Ginkgo Bioworks Holdings Inc

I'm LaDuke, 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 provide more detail into our drive towards adjusted EBITDA breakeven and the necessary steps we're taking to get there. 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 X at hashtag GinkgoResults or email investors at ginkgobioworks.com. All right, over to you, Jason.

Thanks everyone for joining us. We always start with our mission of making biology easier to engineer, and that's especially critical today. Gingko is a founder-led company, and myself and the other founders have been pouring our lives into this company for the past 15 years, and many of our senior leaders for more than a decade. The advantage of this is we're very motivated to see the most out of Ginkgo. We've invested a ton of our lives in it. And as a consequence, we want to see the most out of the investment of your capital in Ginkgo as well. So today we're going to be announcing major changes to how we do our work at Ginkgo. These are going to be difficult for many on the team. And I want to say that upfront, it's going to involve substantial headcount reductions alongside important changes to improve our operations. The mission of what we're doing matters at Ginkgo to everyone at the company, and you will see us collectively take difficult but decisive action when needed to ensure we deliver on it. And today is one of those days. So Ginkgo is an increasingly important part of the technology ecosystem in biotech, and that's why I think it's important we get this right. I'm really proud of this customer list. It's unbelievably broad. It showcases our core thesis that a common platform can provide biotechnology R&D services for very demanding customers across ag, food, industrial, biopharma, and consumer biotech. I'm also happy with how we've been expanding this list. In particular, many of the big names in that biopharma column were added in just the last 18 months. Merck, Novo Nordisk, Boehringer, Pfizer. However, the next step for Ginkgo is to take what we've been learning across now hundreds of customer programs and make changes in the business that deliver those programs more efficiently. In particular, I'm going to talk later about how we can achieve greater scalability via simplification of the business. We want to simplify both our technology backend ultimately attempting to consolidate to a single automation platform and simplify on the front end. We've gotten a lot of feedback from all the logos on this page about what they like and don't like about our deal terms. So we're going to be simplifying those two and that hopefully will increase sales velocity and simplify our deal making. More on that in a minute. But first, Mark's going to walk you through our Q1 performance. And there are a couple of things that are indications that we do need to change course. In particular, you'll see an increase in programs without a matching increase in revenue. This is a problem that I'll be working to fix via the changes you're going to hear about today. We're fortunate to be in a position of financial strength as we execute these changes. We have $840 million in cash. We have no bank debt. And so we have a large margin of safety, which is really the position you want to be in when you make large changes like this. In other words, we're not doing this with our back against the wall, and that's a very deliberate choice on our part. We're also setting a target of achieving adjusted EBITDA break even by the end of 2026. The attitude internally at Ginkgo, and I know many at the company are listening right now, will be to collectively set our plan for reaching that, which is going to involve input from all the folks on the team. and then commitment from all of us to not spend outside of that tight plan. Over the past few years, we've learned a lot by trying different avenues to drive growth. We have all that data now on the team, and we have a team that can set the right plan and determine who are the best folks to deliver on it. And we're going to be doing that in the coming weeks internally. This also aligns well with what we've heard from many investors, especially those of you who've been waiting on the sidelines to invest in Genco. The most common thing I hear is I love the vision. I see a path where Genco ends up being the horizontal services platform serving all of biotech, massively scaled up. You get better with scale. But Jason, can you get there with the capital you have on hand? And I think our plans today will give you confidence that we can. Okay, I'm now going to ask Mark to share more details on our Q1 financials, and I'll follow with an explanation of how we're going to execute our targeted plan. Over to you, Mark.

Thanks, Jason. I'll start with the cell engineering business. We added 17 new cell programs and supported a total of 140 active programs across 82 customers on the cell engineering platform in the first quarter of 2024. This represents a 44% increase in active programs year over year with solid growth across most verticals. Sal engineering revenue was $28 million in the quarter, down 18% compared to the first quarter of 2023. Sal engineering services revenue, which excludes downstream value share, was down 15% compared to the prior year, driven primarily by a decrease in revenue from early stage customers, partially offset by growth in revenue from larger customers. We believe the mix shift to be an overall positive and is indicative of market conditions, our refocus sales efforts on cash customers and the increased penetration of larger biopharma and government customers that we have discussed over the past few quarters. That said, the revenue in the quarter was below our expectation and the pipeline indicates a weaker than expected revenue ramp for the rest of the year. Jason will be discussing later in the presentation both our thinking about demand and our offering in this environment and efforts we're taking to further focus the customer base. Now turning to biosecurity. Our biosecurity business generated $10 million of revenue in the first quarter of 2024 at a gross margin of 8%. We do expect the gross margin to improve in upcoming quarters based on the revenue mix in our contracted backlog. We're continuing to build out both domestic and international infrastructure for biosecurity, especially with our recently announced biosecurity products, Ginkgo Canopy and Ginkgo Horizon. 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. And we are also breaking out M&A-related expenses to provide you with additional comparability. OPEX. Starting with OPEX, R&D expense, excluding stock-based compensation and M&A related expenses, decreased from $109 million in the first quarter of 2023 to $94 million in the first quarter of 2024. G&A expense, excluding stock-based compensation and M&A related expenses, decreased from $71 million in the first quarter of 2023 to $51 million in the first quarter of 2024. The significant decrease in both R&D and G&A expenses was due to the cost reduction actions we completed in 2023, including cost synergies related to the Zymergen integration and subsequent deconsolidation. Stock-based compensation. You'll again notice a significant drop in stock-based comp this quarter, similar to what we saw in each quarter in 2023 as we complete the roll-off of the original catch-up accounting adjustment related to the modification of restricted stock units when we first went 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 on the quarter was negative $100 million, which was flat year over year as the decline in revenue was offset by a decline in operating expenses. And finally, CapEx in the first quarter of 2024 was $7 million as we continue to build out the BioFab 1 facility. Now, normally I would speak to our guidance next, but given our plans to accelerate our path to adjusted EBITDA breakeven through both customer demand-related changes and significant cost-related restructuring, Jason is going to first walk through those plans and then discuss guidance at the end. Before I hand it over to Jason, I'd like to provide some color on the cost restructuring we are planning. High level, we are committed to taking out $200 million of operating expenses on an annualized run rate basis by the time we have completed our site consolidation actions, which we expect by mid 2025. We expect at least half of that savings target to be achieved on a run rate basis by the fourth quarter of this year. The majority of our cost structure is in our people and facilities costs, and so workforce reductions across both G&A and R&D and site rationalization are the primary focus, though we see significant opportunities in other areas of cost as well. For clarity, our cost takeout estimate includes an assumption relating to our ability to manage our lease expenses relating to space we will no longer require. As I said, Jason will speak to the overall plan in more detail, including importantly, the customer demand side of this. And so now, Jason, back over to you.