracts ended in the third quarter and the business has now moved entirely towards building out both domestic and international infrastructure for biosecurity. highlighted, for example, by our QBD announcement earlier this week and our expanded CDC multi-pathogen surveillance program announced in Q4. Before getting into the rest of the P&L, I'd like to talk about how we're managing cash flow and cash expenses in this environment. We finished 2023 with nearly $950 million of cash on hand. From our balance sheet, you can see that our total use of cash in the year was about $370 million. Both of these figures were favorable to our internal targets, despite the revenue shortfall relative to our original guidance. Over the past 18 months, we have been assessing every area of cash spend with the goal of identifying categories that should be decreased, categories that should be constrained, and areas where targeted investments are appropriate. In 2023 and in our planning for 2024, we took the following actions. The completion of our integration efforts relating to the four acquisitions that we had closed back in the fourth quarter of 2022 has resulted in cost synergies at this point, particularly as relates to G&A expenses and the Zymergen transaction. You will see that reflected both in the fourth quarter of 2023 as well as in 2024. We are also reducing certain G&A spend in supporting functions such as finance people and legal by decreasing professional services and consulting spend and bringing more capabilities in-house. Due to improved equipment capacity, we rationalized CapEx in 2023. The majority of the spend in 2023 related to various smaller projects, and in 2024, the majority of the CapEx relates to the build out of the new BioFab 1 facility to support future growth and efficiency. And then building on the operational improvements discussed on our second quarter earnings call, we are constraining OpEx in our microbial platform, which is our most mature platform capability. As we increase revenue in these programs, we are driving higher productivity. Now, partially offsetting these cost savings actions, there are also key areas where we are investing. We are expanding the pharma business development team by about 50% and are investing in our mammalian platform capabilities. And we are increasing spend related to AI, which Jason will be speaking about in more detail later in the presentation. These investments are critical to both near-term and long-term growth. Collectively, these actions have resulted in a net spend reduction when you compare the fourth quarter of 2023 to prior quarters and are expected to decrease OPEX in 2024 relative to 2023. The combination of our expected revenue growth and decrease in OPEX is expected to drive an improved cash burn level in 2024, And successful execution here would also put us on a trajectory for further improvements to cash burn in 2025. 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 decreased from $109 million in the fourth quarter of 2022 to $90 million in the fourth quarter of 2023. G&A expense decreased from $78 million in the fourth quarter of 2022 to $72 million in the fourth quarter of 2023. On a full year basis, R&D expense increased from $314 million in the full year 2022 to $432 million in the full year 2023, while G&A expense increased from $228 million in the full year 2022 to $299 million in the full year of 2023. These operating expense items increased year over year as expected as we layered in the 2022 acquisitions. These expenses also include one-time charges, both cash and non-cash, relating to M&A, integration, and other costs as detailed more fully in our adjusted EBITDA reconciliation. Stock-based comp, consistent with prior quarters, in 2023, you'll notice a significant drop in stock-based comp in the fourth quarter and in the full year of 2023. As a reminder, this is because the catch-up accounting adjustment relating to the modification of restricted stock units when we went public has substantially all rolled off at this point. While the bulk of that adjustment is done, just under half of the total 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 look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the fourth quarter of 2023 was negative $96 million compared to negative $76 million in the comparable prior year period. The decrease was driven by lower revenue, partially offset by lower operating expenses year over year. Full year 2023 adjusted EBITDA was negative $355 million compared to negative $173 million in the prior year. The decrease was driven by lower revenue and higher operating expenses year over year. A full reconciliation of adjusted EBITDA is provided in the appendix to this presentation. And finally, CapEx in the fourth quarter of 2023 was only $3 million. CapEx in full year 2023 was $41 million, down from $52 million in the prior year. This reflects our spend prioritization efforts. CapEx will be higher in 2024 due to the build out of BioFab 1, and as discussed, this is one of our targeted areas of investment. Before I get into our guidance update for the year, I'd like to give you a bit more color on the evolution of our program mix. We have talked about how we are shifting our focus to biopharma, and these two charts on the left show that progress. The most important thing to note is that 65% of our new biopharma programs this year were from large enterprise customers. That is a meaningful shift and something we think you should watch going forward. On the revenue side, we have gone from our biopharma being really just a rounding error a few years ago to making up almost a third of our overall cell engineering revenue this year. And we expect this kind of growth rate to continue based on the larger deals we signed in the past two years with the likes of Pfizer, Merck, and Novo Nordisk, along with the pipeline of opportunities are now much expanded by a pharma business development team is pursuing. This is an enormous market, and as we continue to deliver for our early customers, we see significant growth potential ahead. As we did last year, we'd also like to provide you with some updated data points relating to downstream value share. On the left-hand side of the chart, you can see that as of the end of 2023, we have the potential to earn up to $2.4 billion in milestone payments based on customer collaborations previously entered into, with the majority of these potential payments being linked to successful commercialization of a product. This figure does not include potential royalties. One clarification on this chart, you'll see that the increase in potential milestone payments was relatively small when comparing 2023 to 2022. We actually added nearly $1.5 billion in new milestone potential in 2023. However, we also saw some specific programs fall off during the year, and so we have removed those milestones from the total. As you'd expect, most of the milestone potential is coming from biopharma customers and in 2023 from large pharma in particular. On the right side of this page, you can see how our downstream value share mix has continued to shift over the years. Just a few years ago, the bulk of our downstream value potential was in the form of equity in relatively young companies. As our customer base has shifted significantly towards larger, more mature companies, our downstream value mix has shifted towards milestones and royalties. Now I'd like to provide some commentary on our outlook for the full year 2024. We expect to add in the range of 100 to 120 programs in 2024, which represents a growth rate of 41% at the midpoint over 2023. Our cell engineering revenue guidance is a range of $165 to $185 million, which we expect to ramp over the course of the year and excludes the impact of any potential downstream value share. This represents a services growth rate of 26 percent at the midpoint, excluding potential downstream value share over 2023. As discussed earlier, we're seeing the beginning stages of real penetration into the large pharma customer segment and are expecting BioPharm to be a key growth driver in 2024. We expect that will favorably impact the composition of our program and revenue base, while the industrial biotech vertical is still dealing with unfavorable macroeconomic conditions. In addition, we also expect the government vertical to be a strong contributor to growth in 2024 based on a record pipeline we have there. Our biosecurity revenue guidance range for 2024 Is at least 50Million dollars as we have in the past. We are guiding to our approximate current level of contracted backlog for the year. And have a pipeline of opportunities we are pursuing beyond that. And finally, we expect total revenue for the full year 2024 to be in a range of 215 to 235Million dollars. In summary, we're pleased with the overall direction of progress while we still believe that scaling the number of programs we can launch and execute is an important indicator of long term value and our focus on driving growth there. We have placed more emphasis on our revenue targets for our team internally to complement our efforts to drive OpEx efficiency in our path to profitability. Over the past few years, the business has been evolving from a customer base that was predominantly industrial biotech and earlier stage companies to a customer base that now comprises more larger enterprises along with increased biopharma industry penetration. The government vertical has also emerged as a driver of growth. We think this evolving customer profile is attractive on many dimensions. And we continue to manage our balance sheet and cash flows to maintain a multi-year runway with nearly $950 million of liquidity at year end. And now, Jason, back to you.