Ginkgo Bioworks Holdings, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and six months ended June 30, 2022. Ginkgo operates a cell-programming platform through its Foundry segment and a Biosecurity segment primarily providing COVID-19 testing products and services. In Q1 2022, it began reporting these as separate segments and recast prior-period segment data.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $144.6m | $43.6m | $313.0m | $87.7m |
| Foundry revenue | $44.2m | $21.6m | $65.7m | $44.1m |
| Biosecurity revenue | $100.4m | $22.0m | $247.3m | $43.6m |
| Operating loss | $(646.9)m | $(59.9)m | $(1,321.4)m | $(117.1)m |
| Net loss | $(670.6)m | $(54.5)m | $(1,263.2)m | $(129.2)m |
| Adjusted EBITDA (non-GAAP) | $(23.3)m | $(37.5)m | $(22.9)m | $(88.7)m |
- Cash flow: Six-month operating cash use was $119.2m, investing cash use was $50.6m, and financing cash use was $2.1m. Cash, cash equivalents and restricted cash declined $172.1m to $1,420.8m, including $1,377.2m of cash and cash equivalents.
- Liquidity: Current assets were $1,598.8m and current liabilities $135.0m, implying working capital of about $1,463.8m. Management said available cash and cash equivalents were expected to fund projected operations for at least 12 months from filing. The filing also states management believes cash, short-term investments and investment income can fund operations for several years, but that estimate depends on assumptions.
- Debt and obligations: The filing reports a $51.5m lease financing obligation and lease-related liabilities; it does not present a material conventional borrowing balance. A $58.0m minimum four-year Twist Bioscience supply commitment was entered into, with about $10.8m due in the next 12 months. Headquarters lease expansion is expected to add $23.1m of base rent over its term.
- Segment performance: Biosecurity segment operating income was $23.6m in Q2 and $71.3m for six months; Foundry segment operating losses were $55.1m and $107.6m, respectively. These segment measures exclude stock compensation, depreciation and amortization, and specified contingent-liability fair-value changes, so they are not consolidated operating profit.
- Margins: Biosecurity product and service revenue totaled $100.4m in Q2 against related costs of $63.9m; six-month revenue of $247.3m was against costs of $149.3m. Foundry gross margin is not separately presented in the filing.
Material changes versus prior comparable periods
- Revenue rose sharply: Q2 revenue increased to $144.6m from $43.6m, while six-month revenue increased to $313.0m from $87.7m. Growth was primarily driven by COVID-19 testing services in Biosecurity and higher Foundry activity.
- Foundry activity expanded: Q2 new programs increased to 13 from 7, current active programs to 73 from 46, and cumulative programs to 129 from 85. Active customers increased to 36 from 22.
- Reported losses widened substantially, chiefly because of stock-based compensation related to modified RSU and earnout vesting. Stock-based compensation was $607.3m in Q2 and $1,266.3m for six months, compared with $14.5m for each comparable 2021 period. Most of this expense was non-cash.
- Six-month operating cash use increased to $119.2m from $83.0m, despite the large non-cash charges. Accounts receivable and deferred revenue movements affected operating cash flow.
- Investment losses included a $10.1m impairment of Genomatica preferred stock in Q2; total loss on investments was $38.7m for Q2. A fair-value gain on warrant liabilities partly offset reported losses, amounting to $23.5m in Q2 and $108.5m for six months.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expects increased expenditures for R&D, Foundry capacity, personnel, Biosecurity, acquisitions and public-company costs. COVID-19 testing demand is uncertain and seasonal, and management cautioned that it may diminish.
- Management attributes Foundry growth to program progress, new programs and a commercial milestone payment. It expects downstream value sharing could become a larger part of Foundry revenue over time, but equity appreciation is not recognized as revenue and timing and proceeds are uncertain.
- Three customers each contributed more than 10% of Q2 revenue and together accounted for 41%; some revenue is also from related parties. Customer concentration, customer commercialization outcomes, and the uncertain duration of COVID-19 testing demand are notable risks.
- In April, Ginkgo acquired FGen for total estimated consideration of $29.3m, including stock and contingent consideration. In June, it acquired substantially all Bitome assets; approximately $1.2m of stock, cash and assumed costs were recorded as in-process R&D expense.
- After quarter-end, Ginkgo agreed to acquire Zymergen in an all-stock merger, expected to close by Q1 2023 subject to approvals and other conditions. It also agreed to acquire certain Bayer assets for approximately $83m in cash and/or stock, with closing expected in Q4 2022 subject to conditions.
- The filing says no material legal proceedings were pending. Disclosure controls and procedures were concluded effective as of June 30, 2022; the risk disclosures also note material weaknesses in internal control had been identified in the past.
Important facts for investors to verify
- Whether Biosecurity revenue and margins can be sustained as COVID-19 testing demand, public funding and school testing needs change.
- How much of future Foundry growth converts into customer commercialization, royalties, milestones or other cash returns, given the concentration of revenue and reliance on customer execution.
- The expected pace of cash use and the assumptions underlying management’s liquidity outlook, including planned investment, acquisitions and commitments.
- The scale, timing and potential dilution from outstanding equity awards and future share issuance; substantial non-cash stock compensation materially affected reported results.
- Closing conditions, financing form, integration costs and expected benefits of the Zymergen merger and Bayer asset acquisition.
- Valuations and recoverability of customer and investee equity interests, loans and other investments, which are exposed to volatility, illiquidity and fair-value estimation risk.