Earnings Call Transcript - DNA Q4 2022

Anna Marie Wagner, SVP of Corporate Development

Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I'm joined by Jason Kelly, our Co-Founder and CEO; and Mark Dmytruk, our CFO. We thank you for joining us and look forward to providing you with an update on the last quarter and full year '22. As a reminder, during the presentation today, we'll be making forward-looking statements, which involve risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission to learn more about these risks and uncertainties. We've got a packed agenda for today, but we'll follow our standard format, providing an update on our financial progress and guidance for the year while also taking the time to dig deeper on our strategic priorities. In particular, as we alluded to in our last call, today we'll be providing more information on the downstream value potential we see at Ginkgo. We'll enter the Q&A session, and we'll take questions from analysts, investors, and the public. You can submit those questions to us in advance via Twitter, #Ginkgoresults or e-mail at investors at ginkgobioworks.com. All right. Over to you, Jason.

Jason Kelly, Co-Founder and CEO

Thanks, Anna Marie. We always start with the slide because our mission drives much of our long-term strategy and even many day-to-day decisions in the company. Very simply, we want to make biology easier to engineer at Ginkgo, and we do that by scaling our platform for programming cells. So how does that work? An easy way to think about Ginkgo is that companies are outsourcing their research to us. In the biopharma industry, that would be called a CRO, a Contract Research Organization. But for traditional CRO, biopharma companies typically aren't outsourcing the more complicated research work that they can't do themselves internally. They want to access Ginkgo's automation scale, our data, and other assets that aren't available in-house. You can see a comment here from one of our biopharma partners, Novo Nordisk, CFO, Marcus Schindler, saying they are open to external partners who bring new and complementary expertise and talking about our unique capabilities in Synbio. That's a similar refrain we're hearing in discussions and mirrors what we saw in our large deals with Bayer last year as well. The most obvious example of an asset we have that our customers don’t have internally is the scale of our automation. We've invested hundreds of millions of dollars to date to build out both physical hardware here in Boston, as well as custom software to run our lab like a factory. For the potential customers listening on this call, this infrastructure is available quickly to you as a service. I really like our no pipettes logo down here. Look, I spent five years during my PhD at MIT working at the lab bench with a pipette in my hand. There are brilliant scientists at our customers who instead spend their time designing experiments or running ultra-low throughput experiments by hand with pipettes. It's clear to me that the future will be total automation of the lab work associated with cell engineering, and Ginkgo is hoping to lead in making that happen. Biotech scientists should put down their pipettes and utilize Ginkgo's automated lab services to do their work. The last point I'll make on the foundry is that it gets better with scale. In other words, unit costs fall as our output in the facility increases. Overall, in 2022, we demonstrated diversification in both the markets we're signing up programs in and in the types of downstream value share we're closing. I think it's often underestimated how valuable that type of diversification is, especially for a services platform. Biosecurity had another solid quarter, and we're exciting about that business transitioning towards longer-term recurring monitoring contracts, particularly at airports. Mark will talk about some of the biosecurity financial highlights coming up, and I'll dig into that business in my strategic section. Finally, we ended this year with over $1.3 billion of cash on the balance sheet, which provides us with a multi-year runway and is an important source of competitive advantage in this market environment. All right. I'll hand it off to Mark now to go through the numbers, and then we'll dig deeper into the aspects of our focus.

Mark Dmytruk, CFO

Thanks, Jason. I'll begin with the discussion of our cell engineering business. Before I dive in, you may notice that we're referring to cell engineering revenue instead of foundry revenue as we've done historically. We believe this is more reflective of the business and is the term we use internally. As Jason mentioned, we added 20 new cell programs to the cell engineering platform in the fourth quarter of 2022, which brought us to 59 new cell programs for the full year 2022. This represents 90% growth compared to the full year 2021 and is a key outcome as we consider new programs critical to Ginkgo's long-term value. We supported a total of 96 active programs in the fourth quarter of 2022 across 54 customers on our platform. Cell engineering revenue was $53 million in the quarter, up 56% compared to the fourth quarter of 2021. Cell engineering services revenue, which excludes the contribution from downstream value share was $36 million in the fourth quarter of 2022 compared to $21 million in the fourth quarter of 2021. We saw a meaningful sequential increase in cell engineering services revenue compared to the third quarter of 2022, showing solid execution and platform scaling. Now turning to biosecurity. Our Concentric offering continued to perform well in the fourth quarter of 2022, generating $45 million of revenue. Biosecurity revenue for the full year 2022 was $334 million, an increase of 66% compared to full year 2021. This increase was primarily due to continued demand for COVID testing services through the year. Lastly, our net loss includes several non-cash income and/or expenses, and we look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was negative $80 million compared to positive $1 million in the comparable prior year period. Our Stock-based compensation was $111 million, a significant drop compared to prior quarters. Our strong cash position allows us to continue making investments in the growth of our business as we look forward to 2023.

Jason Kelly, Co-Founder and CEO

Thanks, Mark. Before I move on to our strategic section, I want to comment on our guidance approach for the year. So last year, we received feedback regarding our decision to combine services and downstream value share together as part of the cell engineering revenue forecast. In 2023, we're going to guide only to services revenue to reduce the noise. I want to reiterate that we are targeting at least $175 million in cell engineering services revenue this year, which would represent a 65% growth from 2022. Our biosecurity guidance range is at least $100 million, with nearly half expected to come from emerging product lines. All of this reflects a solid quarter of cell engineering execution and expectations for strong program growth. We're pleased with our overall progress and outlook.

Anna Marie Wagner, SVP of Corporate Development

Thank you, Jason. We will move to the formal Q&A shortly. I believe we are all set now. There is one more question from retail via Twitter from Ryan. Are larger clients expressing more or less interest in the foundry services considering the current economic situation?

Jason Kelly, Co-Founder and CEO

I can take that. Companies in this environment are focusing on efficiency, which affects smaller companies and larger companies in two different ways. For smaller companies, it drives more interest in our services as they look to cut fixed costs. For larger companies, it's more neutral, sometimes leading to cuts in R&D budgets and external spending. So we're observing mixed signals but overall maintaining optimism.

Matthew Sykes, Analyst, Goldman Sachs

Thanks for taking my questions. Can you speak to the inherent unpredictability of downstream value regarding the recent pacing of milestones and royalties? Have projects been extended, elongating the process?

Jason Kelly, Co-Founder and CEO

That is correct. The unpredictability is a key reason we do not want to provide guidance. There have been moments where milestones did not happen as anticipated, largely tied to external factors that are out of our control. So we decided our focus should remain on driving the efficiency and effectiveness of our platform.

Mark Dmytruk, CFO

We did see slippage on milestones intended for Q4 due to factors outside of our control, but we are actively pursuing those achievements.

Anna Marie Wagner, SVP of Corporate Development

Thanks, everyone. That concludes our formal Q&A. I'm looking forward to our next earnings call, and we appreciate your engagement today.