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 and in our 2023 Annual Report on Form 10-K. Overview Our mission is to make biology easier to engineer. Ginkgo is the leading horizontal 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 business 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 is a highly automated, yet flexible, lab powered by proprietary automation and software to enable flexibility and scale. The Foundry automates lab workflows at high levels of abstraction, enabling users to generate potentially valuable datasets labeling broad genetic sequence design space with a wide range of functional data through modular design-build-test-learn cycles or campaigns. Our scale economic means that the Foundry’s capacity to perform more and more diverse campaigns grows while the cost per campaign decreases. We call this scaling factor Knight’s Law. • Our Codebase is a data asset which accumulates as we operate our Foundry in service of customer projects. Our Codebase includes vast amounts of data at different levels of characterization and usability in engineering projects, including: proprietary libraries of genetic sequence data that can be used for pretraining large language models via unsupervised learning, experimental data for fine tuning task-specific generative artificial intelligence (“AI”) models, as well as sequences and optimized host cells that can be directly reusable for different applications of cell engineering. 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 improvements, and so on. We believe this positive feedback loop has the potential to drive compounding value creation in 22 Table of Contents 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 business. Our biosecurity offering includes 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 Centers for Disease Control and Prevention (“CDC”) and XpresCheck, and internationally such as through our international programs, including those in Qatar, Rwanda and Ukraine. We operate in two reportable business segments: • Cell Engineering: Consists of research and development (“R&D”) 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 our end-to-end biomonitoring and bioinformatic support services primarily provided to public health authorities. Biosecurity revenue is derived from fees for data, analytics, and services. Before the fourth quarter of 2023, Biosecurity revenue was also derived from sales of test kits. 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 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; ◦ 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, 23 Table of Contents • 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 fixed-fee or cost-plus fixed margin basis. 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 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 24 Table of Contents 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 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 three months ended March 31, 2023, we entered into four Startup Structured Partnerships and received prepayments of service fees in the form 25 Table of Contents of equity securities or convertible financial instruments in the amount of $15.9 million that is recognized as revenue over our period of performance. In the three months ended March 31, 2024, we did not enter into any new Startup Structured Partnerships. 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 acquired preferred stock in Genomatica with an aggregate investment value of $55.0 million in exchange for cash and committed R&D services. The carrying value of the investment was $11.9 million as of March 31, 2024, reflective of impairment losses recognized through that date. 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. On February 8, 2024, Synlogic announced its decision to cease operations and evaluate strategic options for the company. As of March 31, 2024, the fair value of Synlogic common stock and warrants was $0.8 million and $0.3 million, respectively. See Note 4 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 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 March 31, LTM (1) 2024 2023 2024 New Programs 17 13 82 Current Active Programs 140 97 166 Cumulative Programs 259 177 259 (1) Last twelve months ended March 31, 2024. 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, 26 Table of Contents 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. 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 , and 13 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. The initial fair market value of the equity interests received may also decrease after contract inception and the amount of cash proceeds eventually realized may be less than the revenue recognized. Equity investments are accounted for under the equity method, cost method or are carried at fair value. Biosecurity Revenue We 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 international programs, including those in Qatar, Rwanda and Ukraine. We are also engaged in a series of smaller partnerships that generate revenues through biosecurity services and R&D. 27 Table of Contents We generate service revenue through the sale of our end-to-end biomonitoring and bioinformatic support services. 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. Before the fourth quarter of 2023, we generated product revenue by selling lateral flow assay (“LFA”) diagnostic test kits, polymerase chain reaction (“PCR”) sample collection kits, and pooled test kits associated with COVID-19 tests to customers on a standalone basis. In general, these agreements stipulate that we are entitled to compensation for service revenue as services are performed and for product revenue upon delivery of diagnostic test kits. The timing of revenue recognition depends on the identified performance obligations but is generally recognized ratably over time or as results are reported to the customer. Costs and Operating Expenses Cost of Biosecurity Product Revenue Before the fourth quarter of 2023, cost of Biosecurity product revenue consisted of costs associated with the sale of diagnostic and sample collection test kits, which included costs incurred to purchase test kits from third parties. Cost of Biosecurity Service Revenue The cost of Biosecurity service revenue consists of costs related to our end-to-end pathogen testing, sequencing, and analysis services. This includes costs incurred for sample collection equipment and materials, outsourced laboratory analysis, access to results reported through our proprietary web-based portal, and reporting of results to public health authorities. Additionally, the cost of Biosecurity service revenue 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. 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. 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 professional legal services fees and costs incurred relating to litigation, 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 anticipate that our G&A expenses attributable to organic business activities will either remain consistent or decline in 2024 as compared to 2023, reflecting a stabilization in our operational overhead. Conversely, we intend to maintain a strategic and opportunistic approach regarding inorganic G&A expenses arising from mergers, acquisitions, and other inorganic growth initiatives. 28 Table of Contents Interest Income, Net Interest income, net consists primarily 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. Other Income, Net Other income, net primarily consists of sublease rent income and changes in fair value of notes receivable that we elected to account for under the fair value option. Provision for Income Taxes Income taxes are recorded in accordance with ASC 740 , Income Taxes , 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. 29 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 The following table presents the result of operations for the periods indicated: Three Months Ended March 31, (in thousands) 2024 2023 Change Cell Engineering revenue $ 27,889 $ 34,096 $ (6,207) Biosecurity revenue: Product — 11,666 (11,666) Service 10,055 34,940 (24,885) Total revenue 37,944 80,702 (42,758) Costs and operating expenses: Cost of Biosecurity product revenue — 4,541 (4,541) Cost of Biosecurity service revenue 9,202 17,834 (8,632) Research and development (1) 136,457 162,639 (26,182) General and administrative (1) 70,287 111,433 (41,146) Total operating expenses 215,946 296,447 (80,501) Loss from operations (178,002) (215,745) 37,743 Other income (expense): Interest income, net 11,711 14,545 (2,834) Loss on equity method investments — (1,449) 1,449 Loss on investments (2,544) (6,370) 3,826 Change in fair value of warrant liabilities 940 1,204 (264) Other income, net 2,015 2,928 (913) Total other income (expense) 12,122 10,858 1,264 Loss before income taxes (165,880) (204,887) 39,007 Income tax expense 31 82 (51) Net loss $ (165,911) $ (204,969) $ 39,058 (1) Total stock-based compensation expense, inclusive of employer payroll taxes, was allocated as follows (in thousands): Three Months Ended March 31, 2024 2023 Research and development $ 24,120 $ 47,541 General and administrative 18,277 27,659 Total $ 42,397 $ 75,200 Cell Engineering Revenue Cell Engineering revenue decreased $6.2 million in the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily due to timing of programs completed prior to the current period partially offset by overall progress on Current Active Programs. 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 decreased from $13.0 million in the three months ended March 31, 2023 to $3.8 million in the three months ended March 31, 2024 primarily due to a shift in focus on signing new programs with cash consideration. 30 Table of Contents In the first quarter of 2024, 17 New Programs commenced, compared to 13 New Programs in the first quarter of 2023. The number of Current Active Programs rose to 140, compared to 97 in the prior year period. Cumulative Programs increased to 259 from 177 over the same period. Additionally, the number of customers grew to 82, up from 60 in the prior year period. 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. The initial fair market value of the equity interests received may also decrease after contract inception and the amount of cash proceeds eventually realized may be less than the revenue recognized. Biosecurity Revenue Biosecurity revenue decreased $36.6 million in the three months ended March 31, 2024 compared to the same period in 2023 and was comprised of a decrease in product revenue of $11.7 million and a decrease in service revenue of $24.9 million. Since the end of the COVID-19 public health emergency in May 2023, we shifted our Biosecurity business focus to developing scalable biosecurity infrastructure and delivering global surveillance programs and analytics services. Biosecurity revenue in the first quarter of 2024 was comprised of our expanded offerings of biomonitoring and bioinformatic support services. Through our partnerships, we operate programs for collections, testing, sequencing, and insights delivery on pathogen samples in different countries. Cost of Biosecurity Product and Service Revenue Cost of Biosecurity product and service revenue decreased $13.2 million in the three months ended March 31, 2024 compared to the same period in 2023. The decrease was driven by the end of our COVID-19 testing in schools in the third quarter of 2023 and the transition of our Biosecurity business to global surveillance programs and analytic services. Research and Development Expenses Research and development expenses decreased $26.2 million in the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily attributable to a decrease in stock-based compensation expense of $23.4 million (inclusive of employer payroll taxes) and the deconsolidation of our former subsidiary, Zymergen Inc. (“Zymergen”), in the fourth quarter of 2023 ($17.2 million). Further, there was a decrease in professional fees of $4.8 million and non-capitalized equipment purchases and maintenance costs of $2.0 million. This was partially offset by increases in acquired in-process research and development costs of $16.9 million, software and technology expense of $3.6 million and personnel-related compensation and benefits expense of $1.3 million. Increases in research and development expenses, excluding stock-based compensation expense and the Zymergen deconsolidation, supported the growth of Cell Engineering capabilities. General and Administrative Expenses General and administrative expenses decreased $41.1 million in the three months ended March 31, 2024 compared to the same period in 2023. The decrease was primarily attributable to the deconsolidation of Zymergen ($20.1 million) and a decrease in stock-based compensation expense of $9.4 million (inclusive of employer payroll taxes). Further, there were decreases in professional fees and litigation costs of $8.3 million, the change in fair value of contingent consideration liabilities resulting from acquisitions of $6.1 million, and depreciation and amortization expenses of $1.7 million, partially offset by increases in personnel-related compensation and benefits expense of $5.0 million. Interest Income, Net Interest income, net decreased $2.8 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to lower average cash balances in interest bearing accounts. 31 Table of Contents Loss on Equity Method Investments Loss on equity method investments was zero and $1.4 million in the three months ended March 31, 2024 and 2023, respectively. The loss in the prior period was primarily due to a $1.5 million loss on our equity method investment in BiomEdit, representing our share of the investee’s losses under the HLBV method and the fair value of the additional equity we received in BiomEdit of $1.1 million in the first quarter of 2023, which was reduced to zero during the period as a result of the application of the HLBV method. 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 was $2.5 million and $6.4 million in the three months ended March 31, 2024 and 2023, respectively. The change of $3.8 million was due to fluctuations in the stock prices of marketable equity securities and a $3.4 million increase in impairment losses recognized on our non-marketable equity securities. Change in Fair Value of Warrant Liabilitie s We recognized gains of $0.9 million and $1.2 million on the change in fair value of warrant liabilities in the three months ended March 31, 2024 and 2023, respectively. 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. Other Income, Net Other income, net decreased $0.9 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to a $2.4 million decrease in sublease rent income primarily as a result of the deconsolidation of Zymergen, offset by a $1.3 million increase in the gain on the change in fair value of convertible notes. 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, gain or loss on equity method investments, gain or loss on investments, change in fair value of warrant liabilities, gain or loss on deconsolidation of subsidiaries, transaction and integration costs associated with planned, completed or terminated mergers and acquisitions, including related litigation costs, acquired in-process research and development expenses, impairment charges, costs associated with the bankruptcy filing of our former subsidiary, Zymergen (the “Zymergen Bankruptcy”), and other income and expenses. 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. 32 Table of Contents The following table reconciles net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, (in thousands) 2024 2023 Net loss $ (165,911) $ (204,969) Interest income, net (11,711) (14,545) Income tax expense 31 82 Depreciation and amortization 12,869 18,958 EBITDA (164,722) (200,474) Stock-based compensation (1) 42,397 75,200 Loss on equity method investments — 1,449 Loss on investments 2,544 6,370 Change in fair value of warrant liabilities (940) (1,204) Merger and acquisition related expenses (2) 19,265 18,662 Change in fair value of convertible notes 1,326 (44) Adjusted EBITDA $ (100,130) $ (100,041) (1) Includes $1.6 million and $2.2 million in employer payroll taxes for the three months ended March 31, 2024 and 2023, respectively. (2) 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, and (v) costs associated with the Zymergen Bankruptcy, as well as securities litigation costs, net of insurance recovery. Liquidity and Capital Resources Sources of Liquidity Upon the closing of our merger with SRNG 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 our Class A common stock. As of March 31, 2024, we had cash and cash equivalents of $840.4 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 exceed our revenue through at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q, as we: • continue our R&D, activities under existing and new programs and further invest in our Foundry and Codebase; • 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; and • maintain, expand, and protect our intellectual property. 33 Table of Contents Other than as noted below, there have been no significant changes to our material cash requirements during the three months ended March 31, 2024 as compared to the material cash requirements disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K. On May 9, 2024, in connection with our plans to reduce operational expenditures, we approved a plan for restructuring actions, including an expected reduction in labor expenses of at least 25% and a planned consolidation of certain of our facilities. Initial headcount reductions are expected to commence in the second quarter of 2024 and be substantially completed in 2025, subject to local laws. We expect a reduction in annualized run-rate operating expenditures of $200 million by mid-2025, with a substantial portion of such reduction occurring in 2024. The aggregate expected costs and overall timing for completion of the restructuring plan is not yet known. Cash Flows The following table provides information regarding our cash flows for each period presented: Three Months Ended March 31, (in thousands) 2024 2023 Net cash used in: Operating activities $ (89,259) $ (90,585) Investing activities (12,110) (19,414) Financing activities (845) (888) Effect of exchange rate changes (157) (26) Net decrease in cash, cash equivalents and restricted cash $ (102,371) $ (110,913) Operating Activities Net cash used in operating activities for the three months ended March 31, 2024 consisted of net loss of $165.9 million, adjusted for net change in operating assets and liabilities of $0.3 million and non-cash charges of $76.3 million. The net change in operating assets and liabilities was primarily due to (i) a $6.8 million increase in accounts receivable, (ii) a $10.9 million increase in accounts payable, accrued expenses and other current liabilities, partially offset by (iii) a $2.9 million decrease in deferred revenue and (iv) a $4.1 million decrease in operating lease liabilities from rent payments. Non-cash adjustments primarily consisted of $12.9 million of depreciation and amortization, $40.8 million of stock-based compensation, $16.8 million of in-process research and development expense from asset acquisitions, and $5.6 million of non-cash lease expense. Net cash used in operating activities for the three months ended March 31, 2023 consisted of net loss of $205.0 million, adjusted for net change in operating assets and liabilities of $1.5 million and non-cash charges of $112.9 million. The net change in operating assets and liabilities was primarily due to (i) a $7.4 million decrease in prepaid expenses and other current assets, (ii) a $19.1 million increase in accounts payable, accrued expenses and other current liabilities, partially offset by (iii) a $17.2 million decrease in deferred revenue and (iv) a $8.5 million decrease in operating lease liabilities from rent payments. Non-cash adjustments primarily consisted of $19.0 million of depreciation and amortization, $73.0 million of stock-based compensation expense, $7.8 million loss on investments including equity method investments, $5.2 million loss on the change in fair value of contingent consideration liability, partially offset by $1.2 million gain on the change in fair value of warrant liabilities. Investing Activities Net cash used in investing activities for the three months ended March 31, 2024 primarily consisted of purchases of property and equipment of $6.7 million associated with Foundry capacity and capability investments and $5.4 million paid for the acquisition of Zymergen. Net cash used in investing activities for the three months ended March 31, 2023 primarily consisted of purchases of property and equipment of $19.4 million associated with Foundry capacity and capability investments. 34 Table of Contents Financing Activities Net cash used in financing activities for the three months ended March 31, 2024 primarily consisted of principal payments on finance leases and payments of contingent consideration related to business acquisitions. Net cash used in financing activities for the three months ended March 31, 2023 primarily consisted of principal payments on finance leases and payments of equity issuance costs. 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 2023 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, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.