Q1 2023 Ginkgo Bioworks Holdings Inc Earnings Call

Speaker 1: I'm joined by Jason Kelly, our co-founder and CEO , and Mark Dimitrik, our CFO . Thanks as always for joining us. We're looking forward to updating you on our progress.

Speaker 1: 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.

Speaker 1: So we just hosted our annual conference for Mint and all that's geared towards our customers, understanding why customers are choosing Ginkgo is important to our investors. And so we're going to spend some time today recapping some of the themes from that event.

Speaker 1: As usual, we'll end with a Q&A session and I'll take questions from analysts, investors, and the public. You can submit those questions to us in advance via Twitter, hashtag Ginkgo results, or email at investors at ginkgobioworks.com.

Speaker 2: All right, over to you Jason. Thank you, Annemarie. I'm super excited to be chatting with all of you today. We just hosted Ginkgo for men. Our big meeting. We had about 1,000 people there in person, plus folks on the live stream as well. In my keynote, I reminded the audience that at Ginkgo, we're not spending our cast just on clinical trials or field trials or...

Speaker 2: cosmetic launches, these are sort of end product activities that our customers are doing. At Kingville, we're spending all our capital on improving our platforms for our customers. So a big goal of the day was learning from our customers about what they want us to build. And I firmly believe that if we deliver on those requests.

Speaker 2: Then we ultimately deliver for all of our investors. We do write by our customers, we do write by all of you. So you're going to hear a lot more from me today about why customers are choosing to sign up for Ginkgo's platform and what I heard it from Matt. When we launched Ginkgo, one of the big criticisms of our whole model was that a general purpose

Speaker 2: platform would not work in biotech. Right? It might work in the tech industry, but in biology, you know, the lab work you do to engineer a mammalian cell is just too different from the lab work you do to engineer a bacterial cell to get that working on a common robotics platform and automated, for example, or, you know, the data and machine learning models that would be relevant in the biofarming industry would never port over to work in agriculture.

Speaker 2: a long time customers like Jim Adam, one of the largest flavor and fragrance companies in the world, ad majors, Cortez Vaz, and Jenta just joined the platform this last quarter and our large launcher of customer bear in agriculture. Importantly, that's the top of this chart. If you look down the bottom, you'll see all the startups in the same range of industries. And these are the companies that are working to make the new display.

Speaker 2: of the folks that went up on stage were our customers, right? And so you had, you know, amazing customers joining us on panels. We heard 12 lightning talks from customers about what they were building by leveraging Ginkgo's platform and that's really important, right? People in the audience and on the livestream that are thinking about joining Ginkgo's platform.

Speaker 2: You know, they might like to hear from King Go folks, but they really want to hear from people like them that are getting value out of using our platform. And so I think we did a nice job of doing that. I really encourage you to watch. You know, all those videos are up on YouTube. You should check that out. And I think the diversity of what our customers are building with the platform gets.

Speaker 2: gets folks really excited and it also gets people thinking about outsourcing from our platform as they hear those different applications.

Speaker 2: I've shown this flywheel to you all before, but it's important to highlight that our customers help make our platform better. So we improve with scale, you know, and as a scale economic, think like a auto manufacturing plan or a chip fab or things like that, right? As we add new customers, we can invest more in our platform and our platform improves. We get larger facilities, that which drops our costs.

Speaker 2: and we learn from the data from one project to make another project faster and less risky. And so even though all of you are investors should be excited when we add a new customer to the platform, I think our customers should also be excited every time they see a new announcement of a customer joining the ecosystem platform because they are getting better infrastructure out of that.

Speaker 3: customers.

Speaker 2: Okay, I'm going to hand it over to Mark. He's going to walk you through our Q1 financials, and then we're going to dive in on some of the key themes coming out of Vermont.

Speaker 4: Over to you, Mark. Thanks, Jason. I'll start by discussing our cell engineering business. As a reminder, we now refer to cell engineering revenue rather than foundry revenue as it is more reflective of the business. You'll see that updated throughout our 10Q.

Speaker 4: We added 13 new cell programs and supported a total of 97 active programs across 60 customers on the Cell Engineering platform in the first quarter of 2023.

Speaker 4: This represents substantial growth in diversification and programs relative to the 64 active programs in the first quarter of 2022 with strong growth coming from the farm and biotech and the food and agriculture segments.

Speaker 4: We added several large new customers to the platform, including Boaringer, Engelheim, Sanjenta, Solve, and a new program with Sumi Tomo in addition to a good mix of programs with earlier stage customers across industries.

Speaker 4: As Jason mentioned, we think both of these customer segments are important. It's an important validation of our capabilities when we add large multinational customers, like BI and Syngenta, who have strong internal R&D capabilities, but we're also very proud of our ability to enable the next generation of leaders. Salon-Junioring Revenue was $34 million in the quarter of 59.

Speaker 4: million dollars of revenue in the first quarter of 2022. The solid result is this business transitions away from K-12 COVID testing services.

Speaker 4: Importantly, over 20% of this revenue came from what we believe will become more recurring sources, such as federal and international contracts.

Speaker 4: while that proportion was well under 10% in Q4 of last year.

Speaker 4: Biodes security gross margin was 52% in the first quarter of 2023, which benefited from some one-time items.

Speaker 4: You can see on the right that we're really thinking about this business globally now and not just domestically. We believe there will be strong network effects in this business as biology does not respect borders. We have now collected samples from flights originating in 72 countries through our airport program. We believe this type of infrastructure.

Speaker 4: can provide an early warning system for future biological threats.

Speaker 4: And now I'll provide more commentary on the rest of the PNL. We're noted these figures exclude stock based compensation expense, which is shown separately.

Speaker 4: Starting with off-ex, RMD expense excluding stock base comp increased from $57 million in the first quarter of 2022 to $115 million in the first quarter of 2023.

Speaker 4: GNA expense, excluding stock base comp, increased from $42 million in the first quarter of 2022 to $84 million in the first quarter of 2023.

Speaker 4: These operating expense items increased year over year as expected as we invested in our platform and various functions to support our growth during the past year and layered in the four acquisitions we close in the fourth quarter of last year.

Speaker 4: Included in these numbers in the first quarter of 2023 is approximately $19 million of one time M&A and integration-related expenses.

Speaker 4: Stock-based comp. You'll notice the significant step down in Stock-based comp year over year. As a reminder, this is because the catch-up accounting adjustment related to the modification of restricted stock units when we went public is rolling off.

Speaker 4: Over 60% of the total $75 million stock comp expense in the quarter related to RSU's issued prior to us going public.

Speaker 4: To help folks model this more precisely, we have provided a new appendix slide in this deck for your reference.

Speaker 4: Net loss. It is important to note that our net loss includes a number of non-cash income and or expenses as detailed more fully in our financial statements.

Speaker 4: Because of these non-tash and other non-recurring items, we believe adjusted EBITDA is a more indicative measure of our profitability.

Speaker 4: We've also included a reconciliation of adjusted EBITDA to net loss in the appendix.

Speaker 4: Just in EBITDA on the quarter was negative $100 million compared to negative $1 million in the comparable prior year period. The decline in the just in EBITDA was attributable to both the higher run rate of expenses and sell and je nearing, and the ads expected decline in biosecurity revenue.

Speaker 4: And finally, CAPEX in the first quarter of 2023 was $19 million for reflecting Foundry, Capacity and Capability investments as well as leasehold improvements.

Speaker 4: CAPEX was impacted by timing of equipment purchases and projects, and we would therefore expect lower levels of CAPEX on average in subsequent quarters this year. In terms of our outlook for the full year, we are reaffirming our guidance for 2023, including 100 new cell programs.

Speaker 4: At least $175 million of cell engineering revenue driven by services revenue with additional revenue potential from downstream value share and at least $100 million of biosecurity revenue.

Speaker 4: As we shared in our last quarterly update call, we expect our new program additions and revenue to ramp during the year and believe we have a solid backlog and pipeline to support our outlook. In conclusion, we're pleased with our overall progress in the business while navigating a challenging macroeconomic environment.

Speaker 4: We're adding new programs to the platform in a way that improves the platform and balances both near-term and long-term economics.

Speaker 4: We are focused on our cost structure with new investments and spend generally targeted to discrete areas such as our mammalian capabilities.

Speaker 4: And we continue to manage our balance sheet and cash flows to maintain a long runway while retaining flexibility to capitalize on near-term strategic opportunities with $1.2 billion of liquidity at quarter-end.

Speaker 2: And now Jason back to you. Thanks Mark. It's always exciting to see new customers signing up for the platform. And I want to highlight that we actually spend a lot of time talking to our current customers, including running an annual customer survey to learn how they're using the platform and importantly, how can you make the platform better.

Speaker 2: So I want to share a little bit about what we've learned on why our customers are choosing to outsource to our platform in the first section. Now our customers are specialized in their vertical markets, right? They're a pharma company, an industrial biotech, or an ag company. We are not, right? I think it's a general platform. I want to talk about the service offerings that Ginkgo is launching.

Speaker 2: showed this slide before but I do want to I want to pause on it just again for a minute to highlight

Speaker 2: you know, how unique it is to have this range and breadth of customers on the platform, both in terms of size and range of industries. And so one of the things we wanted to ask is, why are these folks getting on the platform? Okay. And...

Speaker 2: You know, we did this by again, surveying and talking with folks and things like that. I think this is a really nice quote from one of our larger customers, this is Brian Van Dahl at Novin Nordisk, and you know, he said, you know, scientists currently undergoing a revolution. Large-scale data sets coupled with AI is opening up a greater opportunity space within biology. We no longer have to limit ourselves to the questions that can be addressed by traditional research methods, and we heard more from Brian on a panel of men, I think heard you to watch.

Speaker 2: represent and highlights one of the, I want to show is the first example of what we were hearing as feedback from customers. So the you know that we get more data per R&D dollar at Ginkgo using our infrastructure and this is important to generate those large data sets. Secondly we access

Speaker 2: Not just that single customers data, but because of the way Ginkgo's platform works and our IP works, we're actually able to give a customer access to the data and learning across all the projects that have been happening on Ginkgo's platform. And then they're not just left on their own to figure out how to navigate that. Many of these companies are new to doing these sort of large scale data science efforts. They have access to Ginkgo's data scientists in order to navigate that data.

Speaker 2: rate and speed, the biotech work is too slow. For if you're a smaller company, there's an enormous up run cost to building out a laboratory. We want to just cut that out in terms of the cost and spending for new companies trying to do sell engineering. They should be able to use our services rather than build their own lab. And then finally,

Speaker 2: Often you have a big R&D department that's a big fixed cost sort of using space and using equipment in a facility. We want to replace that with a variable cost service and we'll talk about why that's particularly important in in in pharma. So I love this video. This is a the new technology that's coming out of our from our acquisition from Zymergen. These racks.

Speaker 2: new agricultural products, you should not have to be a world expert in laboratory automation.

Speaker 2: you do not need to be a world expert in data center architecture. You leave it up to the cloud computing companies to do that. Well, our argument at Ginkgo is these are the sort of technologies we are going to focus on so that our customers don't need to and that they have access to the absolute latest in technology for getting more data for R&D dollars. That's on us.

Speaker 2: to spoke biological systems. So being able to make, you know, engineer the scale of a whole genome, that wasn't something they could do in-house, right? You know, Alphan, at Biogen, there when we did the deal, you know, a large number of design ideas that King of Good could work through, and this was to help them with sort of A, B, manufacturing. So again, that sort of scale of activity, data per R&D dollar being so much bigger at King of Good. Importantly, that's the data from your project. You do want to get more data out of that. But boy, a lot of other biotech work is going on in the world.

Speaker 2: And it would be really nice if you're trying to train up a model, for example, of your particular system, that you were able to draw on data from other people's works. And this is something that the tech industry is benefiting from dramatically. If you look at how these new models are being built, they're being built on huge data sets, across lots of different assets around the internet, and so on. In biology, a lot of that data today, frankly, is being stoked piped.

Speaker 2: across thousands of different companies. And so one of the things Ginkgo has been doing is accumulating that all in one place so that you can train models on much bigger data assets. And we have many different examples of this. I'm just going to give one. This is some of the proprietary genomic data we have. So sequence genomes, largely from microbes and metagenomics, sequencing from companies like Radiant Genomics, Lowd and Warp Drive Bio and Warp We've Done at Ginkgo.

Speaker 2: ginkgo strengths, right? So that transparency having access to this, I think, is critical and unique to Ginkgo to be able to get that range of data. Also at Merck, you talk about the professionalism and experience of ginkgo employees, right? So again, having these experts who can help you navigate all this, and similarly, similar comments from Gividon.

Speaker 2: Great quote up here. So, Nicholas Oller from LIGOS, Chief Technology Officer there, he said, you know, Ginkgo's entire team was quite talented, but the, you know, the early results on one of our projects are stunning and supports LIGOS' mission of accelerating the world's transition to high-performing sustainable products. Okay, what's interesting about this is this project, if you look at when we announced it, it was like six or nine months ago, right, like recently.

Speaker 2: you know, Trent from my Provost, the geothermal therapeutics, you know, Giger's expertise and resources have moved our drug discovery project along at a pace that just would not be possible either using internal resources or via a traditional CRO approach. Okay, and so again, this is access to a scale and seed that you would otherwise get and bond rider at bear and crop science talking about the open innovation.

Speaker 2: one of the ones that gets to be really excited for small company. So if you have a chance, I would encourage you to go watch Jazmina's talk from Vermont. And so what's cool about Jazmina is it should see you over Kaya. She gave a talk at Vermont last Vermont was about a year and a half ago. And at her talk this time, she said, you know, a year and a half ago, I was up here announcing that we had launched the company. We have raised money and are launching RK.

Speaker 2: And then here I am a year and a half later and I'm showing you my first product.

Speaker 2: And so that type of speed in biotech, even in its cosmetics biotech, I don't really care. That type of speed is really unheard of. And the reason it was possible is normally when you raise a venture round as a startup biotech company, the first thing you do is you call Alexandria real estate and start being showed, you know, very expensive, overpriced real estate in Kendall Square and go look for a lab and then you start go off and buy a bunch of expensive.

Speaker 2: valuable to small startups in the biotech place. And by the way, this is something that was absolutely seen with internet companies and cloud computing in the mid-2000s, right? That was, you know, the birth of AWS and these companies that could start cloud native, uncloud them to save on building out server powers. And so I think that's a real similar opportunity here in the biotech sector. Okay, so this is an important point.

Speaker 2: from the standpoint of the industry's efficiency. So if you look at an average small biotech company, at the beginning, you know, that dotted line in the middle there is sort of like their R&D teams. They hire an R&D team to do all that work, they get the lab, they get it going, and here it is, okay?

Speaker 2: Prior to having your drug going into clinical trials and animal studies and so on, like walking your candidate, you wish you had more R&D. Right? If you had more R&D, you'd get to a better candidate. If you had more R&D capacity, you'd go faster, right? But you're like, you don't want to hire too many people and so on. So you kind of keep it at this level and you get to the best candidate you can get. And then off you go, you go into animal studies and clinical trials.

Speaker 2: Well, now suddenly you wish you had less R&D spending because you're trying to conserve cash, get that clinical trial result and show that your application in Parma works. And once you get a good result, well now you want more R&D again because you want to build out a really robust figure pipeline in that area. Okay, so that's that sort of sign way there. Not efficient how we're doing it now where we're either overshooting or undershooting and then importantly.

Speaker 2: on later. And we have some groups that are doing that. You can see, you know, personnel for pariam, uh, David's and logic, uh, talking about how, you know, preparing them is now dedicated to driving our lead program into clinical trials this year while leveraging our partnership here with Ginkgo to accelerate our discovery work, right? So I really like that. I think that's a good, uh, way to make the whole industry more efficient. All right. So that's what I want to say. And I think, you know, that's a message that I gave it for Matt, uh, and, and I think it was like well received by folks in terms of.

Speaker 2: But some people look at that and say, I don't have time for that conversation. I really want to know is DINCO's technology relevant to my application? I want to know that ahead of time. So in order to solve that problem, we launched services. And the first service we offered was DINCO enzyme services. And I'm going to talk more about that in just a minute. But that was to basically say.

Speaker 2: you're doing enzyme work this is the full suite of things we have at Ginkgo that can help you out and come here from our scientists we've got webinars and things to show you how it all works that was really well received over the last you know half year or so and it's driving a lot of like funnel for us in terms of new customers getting on the platform so at Fermet we were happy to announce four new services Ginkgo Microbe Services Ginkgo

Speaker 2: are also available to our customers as part of these services. And so, you know, there are virtual events, things coming up that I encourage you to take a look at if you're interested in these things. I do want to dive in just for a minute on this on the stride biomew. This is super exciting to me. And the technology is very cool. I won't be laborative, but these are folks who are really just leaders in doing the protein structure around these AFV capsis and identifying key regions of the structure that would be worth modulating.

Speaker 2: that we knew would be interested in this sort of thing. And so I do think this idea of, you know, behind this, it's not just Strides assets, it's all Ginkgo's automation. You can see that on the left there, and all of being able to build many large designs. It is the combination of unique assets, plus Ginkgo's platform, plus our ability to go out and sell, and do commercial work and.

Speaker 2: to best take advantage of that for Ginkgo. So you'll see us aligning, you know, most of the cost of the deal being put into things like downstream value share milestones and things like that for the partner. We would love to do more and more of those types of acquisitions, something we're actively looking to do. I think the stride by I want is a real case study of what works well for both sides. You know, this asset just does, it's a lot more valuable on top of Ginkgo's platform and the folks that are the previous.

Speaker 2: owners of Stride will really benefit from that. Okay, so I want to talk about a really exciting update to how we're doing some of our services. So the number one request we get from customers is to improve to better technically de-risk cell engineering. So like the three thing customers care about, they want it to be less risky, they want it to cost less, and they want to be faster.

Speaker 2: But the one they really want the most is to be less risky. All right, and you know, you see this some folks like, you know, Nick at LIGO, okay, the CTO of a growing company, what can I possibly do better than work with GINCO to de-risk my plans, right? And keep that out to India, the likelihood of success for our projects specifically was seen to be improved with the technical capabilities of GINCO. So we love that.

Speaker 2: problem about Ginkgo it's a problem about biological engineering, right? Like this is considered to be R&D, like it's just you know it might work and it might not, right? So one of the things that I'm doing to combat that is for our most mature services, so this is in our enzyme services Ginkgo, enzyme discovery service, enzyme optimization service.

Speaker 2: or if you work with a CRO or someone else in the research base, it's sort of like if you asked someone to build a house for you, and on the day you were going to move in, the house fell down, and they said, well, yeah, I'd write me the check anyway, like at least I tried. Right? And that is what research work looks like. And so we think with our platform, we can start to, again, by treating biology like an engineering discipline and driving scale, move this to more an engineering discipline, and then...

Speaker 2: price like an engineering discipline, like we get paid when it works. And so we think this is really exciting, you know, it's been a week and a half since we announced this. A lot of excitement about this. You know, it is a new way to, it's a new type of offering on the market really and we think it's one that Ginkgo can really do well with and our customers are going to love.

Speaker 2: Okay, last thing I want to talk about is our progress in biosecurity. I think we are, you know, you see this with AI, you see it with just sort of, you know, COVID and bio in general. I think like there's a lot of disruption happening in the world right now. It is important for the folks building these types of technologies to approach them with care.

Speaker 2: And I think if you look at the history and computer science, alongside increasingly powerful computers and network computers and so on, you add the birth of the field of cybersecurity, whose job was basically to ensure that we could do all that computing activity with a level of safety, people, economic and national security.

Speaker 2: the tools for engineering biology get more sophisticated, more widely distributed. Alongside that, we should be building up the tools of biosecurity. It's very analogous. And we have an interesting thing where...

Speaker 2: Fortunately those tools today are still like mostly centralized and relatively weak. It's not like everybody is you know able to be engineering cells in their basement or whatever you know or in their garage but that you know I do see that day coming in the future so we want to be building up biosecurity tools in advance of that separately nature

Speaker 2: we saw with COVID-19 throws off malicious biological code already, right? You know, it is doing a lot more of this than we are as humans. And so these tools are also amazing tools of public health in the interim period while the tools of bioengineering are falling in cost and becoming more widely distributed. So we can kind of work on a public health problem while also getting ready for sort of the DNA age.

Speaker 2: just like we had to get ready for the computer age. I'm really excited by the range of expansion of our biosecurity platform. This really originated, many of you are familiar with the work we were doing in school testing and prisons and things like that. A lot of that work obviously is drawing down with the end of the COVID emergency order here in the US, but alongside that we were fortunate to be working with the CDC, for example, in...

Speaker 2: to some of the flags up there. This is not the only place that you would like to have persistent monitoring, right? You'd also like to be doing this as like as we're congregating a lot of animals, right? So animal agriculture, honestly, you'd also like to look after it for plants, agriculture or pests as well in the future, as well as doing things like, you know, hospitals and nursing homes and in crisis settings, you know, like we're doing work in Ukraine, for example.

Speaker 2: I do see a shift that we're trying to pull off. You can see it on the right hand side of this slide where we are increasing the amount of sort of federal and international work we're doing. So, it's both like the CDC and other countries. That's really the thing to watch in the 2nd, half of this year is we're going to be working to make that shift from our programs domestically to these international programs where we see good interest. And we have to move forward on getting everybody involved, but on a borderOOK strange for us also and I do not see it on Twitter.

Speaker 2: in 60 countries coming into these airports. So having these nodes out there, having that data globally, it's sort of of interest to every country, not just the country that we're testing in. And so we're really excited to see that develop, but it is an early and new market. All right, so I like to end on this slide. I am super excited for MetAul, because we fired up, but this year was just amazing. Like to see all of our customers talking about the platform, to hear direct feedback about what it is we can do.

Speaker 1: few moments. Before we do, I wanted to get through a couple housekeeping items. In my role, I respond to a lot of investor emails, and I'd like to make it easier for all our investors to benefit from the questions that are being asked. And there's been a couple recurring themes, so I've added two new slides into the Appendix materials that I'm hoping will be helpful. The first, which Mark alluded to, provides more clarity around stock-based comp, and it summaries a vast majority of the stock-based.

Speaker 1: market data providers don't accurately pull our share counts because they sometimes exclude different classes of shares. As you'll see on the appendix slide our founders still own over 400 million shares that represents over 20% of the company. They did have some mandatory sell to cover transactions when their RSUs were settled and have put in place small 10b51 plans.

Speaker 1: But both of those are dwarfed by their core holdings, most of which fit in illiquid Class B shares. So I'm hopeful that those slides are helpful. Now we'll move on to Q&A. As usual, I'll start with a question from the public and remind analysts on the line that if they'd like to ask a question, to please raise their hands on Zoom, and I'll call on you and open up your line. Thanks, all. Thank you.

Speaker 1: As I mentioned, always comes from retail. This comes from Mark D on Twitter. Since the number of projects is the best leading indicator for future platform revenues, how do you feel about your original forecast of adding 100 projects for 2023 when looking at the pipeline of projects? Are you on track? Thanks.

Speaker 2: Yeah, I can take that. I can also talk about the scene change since I'm now in Qatar, just getting back from a dinner. So, I mentioned this at the end of the recorded talk there. We've been expanding our biosecurity business pretty dramatically on the international side, and one of our best sites is actually...

Speaker 2: Hamad International Airport here in Doha, which is just a great regional airport for the area. You know we have this program with the CDC where we're collecting wastewater and testing for new variants. I'll just say that the flights into into Doha are not overlapping very much with the flights into Atlanta. So it really is a really nice way to get a wider set of data for our.

Speaker 2: our biosecurity programs were lucky to have the partners here. So to get to answer your question on the programs, yeah, so I think one of the key things, I mean, a, you know, our program has 13 in the score, that's down from last quarter, so that's something we're keeping an eye on. I would say we have the, you know, one disadvantage, you know, we're doing large enterprise sales, which can be a little bit lumpy and unpredictable, like there's just, there's just an enterprise sales element to it. The advantage of enterprise sales is you have, you know, we have decent pipeline disability, so we have a good sense, you know, deals don't close in a week.

Speaker 2: you know, they close over over months. And so we have a good sense of what's in the pipeline. So that's the one reason we have a lot of confidence in that program count for the year. I will say, if I like look across the last year and try to find like actual trends and what's either making it easier or harder to close programs, probably the one that's making it harder, I would say is for startup companies in

Speaker 2: kind of non-biopharma biotech. So things like industrial biotechnology. Those companies are having a harder time accessing capital in the sort of tighter capital market. It's one of the areas that venture capitals are putting less money into, and that is making it tougher to at least extending deal close time and things like that with programs in that area. On the other hand, again, we can cooperate as a general platform, like I mentioned.

Speaker 2: and things like that. So I think you'll see us shift a little more towards biopharma, but we do have a robust sales pipeline coming up. So feel good about it.

Speaker 1: Thanks, Jason. All right, we'll take a question from analysts now. The first question I'll take comes from Rahul Saragafar at Raymond James. So let me try to open your line here, although we're actually having a bit of a technical difficulty.

Speaker 1: trouble. I may need to ask for a little IT support to give me permission to open the lines. And while we're doing that, I'll go ahead and ask another question. This one actually coming from an employee. So for folks that don't know, anytime we do an earnings call, the first sort of investor call that we take after our earnings call is with all of our employees. Our employees, is a group of our largest...

staffing those efforts? Yeah, so I think this is actually a big deal. So I touched on this a little bit at Ferment, but one of the things that's happening is because of the impact of sort of chat GPT in the sense that like large data plus generative AI models equals change.

in industries, you now have pretty much like every large corporation looking at what the impact of this is going to be on them. And that's auto companies, that's chip companies, that's media companies, and it's also biotech, biopharma companies, ad companies, and so on. And in order for a customer to use Ginkgo's platform, they have to choose to make a change.

Right, so today they have an internal R&D department doing work and they're making products and everything else. And I'm saying, change some of that, spend some of those R&D dollars on our platform.

as sort of like a sales motion they need to have a reason to want to change and sometimes it's they're greedy to try to add a new product sometimes that things aren't going well and they want to try something new and sometimes something new comes along in the kind of in the atmosphere that makes them think they need to take a look and that that is what's going on with generative AI so you have people saying hey

We have this advantage that we have been over the last 10 years as we've done all these deals and so on accumulating a huge data asset we've talked about this publicly many times, our code base. That is beautiful, beautiful data to train these types of models. So we're super excited about that. We're already seeing good results. You can see some of this in our webinars about how we do our protein engineering, but expect that.

guys hear me? Excellent. This is Michael Preetman on for Rahul today. Thanks very much for taking our questions. And congratulations on such a successful ferment event. That was a really spectacular display with some glowing reviews from your customers. So thanks for throwing that you guys. Thanks for coming.

Excellent. This is Michael Preetman on for Rahul today. Thanks very much for taking our questions. And congratulations on such a successful ferment event. That was a really spectacular display with some glowing reviews from your customers. So thanks for throwing that you guys. Thanks for coming.

It was a pleasure to be there. OK, first question is on the overall IP strategy. I'm wondering, what can you tell us about how...

How this year versus perhaps last year, Ginkgo's been leveraging it. It's existing code base for new cell programs versus doing Denovo engineering and how much perhaps some of the more it's drawing upon that code base now. And the attitude among customers, like I trust in early days, there are some serious pushback among customers saying when.

with Ginkgo's attitude toward.

to toward holding onto the IP.

that you develop. So I wonder if you could shed some light on all that. Yeah, yeah, I can touch on this one. Yeah, one of the biggest challenges we've had with customers over the years was sort of, hey, it seems, Ginkgo, like you're doing a project in an area for the first time with me. I'm gonna fund a chunk of it and you're gonna keep the rights to reuse it and go off and build a business on the back of my investment, right?

and talk to a customer, it isn't saying, hey, I don't have anything in AAVs, but I think my robotics could be useful for you. Hey, that would have been true. And I did do sales like that a year and a half, two years ago, they're brutal sales. Now I get to say all my infrastructure and high throughput automation is useful for AAVs. By the way, here's the data to show you, by the way, here's a bunch of great captions from Stripe Bio that you can get access to. By the way, here's some.

other data, you know, caps it work, we've done to discover some new stuff and so on. That really, really helps on the sales side. So I would say probably the biggest impact is in selling because a lot of customers, particularly in the bio-farmist side, want to see data that you've done something like what they're interested in. And then the second order is, like I mentioned that LIGO's project, where we're able to just totally draw on some work we do.

This one will probably be for Mark. Around, you know, at the end of last year, we were waiting on some lumpy milestones. We were curious about the timing on that. You know, I'm looking at the cell engineering revenue where 1 million of the total 34 was downstream revenue. Also looking at the...

first on the lumpy milestone. So really it's the same comment I think that we made on our last earnings call which is yes there were the two milestones that at one point we had been expecting to hit in Q4 which spilled into 2023 and yes we are still going after those two milestones. We believe the technical work on that is substantially complete but I think as we had mentioned on the last call and this is

second point that you made on non-tash consideration. So, so yes, first of all, the conclusion that potentially all of the revenue in the first quarter related to services revenue, that's correct. The supplement in the appendix shows you like you said the

component of services revenue or total revenue that is non-cash. So we do in some cases, as you know, and we started doing this last year.

We do sometimes take equity from a customer as part of the upfront consideration on a project. So not just for downstream values here but also for the upfront or the service fee consideration. And so that's why we're giving you that additional sort of data point.

Does that answer the question? It sure does. I appreciate that. I'll jump back into the queue. All right, thanks, Mike. All right, Admin Two from Morgan Stanley . I've just gone ahead and opened your lines.

Hi guys, thanks for taking my questions. Just to circle back on that point, Jason, how do you strike the right balance between leveraging the collective learning sort of code base for the benefit of an individual client versus making sure clients don't feel threatened that their secret sauce is being farmed out for the benefits of other customers? What safeguards do you have in place to make customers feel comfortable?

in a project for a customer for their application is exclusively licensed to them for that application. So if you're developing, you know, gene therapy and you get to disease target whatever it is, you're gonna get the rights to the IP developed with the work done for you, for your drug and no one else can use it for that. So they're not gonna get to take what you did and compete with you directly. Now where we differ a little bit as we would say, well, it's that.

caps it had used, for example, in some other disease area, some totally different thing than what you're really working on or just in pharmaceuticals generally, we'd like to be able to reuse that asset. That's where we end up arguing with customers and figuring out what's right. I would say the general rule is we're most interested in

things that have kind of broad reusability across lots of projects.

Right, so you know, capsis are a good example of certain internal sequences on cars or a good example Like there's just certain things that we think are don't make up a whole drug But boy if they worked better they would make it a lot easier to get a lot of drugs to market right and so that that tends to be the kind of thing That we fight hard to make sure we do have broad rights to if it's something ultra specific to the customer than that kind of less relevant But so that's that's how we do it. I think

And then Jason, on a separate note, it sounds like you still feel like that the funding pressures are actually driving a push towards greater outsourcing. I mean, clearly you've seen the weakness get worse even with some of the CROs. Now, acknowledge when we could spend that mid-cap biotech. So I just want to understand what insulates you more versus the traditional CROs.

Yeah, and just to be clear, like I said, for industrial biotech, my experience is I think it is like causing pushback on us, right? So I don't think we're seeing more outsourcing necessarily in industrial biotech. We're just seeing less spending in industrial biotech. So there I think we see more sensitivity. When it comes to like these other areas, I mean the honest truth is we're not that penetrated.

We just have so much room to run through adding new customers. And so we're just not as sensitive to it yet. It doesn't matter if that sector just stops spending on R&D, which is a little bit what we're seeing in some of the industrial biotech spaces. But in biobarma, that's not the case. So there's plenty of opportunity for us.

Thank you for the call at any time. All right, Gaurav, I've just opened your line. Feel free to go ahead. Awesome. Thanks, guys, for taking my question. I know it's about midnight over there, Jason, so I'll keep it quick. Thank you. Pleasure.

On the new 13 programs right this quarter, you know, are you guys able to break out that end market split or even the downstream potential or is that something that you know we should expect only on an annual basis?

Mark, you want to take that? Yeah, generally speaking, we would only be updating the downstream value share metrics that we had talked about on the last call, we think once annually. We did announce just recently a large program with BI, and so you've got around four hundred

milestone-based, a few that are equity-based. So I think it's just representative of the normal sort of mix.

Yep that makes sense, thanks Mark. And then just one quick follow-up for me, you know on the you know the new four service offerings, so just to make sure I understand it correctly right, so are are these you know four new service offering capabilities JNCo previously couldn't address on the platform or are they just you know a more structured and focused program version of what they were prior? Yeah there's an awesome question okay so the

Here's the reality, like how Ginkgo runs basically is to have a large general platform. It's a mix of software and automation and a variety of genetic and IP and data assets that are all available to a scientist who works at Ginkgo on a customer project to order things from.

Like that's what's happening internally. All right. Now I can walk up to a customer and say like, look at this 300,000 square foot facility and all these robotics, could it be useful to you? Right. And they don't know how to translate that, you know, like they're used to seeing scientists and lab engines working by hand, like we do already in a very different way. And so the point of the services is to speak in the language of the customer.

Okay, so it is a sales object, right? It is a way for us to say, let me just be very clear, this is what we can do in this category. Let me name it for you. You know, Ginkgo does AAV. Like for example, us acquiring Stripe Bio, in part, great assets. People are calling us about the assets. It's also just people are like, hey Jason, I didn't know you guys were working in AAV.

We've been working with AAVs for two years, you know, right? We have an announced deal with Selecta, right? But we did a deal with Biogen, right? Still, you know, but the acquisition of Stride was also in part just a marketing activity in the biopharma space so that people knew, right? And that's kind of the goal with the services.

Like as a general platform, it's great because our TAM is huge. The downside is people don't understand what we can do for them. And so the idea and to expect more services, right? I'll do as many of these as make any dang sense to customers, frankly. And so it's yes, expect to see us experiment there and see where we're landing and having, you know, something that help customers better understand how to leverage the GetGo platform. Awesome. That cleared up. Thanks, Jason. Thanks, everyone. And cheers. Talk soon.

Thanks, Garth. All right, next question will come from Matt Sykes at Goldman Sachs. And then just a reminder to the other analysts on the call that if you'd like to ask a question, please do raise your hand so that I know to call on you. Thanks so much. All right, Matt, your line should be open. Hi, can you hear me?

So again, just to restable, we're trying to accomplish here.

how to build a bridge or a microchip or whatever, right? When you do research on a cell, like engineering, exactly engineering a cell, people don't think of it really like engineering. You're doing science, right? And you're exploring space and you don't know if it's going to work and all these things. And so we're trying to generally move into engineering. And one of the things we noticed was for certain types of projects, doing these certain protein discovery projects and enzymes and optimization projects or protein.

and you will pay on delivery. And that absolutely is working. We restart, there's probably seven or eight projects in the sales pipe right now that were previous to those since we announced it. So, and that's just stuff we had been talking to people about before. So, yeah, I think it's a really exciting idea and we'll see how it plays out in the next couple of quarters, but early looks good.

And it is good. You know, I mean, look, like if we're wrong, we're taking risks, right? You know, like customers are getting a real value out of this. You know, it's not like we're not offering them something here. But I like our odds and I like our technical success rate in these categories. Yeah, that's super helpful. Thank you. And then one last point. We also are aiming for the shorter projects, right? So not, you know, expect these projects to be more like six to 12 month projects, not like two or three year projects where we would be.

strategy as it relates to biosecurity, potentially becoming a more durable part of revenue than we might have previously expected. I think you said 20% is recurring, but how should we think about the work down of the non recurring part and then also a long term growth rate of the recurring part.

as it relates to biosecurity potentially becoming a more durable part of revenue than we might have previously expected. I think you said 20% is recurring but how should we think about the work down of the non-recurring part and then also a long-term growth rate of the recurring part? So why don't I start with the...

just to get the numbers kind of straight here. So first of all, so in the quarter, 20% roughly speaking of the biosecurity revenue came from those, what we believe will be more recurring sources. And so that would not be the state kind of K-12 school COVID testing programs, for example.

You'll also note that we didn't change the guidance on biosecurity. And so what you are going to see is really one more sort of partial quarter, where we do still have some K-12 school testing revenues coming into the numbers. And then that is expected to drop off pretty dramatically after the second.

revenue. We'll get a little bit more in the second quarter and then it's going to fall off and sort of thereafter the bulk of the biosecurity business is.

the new sources of revenue. And so you can work. What that will tell you, I guess, is that a good portion of the 100 million will be realized in the first half of the year. And then thereafter, it's almost like a reset on a lower revenue base that we expect to increase over time.

that will be largely the new sources of revenue. Okay, great. And just to comment on what those will be, that's around things like these airport programs, these what we consider to be like persistent monitoring. And I think there's a few different places that could happen, but we're probably most excited about what we're seeing in the airports.

eventually the new sources of revenue. Okay, great. And just to comment on what those will be, that's around things like these airport programs, these what we consider to be like persistent monitoring. And I think there's a few different places that could happen, but we're probably most excited about what we're seeing in the airports. Great, thank you.

All right. Thanks so much. Final call. If there are any other questions to raise your hand. But we are just about at time. For one, Skinko has hosted a call that didn't run over. New KPI for me. We'll let Jason go catch his next flight. I was going to say, it's good because I can make my flight. Appreciate everyone joining us this quarter and we'll see you next time.