Ginkgo Bioworks Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Comparative results are for Q1 2022 and reflect the adoption of ASC 842. Unless stated otherwise, amounts below are in U.S. dollars.
Business context
Ginkgo provides cell-engineering research and development services through its Foundry and Codebase platform, and operates Concentric by Ginkgo, a biosecurity business offering testing, biomonitoring and bioinformatic services. Revenue comes from service fees and, potentially, milestone, royalty or equity-based downstream value. The company cautions that equity appreciation is not recognized as revenue and that realization and timing are uncertain.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Cell Engineering revenue | $34.1 million | $21.5 million | Up $12.6 million |
| Biosecurity revenue | $46.6 million | $146.9 million | Down $100.3 million |
| Total revenue | $80.7 million | $168.4 million | Down $87.7 million, or 52% |
| Operating loss | $(215.7) million | $(675.4) million | Improved $459.6 million |
| Net loss attributable to Ginkgo stockholders | $(205.0) million | $(590.5) million | Improved $385.5 million |
| Net loss per share, basic and diluted | $(0.11) | $(0.37) | |
| Net cash used in operating activities | $(90.6) million | $(19.9) million | Use increased $70.7 million |
| Capital expenditures | $19.4 million | $3.6 million |
Biosecurity revenue comprised $11.7 million of product revenue and $34.9 million of service revenue. Its reported segment cost of revenue was $22.4 million, implying gross profit of approximately $24.2 million and a 52% gross margin, versus approximately $61.5 million and 42% in Q1 2022. The filing does not provide a comparable consolidated gross margin or a Cell Engineering gross margin.
Research and development expense was $162.6 million and general and administrative expense was $111.4 million. Stock-based compensation was $73.0 million, down from $652.8 million in Q1 2022. The much lower expenses and losses largely reflect lower stock-based compensation following prior award vesting; they should not be read as equivalent improvement in underlying operating economics. Adjusted EBITDA, a non-GAAP measure, was a loss of $100.0 million versus a loss of $0.7 million; the filing’s reconciliation excludes several material items and notes that the measure may not be comparable across companies.
Cash and cash equivalents were $1,206.1 million at March 31, 2023, down from $1,315.8 million at year-end 2022. Cash, cash equivalents and restricted cash totaled $1,258.7 million. Current assets were $1,327.3 million and current liabilities $191.7 million. Total liabilities were $809.6 million, including $404.1 million of non-current operating lease liabilities and $222.3 million of deferred revenue. The balance sheet reports no conventional borrowing balance; finance-lease principal payments were $0.3 million during the quarter.
Material changes versus Q1 2022
- Total revenue fell 52%, primarily because Biosecurity service revenue declined $98.0 million as demand for COVID-19 testing dropped. Biosecurity product revenue decreased $2.3 million.
- Cell Engineering revenue grew 59%, which management attributed to progress on existing and new programs. Current Active Programs rose to 97 from 64; New Programs were 13 versus 11, and cumulative programs increased to 177 from 116.
- Management said a larger share of active programs was earlier in its life cycle and may need time to ramp up before contributing meaningfully to revenue. Cell Engineering revenue included $13.0 million of non-cash consideration, compared with $10.0 million.
- Operating cash use increased to $90.6 million from $19.9 million, despite the lower reported net loss. Cash used in investing activities was $19.4 million, primarily for Foundry equipment and capacity.
- Q1 2022 results included a $85.0 million gain from changes in warrant fair value and a $15.9 million gain on deconsolidating Verb; neither was repeated at similar levels in Q1 2023.
Outlook, risks and unusual items
- Liquidity outlook: Management expects cash and cash equivalents to fund projected operations for at least 12 months from the filing date. The filing provides no formal quarterly or full-year revenue or earnings guidance. Management expects significant spending on R&D, Foundry and Codebase, Biosecurity, personnel, facilities, acquisitions and public-company costs; losses and operating cash outflows may continue.
- COVID-19 demand: Management said school testing demand had significantly diminished and was uncertain, particularly with the public health emergency ending in May 2023. The company expects expanded biomonitoring and bioinformatic services to become more valuable over time, but they were not a material part of 2022 revenue.
- Non-cash consideration and investments: Customers paid $11.0 million in SAFEs as prepayments for Cell Engineering services in Q1, initially recorded at a fair value of $4.5 million. The company recorded a $1.8 million impairment on a SAFE. Management warns that estimated values of equity, notes and other non-cash consideration may not translate into equivalent cash proceeds; some valuations rely on significant unobservable assumptions.
- Acquisition-related item: On April 5, 2023, after quarter-end, Ginkgo agreed to acquire StrideBio AAV platform assets for $4.0 million at initial closing, a further $7.5 million at a secondary closing and earnouts of up to $17.5 million. Consideration is payable in Class A shares unless Ginkgo elects cash payment in whole or in part.
- Commitments and litigation: A Twist Bioscience supply agreement requires at least $58.0 million of purchases over four years. Zymergen faces securities and derivative litigation relating to its IPO, a separate Lodo-related securities complaint, and information requests from government agencies, including the SEC; Zymergen intends to defend the cases and is cooperating with the requests. The filing does not state a clear estimate of potential losses for these matters.
- Financial reporting controls: Previously identified material weaknesses remained as of March 31, 2023, and management concluded disclosure controls and procedures were not effective. The filing says the weaknesses did not cause a material misstatement in the periods presented, but remediation is ongoing.
- Other risks: The company cites ongoing losses, customer concentration, reliance on customers to commercialize programs, competition and technology change, supplier concentration, regulatory and biosafety requirements, potential acquisition integration challenges, investment liquidity and valuation risk, and possible further capital needs. It also disclosed temporary loss of access to SVB deposits after the bank’s receivership, with access subsequently restored.
Important facts for investors to verify
- Whether growth in Cell Engineering programs converts into sustained cash revenue, and whether early-stage programs progress or are completed.
- How quickly COVID-related Biosecurity revenue contracts and whether newer monitoring services can replace it at meaningful scale.
- Actual operating cash burn, capital spending and cash runway relative to management’s stated outlook.
- The realizable value and liquidity of customer equity, SAFEs, notes receivable and other investments, including the assumptions behind fair-value estimates.
- Progress in remediating the material weaknesses, and developments in the Zymergen-related litigation and government information requests.