Ginkgo Bioworks Holdings, Inc. quarterly report, Q2 FY2023

Ginkgo Bioworks Holdings, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise. The filing describes Ginkgo’s Cell Engineering platform and Concentric by Ginkgo’s Biosecurity services.

Financial performance and liquidity

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$80.6m	$144.6m	$161.3m	$313.0m
Operating loss	$184.2m	$647.8m	$399.9m	$1,323.2m
Net loss attributable to Ginkgo stockholders	$173.3m	$668.8m	$378.3m	$1,259.3m
Adjusted EBITDA, non-GAAP	$(75.5)m	$(24.5)m	$(175.8)m	$(25.2)m

Q2 revenue fell 44% year over year. Operating loss margin was approximately negative 229% and net loss margin approximately negative 215%, based on reported revenue and loss.
Q2 revenue comprised Cell Engineering of $45.3m, Biosecurity products of $10.8m, and Biosecurity services of $24.5m. The filing does not provide a consolidated gross profit or gross margin, as Cell Engineering cost of revenue is not separately presented.
Q2 operating expenses were $264.7m, including $144.3m of R&D and $102.3m of G&A. The period included a $9.0m impairment of Zymergen-acquired lab equipment.
Cash and cash equivalents were $1,105.8m at June 30, down from $1,315.8m at December 31, 2022; restricted cash was an additional $66.3m. Current assets were $1,223.5m and current liabilities $163.3m.
For the first half, operating cash outflow was $164.1m, investing outflow $30.6m, and financing outflow $2.3m. Capital expenditures were $33.0m. Cash, cash equivalents, and restricted cash decreased $197.5m.
The balance sheet reports $14.1m of warrant liabilities and $410.9m of non-current operating lease liabilities. It does not show conventional borrowings as a separate balance-sheet line item.

Changes versus the prior comparable period

Biosecurity revenue declined $65.1m in Q2 and $165.4m in the first half, primarily as COVID-19 testing service demand receded. Service revenue fell $72.0m in Q2, partly offset by a $6.9m increase in product revenue.
Cell Engineering revenue increased $1.0m in Q2 and $13.6m in the first half. Management attributed the first-half increase to progress on existing and new programs, partly offset by completed programs. Q2 2022 included an $18.1m commercial milestone payment that did not recur.
Reported GAAP losses were substantially lower than in 2022, largely reflecting much lower stock-based compensation: $61.5m in Q2 2023 versus $606.5m in Q2 2022. However, Adjusted EBITDA loss widened to $75.5m from $24.5m in Q2, and to $175.8m from $25.2m for the first half.
Interest income rose to $14.3m in Q2 and $28.9m in the first half, primarily due to higher interest rates on cash holdings.

Outlook, risks, contingencies, and unusual items

Management said cash and cash equivalents were expected to fund projected operations through at least 12 months from the filing date. The company also expects expenditures to increase as it invests in R&D, programs, facilities, Biosecurity, systems, acquisitions, and intellectual property. No numerical revenue or earnings guidance is provided in the filing text.
Management said demand for school COVID-19 testing had substantially diminished in Q2 and was expected to substantially end in Q3 2023. Concentric is focusing on surveillance programs and analytics; expanded biomonitoring and bioinformatic services were not material to first-half revenue.
Cell Engineering metrics increased: 21 new programs and 105 active programs in Q2, versus 13 and 73, respectively, in Q2 2022; cumulative programs reached 198 versus 129. Management cautions that program growth does not assure customer commercialization or future milestone, royalty, or equity proceeds.
Material risks include continuing losses, uncertain customer demand and commercialization, revenue concentration, reliance on customer and investee information, potential volatility and limited liquidity of equity consideration, competition and technology change, and dependence on key suppliers. The company reports a multi-class share structure with concentrated voting power.
Management concluded disclosure controls and procedures were ineffective at June 30, 2023 because previously identified material weaknesses remained. The weaknesses involved management review and accounting expertise, and controls over data and information technology systems. Management nevertheless stated the interim financial statements fairly present the company’s financial position and results in accordance with GAAP.
Pending matters include Zymergen-related securities and derivative litigation, a Lodo-related securities-law complaint, and government agency information requests concerning Zymergen’s 2021 disclosure. Outcomes and potential damages are uncertain; Zymergen intends to defend the claims.
Unusual commitments include remaining minimum spending under a Twist Bioscience supply agreement of $13m, $16m, and $19m for its next three annual periods. The StrideBio asset purchase included $7.5m of possible additional consideration and royalties capped at $17.5m. The sale of equipment held for sale, with $4.2m net book value, was expected to close by year-end 2023.

Important facts for investors to verify

Whether the cash balance and stated runway remain adequate as operating cash outflows continue, and how management’s spending plans evolve.
How much Biosecurity revenue remains after the expected end of school COVID-19 testing, and whether surveillance and other services replace that revenue.
Whether active Cell Engineering programs convert into sustained cash service revenue and eventual commercial milestones, royalties, or realizable equity value.
Progress and independent evidence of remediation of the disclosed internal-control material weaknesses.
Exposure to customer concentration, related-party arrangements, non-cash consideration valuation, acquisition-related commitments, and the pending Zymergen matters.
Potential dilution from equity awards, acquisition consideration, and the multi-class capital structure; the filing reports 1.60bn Class A, 377.9m Class B, and 120.0m Class C shares outstanding as of July 31, 2023.