Business context and reporting period
Ginkgo Bioworks Holdings, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. Its Foundry segment provides cell-programming research and development services and related value-sharing arrangements; Biosecurity principally provides COVID-19 testing products and services. The company says program growth and customer commercialization may create future royalties, milestones, or equity value, but their timing and amount are uncertain.
Financial highlights
Amounts below are in millions of dollars except per-share data; comparisons are with the corresponding 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $66.4 | $77.6 | $379.4 | $165.3 |
| Operating loss | $(653.0) | $(26.7) | $(1,974.4) | $(143.7) |
| Net loss attributable to Ginkgo stockholders | $(669.1) | $(101.9) | $(1,928.4) | $(229.4) |
| Basic and diluted loss per share | $(0.41) | $(0.08) | $(1.19) | $(0.18) |
| Adjusted EBITDA, non-GAAP | $(69.6) | $(18.0) | $(92.6) | $(106.6) |
- Revenue mix: Q3 Foundry revenue was $24.7 million, down from $34.7 million; Biosecurity revenue was $41.7 million, down from $42.9 million. For the nine months, Foundry revenue rose to $90.4 million from $78.8 million, and Biosecurity rose to $289.0 million from $86.5 million, principally reflecting COVID-19 testing services.
- Cash flow and liquidity: Cash and cash equivalents were $1,302.6 million at September 30, versus $1,550.0 million at December 31, 2021; restricted cash was a further $42.9 million. Nine-month operating cash use was $147.5 million, compared with $88.3 million in 2021. Current assets were $1,462.0 million and current liabilities $124.8 million.
- Liabilities: Total liabilities were $431.0 million, including a $59.8 million lease financing obligation. The filing does not show conventional funded borrowings in the balance-sheet summary.
- Margins: The filing does not present a consolidated gross-margin measure. Biosecurity revenue less its stated product and service costs was approximately $17.1 million in Q3 (about 41% of Biosecurity revenue); this is a direct-cost calculation, not segment operating profit. Biosecurity reported a $0.4 million segment operating loss.
Material changes versus the prior comparable period
- Q3 revenue declined 14%, as lower Foundry revenue more than offset near-flat Biosecurity revenue. Nine-month revenue more than doubled, driven mainly by Biosecurity service revenue.
- Losses increased sharply, largely because of stock-based compensation following the modification of restricted stock unit vesting terms. Stock-based compensation was $563.1 million in Q3 and $1,822.5 million for the nine months, versus $0.1 million and $14.8 million, respectively, in 2021. These charges are predominantly non-cash, but represent material dilution-related compensation expense.
- Foundry activity expanded: Current Active Programs were 85 in Q3 versus 54 a year earlier; 15 new programs began versus 10. Cumulative programs reached 144 versus 95. Management says program ramp-up and milestone timing affect revenue.
- Investment-related results were volatile. Nine-month results included a $10.1 million impairment of Genomatica preferred stock, $40.0 million of total losses on investments, and a $96.1 million gain from changes in warrant-liability fair value. Verb and Ayana deconsolidations generated a combined $31.9 million gain; these items are not a measure of recurring operating performance.
Outlook, commentary, risks, contingencies and unusual items
- Management stated that September 30 cash and cash equivalents were expected to fund projected operations for at least 12 months from the filing date. No specific revenue, profitability, or cash-flow guidance is provided. The company expects continued investment and losses.
- COVID-19 testing demand is uncertain beyond 2022 and may be affected by seasonality, funding, competition, and changes in testing needs. Customer concentration is significant: two customers each represented more than 10% of Q3 revenue and together 34%.
- Key risks include the company’s history of losses and possible need for capital; customers’ control over commercialization of programs; dependence on suppliers, including a four-year Twist Bioscience agreement with a $58 million minimum spend; acquisition integration; investment and equity-interest volatility; and regulatory, biosecurity, intellectual-property, and data-security risks.
- Commitments include Boston lease expansions expected to increase lifetime base rent by approximately $86.4 million, beginning in 2023, and the Twist supply commitment. These are future commitments, not current-period cash expenditure.
- Subsequent to quarter-end, Ginkgo completed the Zymergen acquisition for approximately 96.9 million Class A shares valued at $236.4 million; acquired Bayer assets for $80 million cash; and acquired Circularis for $5 million cash plus approximately 4.5 million shares, with contingent consideration of up to $40 million. It also entered into a $30 million secured note investment in Bolt Threads. These events were not reflected as completed transactions in the September 30 balance sheet.
- Zymergen-related securities and derivative litigation and government information requests are disclosed; the filing does not quantify a potential loss. The company also has a multi-class voting structure, with Class B shares carrying ten votes each, and identifies dilution and concentrated voting power as risks.
Important facts for investors to verify
- Whether operating cash use, cash balances, and subsequent acquisitions and investments remain consistent with management’s liquidity expectations.
- How much reported loss and future expense reflect stock-based compensation, and the potential dilution from outstanding awards and acquisition consideration.
- Whether Foundry program growth converts into recurring revenue and customer commercialization, rather than relying on irregular milestones or non-cash consideration.
- The sustainability and profitability of Biosecurity revenue as COVID-19 testing demand and public funding change.
- The integration costs, liabilities, and expected benefits of Zymergen and other acquisitions, along with the effect of lease and supplier commitments.
- Developments in Zymergen litigation and regulatory inquiries, and any related financial exposure or integration impact.