Earnings Call Transcript - DNA Q1 2025

Operator, Operator

Live on air. I'm joined by Jason Kelly, our Co-Founder and CEO, and Mark Dmytruk, our CFO. Thank you for being with us today. We're eager to share updates on our progress. During this presentation, we'll be making forward-looking statements that involve risks and uncertainties. Please check our SEC filings for more details regarding these risks, including our latest 10-K. In addition to discussing our quarterly results today, we’ll provide updates on our journey towards adjusted EBITDA breakeven, engagement with our government clients, and new opportunities for our tools business. We will conclude with a Q&A session where I will address questions from analysts, investors, and the public. You can send us your questions in advance via X, #GinkgoResults, or email us at investors@ginkgobioworks.com. Now, Jason, the floor is yours.

Jason Kelly, CEO

Thanks, Daniel. We always start off with our mission here at Ginkgo, which is to make biology easier to engineer. We had three objectives, and I first showed these as close variants about a year ago when we announced that we were going to be doing a major restructuring of the Company. These objectives were to reach adjusted EBITDA breakeven by the end of 2026 while maintaining a cash margin of safety. In other words, we didn't want to get in a position where we're going to need to fundraise when we didn't want to. We wanted to fundraise from a position of strength, but ideally not even need to fundraise. Second, we wanted to cut costs while importantly serving our current customers. We had a lot of amazing customers, large pharma, large ag biotechs, industrial biotechs, as well as the government. We want to keep serving those customers well while focusing the Company. Finally, we wanted to expand the way we sold our platform. But from not just R&D solutions, where we do an end-to-end research project, but also directly as a tools business like a traditional CRO or an equipment vendor would. These were new ways to go to market to a wider set of customers than we had with our solutions business. I'm very happy to say we made progress on all of them. We've made unbelievable progress on taking out costs while still serving our customers. I'm very happy to say we're at a $205 million reduction in our annual run rate between Q1 2024 and Q1 2025. You might remember the target I had set was $200 million, I think, by Q3 or something of this year. We've already beaten that. We took actions in the first quarter that are going to improve this even further. Mark will mention, and I really think this sets us up to be in an incredibly strong position. And importantly, because we did it faster, we're at this place while still having $517 million in cash and cash equivalents on the balance sheet and no bank debt. So, among our peers in this advanced platform technology space in the market today, I think that's a uniquely strong position. Look, biotech in the capital market is going through a tough time right now, which is challenging for the Company, but it's also an opportunity for investors. The companies that can make it out on the other side of that are in a strong position. Biotechnology is a fundamental industry that's not going away. This sets us up to be in a place to do that. I want to thank the team for the incredibly difficult and challenging ton of work last year to get us to where we are, putting us in a very strong spot for the future. So, with that, I'm going to hand it to Mark to go over this quarter's financials.

Mark Dmytruk, CFO

Thanks, Jason. I'll start with the Cell Engineering business. Cell Engineering revenue was $38 million in the first quarter of 2025, up 37% compared to the first quarter of 2024. The first quarter this year included $7.5 million in non-cash revenue from a release of deferred revenue relating to the mutual termination of a customer agreement we had with BiomEdit, one of our platform ventures. Excluding this impact, Cell Engineering revenue was $31 million, up 10% compared to the first quarter of 2024. This increase was primarily driven by strong growth with biopharma and government customers. In the first quarter of 2025, we supported a total of 123 revenue-generating programs on the Cell Engineering platform, representing a 32% increase in revenue-generating programs year-over-year. As discussed on our last earnings call, this quarter represents the first time we are reporting the new revenue-generating program metric and are no longer reporting the original program metrics. As a reminder, the rationale here is the nature of programs we take on with our customers has evolved significantly following adjustments to commercial terms and the launch of our tools offerings in 2024. The new metric includes all programs that generated meaningful revenue in the quarter, including smaller programs that were previously reported as other contracts and excludes programs that did not generate meaningful revenue in the quarter. We believe the new metric will be more useful for analysts modeling revenue. We have also updated the 2024 comparables using this new metric in the appendix. Now turning to Biosecurity, our Biosecurity business generated $10 million of revenue in the first quarter of 2025 at a segment gross margin of 28%. Segment gross margin excludes stock-based compensation. Turning to the next slide, I'll provide more commentary on key items for the rest of the P&L. Now that we are almost a year into our restructuring, you can see the substantial cost reductions and improvements in profitability we have executed compared to the first quarter of 2024. Net loss includes a number of noncash income and expenses, as detailed in our financial statements. Because of these noncash and other nonrecurring items, we believe adjusted EBITDA is a more indicative measure of our profitability, and we are now showing you adjusted EBITDA at the segment level so you can more clearly see the relative profitability of Cell Engineering and Biosecurity. Total company adjusted EBITDA in the first quarter of 2025 was negative $47 million, which was an improvement from negative $117 million in the first quarter of 2024. Cash burn in the first quarter of 2025 was $58 million, down from $104 million in the first quarter of 2024. In terms of outlook for the full year, we expect total revenue between $167 million to $187 million, Cell Engineering revenues between $117 million to $137 million, and Biosecurity to remain the same at a minimum of $50 million. In conclusion, we're pleased with the substantial improvements in cash burn and profitability. In the first quarter, we continued to execute against our core objectives while navigating significant uncertainty in the macro environment. I'll hand it back over to you, Jason.

Jason Kelly, CEO

Thanks, Mark. In the strategic section, we're going to cover three topics today. First, I want to touch again on our continued restructuring efforts and how well that's going on the cash cost reduction in our path to EBITDA breakeven by the end of next year. Second, there have been many changes in the U.S. government related to research spending and Biosecurity. I want to highlight that I think biotech remains critical emerging tech in the U.S. and Ginkgo is well-positioned for it. Finally, I want to talk about our tools businesses Datapoints and Automation, which have been doing well, and I want to provide an update on that. Our goal is to reach adjusted EBITDA breakeven in 2026 while having achieved $205 million in annualized run rate cost reduction since we announced the restructuring. I really like this chart on the left; you can see back in Q1 2024 where we were on cash expenses and total revenues. We want to shrink that gray bar and grow the green bar to the same size. We've made changes in Q1 that you'll see reflected in the upcoming quarters to continue taking costs out and growing sales. Over $0.5 billion in cash remains in the bank, which has put us in a strong position amidst the tough biotech market. I want to also talk about U.S. biosecurity efforts and how the Biden administration is prioritizing biotechnology. A recent speech by the President’s Science Adviser emphasized the duty to enable scientists in technology areas, including biotech. The National Security Commission on emerging biotech highlighted we stand at the edge of a new industrial revolution dependent on engineering biology. I want to note we have 28 government projects across both Cell Engineering and Biosecurity, providing a contracted backlog exceeding $180 million. One significant win for us was a new $29 million program called WHEAT to enhance domestic manufacturing of critical raw materials in pharmaceuticals. This time, we are discussing the details of our projects that leverage partners and unique capabilities to drive cost-effective solutions toward important outcomes.

Mark Dmytruk, CFO

Now let's talk more specifically about our offerings in Biosecurity and diagnostics. Our Canopy offering involves collecting wastewater samples from inbound international flights and conducting surveillance for infectious diseases, while our Horizon platform uses that data to deliver actionable information. We believe these monitoring efforts are essential to maintaining public health safety, given the history of information sharing challenges faced by global organizations like the WHO. Moving forward, our aim is to provide even better services in the Biosecurity sector through the introduction of critical facilities for testing and monitoring.

Jason Kelly, CEO

I also want to discuss our Datapoints and Automation offerings. We are redefining how we bring our platform to customers. About a year ago, we began offering our systems directly to researchers at companies. Our capabilities include providing the tools for scientific discovery and enabling companies to generate large datasets that can be efficiently utilized for AI and ML applications. This flexibility allows scientists to drive their own workflows while leveraging our advanced robotics and data management systems to increase automation and handle diverse research projects. We are excited about the potential for growth in diagnostics and data generation segments as we work to expand customer access to our technologies. We've also recently launched GDP A1 data set, featuring a collection of therapeutic antibodies, showcasing the value of our data point services. This engagement not only supports the biotech community but also drives new demand for our offerings. We look forward to continuing and strengthening these efforts.

Operator, Operator

Great. Thanks, Jason. As usual, I’ll start with a question from the public and remind the analysts on the line that if they’d like to ask a question, please just raise your hand on Zoom, and I’ll open up your line. Thanks, everyone. All right, getting started. So, our first question is from x.com, and this question is from Brendan. The question is, does Jason think there's a possible opportunity for Datapoints to evolve into a SaaS cloud computing product tool to compete with traditional companies in the space like Veeva Systems?

Jason Kelly, CEO

Yes, it's actually a good question. So, we've started doing more consultative work for large pharma companies where we help them think about their data architecture and what software they need in place. There’s a market for companies to make money in cloud and SaaS solutions, so if we see an opening there, we might explore it. The research side varies, and many companies don’t have a large data infrastructure. That remains one of our strengths.

Mark Dmytruk, CFO

On the ARPA-H news, it's a $29 million two-year contract, so you can expect revenue to be recognized over the two years. This significantly derisks our guidance for the year, and we view it positively. The funding landscape remains challenging, but I believe there is still great potential in biotechnology.

Jason Kelly, CEO

Despite current challenges, I remain optimistic that funding for biotech will continue. We've also heard about executive orders related to promoting domestic production of critical medicines. This is a strong sign that Biosecurity remains a high priority.

Mark Dmytruk, CFO

Turning to the revenue-generating programs, the metric reflects a mix shift from bigger solution deals to data point deals. We're tracking the number of completed programs and the onboarding of new programs, which affects the quarter-on-quarter figures. We'll provide additional clarity on our revenue expectations moving forward, but the flavor of what we're seeing continues to indicate diversity in the business.

Operator, Operator

All right. Next question from Tejas from Morgan Stanley. Your line is open.

Tejas Savant, Analyst

I'm curious about the current pressures on pharma and biotech, especially with reference pricing and accelerated approvals. What are your customers saying recently in terms of outsourcing?

Jason Kelly, CEO

Overall, there is hesitancy around R&D services. Many companies are holding back on outsourcing due to uncertainty. However, as a newer entrant in the tools industry, we are winning business from others. While we recognize the industry is under pressure, I believe we have unique opportunities in tools as they become more favored in this environment.

Matt Larew, Analyst

Curious about lead generation for the newer programs and how you're seeing growth in your current market. Are they primarily from internal channels or growing externally?

Jason Kelly, CEO

There's been a notable increase in external inquiries for our tools offerings. As we disseminate data points, incoming interest is rising, alongside opportunities to expand with existing clients. Our approach allows for flexible commitments, enabling customers to engage without requiring long-term contracts.

Operator, Operator

Unfortunately, I think we're out of time. However, if you have any other questions, you can always email us at investors@ginkgobioworks.com. Thanks for joining us.

Jason Kelly, CEO

I appreciate all the questions, everybody. Thank you.

Mark Dmytruk, CFO

Thank you. Bye.