Ginkgo Bioworks Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Item 1A “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this Quarterly Report on Form 10-Q. Overview Our mission is to make biology easier to engineer. Ginkgo is the leading platform for cell programming, providing flexible, end-to-end services that solve challenges for organizations across diverse markets, from food and agriculture to pharmaceuticals to industrial and specialty chemicals. Ginkgo’s biosecurity and public health unit, Concentric by Ginkgo, is building a global infrastructure for biosecurity to empower governments, communities, and public health leaders to prevent, detect and respond to a wide variety of biological threats. We use our platform to program cells on behalf of our customers. These “cell programs” are designed to enable biological production of products as diverse as novel therapeutics, key food ingredients, and chemicals currently derived from petroleum. Biology did not evolve by end market. All of these applications run on cells which have a common code—DNA—and a common programming platform can enable all of them. Because of this shared platform, we are able to drive scale and learning efficiencies while maintaining flexibility and diversity in our program areas. Ultimately, customers come to us because they believe we maximize the probability of successfully developing their products. The foundation of our cell programming platform includes two core assets that execute a wide variety of cell programs for customers according to their specifications: our Foundry and our Codebase. • Our Foundry wraps proprietary software and automation around core cell engineering workflows— designing DNA, writing DNA, inserting that DNA into cells, testing cells to measure performance—and leverages data analytics and data science to inform each iteration of design. The software, automation and data analysis pipelines we leverage in the Foundry drive a strong scale economic that we refer to as “Knight's Law.” We expect Foundry output, which we currently measure by daily strain tests, to increase year over year, while the cost per strain test decreases. We expect to be able to pass these savings along to our customers, allowing them to take more “shots on goal” with their programs. • Our Codebase includes both our physical (engineered cells and genetic parts) and digital (genetic sequences and performance data) biological assets. Codebase accumulates as we execute more cell programs on the platform. Every program, whether successful or not, generates valuable Codebase and helps inform future experimental designs and provides reusable genetic parts, making our cell program designs more efficient. Historically, we have augmented our Codebase via acquisition of assets such as microbial strains, sample collections, and sequence data. In 2022, our Codebase grew to over two billion proprietary protein sequences as a result of recent acquisitions. As the platform scales, we have observed a virtuous cycle between our Foundry, our Codebase, and the value we deliver to customers. We believe this virtuous cycle sustains Ginkgo’s growth and differentiated value proposition. • Foundry: As we take on more work in the Foundry, we benefit from scale economics, which over time may lead to lower program costs. We expect that these lower costs, in turn, will drive additional demand for our cell programming capabilities. • Codebase: Cell programs also generate Codebase, which can drive better experimental direction and improve the odds of technical success, further increasing our customer value proposition, which we believe will result in additional demand. Put simply: we believe that as we scale, the platform improves. We believe that this in turn yields better program execution and customer outcomes, ultimately driving more demand, which drives further investments in scale and platform 29 Table of Contents improvements, and so on. We believe this positive feedback loop has the potential to drive compounding value creation in the future, as new programs typically contribute to both near-term revenues and have the potential to add significant downstream economics and more positive impact. Our cell programming business model mirrors the structure of our platform and we are compensated in two primary ways. First, we charge usage fees for services, in much the same way that cloud computing companies charge usage fees for utilization of computing capacity or contract research organizations charge for services. Additionally, we negotiate a value share with our customers (typically in the form of royalties, milestones, and/or equity interests) in order to align our economics with the success of the programs enabled by our platform. As we add new programs, our portfolio of programs with this “downstream” value potential grows. With a mission to make biology easier to engineer, we have always recognized the need to invest in biosecurity as a key component of our platform. We are building the future bioeconomy with our customers and partners, and we envision the future of biosecurity as a global immune system equipped with the capabilities to prevent, detect, and respond to biological threats. The first, critical step in realizing this future is to build a robust early warning system for biological threats—this is the primary focus of Ginkgo’s biosecurity and public health unit, Concentric by Ginkgo. In 2020, in response to the COVID-19 pandemic, we launched our commercial offering of COVID-19 testing products and services for businesses, academic institutions, and other organizations in which we generate product and service revenue. In 2021, we launched our pooled testing initiative which focuses on providing end-to-end COVID-19 testing and reporting services to public health authorities. During the second half of 2022, Concentric by Ginkgo expanded to offer biomonitoring and bioinformatic support services internationally as well as domestically. We are currently offering biomonitoring and bioinformatic support services domestically through our partnership with the CDC and XpresCheck, and internationally such as through our partnerships with Qatar Airways and Rwanda Biomedical Centre. Following the announcements from the White House and World Health Organization regarding the end of the public health emergency in May 2023, demand for COVID-19 testing in schools significantly diminished, and during the third quarter of 2023, our COVID-19 testing in schools ended completely. In summary, we operate in two reportable business segments: • Cell Engineering: Consists of research and development services performed under collaboration and license agreements relating to our cell programming platform. Our cell programming platform includes two core assets: the Foundry, highly efficient biology lab facilities, enabled by investment in proprietary workflows, custom software, robotic automation, and data science and analytics, which is paired with our Codebase, a collection of biological “parts” and a database of biological data used to program cells. The Cell Engineering segment includes costs incurred for the development, operation, expansion and enhancement of the Foundry and Codebase. Cell Engineering revenue is derived from service fees and downstream value share in the form of milestone payments, royalties or equity interests. • Biosecurity: Consists of biomonitoring and bioinformatic testing products and services primarily provided to public health authorities. Biosecurity revenue is derived from sales of test kits and end-to-end biomonitoring and bioinformatic support services. Generating Economic Value Through Cell Programs Our cell programming platform is a key enabling technology and source of intellectual property for our customers’ products. We earn Cell Engineering revenue for our research and development (“R&D”) services as well as through a share of the value of products created using our platform. We typically structure Cell Engineering revenue to include some combination of the following: • service fees, which may comprise cash and/or non-cash consideration, in the form of: • upfront payments upon consummation of an agreement or other fixed payments that are generally recognized over our period of performance; 30 Table of Contents • reimbursement for costs incurred for R&D services; • milestone payments upon the achievement of specified technical criteria; plus, • downstream value share payments in the form of: • milestone payments, which may comprise cash and/or non-cash consideration, upon the achievement of specified commercial criteria; • royalties on sales of products from or comprising engineered organisms; • royalties related to cost of goods sold reductions realized by our customers; or, • downstream value share in the form of equity interests in our customer. • downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable. Customer arrangements which involve non-cash consideration generally fall into two categories: Platform Ventures and Structured Partnerships. Platform Ventures Platform Ventures enable Ginkgo to partner with leading multinationals and financial investors to form new ventures in identified market segments with potential to benefit from synthetic biology. In exchange for an equity position in the venture, we contribute license rights to our proprietary cell programming technology and intellectual property, while our partners contribute relevant industry expertise, other resources and venture funding. We also provide R&D services for which we receive cash consideration on a fixed-fee or cost-plus basis. Platform Ventures include: Motif FoodWorks, Inc. Founded in 2018, Motif FoodWorks, Inc. (“Motif”) was formed to focus on the application of synthetic biology to reduce the reliance on animal products in the food industry. We entered into an intellectual property contribution agreement that granted Motif rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received shares of common stock in Motif. The initial fair value of our common stock investment in Motif was $65.1 million, which has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Motif was capitalized through Series A preferred stock financings that raised approximately $119 million in gross proceeds from an investor group which included certain of our investors, Louis Dreyfus Company and Fonterra Co-operative Group Limited. In June 2021, Motif raised an additional $226 million through a Series B preferred stock financing. Ginkgo also entered into a Technical Development Agreement with Motif under which we provide R&D services in return for cash consideration on a cost-plus fixed margin basis. Motif launched its first product, HEMAMI, in 2021. Allonnia, LLC Founded in 2019, Allonnia, LLC (“Allonnia”) was formed to focus on the application of synthetic biology in the waste bioremediation and biorecovery industries. We entered into an intellectual property contribution agreement that granted Allonnia rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received common units in Allonnia with a right to additional units subject to additional closings of Allonnia’s Series A preferred units. The initial fair value of our common units received in Allonnia was $24.5 million, subsequently increased by $12.7 million in 2021, all of which has been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Allonnia was capitalized through Series A preferred unit financings that raised approximately $52 million in 31 Table of Contents gross proceeds from an investor group which included certain of our investors and Battelle Memorial Institute. In 2023, Allonnia raised an additional $30 million through a Series A extension. Ginkgo also entered into a Technical Development Agreement with Allonnia under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis. Arcaea, LLC Founded in 2021, Arcaea, LLC (“Arcaea”) was formed to focus on the application of synthetic biology in the beauty and personal care products industry. In March 2021, we entered into an intellectual property contribution agreement that granted Arcaea rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received common units in Arcaea with a right to additional units subject to additional closings of Arcaea’s Series A preferred units. The initial fair value of our common units received in Arcaea was $11.9 million, which has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Arcaea was capitalized through a Series A preferred unit financing that raised approximately $77 million in gross proceeds from an investor group which included certain of our investors, CHANEL and Givaudan. Upon the closing of the Series A preferred unit financing in July 2021, we received an additional 5.2 million common units in Arcaea. The fair value of our Arcaea common units received in July 2021 of $35.5 million has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Ginkgo also entered into a Technical Development Agreement with Arcaea under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis. Ayana Bio, LLC Founded in September 2021, Ayana Bio, LLC (“Ayana”) was formed to identify and design new bioactive compounds for use as complementary medicine to support human health and wellness. Ayana was capitalized through a Series A funding that raised $30 million in gross proceeds from an investor group comprising certain of our investors. We hold an interest in 9.0 million common units (representing 100% of common units at inception) of Ayana and have also provided Ayana with certain licenses to our intellectual property for use in the development or production of products that we have agreed to research and develop under technical development plans. Prior to the third quarter of 2022, we consolidated Ayana as a variable interest entity. In the third quarter of 2022, we deconsolidated Ayana and began accounting for our retained investment in Ayana as an equity method investment. The initial carrying value of the equity method investment in Ayana was equal to the fair value of our retained interest of $16.0 million as of the deconsolidation date, which has been subsequently reduced to a carrying value of zero due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investment. Ginkgo also entered into a Technical Development Agreement with Ayana under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis. Verb Biotics, LLC Founded in September 2021, Verb Biotics, LLC (“Verb”) was formed to identify and design new strains of probiotic bacteria with advanced properties for human nutrition, health, and wellness. Verb was capitalized through a Series A funding that raised $30 million in gross proceeds from an investor group comprising certain of our investors. We hold an interest in 9.0 million common units (representing 100% of common units at inception) of Verb and have also provided Verb with certain licenses to our intellectual property for use in the development or production of products that we have agreed to research and develop under technical development plans. Prior to the first quarter of 2022, we consolidated Verb as a variable interest entity. In the first quarter of 2022, we deconsolidated Verb and began accounting for our retained investment in Verb as an equity method investment. The initial carrying value of the equity method investment in Verb was equal to the fair value of our retained interest of $15.9 million as of the deconsolidation date which has been subsequently reduced to a carrying value of zero due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investment. Ginkgo also entered into a Technical Development Agreement with Verb under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis. BiomEdit, LLC Founded in April 2022, BiomEdit, LLC (“BiomEdit”) was formed to discover, design and develop novel probiotics, microbiome derived bioactives and engineered microbial medicines in the animal health industry. BiomEdit was capitalized through a Series A preferred unit financing that raised approximately $32.5 million in gross proceeds from an 32 Table of Contents investor group which included one of our investors. In April 2022, we entered into an intellectual property contribution agreement that granted BiomEdit rights to our intellectual property, subject to mutually agreed upon technical development plans and, in return, we received 3.9 million voting common units in BiomEdit. In addition, Elanco Animal Health also contributed intellectual property in exchange for 3.9 million non-voting common units in BiomEdit. The initial fair value of our common units received in BiomEdit was $8.9 million, subsequently increased by $1.1 million in the first quarter of 2023, all of which has been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Ginkgo also entered into a Technical Development Agreement with BiomEdit under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis. Structured Partnerships Structured Partnerships allow Ginkgo to: (i) partner with early stage synthetic biology product companies to adopt our Foundry as their cell programming R&D platform, in which we offer flexible commercial terms on the service fees including the ability to pay a portion or all of such upfront fees in the form of non-cash consideration (convertible financial instruments and/or equity securities), in addition to downstream value share consideration (“Startup Structured Partnership”); and (ii) partner with existing entities with complementary assets for high potential synthetic biology applications in a large-scale, multi-program collaboration (“Legacy Structured Partnership”). In the nine months ended September 30, 2023 and 2022, we entered into 6 and 7 Startup Structured Partnerships, respectively, and received prepayments of service fees in the form of equity securities or convertible financial instruments in the amount of $17.0 million and $12.9 million, respectively, that is recognized as revenue over our period of performance. Our Legacy Structured Partnerships are described below: Genomatica, Inc. Genomatica, Inc. (“Genomatica”) is a biotechnology company specializing in the development and manufacturing of intermediate and specialty chemicals from both sugar and alternative feedstocks. In 2016 and 2018, we entered into separate preferred stock purchase agreements in which we offered cash and R&D services to Genomatica in exchange for its preferred shares. The initial cost of the investment in Genomatica’s preferred stock was $55.0 million. As of September 30, 2023, the carrying value of the investment is $11.9 million and reflects the historical cost less impairment losses recognized through September 30, 2023. Synlogic, Inc. Synlogic, Inc. (“Synlogic”) is a publicly traded clinical-stage biopharmaceutical company focused on advancing drug discovery and development for synthetic biology-derived medicines. In 2019, we entered into several agreements with Synlogic whereby we purchased Synlogic common stock and warrants to purchase Synlogic common stock and agreed to provide R&D services to Synlogic. At inception, the fair value of Synlogic common stock and warrants was recorded at $35.8 million and $14.4 million, respectively. As of September 30, 2023, the fair value of Synlogic common stock and warrants was $1.2 million and $0.5 million, respectively. See Notes 4 and 12 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details of our investments in and the material terms of our agreements with our Platform Ventures and Structured Partnerships. Key Business Metrics A cell program (or “program”) is the work we do for our customers to enable their product(s) of interest. Programs are defined by a technical development plan or objective. We generally exclude proof-of-concept projects and other exploratory work undertaken on a customer’s behalf from the program count. In the near-term, programs typically deliver multi-year revenue from service fees. Over the long-term, program growth drives a physical infrastructure scale economic 33 Table of Contents through our Foundry, a data and learning scale economic through our Codebase and accumulation of potential downstream value share. Our key business metrics comprise New Programs, Current Active Programs, and Cumulative Programs. Three Months Ended September 30, Nine Months Ended September 30, LTM (1) 2023 2022 2023 2022 2023 New Programs 21 15 55 39 75 Current Active Programs 116 85 139 92 151 Cumulative Programs 219 144 219 144 219 (1) Last twelve months ended September 30, 2023. New Programs New Programs represent the number of unique programs commenced within the reporting period. As new programs typically have multi-year durations, we view this metric as an indication of future Cell Engineering revenue growth. Current Active Programs Current Active Programs represent the number of unique programs for which we performed R&D services in the reporting period. We view this metric as an indication of current period and future Cell Engineering revenue. Cumulative Programs Cumulative Programs represent the cumulative number of unique programs Ginkgo has commenced. We view this metric as an indication of our competitive advantage and as a leading indicator of the mid- to long-term potential economic value derived from downstream value share arrangements. The cumulative number of programs also contributes to Codebase, which accumulates with each additional program we conduct over time and drives better experimental direction and improves the odds of technical success in current and future programs. We believe the preceding metrics are important to understand our current business. These metrics may change or be substituted for additional or different metrics as our business develops. For example, as our program mix changes, our data gathering abilities expand or our understanding of key business drivers develops, we anticipate updating these metrics or their definitions to reflect such changes. Zymergen Bankruptcy On October 3, 2023, Zymergen and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. Neither we nor any of our other subsidiaries filed for bankruptcy protection, and we and our other subsidiaries will continue to operate our businesses as usual. Zymergen has been operated as a distinct legal entity, separate and apart from us, since it was acquired in October 2022. Shortly after its acquisition, we entered into an arms-length non-exclusive license with Zymergen with respect to Zymergen’s intellectual property, including its databases, automation, and software capabilities. The Zymergen Bankruptcy will not impact this non-exclusive license, and our rights under this license will not be affected. Following Zymergen’s bankruptcy filing, we entered into an asset purchase agreement with Zymergen as the stalking horse bidder under Section 363 of the U.S. Bankruptcy Code to acquire exclusive rights to substantially all of Zymergen’s intellectual property assets and certain other assets. Our accounting for the Zymergen Bankruptcy is not yet complete, but we expect to deconsolidate Zymergen effective October 3, 2023, and, accordingly, Zymergen’s consolidated balance sheet, statement of operations and cash flows will be removed from our consolidated financial statements. See Note 15, Subsequent Event, of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. Modification of Equity Awards in Connection with SRNG Business Combination Prior to our merger with Soaring Eagle Acquisition Corp. on September 16, 2021 (the “SRNG Business Combination”), our restricted stock units (“RSUs”) were granted with both a service-based vesting condition and a performance-based vesting condition. We had historically not recognized any stock-based compensation expense associated with these awards as the achievement of the performance condition required a change in control or an initial public offering (both as defined in the underlying award agreement) that was not deemed probable of occurring. The SRNG Business Combination did not meet the performance condition required for vesting of our RSUs. 34 Table of Contents On November 17, 2021 our board of directors modified the vesting terms of RSUs to allow 10% of the RSUs that met the service condition as of the closing of the SRNG Business Combination to vest with respect to the performance condition, effective as of November 19, 2021, the date on which the Form S-8 registration statement covering such shares became effective. The remaining RSUs vested in full with respect to the performance condition on or before March 15, 2022. The change to the vesting terms was accounted for as a modification in accordance with ASC 718 and the awards were remeasured using the fair value as of the modification date. RSU earnout shares were also modified as they were subject to the same performance condition as the underlying RSUs, in addition to achieving certain target stock price thresholds. The first target stock price of $12.50 per share was achieved on November 15, 2021. During the three months ended September 30, 2023 and 2022, we recognized $27.6 million and $548.9 million , respectively, of stock-based compensation expense related to the modified RSUs and RSU earnout shares. During the nine months ended September 30, 2023 and 2022, we recognized $112.3 million and $1,793.0 million , respectively, of stock-based compensation expense related to the modified RSUs and RSU earnout shares. Components of Results of Operations Revenue Cell Engineering Revenue We generate Cell Engineering revenue through the execution of license and collaboration agreements whereby customers obtain license rights to our proprietary technology and intellectual property for use in the development and commercialization of engineered organisms and derived products. Under these agreements, we typically provide R&D services for cell programming with the goal of producing an engineered cell that meets a mutually agreed specification. Our customers obtain license rights to the output of our services, which are primarily the optimized strains or cell lines, in order to manufacture and commercialize products derived from that licensed strain or cell line. Generally, the terms of these agreements provide that we receive some combination of: (1) service fees in the form of (i) upfront payments upon consummation of the agreement or other fixed payments, (ii) reimbursement for costs incurred for R&D services and (iii) milestone payments upon the achievement of specified technical criteria, plus (2) downstream value share payments in the form of (i) milestone payments upon the achievement of specified commercial criteria, (ii) royalties on sales of products from or comprising engineered organisms arising from the collaboration or licensing agreement and (iii) royalties related to cost of goods sold reductions realized by our customers. Royalties did not comprise a material amount of our revenue during any of the periods presented. Cell Engineering revenue includes transactions with Platform Ventures and Legacy Structured Partnerships where, as part of these transactions, we received an equity interest in such entities. Specifically related to the Platform Ventures, in these transactions, we received upfront non-cash consideration in the form of common equity interests in these entities, while the Platform Ventures each received cash equity investments from strategic partners and financial investors. We view the upfront non-cash consideration as prepayments for licenses which will be granted in the future as we complete mutually agreed upon technical development plans. In these instances, we also receive cash consideration for the R&D services performed by us on a fixed fee or cost-plus basis. We are not compensated through additional milestone or royalty payments under these arrangements. Our transactions with Genomatica and Synlogic included the purchase of equity securities and the provision of R&D services. As we perform R&D services under the mutually agreed upon development plans, we recognize a reduction in the prefunded obligation on a cost-plus basis. These arrangements are further described in Notes 4, 5, 12, and 14 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Cell Engineering revenue also includes transactions with Startup Structured Partnerships where, as part of these transactions, we received upfront non-cash consideration in the form of current equity interests or financial instruments that are convertible into equity upon a triggering event. We grant the customer a prepaid Cell Engineering services credit in exchange for the upfront non-cash consideration, which can be drawn down as payment for R&D services performed under mutually agreed upon development plans. Downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable. Equity investees are accounted for as equity method investments, cost method investments or carried at fair value. 35 Table of Contents Biosecurity Revenue In 2020, in response to the COVID-19 pandemic, we launched our commercial offering of COVID-19 testing products and services for businesses, academic institutions, and other organizations in which we generate product and service revenue. In 2021, we launched our pooled testing initiative which focuses on providing end-to-end COVID-19 testing and reporting services to public health authorities. During the second half of 2022, Concentric by Ginkgo expanded to offer biomonitoring and bioinformatic support services internationally as well as domestically. We are currently offering biomonitoring and bioinformatic support services domestically through our partnerships with the CDC and XpresCheck, and internationally through our partnerships with Qatar Airways and Rwanda Biomedical Centre. From the above offerings, we generate product revenue through the sale of lateral flow assay (“LFA”) diagnostic test kits, polymerase chain reaction (“PCR”) sample collection kits and pooled test kits, all of which we sell to our customers on a standalone basis. We generate service revenue through the sale of our end-to-end biomonitoring and bioinformatic support services. Each of these service offerings generally consist of multiple promised goods and services including, but not limited to, sample collection, sample storage and transportation, outsourced laboratory analysis, access to results reported through a web-based portal, analytical reporting of results, and overall program management. Generally, the terms of these agreements provide that we are entitled to compensation: (i) upon delivery of diagnostic test kits for product revenue and (ii) as services are performed for service revenue, which is dependent on the identified performance obligations but generally recognized evenly over-time or when results are reported to the customer. Following the announcements from the White House and World Health Organization regarding the end of the public health emergency in May 2023, demand for COVID-19 testing in schools significantly diminished, and during the third quarter of 2023, our COVID-19 testing in schools ended completely. Costs and Operating Expenses Cost of Biosecurity Product Revenue Cost of Biosecurity product revenue consists of costs associated with the sale of diagnostic and sample collection test kits which includes costs incurred to purchase test kits from third parties. Cost of Biosecurity Service Revenue Cost of Biosecurity service revenue consists of costs associated with the provision of our end-to-end COVID-19 testing services, which includes costs incurred to provide sample collection kits, physician authorizations, onsite test administration, outsourced laboratory analysis, access to results reported through our proprietary web-based portal and reporting of results to public health authorities. Cost of Biosecurity service revenue also includes direct labor cost associated with bioinformatics, lab network management, delivery logistics and customer support. Research and Development Expenses The nature of our business, and primary focus of our activities, generates a significant amount of R&D expenses. R&D expenses represent costs incurred by us for the following: • development, operation, expansion and enhancement of our Foundry and Codebase; and • development of new offerings, such as Biosecurity. The activities above incur the following expenses: • laboratory supplies, consumables and related services provided under agreements with third parties and in-licensing arrangements; • personnel compensation and benefits; and • rent, facilities, depreciation, software, professional fees and other direct and allocated overhead expenses. 36 Table of Contents We expense R&D costs as incurred. As we grow our active programs and customer base and invest in our Foundry and Codebase through organic and inorganic growth initiatives, we anticipate that our R&D expenses will continue to increase. The nature, timing, and estimated costs required to support our growth will be dependent on advances in technology, our ability to attract new customers and the rate of market penetration within our existing customer industries. Beginning in the fourth quarter of 2021, R&D expenses included a significant charge for stock-based compensation expense as a result of the modification of vesting terms of RSUs and the vesting of certain earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”). General and Administrative Expenses General and administrative (“G&A”) expenses consist primarily of costs for personnel in executive, business development, finance, human resources, legal and other corporate administrative functions. G&A expenses also include legal fees incurred relating to corporate, intellectual property and patent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, insurance costs, facility-related costs not otherwise included in R&D expenses, and asset impairments. We expect our G&A expenses will continue to increase as we pursue organic and inorganic growth initiatives. The increases will likely relate to additional personnel, system costs and increased costs related to business development, finance and legal matters, along with increased expenses related to operating as a publicly traded company, such as fees related to audit, legal and tax services, regulatory compliance programs and investor relations. Beginning in the fourth quarter of 2021, G&A expenses included a significant charge for stock-based compensation expense as a result of the modification of vesting terms of RSUs and the vesting of certain earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”). Impairment of Lease Assets Impairment of lease assets relates to impairment losses recognized on a right-of-use asset and the related leasehold improvements associated with an exited Zymergen leased facility. Interest Income, Net Interest income, net primarily consists of interest earned on our cash and cash equivalents. Loss on Equity Method Investments Loss on equity method investments includes our share of losses from certain of our equity method investments under the hypothetical liquidation at book value (“HLBV”) method. Loss on Investments Loss on investments includes the change in fair value of our marketable equity securities in publicly traded companies and impairment losses recognized on non-marketable equity securities in privately held companies. Change in Fair Value of Warrant Liabilities Change in fair value of warrant liabilities includes the change in fair value of private placement warrants (“Private Placement Warrants”) and publicly-traded warrants (“Public Warrants”), which are classified as liabilities and were assumed as part of the SRNG Business Combination. Warrant liabilities are marked to market at each balance sheet date. Gain on Deconsolidation of Subsidiaries Gain on deconsolidation of subsidiaries relates to our deconsolidation of variable interest entities, Verb and Ayana, in the first and third quarters of 2022, respectively. The deconsolidation resulted in the removal of Verb and Ayana's assets, liabilities, and non-controlling interest balances from our balance sheet and the recognition of our retained interest in each entity measured at fair value as of the deconsolidation date. 37 Table of Contents Other Income (Expense), Net Other income (expense), net primarily consists of sublease rent income and loss on disposal of equipment. Provision for Income Taxes Income taxes are recorded in accordance with ASC 740 , Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. For all periods presented, we have recorded a valuation allowance against the deferred tax assets that are not expected to be realized. We account for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors, including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, R&D tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. 38 Table of Contents Results of Operations Comparison of the Three and Nine Months Ended September 30, 2023 and 2022 The following table presents the result of operations for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 (as adjusted)* Change 2023 2022 (as adjusted)* Change Cell Engineering revenue $ 37,176 $ 24,679 $ 12,497 $ 116,555 $ 90,409 $ 26,146 Biosecurity revenue: Product 6,495 5,190 1,305 28,949 23,024 5,925 Service 11,759 36,529 (24,770) 71,196 265,988 (194,792) Total revenue 55,430 66,398 (10,968) 216,700 379,421 (162,721) Costs and operating expenses: Cost of Biosecurity product revenue 906 2,660 (1,754) 7,481 13,199 (5,718) Cost of Biosecurity service revenue 6,017 21,995 (15,978) 39,913 160,799 (120,886) Research and development (1) 156,662 261,460 (104,798) 463,583 875,095 (411,512) General and administrative (1) 82,028 435,221 (353,193) 295,802 1,308,416 (1,012,614) Impairment of lease assets 96,210 — 96,210 96,210 — 96,210 Total operating expenses 341,823 721,336 (379,513) 902,989 2,357,509 (1,454,520) Loss from operations (286,393) (654,938) 368,545 (686,289) (1,978,088) 1,291,799 Other (expense) income: Interest income, net 15,020 6,380 8,640 43,914 8,821 35,093 Loss on equity method investments — (22,711) 22,711 (1,516) (53,764) 52,248 Loss on investments (36,324) (1,758) (34,566) (44,815) (39,981) (4,834) Change in fair value of warrant liabilities 1,891 (12,445) 14,336 (1,387) 96,099 (97,486) Gain on deconsolidation of subsidiaries — 15,989 (15,989) — 31,889 (31,889) Other income (expense), net 2,893 (676) 3,569 9,045 1,473 7,572 Total other (expense) income, net (16,520) (15,221) (1,299) 5,241 44,537 (39,296) Loss before income taxes (302,913) (670,159) 367,246 (681,048) (1,933,551) 1,252,503 Income tax (benefit) provision (22) (28) 6 127 (257) 384 Net loss (302,891) (670,131) 367,240 (681,175) (1,933,294) 1,252,119 Loss attributable to non-controlling interest — — — — (3,833) 3,833 Net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders $ (302,891) $ (670,131) $ 367,240 $ (681,175) $ (1,929,461) $ 1,248,286 * As adjusted to reflect the impact of the adoption of Accounting Standards Codification Topic 842, Leases (“ASC 842”) as of January 1, 2022. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments. (1) R&D and G&A expenses included a significant charge for stock-based compensation expense as a result of the modification of the vesting terms of RSUs and all related earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”). Total stock-based compensation expense, inclusive of employer payroll taxes, was allocated as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 2023 2022 Research and development $ 33,976 $ 187,019 $ 122,086 $ 670,650 General and administrative 19,671 376,366 69,238 1,159,040 Total $ 53,647 $ 563,385 $ 191,324 $ 1,829,690 39 Table of Contents Cell Engineering Revenue Cell Engineering revenue increased $12.5 million and $26.1 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase was primarily due to progress of Current Active Programs with existing and new customers. Additionally, revenue increased due to the launch of New Programs and was partially offset by the completion of certain programs. Programs typically require a ramp-up period and/or the achievement of technical milestones before contributing in a meaningful way to revenue. As discussed above in Components of Results of Operations, Cell Engineering revenue comprises both cash and non-cash consideration. Cell Engineering revenue recognized relating to non-cash consideration was $16.9 million in the three months ended September 30, 2023 compared to $10.3 million in the three months ended September 30, 2022, and $46.6 million in the nine months ended September 30, 2023 compared to $47.2 million in the nine months ended September 30, 2022. In the third quarter of 2023, 21 New Programs commenced compared to 15 New Programs in the prior year period. The total number of Current Active Programs increased to 116 from 85 in the three months ended September 30, 2023 and 2022, respectively. Cumulative Programs increased to 219 from 144 in the three months ended September 30, 2023 and 2022, respectively. The number of customers increased to 76 from 43 in the three months ended September 30, 2023 and 2022, respectively. In the nine months ended September 30, 2023, 55 New Programs commenced compared to 39 New Programs in the prior year period. The total number of Current Active Programs increased to 139 from 92 in the nine months ended September 30, 2023 and 2022, respectively. Cumulative Programs increased to 219 from 144 in the nine months ended September 30, 2023 and 2022, respectively. The number of customers increased to 84 from 45 in the nine months ended September 30, 2023 and 2022, respectively. While the majority of Cell Engineering revenue today is made up of service fees, as we increase Cumulative Programs and to the extent our customers successfully commercialize products built on our platform, downstream value share is expected to comprise a larger proportion of Cell Engineering revenue. Downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable. Biosecurity Revenue Biosecurity revenue decreased $23.5 million in the three months ended September 30, 2023, compared to the same period in 2022 and was comprised of an increase in product revenue of $1.3 million and a decrease in service revenue of $24.8 million. Biosecurity revenue decreased $188.9 million in the nine months ended September 30, 2023 compared to the same period in 2022 and was comprised of an increase in product revenue of $5.9 million and a decrease in service revenue of $194.8 million. The amount and components of Biosecurity revenue were primarily dependent on the demand for COVID-19 testing products and services, which ended in the third quarter of 2023, following the announcements from the White House and World Health Organization regarding the end of the public health emergency in May 2023. The amount and components of Biosecurity revenue in future periods are expected to be comprised of our expanded offerings of biomonitoring and bioinformatic support services provided through our domestic and international partnerships. Cost of Biosecurity Product and Service Revenue Cost of Biosecurity product and service revenue decreased $17.7 million and $126.6 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease was driven by decreased demand for our COVID-19 testing products and services. Research and Development Expenses Research and development expenses decreased $104.8 million in the three months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to a decrease in stock-based compensation expense of $153.0 million (inclusive of employer payroll taxes) due to vesting of RSUs and certain earnout shares that were modified 40 Table of Contents in the fourth quarter of 2021 (refer to above section “Modification of Equity Awards in Connection with SRNG Business Combination”), and decreases in professional fees of $3.6 million and laboratory supplies of $2.0 million, partially offset by increases in rent and facilities expense of $14.5 million, personnel-related compensation and benefits expense of $14.1 million, impairment of lab equipment of $12.3 million, depreciation and amortization expense of $10.7 million, and software and technology expense of $2.5 million. Increases in research and development expenses not attributable to stock-based compensation expense supported the growth of Cell Engineering revenue and the integration of prior year acquisitions. Research and development expenses decreased $411.5 million in the nine months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to a decrease in stock-based compensation expense of $548.6 million (inclusive of employer payroll taxes) due to vesting of RSUs and certain earnout shares that were modified in the fourth quarter of 2021 (refer to above section “Modification of Equity Awards in Connection with SRNG Business Combination”), and decreases in laboratory supplies of $4.1 million and professional fees of $2.7 million, partially offset by increases in personnel-related compensation and benefits expense of $60.6 million, rent and facilities expense of $32.6 million, depreciation and amortization expense of $27.1 million, impairment of lab equipment of $12.3 million, software and technology expense of $8.3 million, equipment expenses of $2.1 million, and travel and entertainment expenses of $1.6 million. Increases in research and development expenses not attributable to stock-based compensation expense supported the growth of Cell Engineering revenue and the integration of prior year acquisitions. General and Administrative Expenses General and administrative expenses decreased $353.2 million in the three months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to a decrease in stock-based compensation expense of $356.7 million (inclusive of employer payroll taxes) due to vesting of RSUs and certain earnout shares that were modified in the fourth quarter of 2021 (refer to above section “Modification of Equity Awards in Connection with SRNG Business Combination”), and decreases in professional fees of $3.4 million, marketing expenses of $1.2 million and other direct and allocated expenses of $1.2 million, partially offset by impairment of lab equipment related to prior year acquisitions of $3.9 million and increases in depreciation and amortization expense of $1.5 million, fair value adjustments to contingent consideration liabilities resulting from acquisitions of $2.0 million, and personnel-related compensation and benefits expense of $1.9 million. Increases in general and administrative expenses not attributable to stock-based compensation expense supported the growth of Cell Engineering and Biosecurity revenue and the integration of prior year acquisitions. General and administrative expenses decreased $1,012.6 million in the nine months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to a decrease in stock-based compensation expense of $1,089.8 million (inclusive of employer payroll taxes) due to vesting of RSUs and certain earnout shares that were modified in the fourth quarter of 2021 (refer to above section “Modification of Equity Awards in Connection with SRNG Business Combination”), and decreases in other operating expenses, including software and technology, business taxes, marketing, and other direct and allocated overhead expenses of $1.8 million, partially offset by increases in personnel-related compensation and benefits expense of $24.4 million, rent and facilities expense of $14.7 million, impairment of lab equipment related to prior year acquisitions of $12.9 million, professional fees of $10.5 million primarily for audit and accounting services and consulting costs, the fair value adjustments to contingent consideration liabilities resulting from acquisitions of $10.2 million, depreciation and amortization expense of $3.7 million and travel and entertainment expenses of $2.6 million. Increases in general and administrative expenses not attributable to stock-based compensation expense supported the growth of Cell Engineering and Biosecurity revenue and the integration of prior year acquisitions. Impairment of Lease Assets Impairment of lease assets increased $96.2 million in the three and nine months ended September 30, 2023 compared to the same periods in 2022 due to impairment losses recognized on a right-of-use asset and the related leasehold improvements associated with an exited Zymergen leased facility. During the third quarter of 2023, Zymergen ceased use of and vacated the leased space, which triggered an impairment analysis and resulted in a write down of the carrying value of the assets to their estimated fair value. Interest Income, Net Interest income, net increased $8.6 million and $35.1 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase was primarily due to increases in interest rates on cash held in money market accounts. 41 Table of Contents Loss on Equity Method Investments Loss on equity method investments decreased $22.7 million in the three months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to our equity method investments in Ayana and Joyn Bio, LLC (“Joyn Bio”). Upon the deconsolidation of Ayana in the third quarter of 2022, we recorded a $16.0 million loss on our retained investment in Ayana due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investment. Additionally, in the third quarter of 2022, we recorded a $5.2 million loss on our equity method investment in Joyn Bio, a joint venture which was subsequently terminated in the fourth quarter of 2022. Loss on equity method investments decreased $52.2 million in the nine months ended September 30, 2023 compared to the same period in 2022. The decrease was primarily attributable to our equity method investments in Verb, Ayana, Joyn Bio, and BiomEdit. Upon the deconsolidation of Verb and Ayana during the nine months ended September 30, 2022, we recorded an aggregate $31.9 million loss on our retained investment in Verb and Ayana due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investments. In the nine months ended September 30, 2023, we recorded a $15.6 million loss on our equity method investment in Joyn Bio, a joint venture which was subsequently terminated in the fourth quarter of 2022. Our share of BiomEdit's losses under the HLBV method decreased by $4.4 million in the nine months ended September 30, 2023 compared to the same period in 2022. Under the HLBV method, we absorb losses as a common unit holder prior to preferred unit holders due to a substantive profit-sharing agreement where the preferred unit holders receive preferential distribution rights. Because we have no commitment to fund the losses of our equity method investees, no further losses on these investments were recognized during the periods presented. Loss on Investments Loss on investments increased $34.6 million in the three months ended September 30, 2023 compared to the same period in 2022 primarily due to impairment losses recorded on our non-marketable equity securities. Loss on investments increased $4.8 million in the nine months ended September 30, 2023 compared to the same period in 2022. The increase was driven by a $26.1 million increase in impairment losses related to our non-marketable equity securities, offset by fluctuations in the stock prices of marketable equity securities and a $12.6 million mark-to-market adjustment on equity securities received as downstream value share payments upon the achievement of a commercial milestone in the nine months ended September 30, 2022. Non-cash consideration from customers is initially measured at the fair value of the non-cash consideration at contract inception. Change in Fair Value of Warrant Liabilitie s We recorded a $1.9 million gain on the change in fair value of warrant liabilities in the three months ended September 30, 2023 compared to a $12.4 million loss in the three months ended September 30, 2022. We recorded a $1.4 million loss on the change in fair value of warrant liabilities in the nine months ended September 30, 2023 compared to a $96.1 million gain in the nine months ended September 30, 2022. The change in fair value of warrant liabilities is primarily driven by changes in the value of our common stock. Increases or decreases in the value of our common stock results in a loss or gain, respectively, on the change in fair value of warrant liabilities. Gain on Deconsolidation of Subsidiaries Gain on deconsolidation of subsidiaries in the three and nine months ended September 30, 2022 relates to our deconsolidation of Verb and Ayana and consisted of $15.9 million and $16.0 million retained interests in Verb and Ayana, respectively, measured at fair value as of the deconsolidation date. Other Income (Expense), Net Other income (expense), net increased $3.6 million and $7.6 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to an increase in sublease net income and a decrease in loss on disposal of equipment. 42 Table of Contents Non-GAAP Information In addition to our results determined in accordance with GAAP, we use earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA internally to evaluate our performance and make financial and operational decisions. We believe these non-GAAP measures, when viewed with our GAAP results, may be helpful to investors in assessing our operating performance. We define EBITDA as net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders before the impact of interest income, interest expense, provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for stock-based compensation expense, loss on equity method investments, loss on investments, change in fair value of warrant liabilities, gain or loss on deconsolidation of subsidiaries, acquired in-process research and development assets in connection with asset acquisitions, impairment charges, costs associated with the Zymergen Bankruptcy and other income and expenses. In the second quarter of 2022, we redefined Adjusted EBITDA to exclude transaction and integration costs associated with planned, completed or terminated mergers and acquisitions. The prior year non-GAAP financial measures presented below have been recast accordingly to conform to the new presentation for comparability. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends because it eliminates the effect of financing activities, investing activities, and certain non-cash charges and other items that are not related to our core operating performance or affect comparability period over period. Our non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by future income or future expenses similar to those excluded when calculating these measures. Our computation of these measures, especially Adjusted EBITDA, may not be comparable to similarly titled measures of other companies because not all companies calculate these measures in the same way. We compensate for these limitations by providing a reconciliation of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure. The following table reconciles net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 2022 (as adjusted)* 2023 2022 (as adjusted)* Net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders $ (302,891) $ (670,131) $ (681,175) $ (1,929,461) Interest income, net (15,020) (6,380) (43,914) (8,821) Income tax (benefit) provision (22) (28) 127 (257) Depreciation and amortization 21,060 8,917 57,670 26,885 EBITDA (296,873) (667,622) (667,292) (1,911,654) Stock-based compensation (1) 53,647 563,385 191,324 1,829,690 Loss on equity method investments (2) — 22,711 1,516 52,927 Loss on investments 36,324 1,758 44,815 39,981 Change in fair value of warrant liabilities (1,891) 12,445 1,387 (96,099) Gain on deconsolidation of subsidiaries — (15,989) — (31,889) Merger and acquisition related expenses (3) 12,253 12,017 47,108 20,184 Impairment of long-lived assets (4) 112,403 — 121,404 — Change in fair value of convertible notes 317 (561) 121 (229) Adjusted EBITDA $ (83,820) $ (71,856) $ (259,617) $ (97,089) * As adjusted to reflect the impact of the adoption of ASC 842 as of January 1, 2022. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments. 43 Table of Contents (1) Includes $1.1 million and $0.2 million in employer payroll taxes for the three months ended September 30, 2023 and 2022, respectively, and $4.3 million and $7.2 million in employer payroll taxes for the nine months ended September 30, 2023 and 2022, respectively. (2) Represents losses on equity method investments under the HLBV method, net of losses attributable to non-controlling interests. (3) Represents transaction and integration costs directly related to mergers and acquisitions including (i) due diligence, legal, consulting and accounting fees associated with acquisitions, (ii) post-acquisition employee retention bonuses and severance payments, (iii) the fair value adjustments to contingent consideration liabilities resulting from acquisitions, (iv) acquired intangible assets expensed as in-process research and development associated with asset acquisitions and (v) costs associated with the Zymergen Bankruptcy. (4) For the three months ended September 30, 2023, includes $16.2 million impairment loss on lab equipment and $96.2 million impairment loss on a right-of-use asset and the related leasehold improvements associated with an exited Zymergen leased facility. For the nine months ended September 30, 2023, includes $25.2 million impairment loss on lab equipment and $96.2 million impairment loss on a right-of-use asset and the related leasehold improvements associated with an exited Zymergen leased facility. Liquidity and Capital Resources Sources of Liquidity Upon the closing of the SRNG Business Combination in September 2021, we received net proceeds totaling approximately $1,509.6 million, inclusive of $760.0 million from investments from certain accredited investors for 76 million shares of the Company’s Class A common stock at a price of $10.00 per share. As of September 30, 2023, we had cash and cash equivalents of $1,049.2 million which we believe will be sufficient to enable us to fund our projected operations through at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q. Material Cash Requirements We anticipate that our expenditures will increase significantly in connection with our ongoing activities, as we: • continue our R&D, activities under existing and new programs and further invest in our Foundry and Codebase; • hire additional personnel and secure facilities to support our expanding R&D efforts; • develop and expand our offerings, including Biosecurity; • upgrade and expand our operational, financial and management systems and support our operations; • acquire and integrate companies, assets or intellectual property that advance our company objectives; • maintain, expand, and protect our intellectual property; and • incur additional costs associated with operating as a public company. Other than as noted below, there have been no significant changes to our material cash requirements during the nine months ended September 30, 2023 as compared to the material cash requirements disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K. As a result of the Zymergen Bankruptcy, we expect to deconsolidate Zymergen from our consolidated financial statements effective October 3, 2023; accordingly, Zymergen’s consolidated balance sheet, statement of operations and cash flows will be removed from our consolidated financial statements, inclusive of Zymergen’s cash balance. The removal of Zymergen’s cash balance is not expected to have a material impact on our liquidity, and we believe we are well capitalized to execute on our long-term strategy. 44 Table of Contents Cash Flows The following table provides information regarding our cash flows for each period presented: Nine Months Ended September 30, (in thousands) 2023 2022 (as adjusted)* Net cash used in: Operating activities $ (237,669) $ (147,667) Investing activities (34,019) (97,134) Financing activities (2,584) (2,426) Effect of exchange rate changes (690) (191) Net decrease in cash, cash equivalents and restricted cash $ (274,962) $ (247,418) ▪ As adjusted to reflect the impact of the adoption of ASC 842 as of January 1, 2022. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments. Operating Activities Net cash used in operating activities for the nine months ended September 30, 2023 consisted of net loss of $681.2 million, adjusted for net change in operating assets and liabilities of $12.2 million and non-cash charges of $455.7 million. The net change in operating assets and liabilities was primarily due to a $21.2 million decrease in accounts receivable, a $13.6 million decrease in prepaid expenses and other current assets, a $9.3 million decrease in operating lease right-of-use assets from lease incentives received, partially offset by a $29.4 million decrease in deferred revenue and a $18.3 million decrease in operating lease liabilities from rent payments. Non-cash adjustments primarily consisted of $57.7 million of depreciation and amortization, $187.0 million of stock-based compensation, $46.3 million loss on investments including equity method investments, $10.2 million loss on the change in fair value of contingent consideration liabilities, $24.6 million non-cash lease expense, and $121.4 million in impairments of long-lived assets. Net cash used in operating activities for the nine months ended September 30, 2022 consisted of net loss of $1,933.3 million, adjusted for net change in operating assets and liabilities of $29.0 million and non-cash charges of $1,814.7 million. The net change in operating assets and liabilities was primarily due to a $20.5 million decrease in accounts receivable due to timing of collections on our Biosecurity contracts, a $5.2 million decrease in prepaid expenses and other current assets, partially offset by a $11.9 million decrease in accounts payable and other current liabilities and a $35.4 million decrease in deferred revenue. Non-cash charges primarily consisted of $26.9 million in depreciation and amortization expense, $1,822.5 million in stock-based compensation expense, $93.7 million loss on investments including equity method investments, partially offset by $18.1 million of non-cash equity consideration received from a customer upon achievement of a milestone, $96.1 million gain on the change in fair value of warrant liabilities, and $31.9 million gain on the deconsolidation of Verb and Ayana. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2023 primarily consisted of purchases of property and equipment of $37.4 million associated with Foundry capacity and capability investments and $3.0 million in proceeds from sale of equipment. Net cash used in investing activities for the nine months ended September 30, 2022 primarily consisted of purchases of property and equipment of $26.6 million associated with Foundry capacity and capability investments, investment in equity securities of $3.7 million, relinquishment of $55.7 million in cash upon the deconsolidation of Verb and Ayana, and $10.0 million convertible note financing provided to Joyn. Financing Activities Net cash used in financing activities for the nine months ended September 30, 2023 and 2022 primarily consisted of principal payments on finance leases and payments of contingent consideration related to business acquisitions. 45 Table of Contents Critical Accounting Estimates There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K. Recently Issued Accounting Pronouncements See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of our condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.