Ginkgo Bioworks Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; dollar amounts below are in millions unless stated otherwise. The September 16, 2021 SPAC business combination was accounted for as a reverse recapitalization, so prior-period operating results reflect Old Ginkgo.
Business context
Ginkgo builds a cell-programming platform comprising its automated Foundry, biological data and assets (Codebase), and associated research and development capabilities. It earns Foundry fees and may receive milestone, royalty, or equity-based value share. Biosecurity revenue primarily came from COVID-19 testing products and services. In Q3, the company completed the business combination, acquired Dutch DNA, and formed Ayana Bio and Verb Biotics.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Foundry revenue | $34.7 | $11.5 | $78.8 | $42.8 |
| Biosecurity product revenue | $8.5 | $0 | $14.6 | $0 |
| Biosecurity service revenue | $34.4 | $1.8 | $71.9 | $1.8 |
| Total revenue | $77.6 | $13.3 | $165.3 | $44.6 |
| Operating loss | $(26.7) | $(34.4) | $(143.7) | $(81.1) |
| Net loss | $(102.4) | $(26.1) | $(231.6) | $(80.3) |
| Net loss per share, basic and diluted | $(0.08) | $(0.02) | $(0.18) | $(0.06) |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $(88.3) | $(76.5) |
Revenue growth reflected both increased Foundry program activity and a sharp rise in COVID-19 testing. Q3 Biosecurity product and service revenue totaled $42.9 million, with related costs of $22.3 million. The filing does not present a company-wide gross margin. Operating expenses for Q3 were $104.3 million, including $53.0 million in R&D and $29.0 million in G&A. Nine-month R&D was $164.6 million and G&A was $81.3 million.
Q3 net loss included $39.7 million of equity-method investment losses, $12.4 million of investment losses, and an $18.5 million warrant-liability fair-value charge. Nine-month equity-method investment losses were $72.6 million. These items substantially affected reported net loss; they are not all cash operating costs.
At September 30, cash and cash equivalents were $1,739.1 million, compared with $380.8 million at December 31, 2020; restricted cash was an additional $26.2 million. Current assets were $1,810.6 million and current liabilities $90.3 million. Total liabilities were $532.6 million, including $212.9 million of warrant liabilities, $16.3 million of lease financing obligations, and deferred revenue. The filing reports no conventional borrowings in the presented balance sheet. The company had an accumulated deficit of $697.3 million.
For the first nine months, investing cash outflow was $77.5 million, including $51.4 million for property and equipment and $21.4 million for the Dutch DNA acquisition. Financing cash inflow was $1,545.2 million, principally $1,510.9 million of business-combination proceeds and $60.0 million of contributions to consolidated ventures, partly offset by a $25.0 million founder-share repurchase.
Material changes versus comparable periods
- Total revenue rose from $13.3 million to $77.6 million in Q3 and from $44.6 million to $165.3 million for the nine-month period. The expansion was driven particularly by COVID-19 testing services and products, alongside Foundry growth.
- Foundry Current Active Programs increased to 54 in Q3 from 43 a year earlier; nine-month active programs were 61 versus 48. Cumulative programs reached 95, up from 71.
- Despite improved Q3 operating loss, quarterly net loss widened, primarily reflecting investment and warrant fair-value losses. Nine-month net loss also increased significantly.
- R&D and G&A expenses rose materially as the company expanded operations, personnel, facilities, and public-company activities.
- The business combination delivered $1.51 billion of net proceeds after redemptions and offering costs. It also brought $212.9 million of warrant liabilities, whose fair-value movements affect earnings.
Outlook, commentary, risks, and unusual items
- Liquidity and losses: Management said cash and cash equivalents should fund operations for at least one year from issuance of the financial statements. The company expects continued losses and negative operating cash flows; achieving profitability depends on technical and commercial milestones, scaling Foundry output, reducing unit costs, and expanding programs.
- No quantified operating guidance: The filing provides no specific revenue, earnings, or cash-flow guidance. Management cautioned that COVID-19 testing demand is uncertain and may be affected by vaccination, at-home tests, school funding, competition, and pandemic developments.
- RSU expense: Management expected the board to modify RSU vesting conditions in Q4 2021, potentially allowing vesting in Q4 2021 and Q1 2022. It anticipated a substantial increase in stock-based compensation after modification. Unrecognized RSU compensation was $1.369 billion at September 30, subject to vesting and accounting outcomes.
- Concentration and related parties: Related-party Foundry revenue was $13.1 million in Q3 and $36.7 million year to date. Two customers, Cronos and the New Jersey Department of Corrections, together represented 32.9% of nine-month revenue.
- Investments and acquisition: Dutch DNA consideration was $35.3 million, including cash, stock, and contingent consideration of up to $20.0 million tied to milestones. Large equity-method losses included write-downs under the hypothetical liquidation at book value method for Arcaea and Allonnia.
- Commitments: The company expanded Boston lease commitments, including a planned 262,000-square-foot facility expected to commence in 2024, with first-year annual base rent of about $16.8 million, and an expansion and extension of its existing Drydock lease.
- Regulatory, execution, and governance risks: Disclosed risks include uncertain commercialization of customer programs, dependence on key customers and suppliers, biotechnology and GMO regulation and public acceptance, biosecurity and cybersecurity incidents, COVID-19 testing regulation and demand, and multi-class voting control and potential share dilution.
- Short-report inquiry: The filing disclosed that after a short-seller report published October 6, 2021, the company received a preliminary and informal Department of Justice inquiry related to the report. The filing does not describe a formal investigation or provide an outcome.
- Contingencies and controls: The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, while risk disclosures note prior gaps and material weaknesses in internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19 testing revenue remains durable and how testing demand, customer funding, and margins develop.
- How much Foundry growth is recurring customer program revenue versus milestone or other less predictable value share, and the progress and economics of the 95 cumulative programs.
- The timing, cash impact, and amount of RSU compensation following any vesting modification, as well as resulting dilution.
- Customer concentration, related-party revenue and deferred revenue, and the collectability and conversion of deferred revenue into recognized revenue.
- The status and significance of the DOJ inquiry, and any subsequent disclosures regarding the short-seller report.
- Cash usage, planned facility and equipment spending, lease commitments, and the assumptions supporting management’s liquidity outlook.
- Warrant-liability valuation changes, investment carrying values, Dutch DNA milestone obligations, and the realization prospects of equity interests in ventures.