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 SEC to learn more about these risks and uncertainties. Today, in addition to updating you on the quarter, we are going to provide updates on our path towards adjusted EBITDA breakeven, including a deeper dive on how we're executing against our cost reduction targets, as well as what we're doing to drive revenue. 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, Megan. And thanks, everyone, for joining us. We always start with our mission of making biology easier to engineer. And in order to do so, particularly in this quarter and the quarters to come, we're focused on three objectives. First, reaching adjusted EBITDA breakeven while maintaining a cash margin of safety. We ended this quarter with $730 million in cash and no bank debt. We also made aggressive moves in headcount reduction and other reductions that will be reflected in reducing our cash OpEx spending in the coming quarters. Second, while we're cutting these costs, we need to keep serving our current customers well. I'm happy with our revenue number this quarter, which are indicative of continuing to serve our current customers. This was a big lift for the team alongside a riff and a change in how we are organized, but it's an early indication that these changes were effective in improving the efficacy of our delivery. Finally, we want to grow our revenue in solutions and expand into selling tools. So I'm going to cover this more in the strategic session, but we're excited to open our platform directly to our customer scientists. Previously, it's been something we've just had available to ourselves here at Ginkgo, and we're getting that out there in a more democratized way. Our technology assets in bioengineering are world-leading, so I'm excited to find more ways to sell them and drive growth. As a reminder, in our Q1 call, we noted our annualized off-ex of about $500 million was simply too high relative to near-term revenues. To address this, we announced a plan to cut this back by $200 million on an annualized basis by mid-25, including consolidating of our footprint and reduction of our labor expenses across both G&A and R&D. And I think, again, with our strong cash position, we're well positioned to continue executing on these restructuring efforts. I will be providing a detailed update on the cost reduction plan later in this presentation, but for now, I'd like to give you a summary of the actions we took in the second quarter relating to headcount reduction. At present, we have notified approximately 450 employees, or roughly 35% of the business, that they will be impacted by our reduction in force. Approximately 300 positions were impacted as of the end of Q2, and an additional 100 positions are anticipated to be impacted by the end of this year, and the remaining 50 by mid-25. These cuts, although difficult to make, are estimated to save Ginkgo over $85 million in annualized cost savings once they're fully implemented. And because of these reductions, we're very much on track to hit our goal of reducing our annualized costs by $100 million by the end of year. I know this is not much consolation, but I do want to take a minute and again thank our employees who were let go as part of this reduction in force. They contributed enormously to building Ginkgo, and we're deeply grateful for it. Much of what we're doing now at Ginkgo with these changes is to establish a firm base for the company that will allow us to then grow and meet the mission that they all helped us build. Now, I'm going to get into cost-cutting details in the strategic section, but before I do, let me hand it over to Mark to go over the financials.

Thanks, Jason. I'll start with the cell engineering business. Cell engineering revenue was $36 million in the quarter, down 20% compared to the second quarter of 2023. Similar to Q1 of this year, this decline was driven primarily by a decrease in revenue from early stage customers, partially offset by growth in revenue from larger customers. We continue to believe the shift to larger cash-based customers to be an overall positive shift. In the quarter, we supported a total of 140 active programs across 82 customers on the cell engineering platform. This represents a 33% increase in active programs year over year with solid growth across most verticals. As we discussed in our prior earnings call, we anticipate the nature of programs that we take on with our customers to evolve in the future following our recent adjustments to commercial terms and offering. While still very early days, this slide gives you some detail on how the nature of programs is changing. We added a total of 18 new programs and contracts in Q2 2024, of which 10 were generally comparable in size and scope to historically reported new programs. Importantly, you'll note that of those 10 deals, five included downstream value share potential. In addition, we commenced eight other customer contracts in the quarter that represent a variety of small deal archetypes. These are generally much smaller in scope and shorter in duration and include two lab data as a service deals in the protein characterization space that we signed with a large cap tech company, which itself is an entirely new customer segment. The current sales pipeline for both categories of deals is solid, and while it's still in its early days, we encourage that during the course of a major restructuring, we have been able to execute on existing customer programs while converting new opportunities. Jason will speak further about our approach to driving revenue later in the presentation. Now turning to biosecurity, our biosecurity business generated $20 million of revenue in the second quarter of 2024 at a gross margin of 41%. Revenue and gross margin were up significantly in Q2 due to the timing of a customer contract. 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 and restructuring-related expenses to provide you with additional comparability. Starting with OPEX, R&D expense excluding stock-based comp and M&A and restructuring costs increased from $99 million in the second quarter of 2023 to $110 million in the second quarter of 2024. This increase was mainly driven by an increase in rent expense and AI-related spend. gna expense excluding stock based comp and m a and restructuring costs decreased from 59 million dollars in the second quarter of 2023 to $45 million in the second quarter of 2024, which reflects cost reductions we completed in 2023. Importantly, Q2 does not reflect the benefits of our headcount reduction, since those only commence at the end of June. And so we would expect both R&D and G&A expenses to decrease meaningfully by Q4 of this year. The M&A and restructuring related costs this quarter includes a goodwill impairment charge of $48 million, other costs relating to restructuring such as severance and costs relating to smaller M&A transactions that we close early in the quarter. A full reconciliation of this line item can be found in the appendix to this presentation. Stock-based comp, you'll again notice a significant drop in stock-based comp this quarter, similar to what we have seen over the past year as we complete the roll-off of the original catch-up accounting adjustment related to the modification of restricted stock units when we went public. Additional details are provided in the appendix. 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 corridor was negative $99 million, which was down from negative $80 million in Q2, 2023. This decline was driven by a decrease in total revenue partially offset by a decrease in certain operating expenses. In addition, I would like to note that we are now reporting adjusted EBITDA inclusive of non-cash, in-process R&D charges relating to acquisitions, and so we have separately itemized that amount for you here. And finally, capex in the second quarter of 2024 was $13 million net of tenant improvement allowance as we continue to build out the BioFab 1 facility. In terms of outlook for the full year, we are reaffirming our guidance for 2024 with cell engineering revenue expected to be $120 to $140 million and biosecurity revenue expected to be at least $50 million, totaling $170 to $190 million. In conclusion, we're pleased with our overall execution of the restructuring thus far as we navigate substantial cost reductions and commercial changes, which we see as foundational to our path to adjusted EBITDA breakeven.