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 26 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 typically 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. Commencing in the second quarter of 2024, we announced changes in commercial terms, including the removal of downstream value share from certain program types. 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 generally 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, when applicable, 27 Table of Contents • 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 fixed-fee or cost-plus 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 28 Table of Contents 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 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. 29 Table of Contents 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 and six months ended June 30, 2023, we entered into two and six, respectively, Startup Structured Partnerships and received prepayments of service fees in the form of equity securities or convertible financial instruments totaling $1.1 million and $17.0 million, respectively, that is recognized as revenue over our period of performance. In the three and six months ended June 30, 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 $7.0 million as of June 30, 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. Effective in the second quarter of 2024, we no longer provide R&D services to Synlogic. As of June 30, 2024, the fair value of Synlogic common stock and warrants was $0.6 million and $0.3 million, respectively. See Note 5 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 June 30, Six Months Ended June 30, LTM (1) 2024 2023 2024 2023 2024 New Programs 10 21 27 34 71 Current Active Programs 140 105 151 118 166 Cumulative Programs 269 198 269 198 269 (1) Last twelve months ended June 30, 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. 30 Table of Contents 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. 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 5 , 6 , 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. The initial fair market value of the equity interests received may also decrease after contract inception and the amount of cash proceeds 31 Table of Contents 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. Commencing in the second quarter of 2024, we announced changes in commercial terms, including new intellectual property terms in favor of customers, the removal of downstream value share from certain program types, and offering our Foundry capabilities on a lab-data-as-a-service (“LDaaS”) basis in addition to continuing our end-to-end Cell Engineering solutions offering where we will often maintain downstream value share. There has been no material impact on our revenue recognition policies to date from the announced changes in our new commercial terms and Cell Engineering offerings. 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. 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 Prior to the fourth quarter of 2023, the 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. 32 Table of Contents We expense R&D expenses as incurred. We expect our R&D costs will be lowered as a result of our restructuring plan announced and commenced in the second quarter of 2024 as we rationalize our current development programs and prioritize our investments in our Foundry, Codebase, AI and new offerings. 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 expect our G&A costs will be lowered as a result of our restructuring plan announced and commenced in the second quarter of 2024 as we begin to lower 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. Goodwill Impairment In the second quarter of 2024, we fully impaired the goodwill attributable to our Cell Engineering reporting unit. Refer to further discussion within “Critical Accounting Estimates”. Restructuring Charges Restructuring charges relate to our restructuring plan announced and commenced in the second quarter of 2024 and consist primarily of severance and other employee termination costs resulting from a reduction in force that commenced in June 2024 and an impairment of a right-of-use asset relating to facilities consolidation and the related sublease of certain facilities. Additional details are included in Note 3 , Restructuring, of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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 (expense), 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. 33 Table of Contents 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. 34 Table of Contents Results of Operations Comparison of the Three and Six Months Ended June 30, 2024 and 2023 The following table presents the result of operations for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 Change 2024 2023 Change Cell Engineering revenue $ 36,205 $ 45,283 $ (9,078) $ 64,094 $ 79,379 $ (15,285) Biosecurity revenue: Product — 10,788 (10,788) — 22,454 (22,454) Service 20,001 24,497 (4,496) 30,056 59,437 (29,381) Total revenue 56,206 80,568 (24,362) 94,150 161,270 (67,120) Costs and operating expenses: Cost of Biosecurity product revenue — 2,034 (2,034) — 6,575 (6,575) Cost of Biosecurity service revenue 11,807 16,062 (4,255) 21,009 33,896 (12,887) Cost of other revenue 1,914 — 1,914 1,914 — 1,914 Research and development (1) 134,221 144,282 (10,061) 270,678 306,921 (36,243) General and administrative (1) 66,285 102,341 (36,056) 136,572 213,774 (77,202) Goodwill impairment 47,858 — 47,858 47,858 — 47,858 Restructuring charges 17,066 — 17,066 17,066 — 17,066 Total operating expenses 279,151 264,719 14,432 495,097 561,166 (66,069) Loss from operations (222,945) (184,151) (38,794) (400,947) (399,896) (1,051) Other income (expense): Interest income, net 10,313 14,349 (4,036) 22,024 28,894 (6,870) Loss on equity method investments — (67) 67 — (1,516) 1,516 Loss on investments (6,826) (2,121) (4,705) (9,370) (8,491) (879) Change in fair value of warrant liabilities 3,233 (4,482) 7,715 4,173 (3,278) 7,451 Other income (expense), net (766) 3,224 (3,990) 1,249 6,152 (4,903) Total other income 5,954 10,903 (4,949) 18,076 21,761 (3,685) Loss before income taxes (216,991) (173,248) (43,743) (382,871) (378,135) (4,736) Income tax expense 190 67 123 221 149 72 Net loss $ (217,181) $ (173,315) $ (43,866) $ (383,092) $ (378,284) $ (4,808) (1) Total stock-based compensation expense, inclusive of employer payroll taxes, was allocated as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Research and development $ 20,693 $ 40,569 $ 44,814 $ 88,110 General and administrative 17,533 21,908 35,809 49,567 Total $ 38,226 $ 62,477 $ 80,623 $ 137,677 Cell Engineering Revenue Cell Engineering revenue decreased $9.1 million in the three months ended June 30, 2024 compared to the same period in 2023 and decreased $15.3 million in the six months ended June 30, 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 $16.8 million in the three months ended June 30, 2023 to $8.2 million in the three months ended June 30, 2024, and from $29.7 million in the 35 Table of Contents six months ended June 30, 2023 to $12.1 million in the six months ended June 30, 2024, primarily due to a shift in focus on signing new programs with cash consideration. In the three months ended June 30, 2024, 10 New Programs commenced, compared to 21 New Programs in the same period in 2023. The number of Current Active Programs rose to 140, compared to 105 in the prior year period. Cumulative Programs increased to 269 from 198 over the same period. Additionally, the number of customers grew to 82, up from 63 in the prior year period. In the six months ended June 30, 2024, 27 New Programs commenced, compared to 34 New Programs in the same period in 2023. The number of Current Active Programs rose to 151, compared to 118 in the prior year period. Cumulative Programs increased to 269 from 198 over the same period. Additionally, the number of customers grew to 88, up from 68 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 $15.3 million in the three months ended June 30, 2024 compared to the same period in 2023 and was comprised of a decrease in product revenue of $10.8 million and a decrease in service revenue of $4.5 million. Biosecurity revenue decreased $51.8 million in the six months ended June 30, 2024 compared to the same period in 2023 and was comprised of a decrease in product revenue of $22.5 million and a decrease in service revenue of $29.4 million. The decreases in revenue between periods is attributable to the end of our COVID-19 testing in schools in the third quarter of 2023, partially offset by new expanded offerings of biomonitoring and bioinformatic support services in the 2024 periods. 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 half 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 $6.3 million and $19.5 million in the three and six months ended June 30, 2024, respectively, compared to the same periods 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 Our research and development expenses principally relate to the development of new offerings and the operation, expansion and enhancement of our existing service offerings utilizing our proprietary platform, which includes our Foundry and Codebase assets, to our cell engineering customers. Our research personnel costs, including stock-based compensation, is our largest expense, aggregating $37.6 million and $76.5 million for the three and six months ended June 30, 2024, respectively, and $38.5 million and $81.1 million for the three and six months ended June 30, 2023, respectively. We also acquired and expensed in-process research and development through the issuance of our equity, aggregating $3.0 million and $19.8 million for the three and six months ended June 30, 2024, respectively, and $4.0 million for the three and six months ended June 30, 2023. Our remaining research and development costs are comprised primarily of rent and related facilities costs, information technology costs, depreciation pertaining to facilities and equipment, laboratory consumables, contract services and routine costs and fees. 36 Table of Contents Research and development expenses decreased $10.1 million in the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to a decrease in stock-based compensation expense of $18.8 million (inclusive of employer payroll taxes) and the deconsolidation of our former subsidiary, Zymergen Inc. (“Zymergen”), in the fourth quarter of 2023 ($11.3 million). Further, there was a decrease in professional fees of $3.8 million and acquired in-process research and development costs of $1.0 million. This was partially offset by an increase in rent and related facilities costs of $10.5 million, software and technology expense of $5.2 million, laboratory supplies expense of $4.5 million, personnel-related compensation and benefits expense of $3.0 million, and non-capitalized equipment purchases and maintenance costs of $2.1 million. Increases in research and development expenses, excluding stock-based compensation expense and the Zymergen deconsolidation, supported the growth of Cell Engineering capabilities. Research and development expenses decreased $36.2 million in the six months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to a decrease in stock-based compensation expense of $40.8 million (inclusive of employer payroll taxes) and the deconsolidation of Zymergen ($30.0 million). Further, there was a decrease in professional fees of $8.6 million and temporary labor and contractors of $1.4 million. This was partially offset by increases in acquired in-process research and development costs of $15.9 million, rent and related facilities costs of $11.0 million, software and technology expense of $8.9 million, laboratory supplies expense of $4.8 million, and personnel-related compensation and benefits expense of $4.4 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 $36.1 million in the three months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to the deconsolidation of Zymergen ($34.3 million) and a decrease in stock-based compensation expense of $3.7 million (inclusive of employer payroll taxes). Further, there was a decrease in professional fees of $5.6 million, partially offset by increases in personnel-related compensation and benefits expense of $5.1 million and depreciation and amortization expense of $1.6 million. General and administrative expenses decreased $77.2 million in the six months ended June 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to the deconsolidation of Zymergen ($55.4 million) and a decrease in stock-based compensation expense of $12.1 million (inclusive of employer payroll taxes). Further, there were decreases in professional fees and litigation costs of $13.9 million and the change in fair value of contingent consideration liabilities resulting from acquisitions of $6.2 million, partially offset by an increase in personnel-related compensation and benefits expense of $10.1 million. Goodwill Impairment During both the three and six months ended June 30, 2024, we recorded goodwill impairment expense of $47.9 million related to our Cell Engineering reporting unit, further discussed within “Critical Accounting Estimates” below. Restructuring Charges During both the three and six months ended June 30, 2024, we incurred restructuring charges of $17.1 million in connection with our restructuring plan announced and commenced in the second quarter of 2024, primarily in the Cell Engineering segment. These charges primarily consisted of $12.2 million in employee termination costs from the reduction in force commenced in June 2024 and $4.8 million in impairment of right-of-use asset relating to facilities consolidation. Interest Income, Net Interest income, net decreased $4.0 million and $6.9 million in the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023. The decrease was primarily due to lower average cash balances in interest bearing accounts. Loss on Equity Method Investments Loss on equity method investments was $0.1 million and $1.5 million for the three and six months ended June 30, 2023, respectively. No loss on equity method investments was recognized in 2024. 37 Table of Contents In the six months ended June 30, 2023, we recorded 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 half 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 $6.8 million and $2.1 million in the three months ended June 30, 2024 and 2023, respectively. The change of $4.7 million was due to fluctuations in the stock prices of our marketable equity securities and a $4.9 million increase in impairment losses recognized on our non-marketable equity securities. Loss on investments was $9.4 million and $8.5 million in the six months ended June 30, 2024 and 2023, respectively. The change of $0.9 million was due to fluctuations in the stock prices of our marketable equity securities offset by an $8.3 million increase in impairment losses recognized on our non-marketable equity securities. Change in Fair Value of Warrant Liabilitie s The change in fair value of warrant liabilities was $3.2 million gain and $4.5 million loss in the three months ended June 30, 2024 and 2023, respectively, and $4.2 million gain and $3.3 million loss in the six months ended June 30, 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 (expense), net decreased $4.0 million in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to a $2.3 million decrease in sublease rent income primarily as a result of the deconsolidation of Zymergen and a $2.3 million increase in the net loss on the change in fair value of convertible notes. Other income (expense), net decreased $4.9 million in the six months ended June 30, 2024 compared to the same period in 2023 primarily due to a $4.7 million decrease in sublease rent income primarily as a result of the deconsolidation of Zymergen and a $1.0 million increase in the net loss 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, restructuring and impairment charges (inclusive of impairments of goodwill and long-lived assets), costs associated with the bankruptcy filing of our former subsidiary, Zymergen (the “Zymergen Bankruptcy”), and certain 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. 38 Table of Contents Beginning in the second quarter of 2024, we updated our definition of Adjusted EBITDA to no longer exclude the impact of acquired in-process research and development expenses. The comparable periods in 2023 and the first quarter of 2024 have been recast to conform to the revised definition. 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 to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net loss $ (217,181) $ (173,315) $ (383,092) $ (378,284) Interest income, net (10,313) (14,349) (22,024) (28,894) Income tax expense 190 67 221 149 Depreciation and amortization 17,330 17,652 30,199 36,610 EBITDA (209,974) (169,945) (374,696) (370,419) Stock-based compensation (1) 38,226 62,477 80,623 137,677 Impairment expense (2) 47,858 9,001 47,858 9,001 Restructuring charges (3) 17,066 — 17,066 — Merger and acquisition related expenses (4) 4,512 12,212 6,906 30,874 Loss on equity method investments — 67 — 1,516 Loss on investments 6,826 2,121 9,370 8,491 Change in fair value of warrant liabilities (3,233) 4,482 (4,173) 3,278 Change in fair value of convertible notes (480) (152) 846 (196) Adjusted EBITDA $ (99,199) $ (79,737) $ (216,200) $ (179,778) (1) Includes $1.1 million and $1.0 million in employer payroll taxes for the three months ended June 30, 2024 and 2023, respectively, and $2.7 and $3.2 million for the six months ended June 30, 2024 and 2023, respectively. (2) Impairment expense includes $47.9 million related to goodwill impairment in the three and six months ended June 30, 2024 and $9.0 million related to lab equipment acquired as part of the Zymergen acquisition in the three and six months ended June 30, 2023. (3) Restructuring charges include $12.2 million in employee termination costs from the reduction in force commenced in June 2024 and $4.8 million in impairment of right-of-use asset relating to facilities consolidation. (4) 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) costs associated with the Zymergen Bankruptcy, as well as securities litigation costs, net of insurance recovery. Not included in this adjustment are non-cash charges for acquired in-process research and development expenses, which totaled $3.0 million and $4.0 million in the three months ended June 30, 2024 and 2023, respectively, and $19.8 million and $4.0 million in the six months ended June 30, 2024 and 2023, respectively. 39 Table of Contents 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 June 30, 2024, we had cash and cash equivalents of $730.4 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; • maintain, expand, and protect our intellectual property; and • implement our restructuring actions. Cash Flows The following table provides information regarding our cash flows for each period presented: Six Months Ended June 30, (in thousands) 2024 2023 Net cash used in: Operating activities $ (173,649) $ (164,118) Investing activities (38,951) (30,638) Financing activities (1,071) (2,269) Effect of exchange rate changes (173) (495) Net decrease in cash, cash equivalents and restricted cash $ (213,844) $ (197,520) Operating Activities Net cash used in operating activities for the six months ended June 30, 2024 consisted of net loss of $383.1 million, adjusted for net change in operating assets and liabilities of $6.2 million and non-cash charges of $203.3 million. The net change in operating assets and liabilities was primarily due to a $10.9 million increase in accounts payable, accrued expenses and other current liabilities primarily due to restructuring-related accruals, a $14.4 million decrease in operating lease right-of-use assets from lease incentives received, partially offset by a $17.0 million decrease in deferred revenue and a $3.9 million decrease in operating lease liabilities from rent payments. Non-cash adjustments primarily consisted of $30.2 million of depreciation and amortization, $77.9 million of stock-based compensation expense, $9.4 million loss on investments, $13.1 million non-cash lease expense, $19.8 million in acquired in-process research and development expense, and $47.9 million of goodwill impairment. Net cash used in operating activities for the six months ended June 30, 2023 consisted of net loss of $378.3 million, adjusted for net change in operating assets and liabilities of $10.4 million and non-cash charges of $224.6 million. The net change in operating assets and liabilities was primarily due to a $15.4 million decrease in accounts receivable, a $12.1 million decrease in prepaid expenses and other current assets, a $4.1 million decrease in operating lease right-of-use assets from lease incentives, partially offset by a $4.0 million decrease in accounts payable, accrued expenses and other current liabilities, a $21.4 million decrease in deferred revenue, and a $13.3 million decrease in operating lease liabilities from rent payments. Non-cash adjustments primarily consisted of $36.6 million of depreciation and amortization, $134.5 million of stock-based compensation expense, $10.0 million loss on investments including equity method investments, $8.5 million 40 Table of Contents loss on the change in fair value of contingent consideration liabilities, $16.3 million non-cash lease expense, and $9.0 million impairment loss on assets held for sale. Investing Activities Net cash used in investing activities for the six months ended June 30, 2024 primarily consisted of purchases of property and equipment of $33.7 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 six months ended June 30, 2023 primarily consisted of purchases of property and equipment of $33.0 million associated with Foundry capacity and capability investments. Financing Activities Net cash used in financing activities for the six months ended June 30, 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 six months ended June 30, 2023 primarily consisted of principal payments on finance leases and payment of contingent consideration related to a business acquisition. Critical Accounting Estimates Except as described below, 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. Goodwill We assess goodwill for impairment at the reporting unit level on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill impairment assessments require a significant amount of management judgment and the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. During the three months ended June 30, 2024, due to a sustained decrease in the market price of our Class A common stock and market capitalization, we identified that a possible indicator of impairment was present as of June 30, 2024. As such, we completed a quantitative impairment test related to our Cell Engineering reporting unit. To conduct the impairment test of goodwill, the estimated fair value of the reporting unit was compared to its carrying value. The estimated fair value of the Cell Engineering reporting unit was determined using a weighted approach that considered a discounted cash flow (“DCF”) model under the income approach and the guideline public company (“GPC”) method under the market approach. Inputs used in the DCF model included the projected future operating results of the reporting unit and the applicable discount rate, while inputs used in the GPC method consisted of a revenue multiple. The projected future operating results were based on historical experience and internal annual operating plans reviewed by management, extrapolated over the forecast period. The discount rate was determined using a weighted average cost of capital adjusted for risk factors specific to the reporting unit. The revenue multiple was based on the GPC method using comparable publicly traded company multiples of revenue for a group of benchmark companies. The DCF method was weighted 75% and the GPC 25%. We reconciled the resulting fair value of the reporting unit to our market capitalization to corroborate the fair value estimate used in the impairment test. The interim impairment test indicated that the estimated fair value of the reporting unit was less than its carrying value. As a result, we fully impaired goodwill and recorded an impairment loss of $47.9 million. 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. 41 Table of Contents