Q1 2024 Ginkgo Bioworks Holdings Inc Earnings Call - Q&A

May 9, 2024

And our progress.

As a reminder, during the presentation today, we will 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.

Yeah.

Yeah, Tony migraine.

Okay.

Today. In addition to edition to updating you on the quarter, we're going to provide more detail into our drive towards adjusted EBITDA breakeven and the necessary steps, we're taking to get there as usual will end with a Q&A session and I will take questions from analysts investors and the public you can submit those questions to us in advance via acts at hashtag ginkgo results or email investors at kimco.

Yeah.

Dan for their fair share there and we told him of my life to them on my desk cord one second.

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Over to you Jason.

Okay.

Thanks, everyone for joining us we always start with our mission of making biology easier to engineer and Thats, especially critical today Ginkgo is a founder led company and myself and the other founders have been pouring our lives into this company for the past 15 years and many of our senior leaders for more than a decade.

We are wrong.

Yes.

Sure.

Okay.

Micah: Brian This is micah.

The added advantage of this is we're very motivated to see the most out of ginkgo, we've invested a ton of our lives in it and as a consequence, we want to see the most out of the investment of your capital and ginkgo as well. So today, we're gonna be announcing major changes to how we do our work and go these are going to be difficult for many on the team and I want to say that upfront, it's going to involve substantial head count.

Alright.

Micah: Now that they know.

Micah: I'm Gonna move Rod was clay lycra.

Micah: Uh huh.

Speaker Change: Okay now back to David.

Reductions alongside important changes to improve our operations. The mission of what we're doing matters that can go to everyone at the company and you will see us collectively take difficult, but decisive action when needed to ensure we deliver on it.

Micah: Yeah.

David: I'm building a treehouse.

Today is one of those days.

So ginkgo is an increasingly important part of the technology ecosystem in biotech.

That's why I think it's important we get this right I'm really proud of this customer list.

Believably broad it showcases our core thesis that a common platform can provide biotechnology R&D services for very demanding customers across AG food industrial Biopharma and consumer biotech I'm also happy with how we've been expanding this list in particular many of the big names in that Biopharma call them were added in just the last 18 months.

David: Yeah.

Micah: Yeah.

<unk>, Merck Novo Nordisk Boehringer Pfizer.

The next step for <unk> is to take what we've been learning across now hundreds of customer programs and make changes in the business that deliver those programs more efficiently.

In particular I'm going to talk later about how we can achieve greater scalability via simplification of the business.

Micah: Okay.

We want a simple lie both our technology backend ultimately consolidating.

Attempting to consolidate to a single automation platform and simplify on the front end, we've gotten a lot of feedback from all the logos on this page about what they like and don't like about our deal terms. So we're gonna be simplifying those two and that hopefully will increase sales velocity and simplify our dealmaking.

Micah: Like why Mike shifting will come along.

More on that in a minute, but first mark is going to walk you through our Q1 performance and there are a couple of things that are indications that we do need to change course in particular, you'll see an increase in programs without a matching increase in revenue. This is a problem that I'll be working affects via the changes youre going to hear about today we're.

Speaker Change: Let me get rid of me.

Speaker Change: So and then there's some other.

Micah: That's good.

We're fortunate to be in a position of financial strength as we execute these changes we have $840 million in cash we have no bank debt and so we have a large margin of safety, which is really the position you want to be in when you make large changes like this in other words, we're not doing this with our back against the wall and that's a very deliberate choice on our part.

Speaker Change: Oh, sorry.

We're also setting a target of achieving adjusted EBITDA.

Breakeven by the end of 2026, the attitude internally at Gingko and I know many at the company are listening right now will be to collectively set our plan for.

Speaker Change: Oh.

Speaker Change: No one's really talking plenty more interesting I guess, we'll do questions and answers.

Speaker Change: Well I haven't done what seems like us.

For reaching that which is going to involve input from all the folks on the team and then commitment from all of us to not spend outside of that tight plan over the past few years, we've learned a lot by trying different avenues to drive growth, but we have all that data now on the team and we have a team that can set the right plan and determine who are the best folks to deliver on it and we're going to be doing.

Micah: <unk> hundred 50 subs.

Micah: I forgot how to get margin Oh My God.

Micah: I just thought you want.

Speaker Change: No that's not the only mall I got up it is my favorite out of all of them well in the mall attack.

Micah: No I did not have a gun mudpack.

That in the coming weeks internally, there's also aligns well with what we've heard from many investors, especially those of you who've been waiting on the sidelines to invest and get go. The most common thing I hear is I love the vision I see a path, where ginkgo ends up being the horizontal services platform, serving all of biotech massively scaled up you'll get better with scale, but Jason.

Speaker Change: Let's see.

Micah: Sure.

Speaker Change: My questions I guess.

Can you get there with the capital you have on hand, and I think our plans today, we will give you confidence that we can.

Micah: Sure.

Okay, I'm now going to ask Mark to share more details on our Q1 financials and I'll follow with an explanation of how we're going to execute our targeted plan.

Micah: Right.

Maury: This is for Maury.

Micah: Honestly.

Over to you Mark Thanks, Jason I'll start with the cell engineering business.

Maury: That's normal.

We added 17, new cell programs and supported a total of 140 active programs across 82 customers on the cell engineering platform in the first quarter of 2024.

Speaker Change: Well I think we got since it.

Speaker Change: Is yeah yeah.

Speaker Change: Okay.

This represents a 44% increase in active programs year over year with solid growth across most verticals.

Joe: This is Joe.

All engineering revenue was $28 million in the quarter down 18% compared to the first quarter of 2023.

Joe: I'll take this one.

Sell engineering services revenue, which excludes downstream value share was down 15% compared to the prior year driven primarily by a decrease in revenue from early stage customers, partially offset by growth in revenue from larger customers.

Joe: Okay.

We believe the mix shift to be an overall positive.

And is indicative of market conditions, our refocused sales efforts on cash customers and the increased penetration of larger biopharma and government customers that we have discussed over the past few quarters.

Speaker Change: This is gonna be my Belle tea. Please.

That said the revenue in the quarter was below our expectation and the pipeline indicates a weaker than expected revenue ramp for the rest of the year Jason.

Speaker Change: Oh.

Speaker Change: Hey Ali.

Jason will be discussing later in the presentation, both our thinking about demand and our offering in this environment and efforts we are taking to further focus on the customer base.

Speaker Change: Alright, everyone.

Now turning to Biosecurity.

Our bio security business generated $10 million of revenue in the first quarter of 2024, and a gross margin of 8%. We do expect the gross margin to improve in upcoming quarters based on the revenue mix in our contracted backlog.

Speaker Change: Let's say somebody came to me.

Speaker Change: Uh huh.

Speaker Change: Yes.

We're continuing to build out both domestic and international infrastructure for Biosecurity.

Speaker Change: Okay.

Speaker Change: No.

Actually with our recently announced bio security products, ginkgo canopy and ginkgo horizon.

Speaker Change: I know Susan.

Speaker Change: Okay.

And now I will provide more commentary on the rest of the P&L where noted these figures exclude stock based compensation expense, which is shown separately and we're also breaking out M&A related expenses to provide you with additional comparability.

Speaker Change: Okay.

Opex, starting with Opex R&D expense, excluding stock based compensation.

Speaker Change: Yes.

Speaker Change: Great.

And M&A related expenses decreased from $109 million in the first quarter of 2000 $23 million to $94 million in the first quarter of 2024.

Speaker Change: Yes.

G&A expense, excluding stock based compensation and M&A related expenses decreased from $71 million in the first quarter of 2000 $23 million to $51 million in the first quarter of 2024.

Speaker Change: Hey, guys good afternoon.

Speaker Change: What is there.

The significant decrease in both R&D and G&A expenses was due to the cost reduction actions, we completed in 2023, including cost synergies related to the zymogen integration and subsequent deconsolidation.

Speaker Change: Yes.

Stock based compensation, you will again notice a significant drop in stock based comp this quarter similar to what we saw in each quarter in 2023, as we complete the roll off of the original catch up accounting adjustment related to the modification of restricted stock units. When we first went public <unk>.

Speaker Change: Yes.

Speaker Change: Oh, yeah yeah.

Speaker Change: Yeah.

Speaker Change: Yes.

Additional details are provided in the appendix to this presentation.

Speaker Change: Okay.

Speaker Change: Yes.

Net loss it is important to note that our net loss includes a number of noncash income <unk> expenses as detailed more fully in our financial statements because of these noncash and other nonrecurring items. We believe adjusted EBITDA is a more indicative measure of our profitability.

Speaker Change: Yes.

Speaker Change: Please go ahead.

Speaker Change: No.

Speaker Change: Okay.

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

Adjusted EBITDA in the quarter was negative $100 million, which was flat year over year as the decline in revenue was offset by a decline in operating expenses.

Speaker Change: Yeah.

And finally capex in the first quarter of 2024 was $7 million as we continue to build out the bio fab one facility.

Speaker Change: Oh, sorry.

Speaker Change: Got it.

Now normally I would speak to our guidance next but given our plans to accelerate our path to adjusted EBITDA breakeven through both customer demand related changes and significant costs related to restructuring.

Speaker Change: Oh.

Speaker Change:

Speaker Change: Right.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Pardon me.

Jason is going to first walk through those plans and then discuss guidance at the end.

Speaker Change: With Alex.

Speaker Change: [noise].

Before I hand, it over to Jason I'd like to provide some color on the cost restructuring we are planning.

High level, we are committed to taking out $200 million of operating expenses on an annualized run rate basis by the time, we have completed our site consolidation actions, which we expect by mid 2025.

We expect at least half of that savings target to be achieved on a run rate basis by the fourth quarter of this year.

Speaker Change: Oh.

The majority of our cost structure is in our people and facilities costs and so workforce reductions across both G&A and R&D and site rationalization are the primary focus, though we see significant opportunities in other areas of cost as well.

Speaker Change: Wow.

Speaker Change: Good.

For clarity our cost takeout estimate includes an assumption relating to our ability to manage our lease expenses relating to space, we will no longer require.

Speaker Change: Yes.

Speaker Change: Yeah.

As I said, Jason will speak to the overall plan in more detail, including importantly, the customer demand side of this and so now Jason back over to you. Thanks Mark.

Speaker Change: Yeah.

The big theme for today is how we're going to grow revenue, while decreasing cost in order to reach adjusted EBITDA breakeven by the end of 2026 I'll start by talking about why we're not seeing revenue growth alongside program growth I mentioned this earlier and what we'll be doing to simplify our backend automation technology to improve scalability. There second I want to talk about the front end what occurs.

Speaker Change: To a certain venue right.

Speaker Change: Okay.

Speaker Change: Yes.

<unk> like and not like about our service terms and how we'll be simplifying on the front end to expand our offerings and simplify our offerings to reflect what we're hearing from our customers.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

And then finally, we're taking decisive action to reduce our costs, specifically, we plan to reduce our annualized run rate opex by $200 million by mid 2025 in order to achieve adjusted EBITDA breakeven by the end of 2026, and we'll dive into the high level plan of how we will execute on this.

Speaker Change: Yeah.

Let's jump in.

The chart here are a big part of what's driving our decisions today you can see from the chart on the left the number of active programs on our platform grew significantly over year over the year. There is a good thing really excited about this but alongside that we saw a decline in our revenue from service fees and so this is.

Speaker Change: Yeah.

Speaker Change: [noise] genre.

Again ignore downstream values you just look at that fee number that's gone down. This is particularly frustrating to me because we actually have a large amount of fee bookings across these many deals and but we're not converting those into revenues in the near term and the core challenge is the rate that we're bringing these programs to full scale on our automation at ginkgo.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: [noise] for everyone.

And I'm going to explain that but I want to give you a little more detail. So you understand that challenge because what we're trying to fix.

So on the left hand side here is the basic process by which an R&D leader at one of our customers develops a biotech product. Okay. So there yet R&D leaders engaging with our senior scientist on their team they are specifying a particular.

Speaker Change: Uh huh.

Speaker Change: Let's see.

Speaker Change: Sure.

Speaker Change: Yes.

Product scientific deliverable, okay, right. So to give some examples from ginkgo programs of what a leader might ask for maybe it's an mrna design that performs a certain way in humans like rehab for Pfizer or microbes that capture nitrogen for bear or an improved manufacturing process for Novo Nordisk. These are all scientific deliverables.

Speaker Change: We'll do it.

Speaker Change: Okay.

Speaker Change: [noise] season.

Speaker Change: Yes.

Speaker Change: Okay.

And in the case on the left the customers internal scientist will then design experiments. They think will help deliver that outcome to their boss more junior researchers will perform those experiments at the lab bench by hand.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

And then the.

Data will come back to be analyzed and you go around that loop. Now. This is a manual process and generate small amounts of data, but it doesn't work right I want to highlight this is how all of these biotech drugs are developed every year and the strength of it is the flexibility right. The scientists can run any new experiment tomorrow very quickly that they want as long.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [noise] chicken.

There are two hands can pull it off alright, and again when that data comes back to the senior scientist. They repeat this all over again alright now of course in R&D leader advisor Bear and Novo.

In these cases are all choosing to instead pay to have a ginkgo scientists give them the same deliverables.

Stirred up using their internal infrastructure. So why are they doing that and the major reason is that ginkgo scientists they do that same loop, but they do it in a different way they design experiments, but instead of small amounts of manually generated lab data from a team they get large amounts of data generated either via automation or via a pooled approaches.

Product scientific deliverable, okay, right. So to give some examples from ginkgo programs of what a leader might ask for maybe it's an mrna design that performs a certain way in humans like we have for Pfizer or microbes that capture nitrogen for behr or an improved manufacturing process for Novo Nordisk. These are all scientific deliverables.

That leverage high throughput DNA sequencing and Barcoding and ginkgo is a world.

Expert in both of these large data generation approaches that's really the big different small data generation versus large data generation and that's really our expertise. So the short answer is why does a customer choosing to use us instead of all of that in house infrastructure. They have is they are coming to us asking for a scientific deliverable that they think will need a lot of data to get to the answer.

Alright, and in the case on the left the customers internal scientist will then design experiments. They think will help deliver that outcome to their boss more junior researchers will perform those experiments at the lab bench by hands.

And that's not every project, but it is an increasing number as you say.

And then.

Data will come back to be analyzed and you go around that loop. Now. This is a manual process and generate small amounts of data, but it does work right I want to highlight this is how all of these biotech drugs are developed every year and the strength of it is the flexibility right. The scientists can run any new experiment tomorrow very quickly that they want as long.

But our approach I want to be clear is not strictly better than doing it manually mainly because it takes more time to get a new protocol running at large scale and this is the heart of why we're not seeing revenue come up with our programs in the near term, it's not a perfect correlation, but generally the faster that ginkgo scientists can start to order large amounts of lab data the faster. We then.

Speaker Change: There are two hands can pull it off alright.

Fee revenue coming out of all of those customer projects now Fortunately the acquisition zymogen in the fall on Tech development, we've been doing over the past couple of years put us in a great place to resolve this issue and so I want to talk about how we're planning to do that.

Speaker Change: And again when that data comes back to the senior scientist. They repeat this all over again alright now of course in R&D leader advisor Bear and Novo.

Speaker Change: In these cases are all choosing to instead pay to have a ginkgo scientists give them the same deliverables.

Okay. So to give you a little bit of background on how lab automation works today, there's basically three levels at the first level, that's what you're seeing in our customers often scientists working by hand. This is the overwhelming amount of lab data generated in product development in biotech today is that this first level manual.

Speaker Change: Stead of using their internal infrastructure. So why are they doing that and the major reason is that ginkgo scientists they do that same loop, but they do it in a different way they design experiments, but instead of small amounts of manually generated lab data from a team they get large amounts of data generated either via automation or buy a pooled approaches.

Second level of scientist walks up to a robot put samples on it and programs at to do a specific task. Okay. This task targeted the third level and Youll see a lot of these around ginkgo, our work cells and so you can work with an automation vendor and you have a robotic arm sitting in the middle of a set of equipment and it moves samples through multiple steps, but it basically does the same steps over and over.

Micah: That leverage high throughput DNA sequencing and Barcoding and ginkgo was a world.

Micah: Expert in both of these large data generation approaches that's really the big different small data generation versus large data generation and that's really our expertise. So the short answer is why does a customer choosing to use us instead of all of that in house infrastructure. They have is they are coming to us asking for a scientific deliverable that they think will need a lot of data to get to the answer.

Okay and this is again a majority of our foundry looks like today and you can see on that spectrum at the top you go from very flexible low amounts of data per dollar to two very inflexible large amounts of data per dollar alright, and that has been the historical tradeoff and lab automation.

David: Alright, and Thats not every project, but it is an increasing number as you say.

David: Our approach I want to be clear is not strictly better than doing it manually mainly because it takes more time to get a new protocol running at large scale and this is the heart of why we're not seeing revenue come up with our programs in the near term, it's not a perfect correlation, but generally the faster that ginkgo scientists can start to order large amounts of lab data the faster. We then.

Okay, we believe that the automation paradigm invented at Zymogen and then expanded on in the last two years at Gingko since the acquisition ultimately offers flexibility.

And low cost data at the same time the simple idea is that each piece of equipment is its own removable cart. It has a robotic arm connecting it to our magnetic track to deliver samples you can see it in the video and when you need a new equipment you can just add that equipment to the tracks like adding a little Lego blocks of that track and incorporate it without needing to build a whole new workstyle like you.

Micah: Revenue coming out of all of those customer projects now Fortunately the acquisition zymogen in the fall on Tech development, we've been doing over the past couple of years put us in a great place to resolve this issue and so I want to talk about how we're planning to do that.

And level three automation and when you want to do a different protocol on the same equipment that can be done with the software quickly.

Micah: Okay. So to give you a little bit of background on how lab automation works today is basically three levels at the first level Thats, what youre seeing in our customers often scientists working by hand. This is the overwhelming amount of lab data generated in product development in biotech today is that this first level manual second level of scientist walks up to a robot put samples on it and probe.

And we've been seeing that we've seen instances, where we've taken smaller batch protocols and move them onto the rack system relatively fast compared to what would have been a multi month project on it works out.

Then over the last year. We've also been seeing and this is early data on this but $80 to 90% labor time reduction 60% cycle time reduction.

Micah: Grams, it to do with specific task. Okay. This task targeted the third level and Youll see a lot of these around ginkgo, our work cells and so you can work with an automation vendor and you have a robotic arm sitting in the middle of a set of equipment and it moves samples through multiple steps, but it basically does the same steps over and over okay. And this is again a majority of our foundry looks like today.

Have not done this for the majority of our protocols yet, but the signals are good that we could and I'll be talking about that as part of our plans for efficiency gains in the third section of the talk today.

Since acquiring zymogen, we also focused on simplifying the cart designs you can see our second generation rack cards that were recently delivered to our facility in Boston and if Youre asking go format. In April you saw these important in person importantly, these are easy to assemble. So these are in house designs are proprietary to ginkgo. So it makes it faster for us to order more manufactured as need.

Speaker Change: And you can see on that spectrum at the top you go from very flexible low amounts of data per dollar very inflexible large amounts of data per dollar alright, and that has been the historical tradeoff and lab automation.

Did we also standardized the sizes. So we have resided here that allow us to incorporate a wide variety of different equipment, while again, keeping manufacturing costs down alright. So these rack systems are made to be very scalable. It is a very different paradigm than what you see with Workstyle based automation.

Micah: Okay, we believe that the automation paradigm invented at Zymogen and then expanded on in the last two years at Gingko since the acquisition ultimately offers flexibility.

Micah: And low cost data at the same time the simple idea is that each piece of equipment is its own removable cart. It has a robotic arm connecting it to our magnetic track to deliver samples you can see it in the video and when you need a new equipment you can just add that equipment to the tracks like adding a little Lego blocks of that track and incorporate it without needing to build a whole new workstyle like you.

Today, we are at the closed loop rack system scale that one you see there a order 15 systems, but we've been planning much larger integrated systems as part of achieving long term efficiency goals and flexible lab data generation.

Towards that end our purpose built facility that we've been.

Speaker Change: And level three automation and when you want to do a different protocol on the same equipment that can be done with the software quickly.

Talking about it.

How's these large rack installations bio fab one will be opening in mid 2025, and the best way to think of this facility is a lab data center. Okay. So we have these big data centers in compute and what your offer there is common scale hardware that does lots of different types of compute.

Micah: And we've been seeing that we've seen instances, where we've taken smaller batch protocols and move them onto the rack system relatively fast compared to what would have been a multi month project on a work cell.

Speaker Change: Then over the last year. We've also been seeing and this is early data on this but 80% to 90% labor time reduction 60% cycle time reduction.

Very similar idea here common scaled hardware in the form of the racks that can generate a diverse array of lab data output quickly for customers and hopefully this means as we sign more programs. They can very quickly scale to generate large amounts of data. This leads to more revenue, but more importantly to happier customers, who greatly desire both speed and scale of lab data.

Micah: Have not done this for the majority of our protocols yet, but the signals are good that we could and I'll be talking about that as part of our plans for efficiency gains in the third section of the talk today.

Speaker Change: Since acquiring zymogen, we also focused on simplifying the cart designs you can see our second generation <unk> that were recently delivered to our facility in Boston and if Youre asking a format. In April you saw these important in person importantly, these are easy to assemble. So these are in house designs are proprietary to ginkgo. So it makes it faster for us to order more manufactured as need.

Generation in other words, our customers would be more than happy if we were more rapidly extracting revenue out of our bookings because it means their programs are happening more quickly on our infrastructure. So that is a win win for ginkgo and for our customers and that's what we're trying to do with this change to how we operate okay. So that's a bit on the technology I believe it will simplify the backend, allowing one automation platform.

Maury: Did we also standardized the sizes. So we have decided here that allow us to incorporate a wide variety of different equipment, while again, keeping manufacturing costs down alright. So these rack systems are made to be very scalable. It is a very different paradigm than what you see with Workstyle based automation.

Ultimately the racks to replace many different workflows I can go and work cells, but now I want to talk about the front end and how we engage with customers when we sell those sell programs alright. So this is a slide I showed you earlier and as I mentioned customers are choosing to use ginkgo rather than their internal infrastructure. When they think they need large amounts of data.

Speaker Change: Today, we are at the closed loop rack system scale that one you see there a order 15 systems, but we've been planning much larger integrated systems as part of achieving long term efficiency goals and flexible lab data generation.

However, as part of the business model. We've also asked for a few things customers don't Love you can see these up here.

Joe: Towards that end our purpose built facility that we've been.

We have ginkgo scientists run the projects, we have scientific control over the experimental design.

Joe: Talking about.

Joe: To house. These large rack installations bio fab one will be opening in mid 2025, and the best way to think of this facility is a lab data center. Okay. So we have these big data centers in compute and what Youre offer there is common scale hardware that does lots of different types of compute.

Number two we have IP rights ginkgo can reuse the data generated and keep it in our code base and by the way that is valuable to ginkgo like don't get me wrong I was being able to reuse that isn't is valuable it helps us with future deals, but customers really don't like it and I'll talk about that and then finally downstream value share, we get milestones or royalties on your future product sales and outlook.

Joe: Very similar idea here common scaled hardware in the form of the racks that can generate a diverse array of lab data output quickly for customers and hopefully this means as we sign more programs. They can very quickly scale to generate large amounts of data. This leads to more revenue, but more importantly to happier customers, who greatly desirable speed and scale of lab data.

I designed a lot of these service terms right like I was responsible for our business model I can go and I battle tested I'm out there talking to customers every week and it varies a little by market. So like it for example in Biopharma Theres a lot more tolerance for milestones and royalties right, if you're doing a strategic deal with the customer.

Speaker Change: <unk> in other words, our customers be more than happy if we were more rapidly extracting revenue out of our bookings because it means their programs are happening more quickly on our infrastructure. So that is a win win for <unk> and for our customers and that's what we're trying to do with this change to how we operate okay. So that's a bit on the technology I believe it will simplify the backend, allowing one automation platform.

Many deals are done like that in industrial biotech like in the chemical industry, where margins are much lower or they hate okay. Right. So so again one size fits all they're not a great idea and then second in Biopharma theres much more sensitivity to IP. So given how much it makes up the competitive moats around a drug so they have a lot of sensitivity to Oh wait a second Jason youre going to reuse some of.

Speaker Change: Ultimately the racks to replace many different workflows I can go and work cells, but now I want to talk about the front end and how we engage with customers when we sell those sell programs alright. So this is a slide I showed you earlier and as I mentioned customers are choosing to use can go rather than their internal infrastructure. When they think they need large amounts of data.

This data that I'm paying for it to potentially bring to a customer that creates resistance in deals. So when you see us adding all of these programs no that we're fighting through that resistance with customers to get them done and we felt that was important and I think in the context of where we are today and the rate of revenue I'm seeing and what I'm hearing from customers right.

Speaker Change: However, as part of the business model. We've also asked for a few things customers don't Love you can see these up here.

We should change it and so we're going to stop buying customers on these things update our terms to give customer IP reuse rights and in many cases not include downstream value share that there'll be some exceptions, where we are bringing a lot of product relevant background IP, we do have that but by and large removed that downstream value share and our hope is this will speed dealmaking as we spend huge.

Speaker Change: We have ginkgo scientists run the projects, we have deep scientific control over the experimental design.

Speaker Change: Number two we have IP rates ginkgo can reuse the data generated in keeping our code base and by the way that is valuable to ginkgo like don't get me wrong I was being able to reuse that isn't is valuable it helps us with future deals, but customers really don't like it and I'll talk about that and then finally downstream value share, we get milestones or royalties on your future product sales and now look.

[noise] amounts of time negotiating these IP terms. It also allows us to scale. The number of deals we do without needing to scale legal and financial resources due to reduced deal complexity.

Speaker Change: Hi, designed a lot of the service terms right like I was responsible for our business model I can go and I battle tested I'm out there talking to customers every week and it varies a little by market. So like it for example in Biopharma Theres a lot more tolerance for milestones and royalties right, if you're doing a strategic deal with the customer.

Okay. So beyond the issue of IP rights and DBS customers, sometimes have a problem also giving up scientific control of their experiments and so you'll see us working on simplifying that to in other words, they might say, yeah I love all the data you can generate Jason but like I really trust my own scientist and their expertise around this particular problem I just wish they could use.

Speaker Change: Many deals are done like that in industrial biotech like in the chemical industry, where margins are much lower or they hate okay. Right. So so again, one size fits all theyre not a great idea and then second in Biopharma theres much more sensitivity to IP. So given how much it makes up the competitive moats around the drugs. They are a lot of sensitivity to I'll wait a second Jason you're going to reuse some of.

Your infrastructure and so we announced.

Just to dig a ferment in April lab data as a service which is exactly this the key idea is that our customer scientist I can design the.

<unk> experiments and analyze the data, but they have ginkgo is infrastructure you've got to remember all of those racks are available to them to quickly generate large datasets that they wouldn't be able to do with their in house research team they might still use that team for other problems that favor our small batch manual rapid work again, I think that is actually a valuable piece of the puzzle internal to our customers, but if it's a large.

Speaker Change: The data that I'm paying for to potentially bring to a customer that creates resistance in deals. So when you see us adding all of these programs no that we're fighting through that resistance with customers to get them done and we felt that was important and I think in the context of where we are today and the rate of revenue I'm seeing and what I'm hearing from customers right like we should change it and so.

Data generation need they can just order it and this will be the best of both worlds for many customers.

Now there's a subtlety here that took me actually a while to understand even though I am at the coal face with customers. All the time when we sell our usual process, where our ginkgo scientist is in control that's really sold to the customer like as a strategic deal over after a couple of years and it's coming out of a special.

Speaker Change: We're going to stop biting customers on these things update our terms to give customer IP reuse rights and in many cases not include downstream value sure there'll be some exceptions, where we are bringing a lot of product relevant background IP, we do have that but by and large remove that downstream value share and our hope is this will speed dealmaking as we spend huge amounts of time negotiating these IP.

Budget certain kind of sold out through Corp. Dev that funds that kind of work. These kind of research partnerships and we actually do a ton of those deals right and I think we've scaled that kind of deal making more than almost anyone in biotechnology today.

Speaker Change: Terms. It also allows us to scale the number of deals we do without needing to scale legal and financial resources due to reduced deal complexity.

Speaker Change: Okay. So beyond the issue of IP rights and DBS customers, sometimes have a problem also giving up scientific control of their experiments and so youll see us working on simplifying that to in other words, they might say, yes, I love all the data you can generate Jason but like I really trust my own scientists and their expertise around this particular problem I just wish they could use.

But there is a whole other big budget, often billions of dollars at pharma companies that has the everyday R&D budgets.

The biotech company that's in the hands of internal scientists at various levels and with lab data as a service we can see sell smaller deals directly into those scientists. This is both a big new market for us and it's also a great mission set for ginkgo. Our goal has always been to make biology easier to engineer, but thus far that's been limited to ginkgo scientists by <unk>.

Speaker Change: Your infrastructure and so we announced just.

Speaker Change: Giga ferment in April lab data as a service, which is exactly this the key idea is that our customer scientist I can design the experiments and analyze the data, but they have <unk> infrastructure again remember all those racks available to them to quickly generate large datasets that they wouldn't be able to do with their in house research team they might still use that team for other problems that phase.

Knowing our customer scientists to access the foundry directly we're making it easier to engineer for them too and that's really important to me, it's really important to the team and you Akamai talk it can go from and I spent a fair bit time on that.

Finally, I want to mentioned, we think we can.

Speaker Change: <unk> a small batch manual rapid work again, I think that is actually a valuable piece of the puzzle internal to our customers, but if its a large data generation need they can just order it and this will be the best of both worlds for many customers now.

Really be the picks and shovels to all the folks that are inventing amazing new AI models and biotechnology, what we are hearing again and again, there's many new startups getting funded large big funding rounds. Most of the large biopharma to have now a person in charge of AI strategy and what we hear from these people again and again is that data is the missing piece for building new and better.

Speaker Change: Now there's a subtlety here that took me actually a while to understand even though I am at the coal face with customers. All the time when we sell our usual process, where our ginkgo scientist is in control that's really sold to the customer as a strategic deal over often a couple of years and it's coming out of a special Budd.

<unk> models in biology.

Okay, and again, we had huge large English language datasets and things like that to train AI models for English language or videos or images in biology. The missing piece is actually the data and so our lab data as a service is exactly the right offering for these if we could generate large multimodal data set data sets and we expect to do business here with customers wanting to access both our automation.

Speaker Change: Budget certain kind of sold out through Corp. Dev that funds that kind of work. These kind of research partnerships and we actually do a ton of those deals right and I think we've scaled that kind of deal making more than almost anyone in biotechnology today.

Scale and our expertise like I said earlier and conducting large pooled assays that type of assay generation is particularly important.

Speaker Change: But there's a whole other big budget, often billions of dollars at pharma companies that has the everyday R&D budgets.

Speaker Change: The biotech company that's in the hands of internal scientists at various levels and with lab data as a service we can see sell smaller deals directly into those scientists. This is both a big new market for us and it's also a great mission set for ginkgo. Our goal has always been to make biology easier to engineer, but thus far that's been limited to ginkgo scientists by <unk>.

And both of those are available right now on a fee for service basis, you own. The IP. There is no royalties or milestones for any AI company, that's tuning and we'd love to do that work for you and you could get that data much faster than anyone else.

Okay.

So those are the big changes, we're making both on the back end and the front end of our platform to drive scalability through simplification, we expect these simplifications and others to allow for substantial cost take outs in the coming months. So I want to talk about those cost savings and how all of these pieces tied to our our path to adjusted EBITDA breakeven.

Speaker Change: Growing our customer scientists to access the foundry directly we're making it easier to engineer for them too and Thats really important to me, it's really important to the team and you Akamai talking <unk> I spent a fair bit of time on that.

Speaker Change: Finally, I want to mentioned, we think we can.

So if you look at our Q1 numbers our annualized Opex comes in at approximately $500 million. This is simply too high relative to near term revenues, but we plan to cut this back by $100 million by Q4 of 2024 by significantly consolidating our footprint and reducing labor expenses across both G&A and R&D, which is enabled by the simplifications I just spoke about.

Speaker Change: Really be the picks and shovels to all the folks that are inventing amazing new AI models and biotechnology, what we are hearing again and again, there's many new startups getting funded large big funding rounds. Most of the large biopharma to have now a person in charge of AI strategy and what we hear from these people again and again is that data is the missing piece for building, new and better <unk>.

In the previous two sections, we're also targeting reducing our annualized run rate cash opex by another $100 million totaling 200 million by mid 2025. The big takeaway is we plan to eliminate discretionary spending that isn't very specifically focused on how we get to adjusted EBITDA breakeven by end of year 2026. So a note on this for the team that's tuning in.

Speaker Change: Models in biology.

Speaker Change: Okay, and again, we had huge large English language datasets and things like that to train our models for English language videos are images in biology, the missing piece is actually the data and so our lab data as a service is exactly the right offering for these we can generate large multimodal data set data sets and we expect to do business here with customers wanting to access both our automation.

There are many things we are doing I can go right now that are good things to do in the long run, but arent good investments today, given the opportunity we have to get to a breakeven business built on technology that keeps making biology easier to engineer as it scales up no. Other company in the world in my opinion has pulled that off yet so we need to sacrifice activities that aren't on that path.

Speaker Change: Scale and our expertise like I said earlier and conducting large pooled assays that type of asset generation is particularly important.

Speaker Change: And both of those are available right now on a fee for service basis, you own. The IP. There is no royalties or milestones for any AI company, that's tuning and we'd love to do that work for you and you could get that data much faster than anyone else.

So I think we have a good shot at hitting it at this point and then it's critical.

Going through the detailed planning process now and input across our team as the central to get this right, but I can share some of the major places we expect to see savings so.

Speaker Change: Okay.

Speaker Change: So those are the big changes, we're making both on the back end and the front end of our platform to drive scalability through simplification, we expect these simplifications and others to allow for substantial cost takeouts in the coming months. So I want to talk about those cost savings and how all of these pieces tied to our our path to adjusted EBITDA breakeven.

So first facilities are significant costs for us both in terms of rent, but also in terms of facilities maintenance and tracking we have eight sites today, a bio fab one coming online in mid 2025, we could.

We could reduce our footprint by up to 60%.

Speaker Change: So if you look at our Q1 numbers our annualized Opex comes in and approximately $500 million. This is simply too high relative to near term revenues right. We plan to cut this back by $100 million by Q4, 2024 by significantly consolidating our footprint and reducing labor expenses across both G&A and R&D, which is enabled by the civil applications I just spoke about.

These simplified operations require less ops, G&A HR finance facilities management, and other overhead support which will allow us to significantly reduce G&A costs and overall head count and with our movement to a more rack centric foundry our technical teams will be adjusted to suit highly leveraged automated and pooled workflows. We expect that these combined initiatives will result in 25.

Speaker Change: In the previous two sections, we're also targeting reducing our annualized run rate cash opex by another $100 million totaling $200 million by mid 2025. The big takeaway is we plan to eliminate discretionary spending that isn't very specifically focused on how we get to adjusted EBITDA breakeven by end of year 2026. So a note on this for the team that's tuning in.

Plus percent reduction in labor expenses, which is inclusive of a reduction enforce.

We're also taking on other cost cutting measures to reduce non strategic overhead expenses through a thorough review of existing internal and external programs. While also pausing reviewing professional services. Then we know that many biomarkers will be impacted by these changes.

Speaker Change: And there are many things we are doing it right now that are good things to do in the long run, but arent good investments today, given the opportunity we have to get to a breakeven business built on technology that keeps making biology easier to engineer as it scales up no. Other company in the World is my opinion has pulled that off yet so we need to sacrifice activities that aren't on that path.

We're sad that we have to see many of you go but are thankful for your patients and input throughout this restructuring and dedication to our mission of making biology easier to engineer at times like this when that mission dedication has tested the most.

The last piece I will get into today as our updated guidance for 2024, you'll notice that we are no longer we no longer have new programs listed on this page and that's because we're not sure as currently defined it as the right metric for program growth going forward with the simplification and changes to our deal structure I've described today, and particularly removing downstream value share on many deals are.

Speaker Change: So I think we have a good shot at hitting it at this point and it is critical.

Speaker Change: We're going through the detailed planning process now and input across our team is essential to get this right, but I can share some of the major places we expect to see savings so.

Speaker Change: So first facilities are significant costs for us both in terms of rent, but also in terms of facilities maintenance and tracking we have eight sites today and with bio fab one coming online in mid 2025, we could we expect we could reduce our footprint by up to 60%.

Prior guidance, where programs dependent on things like downstream value share to be counted as a as a program is no longer applicable ginkgo does expect to add at least 100, new customer projects comprising both traditional cell programs as we thought of them as well as new offerings, including lab data as a service due to the changes in our deal structure and focus on cost.

Speaker Change: The simplified operations require less ops, G&A, HR finance facilities management, and other overhead support which will allow us to significantly reduce G&A costs and overall head count and with our movement to a more app centric foundry our technical teams will be adjusted to suit highly leveraged automated and pooled workflows. We expect that these combined initiatives will result in 25.

Savings Ginkgo now expects total revenue of $170 million to $190 million in 2020 for ginkgo revised its expectation for sell engineering services revenue to 120 to 120 to 140 million in 2024. This guidance reflects a weaker than expected revenue ramp during the year uncertainty relating to the timing of technical.

Speaker Change: Plus percent reduction in labor expenses, which is inclusive of a reduction in force.

Speaker Change: We're also taking on other cost cutting measures to reduce non strategic overhead expenses through a thorough review of existing internal and external programs. While also pausing reviewing professional services. Then we know that many biomarkers will be impacted by these changes.

<unk> and the potential near term impact of the restructuring actions I just described above.

This guidance excludes the impact of any potential downstream value share as well as potential upside from new service offerings.

Speaker Change: We're sad that we have to see many of you go but are thankful for your patients and input throughout this restructuring and dedication to our mission of making biology easier to engineer. It's times like this when that mission dedication has tested the most.

<unk> continues to expect bio security revenue in 2024 of at least $50 million, representing approximately current contracted backlog with potential upside from additional opportunities in the pipeline.

Okay in conclusion, though these are difficult changes acting decisively now while we're in a position of strength in terms of cash in the business. It's critical this will not be an easy period for our team and we're grateful to them for their help and partnership as we make this transition alright, now I'll hand, it back to Megan for Q&A.

Speaker Change: The last piece I will get into today as our updated guidance for 2024, you'll notice that we are no longer we no longer have new programs listed on this page and that's because we're not sure as currently defined it as the right metric for program growth going forward with the simplifications and changes to our deal structure I've described today and particularly we're moving downstream value share on many deals are.

Great. Thanks, Jason as usual I'll start with questions from the public and remind the analysts on the line that they'd like to ask a question to please raise their hand on him and I'll call on you and open up your line. Thanks al.

Speaker Change: Prior guidance, where programs dependent on things like downstream value share to be counted as a as a program is no longer applicable.

Speaker Change: Go does expect to add at least 100, new customer projects comprising both traditional cell programs as we thought of them as well as new offerings, including lab data as a service due to the changes in our deal structure and focus on cost savings Ginkgo now expects total revenue of $170 million to $190 million in 2020 for Ingo revised its.

Alright, welcome back everyone as usual, we'll start with the retail question and then we'll go down our list of analysts so Rahul heel you'll be first after a retail question.

Speaker Change: Patient for sell engineering services revenue to 120 to $120 million to $140 million in 2024. This guidance reflects a weaker than expected revenue ramp during the year uncertainty relating to the timing of technical milestones and the potential near term impact of the restructuring actions I just described above.

First question from comes from our IR Inbox and its for you Jason can investors get some color on how data as a service is being received a big part of the original investment thesis was downstream value revenue, but now that it's gone can you explain why data as a service is the right pivot and how it's being received.

Speaker Change: This guidance excludes the impact of any potential downstream value share as well as potential upside from new service offerings.

Yes, I'll touch on some of this on the call. We so it isn't out of it for meant about a month ago I would say, it's being received really well.

Speaker Change: <unk> continues to expect bio security revenue in 2024 of at least $50 million, representing approximately current contracted backlog with potential upside from additional opportunities in the pipeline.

We have like now tens of customers and our sales pipeline, which is pretty quick after the type of stuff we sell here.

And.

I made this point on the call, but and it's a subtlety.

Speaker Change: Okay in conclusion, though these are difficult changes acting decisively now while we're in a position of strength in terms of cash in the business. It's critical this will not be an easy period for our team and we're grateful to them for their help and partnership as we make this transition alright, now I'll hand, it back to Megan for Q&A.

We are able to sell this just to a really different pool of budget at our customers right like we get to walk into the R&D Department and basically say, we are an alternative to generating a collection of data yourself. So you can save them money on their agents can save you could take that team that would have to do it and instead have them get to do something different if you're a small biotech.

Megan: Great. Thanks, Jason as usual I'll start with the question from the public and remind the analysts on the line that they'd like to ask a question to please raise their hand on him and I'm, calling you and open up your line. Thanks al.

Maybe you never build that lab or or higher that team in the first place right. So so we have this kind of new thing we're able to take the people. The second thing is I got to say hey at your I B. There's no royalties. So let me tell you having solid kinko's infrastructure for the last.

Decade that makes my life a lot easier. So I do think this is the right time downturn voucher has been something that I think it was.

Megan: Alright, welcome back everyone as usual, we'll start with retail question and then we'll go down our list of analysts so Rahul heel you'll be first after a retail fashion.

And part of our thinking about the company I think in the long run it could still be part of our thinking but in this window of time, there's just an enormous amount of research budget for us to get after and I think we are able to tap that budget a lot faster with these terms that are a lot more customer friendly. So so I'm really excited about things I think it's gonna be a big part of the business going forward.

Megan: Our first question from comes from our IR Inbox and its for you Jason can investors get some color on how data as a service is being received a big part of the original investment thesis was downstream value revenue, but now that has gone can you explain why data as a service is the right fit it and how it's being received.

Oh and I should just mention one last thing the point.

Jason: Yes, I'll touch on some of this on the call because we use announcement for meant about a month ago I would say, it's being received really well.

About that about the sort of AI companies.

It's fascinating right like a lot of these companies are really software first right their AI experts, they're building incredible models and they're all leveraging like the existing public data sets to do that right. There leveraging the protein data bank deleveraging Gen bank to have access to gene and protein structures and so on.

Jason: We have right now tens of customers and our sales pipeline, which is pretty quick after the type of stuff we sell here.

Megan: And.

Speaker Change: I made this point on the call, but and it's a subtlety.

Speaker Change: We are able to sell this just to a really different pool of budget at our customers right like we get to walk into the R&D Department and basically say, we are an alternative to generating a collection of data yourself. So you can save them money on their agents can save you could take that team that would have to do it and instead have them get to do something different if you're a small biotech.

And eventually that is going to get mined out.

Right and in fact, I would argue it's probably pretty close to having already been mined out and so what youre going to need is new large datasets right and I think the way we've structured lab data as a service where these companies can now and that data what's.

Whats the point well why build your own lab.

Speaker Change: Maybe you never build that lab or higher that team in the first place right. So so we have this kind of new thing we're able to take the people. The second thing is I get to say hey at your IP. There is no royalties. So let me tell you having sold <unk> infrastructure for the last <unk>.

I was just going to be faster to use ginkgo is infrastructure and our conversations where companies are reflecting that so I'm pretty excited about that.

Great. Thanks, Jason I like I said, Rahul from Raymond James Europe First your line is now open.

Thanks, Megan can you hear me alright.

Speaker Change: Okay that makes my life a lot easier. So I do think this is the right time downturn voucher has been something that I think it.

Terrific, Jason Mark Thanks, so much for taking the questions and congrats on taken a bit of a reset quarter here.

Speaker Change: It's been part of our thinking about the company I think in the long run it could still be part of our thinking but in this window of time, there's just an enormous amount of research budget for us to get after and I think we are able to tap that budget a lot faster with these terms that are a lot more customer friendly. So so I'm really excited by the things I think it's gonna be a big part of the business going forward.

So I guess made by being first of all maybe I'll ask the big global questions right. So so Jason you start by talking about how you guys have been doing this a long time and I think most folks on this on this call are believers in bio manufacturing synthetic biology. So my question is what given the attrition that we've seen given the fitting in.

Speaker Change: Oh and I should just mention one last thing.

The revenue said sitting in projects.

Speaker Change: Point about that about the sort of AI companies, it's fascinating right like a lot of these companies are really software first right. Their AI experts are building incredible models and they're all leveraging like the existing public datasets to do that right. There leveraging the protein data bank deleveraging Gen bank to have access to gene and protein structures and so on.

What are the threads out there that youre pulling on that makes you believe that youre not too early.

Ginkgo.

At the right time.

And then maybe a more granular question will be then as you evolve your business model, assuming you are at the right time.

Wow.

How does <unk> not going to be categorized as effectively as a big CMO.

Speaker Change: And eventually that's going to get mined out.

Speaker Change: Right and in fact, I would argue it's probably pretty close to having already been mined out and so what youre going to need is new large datasets right and I think the way we've structured lab data as a service where these companies can and when that data what's.

For me.

Yeah, Okay. So great. Let me, let me speak to that yes. So the first point you made around bio manufacturing.

I share your concerns on this.

I think what we've seen if you look at it like ginkgo when we looked at the company public.

Speaker Change: What's the point well why build your own lab.

A majority of our customer base within the industrial biotechnology sector, and I think people often treat that as like a synonym to synthetic biology.

Speaker Change: I was just going to be faster to use kinko's infrastructure in our conversations where companies are reflecting that so I'm pretty excited about that.

Speaker Change: Great. Thanks, Jason I like I said Rahul from Raymond James Your first your line is now open.

Not the way to think about synthetic biology is it's a tools infrastructure right as people that are working on new ways to make the process of designing and engineering cells faster and easier it happened to be that a lot of demand for that was in industrial biotech because of the complexity of the genetic engineering. There. So that was sort of why there was a common.

Rahul: Thanks, Megan can you hear me alright.

Rahul: Terrific, Jason Mark Thanks, so much for taking the questions and congrats on taken a bit of a reset quarter here.

Rahul: So I guess I mean by being first of all maybe I'll ask the big global questions right.

Like equivalency industrial biotech has that had very very hard with higher interest rates I think that's just the reality like the venture capital ecosystem completely dried up for those companies. Many of those companies have gone out of business I Love This space and it's been tough and so I think one of the things that the last few years have shown us even in the face of that which we weren't expecting and we took the company.

Rahul: So Jason you start by talking about how you guys have been doing this a long time and I think most folks on this on this call are believers in bio manufacturing synthetic biology. So my question is what given the attrition that we've seen given the thinning and revenue sitting in projects.

Jason Kelly: What are the trends out there that you are pulling on that makes you believe that youre not too early.

Republic, we were able to show that Hey, we're a tools platform and actually we're adding all these new programs in Biopharma, which was a space that we were lightly and when we took the company public and so so so I think that that does speak to like the flexibility of ginkgo is a platform, we're not really hooked exclusively on biomass factoring our industrial biotech.

Jason Kelly: Ginkgo.

Jason Kelly: At the right time.

Speaker Change: And then maybe a more granular question will be then as you evolve your business model, assuming you are at the right time.

Jason Kelly: Wow.

Rahul: How does the housing <unk> not going to be categorized as effectively as a big CMO.

In fact, the story of the last two and a half years had been a pretty impressive in my opinion shift of our customer base from industrial biotech startup companies that were growing on an lot of enter capital too.

Rahul: Correct.

Speaker Change: Yep, Okay, Great. Let me, let me speak to that yes. So the first point you made around bio manufacturing.

Speaker Change: I share your concerns on this.

Speaker Change: I think what we've seen if you look at it like when we went to the company public.

Increasingly large biopharma bio AD companies that have been.

Speaker Change: Majority of our customer base within the industrial biotechnology sector, and I think people often treat that as like a synonym synthetic biology.

Big existing research budgets right and so so.

That'd be my point on bio manufacturing I don't.

It's tough I think we need some breakthroughs in that area I think some of the consumer biotech stuff. That's happening is pretty interesting, there's six new GMO like house plants on the market somehow get outright like I figured out.

Speaker Change: Not right the way to think about that biology is it's a tools infrastructure right as people that are working on new ways to make the process of designing and engineering cells faster and easier it happened to be that a lot of demand for that was in industrial biotech because of the complexity of the genetic engineering. There. So that was sort of why there was a common.

That kind of stuff is exciting, but you're I think that that sector has been hit really hard.

The you asked about.

We thought of when we focus on the pharma space as a large CMO.

Speaker Change: Like equivalency industrial biotech has been hit very very hard with higher interest rates I think that's just the reality like the venture capital ecosystem completely dried up for those companies. Many of those companies have gone out of business I I Love This space and it's been tough and so I think one of the things that the last few years have shown us even in the face of that which we werent expecting we took the cup.

Yes, I don't think at the end of the World rights. So here's the basic problem with like the Cro's today.

They don't they don't really improved as they scale right. If you look out at Wuxi Charles River right like you're essentially outsourcing doing that same thing youre choosing to outsource data generation to an external lab, but they are just going to do exactly what your lab was going to do they're going to hire a bunch of scientists, but the MATLAB benches and do that work.

Speaker Change: But we were able to show that Hey, we're a tools platform and actually we're adding all these new programs in Biopharma, which was a space that we were lightly in when we took the company public and so so so I think that that does speak to like the flexibility of ginkgo is a platform, we're not really hooked exclusively on biomass factoring our industrial biotech.

I hand.

So the fundamental like philosophy of how they do the work is exactly the same as how you do it in house. So you really just choosing there to handle some of the things that you don't want to do that that's different than the distinction with ginkgo as the quote Ciara people are coming to us because they want a large data asset.

Speaker Change: <unk> in fact, the story of the last two and a half years had been a pretty impressive in my opinion shift of our customer base from industrial biotech startup companies that were growing on an lot of enter capital too.

Okay, they either want it with automation or they want it with pool, they can't get that from the traditional heroes.

Speaker Change: Increasingly large biopharma bio and companies that have.

Speaker Change: Big existing research budgets right and so.

Okay, and they can't get it in house. So so the real question is do they want it right. If they start to want it. The advantage of my approach is I have scale economics like I get cheaper on the infrastructure as I do more work right that and so that's where it will be different but like yes.

Speaker Change: Well that'd be my point on bio manufacturing I don't I think it's tough I think where we need some breakthroughs in that area I think some of the consumer biotech stuff. That's happening is pretty interesting, there's six new GMO like house plants on the market somehow get outright.

My view, if you compare like the way lab work that's done the overwhelming majority of research spending is going to kits and equipment and real estate and labs and yeah. All of those installers, a giant pile of expense and the crows have tapped almost none of that and that's because they have not offered like really a compelling.

Speaker Change: So I think that kind of stuff is exciting, but you're I think that that sector has been hit really hard.

Speaker Change: The you asked about.

Speaker Change: We thought of when we focus on the pharma space as a large CMO.

Speaker Change: I don't think at the end of the World rights. So here's the basic problem with like the CRM is today.

Asian from what the customer can do themselves and I'm hopeful that we can make this flexible and scalable which is the big unlock then you eat up more and more and more of that by hand research budget, you really do so I don't have a problem being thought of that way at all as long as you think of me as one that could ultimately take half of the research budgets someday if we were right.

Speaker Change: They don't they don't really improved as they scale right. If you look at our Wuxi Charles River right like Youre essentially outsourcing doing that same thing youre choosing to outsource data generation to an external lab, but theyre just going to do exactly what your lab was going to do they're going to hire a bunch of scientists put them at lab benches and do that work.

This this philosophy for doing the lab work.

Speaker Change: I hand.

Speaker Change: So the fundamental like philosophy of how they do the work is exactly the same as how you do it in house. So you really just choosing there to handle some of the things that you don't want to do that that's different than the distinction with ginkgo as the quote.

That's really helpful. Thank you so much and good luck with the big shifts. Thanks.

No.

Thanks, Rahul and that's next up we have Matt sites at Goldman Sachs Snap. Your line is now open.

Speaker Change: <unk> people are coming to us because they want a large data asset.

Great. Thanks for taking my questions.

I guess kind of a high level question for Jason or Mark just.

Speaker Change: They either want it with automation or they want it with pool, they can't get that from the traditional heroes.

As you as you kind of look at sort of the proof points of this.

Speaker Change: Okay, and they can't get it in house. So the real question is do they want it right. If they start to want it. The advantage of my approach is I have scale economics like I get cheaper on the infrastructure as I do more work right, that's and so that's where it will be different but like.

This restructuring and shifts and what youre doing particularly from how you're approaching customers.

We had moved our model away from new program growth, a while ago, because we felt the correlation wasn't there.

Focusing on active programs revenues, obviously going to be key kpis, but as you kind of give advice to the sell side in terms of how to measure success of this shift what are some of the kpis that we should really be focusing at this point.

Speaker Change: My view, if you compare like the way lab work that's done the overwhelming majority of research spending is going to kits and equipment and real estate and labs and all of those installed a giant pile of expense and the crows have tapped almost none of that and that's because they have not offered like really a compelling.

Don't take it away Mark.

So I think Matt what you heard is we're going to be focused on cash flow first and foremost and so cash flows are function of course.

Speaker Change: The Asian from what the customer can do themselves and I'm hopeful that we can make this flexible and scalable which is the big unlock then you eat up more and more and more of that by hand research budget you'd really do so I don't have a problem being thought of that way at all as long as you think of me as one that could ultimately take half of the research budgets someday if we were right.

Of cash revenue.

And cash Opex, and so that's where a lot of the energy of the company is going to be.

But we want to get to a place as you heard on the call today were.

Speaker Change: About this this philosophy for doing the lab work.

We are moving towards profitability, where adjusted EBITDA breakeven.

Speaker Change: That's really helpful. Thank you so much and good luck with the big shifts. Thanks.

And.

That is what sets can go up.

Speaker Change: Thanks, Rob.

For success, we have.

Speaker Change: Thanks Rahul.

To prove that we can.

Speaker Change: Next up we have Matt sites at Goldman Sachs Snap. Your line is now open.

Operate the programs economically.

That's pretty important on the volume side, which is what you're getting at.

Matt: Great. Thanks for taking my questions.

Is there going to be like a substitute for the program metric or something like that we're going to need a little bit of time to figure that out I'm not sure.

Matt: I guess kind of a high level question for Jason or Mark just.

Matt: And as you kind of look at sort of the proof points of this.

There certainly will be kpis they may be.

Matt: This restructuring and shifts and what youre doing particularly from how you're approaching customers.

Things that we report on but don't guide to we sort of need to I think get a feel for the types of deals that we're going to be signing under the newer sort of commercial terms, Jason outlined today and the newer offering like lab data as a service.

Matt: We had moved our model away from new program growth, a while ago, because we felt the correlation wasn't there and focusing on active programs revenues, obviously going to be key kpis, but as you kind of give advice to the sell side in terms of how to measure success of this shift what are some of the kpis that we should really be focusing at this point.

Got it thank you.

The way, we do program counts today involve having things like downstream value share involved in order for it to count I know some number of the analysts on the call do factor that into their modeling and so part of what we're doing here is because we are changing the terms than that.

Speaker Change: You don't take it away Mark.

Mark: So I think Matt what you heard is we're going to be focused on cash flow first and foremost and so cash flow is a function of course.

They wouldn't count and so we do want to give you all a picture of how things are going because when we sign deals that does imply revenue in the future I know I do know that as part of the modeling. So so we'll work on that got it. Thank you very much for that and then just on the guidance commentary slide Jason you mentioned with prioritizing quality over quantity in terms of programs.

Mark: Of cash revenue.

Mark: And cash Opex, and so thats, where a lot of the energy of the company is going to be.

Mark: But we want to get to a place.

Mark: They were.

With sort of the new approach and including.

Mark: We are moving towards profitability, where adjusted EBITDA breakeven.

Lab data as a service.

Certain.

Mark: And.

Types of programs or end markets that are more attractive.

Mark: That is what sets can go up.

Mark: For success, we have to prove that we can.

To achieve sort of that combination of flexibility and scale, but also speed.

Mark: Operate the program's economically.

Speaker Change: Thanks, Matt that's pretty important on the sort of volume side, which is what you're getting at.

To get that program up and running and or are there certain I think you mentioned the difference between those that are attracted to downstream value and those that are not.

Mark: Is there going to be like a substitute for the program metric or something like that.

Which is clear, but just sort of.

Speaker Change: Need a little bit of time to figure that out I'm not sure.

The types of customers that would maybe generate that revenue quicker in terms of either scaling on the platform or just in order to bring in new programs to the platform.

Speaker Change: There certainly will be kpis they may be.

Speaker Change: Things that we report on but don't guide to we sort of need to.

Yeah, Great question. So I think for starters, you will continue to see us like I showed that slide where you where we're either selling to the research budget directly that's the kind of lab data as a service type model, where they're scientist is in control of our infrastructure or our side is running a program and we're kind of doing a strategic deal with Corp Dev.

Speaker Change: I think you get a feel for the types of deals that we're going to be signing under the newer sort of commercial terms, Jason outlined today and the newer offering like lab data as a service.

Speaker Change: Got it thank you.

Speaker Change: The way, we do program counts today involve having things like downstream value share involved in order for it to count I know some number of the analysts on the call do factor that into their modeling and so part of what we're doing here is because we are changing the terms that they wouldn't.

And when I say corp that because they essentially are the ones, who negotiate research partnerships upstream or down.

Like I acquire an asset and I also sign a research partnership with the small biotech right on the large Biopharma Corp, Dev leader like that that we're like the the half of that deal. That's like the research partnership half right. That's what we're selling to we saw the pipeline of those we'll still do those.

Speaker Change: Wouldn't count so we do want to give you all a picture of how things are going because when we signed deals that does imply revenue in the future I know I do know that as part of the modeling. So so we'll work on that got it. Thank you very much for that and then just on the guidance commentary slide Jason you mentioned, we probably prioritizing quality over quantity in terms of programs.

Frequently those will still involved downstream value share, they're going to be like a whole bunch of all at once and really the customer for those is large biopharma, okay and to a lesser degree maybe large AG companies alright.

Speaker Change: With sort of the new approach and including.

Speaker Change: Data as a service.

Speaker Change: Are there certain.

The research budget.

Speaker Change: Types of programs or end markets that are more attractive.

On the other hand, I think we have a really good opportunity with smaller biopharma startups in biotechs that are still getting funded and are making choices of <unk>.

Speaker Change: To achieve sort of that <unk>.

Speaker Change: Combination of flexibility and scale, but also speed.

Speaker Change: To get that program up and running and or are there certain I think you mentioned the difference between those that are attracted to downstream value and those that are not.

<unk> capital environment about how much they want to stand on their laboratory infrastructure, how much do they want to spend building that stuff out how much they want to spend on equipment, all that upfront cost I think with their site, where they where they are.

Speaker Change: Which is clear, but just sort of.

Speaker Change: The types of customers that would maybe generate that revenue quicker in terms of either scaling on the platform or just an order of bringing new programs to the platform.

Compromising on them.

Again. These are things you realize over time, where fundamentally selling a new thing.

Speaker Change: Yeah, Great question. So I think for starters, you will continue to see us.

That was a small biopharma biotech would never give up scientific control.

Speaker Change: I showed that slide right, where we're either selling to the research budget directly that's the kind of lab data as a service type model, where they're scientist is in control of our infrastructure or our side is running a program and we're kind of doing a strategic deal with Corp Dev.

And so with our lab data as a service where now they're scientists can run our infrastructure. We can sell to those guys for the first time. So I'm really excited about that about that area in particular when it comes to lab data as a service last one I'll mention in industrial Biotechnology, we've had a hard time selling into the bigger companies there okay because.

Speaker Change: And when I say corp that because they essentially are the ones, who negotiate research partnerships upstream or down.

Because they don't really do those types of research partnerships with pharma does the lower margin industry, but they do have research, but they've research teams. So I think lab data as a service is also a way to as an entre into some of those larger in chemical and other industrial biotech companies, where we've had more friction selling on a strategic deals that make sense. Thank you very much appreciate it.

Speaker Change: Like I acquire an asset and I also sign a research partnership with the small biotech right on the large Biopharma Corp. Dev leader like that that we're like the the half of that deal Thats like the research partnership half right. That's what we're selling to we saw the pipeline of those also do those.

Speaker Change: Those will still involve downstream value share, they're going to be like a whole bunch all at once and really the customer for those is large biopharma.

Yep.

In general like I like it like I think it gives us more like these are things also reinforce each other I think one of the things people always like all colors of a CIO or something which is closer to what the lab data as a services in that because when we're talking to the strategic half of the house there like I wouldn't do a strategic deal with zero right and so there's sort of a when we're talking to those folks they are evaluating.

Speaker Change: Okay and to a lesser degree maybe large AG companies alright.

Speaker Change: The research budget.

Speaker Change: On the other hand, I think we have a really good opportunity with smaller biopharma startups in biotechs that are still getting funded and are making choices.

Our scientists are evaluating whether we can do a multiyear deal and we're really great at that and we're good at engage with US people people already think about it that way right. They think of us a strategic so our market. So what I'm what I am excited about though is we can now walk into same customer.

Speaker Change: Limited capital environment about how much they want to stand on their laboratory infrastructure, how much do they want to spend building that stuff out how much they want to spend on equipment, all that upfront cost I think with their site, where they would they are uncompromising on them.

Different parts of the organization.

Speaker Change: Again. These are things you realize over time, where fundamentally selling a new thing.

And and our reputation of over here is going to help us over here. So I am excited to cross sell to both their kind of directly to the R&D mid level in senior leadership as well as more strategic that's going to help.

Speaker Change: They'll small biopharma biotech would never give up scientific control.

Speaker Change: And so with our lab data as a service where now they're scientists can run our infrastructure. We can sell to those guys for the first time. So I'm really excited about that about that area in particular when it comes to lab data as a service last one I'll mention in industrial Biotechnology, we've had a hard time selling into the bigger companies there okay.

Thank you.

Thanks, Matt next up we have Mike Raskin at Bank of America, Mike. Your line is now open.

Okay. Great. Thanks, guys can you hear me, yes, Hey, Mike Awesome.

Speaker Change: Because they don't really do those types of research partnerships with pharma does yes, it's a lower margin industry, but they do have research, but they've research team. So I think lab data as a service is also way to as an entre into some of those larger in chemical and other industrial biotech companies, where we've had more friction selling on the strategic deals that makes sense. Thank you very much appreciate it.

So I kind of want go back to I think.

The crux of your argument earlier, Jason just kind of looking on slide 14 anything like chapter of the perfectly at.

The disconnect between.

Active programs or new programs in revenues why that's disconnected over time I'm just wondering within that we always see the total number right.

Total programs total revenues.

Speaker Change: Yes.

Speaker Change: And in general I like it like I think it gives us more like these other things also reinforce each other I think one of the things people always like all colors of a CIO or something which is closer to what the lab data as a services in that because when we're talking to the strategic half of the house there like I wouldn't do a strategic deal with us CRO right and so so that there's sort of a when we're talking to those folks they are a valued.

Any success stories, you can talk about any examples of any lessons you can give as you parse that out where you see some of the proof points you were talking a little bit about how it's about not being able to get up to full scale.

This is where you are able to achieve that and what I'm getting at is.

It's a long question, but what I'm getting at is you're putting in these cost cuts you're trimming things how do we know thats not just going to trim. The number of programs from number of revenues and just.

Speaker Change: <unk>, our scientists are evaluating whether we can do a multiyear deal and we're really great at that and we're good at engage with US people people already think about it that way right. They think of us the strategic so our market. So what I'm what I am excited about though is we can now walk into same customer.

Cutting everything right by reducing headcount reducing footprint right you are selecting the.

Better approach for who's taking what you have now.

Got it going ahead.

Speaker Change: Different part of the organization.

Yeah Super clear my guess, so I'll give a little color on it. So first off we have now multiple years of experience.

Speaker Change: And and our reputation of over here is going to help us over here. So I am excited to cross sell to both their kind of directly to the R&D mid level in senior leadership as well as more strategic that's going to help thank.

With many programs right and again you can see there the ramp of our program I know you people that have followed us since.

The company notice and so we each year, we get more and more data about what's easy to onboard and get to scale. What's hard alright. Secondly, we are working on the backend where all we try to make the backend actually do this more quickly right and we have a substantial amount of bookings right. Like this is the thing that frustrates me right like we actually have a lot of bookings and the <unk>.

Speaker Change: Thank you.

Speaker Change: Thanks, Matt next up we have Mike Raskin at Bank of America, Mike. Your line is now open.

Speaker Change: Yeah.

Michael W. Freeman: Okay. Great. Thanks, guys can you hear me, yes, hi, Mike.

Michael W. Freeman: So I kind of want to go back to I think kind of the crux of your argument earlier, Jason just kind of looking on slide 14, I think I captured perfectly.

At which we're able to push them through the infrastructure into revenue is is just too low right and so so I do need that we like we need to work on that backend problem I think when it comes to do we know like success cases.

Michael W. Freeman: The disconnect between.

Michael W. Freeman: Active programs or new programs in revenues or like why that's disconnected over time I'm just wondering within that we always see the total number right total program total revenues.

It is it is the types of programs that we have done previously right like if we have done that type of work, particularly we've done that type of work end to end and succeeded very customer. It is much easier for us to do it again.

Michael W. Freeman: Any success stories, you can talk about any examples of any lessons you can give as you parse that out where you see some of the proof points because you were talking a little bit about how it's about not being able to get up to full scale.

When it is a newer thing that that creates a lot more.

Michael W. Freeman: This is where you are able to achieve that and what I'm getting at is.

Sure Alright, and then I would say across the board there is still like a set of experiments like for example.

Michael W. Freeman: Long question, but what I'm getting at is you're putting in these cost cuts you're trimming things.

Michael W. Freeman: How do we know thats not just going to trim the number of programs from number of revenues.

Assay Onboarding customer comes to us they but they have their specific project as part of that there's a particular assay that they trust that they really want us to onboard onto the automation in order to make that project work that remains something that like we cant handoff to automation like we have to do that pretty manually its preload their but it ends up being a bottleneck and until you can.

Michael W. Freeman: Putting everything in half right by reducing headcount reducing footprint right. You are selecting the better approach resist taking what you have now and got it going ahead.

Speaker Change: Yeah Super clear My guess is those I'll give a little color on it. So first off we have now multiple years of experience.

That I can't turn up the dial and generate all of that revenue from running that assay thousands and thousands of times that makes sense and so so like assay onboarding would be a great thing for us to be able to do with the racks right like being able to onboard quickly some of the things that are currently repeatedly frictional.

Speaker Change: With many programs right and again you can see the ramp of our program I know you people that have followed us since listing the company notice and so we each year, we get more and more data about what's easy to onboard and get to scale. What's hard alright. Secondly, we are working on the backend where all we try to make the backend actually do this more quickly right and we have a substantial.

By hand work to get the automation spun up we know what those things are because we're doing so many programs and those are some of the first things we're going to attack with our new focus.

Michael W. Freeman: Amount of bookings right like this is the thing that frustrates me right like we actually have a lot of bookings and the rate at which we're able to push them through the infrastructure into revenue. It is just too low right and so so I do need that we like we need to work on that backend problem I.

So that really is it and that's why we're confident that we aren't going to have the situation you are talking about.

But again.

What we sell will be different like I won't be going out and saying, Hey, I want to do a project for the first time.

Michael W. Freeman: I think when it comes to do we know like success cases.

Michael W. Freeman: It is it is the types of programs that we have done previously right like if we have done that type of work, particularly we've done that type of work end to end and succeeded for a customer it is much easier for us to do it again.

Not in this world right now where I see a line of sight to us getting to breakeven. We just don't need to do that anymore and that we've had to do it you know I think as part of building the process here part of the story in and helping us learn with easy and hard over the last few years, but it's a mistake to keep selling that type of stuff and so you'll see us tighten up the sales there, but I'm hopeful with the with the better terms, we get more.

Michael W. Freeman: When it is a newer thing that that creates a lot more.

Speaker Change: Sure Alright, and then I would say across the board there is still like a set of experiments like for example.

Deals of the type we like does that makes sense.

Speaker Change: Assay Onboarding customer comes to us they have their specific project as part of it there is a particular assay that they trust that they really want us to onboard onto the automation in order to make that project work.

Okay no.

I appreciate it Bob.

Then just a quick follow up on the on the cost reduction from the prime there.

Pretty meaningful reduction in the way of our 25%.

Michael W. Freeman: That remains something that we cant handoff to automation like we have to do that pretty manually freeloader, but it ends up being a bottleneck and until you complete that I can't turn up the dial and generate all of that revenue from running that assay thousands and thousands of times that makes sense and so so like assay onboarding would be a great thing.

How do you ensure sort of like.

Minimal disruption because you can stay on it for a while and you are still bringing on the new.

And then your foundry operation for Viasat, one so how do you juggle, both expansion and shifting and meaningful head count reduction at the same time.

Yeah, I think that that why there is the key challenge for US right is figuring out what are the things that we need to be investing in to make sure. We can handle the shaft and then also make sure we're supporting our key customers today right and so that is like a big part of what we worked on in early planning for that and what we're gonna be working on in the coming weeks with the team to <unk>.

Michael W. Freeman: Thing for us to be able to do with the racks right like being able to onboard quickly. Some of these things that are currently repeatedly frictional by hand work to get the automation spun up we know what those things are because we're doing so many programs and those are some of the first things we're going to attack with our new focus.

Michael W. Freeman: So that really is that and that's why we're confident that we aren't going to have the situation you are talking about.

Tighten that up we do also I will say like <unk>.

Post lifting we pursued many different ways to potentially get to growth. We do a lot of internal research to try to get something that is going to pay off in the longer term. Some of that we did need to do two or three years ago. Like we were very early four years ago, and even doing mammalian cells of course, we needed to do internal research to bring that online we would never be able to tap the pharma industry.

Michael W. Freeman: But against that.

Michael W. Freeman: What we sell will be different like I won't be going out and saying, Hey, I want to do a project for the first time.

Michael W. Freeman: Not in this world right now where I see a line of sight to us getting to breakeven. We just don't need to do that anymore and that we've had to do it I think that's part of building the process here part of the story in and helping US learn what's easy and hard over the last few years, but it's a mistake to keep selling that type of stuff and so youll see us tighten up the sales, thereby I'm hopeful with the with the better terms, we get more.

Today like we do.

The list of things like that versus the pay off in this environment or is just shorter and so a lot of that internal research is just work, we shouldn't be doing and we should be focusing that on either delivering on customer projects.

Michael W. Freeman: Deals of the type we like does that makes sense.

Speaker Change: Okay no.

Speaker Change: I appreciate it Bob.

We're making it easier to onboard things onto the automation onto the pooled screening and things like that like Youre going to see Youll, just see us focus a little more on just the stuff that delivers revenue and allows us to sell to the types of customers, we want to sell through at a faster scale.

Speaker Change: Then just a quick follow up on the on the cost reduction from the prime there.

Speaker Change: A pretty meaningful reduction of <unk>, 25%.

Speaker Change: Okay.

Speaker Change: How do you ensure sort of like.

Speaker Change: Minimal disruption because you can stay on it for a while and you are still bringing on the new.

Does that makes sense yeah.

Okay. That's helpful. Thanks, guys.

Speaker Change: And then your foundry operation Viasat, one so how do you juggle both expansion and shift in meaningful head count reduction at the same time.

Thanks, Mike.

Mind or to the analysts on the line. If you have any questions. Please raise your hand and I'll call on you, but next up we have Steve MA at TD Count Steve. Your line is now open.

Speaker Change: Yeah, I think that that point there is the key challenge for US right is figuring out what are the things that we need to be investing in to make sure. We can handle the shift and then also make sure we're supporting our key customers today right and so that is like a big part of what we worked on in early planning for that and what we're gonna be working on in the coming weeks with the team to <unk>.

Dave we're getting you from sym bio beta.

Yeah, Yeah, so yeah apologies for the background noise yeah.

Great day.

But anyway, maybe just a follow up on mikes question on the roof and reduction in labor costs.

On the services business you have good visibility on what's easy and then you'll take it on as a services project, but what about 130 year programs are in the harder pharma partnerships. Those are obviously more complicated.

Speaker Change: Tighten that up we do also I will say like <unk>.

Speaker Change: Post lifting we pursued many different ways to potentially get to growth. We do a lot of internal research to try to get something that's going to pay off in the longer term. Some of that we did need to do two or three years ago like we were very early for.

Can you give us a sense or is the reduction in force is it more targeted and maybe give us a maybe quantitate the percentage of of natural ports reduced and he said 25% of labor, but can give us a sense of like what percentage of your total workforce that is yes.

Speaker Change: Four years ago, and even doing mammalian cells of course, we needed to do internal research to bring that online we would never be able to tap the pharma industry today like we do.

Speaker Change: The list of things like that versus the pay off in this environment or is just shorter and so a lot of that internal research is just work, we shouldn't be doing and we should be focusing that on either delivering on customer projects or making it easier to onboard things onto the automation onto the pooled screening and things like that like Youre going to see Youll, just see us focus a little more.

So we're working through those numbers now to get get you exact numbers because we don't have exact numbers now we are planning to take 25% out of labor inclusive of a head count reduction, but that's the process, we're going through in the coming weeks I will say that type of Biopharma work is our highest priority stuff right. So those are important long term customers for us we know there's a ton more business.

Speaker Change: Just the stuff that delivers revenue and allows us to sell to the types of customers, we want to sell through at a faster scale does.

There and so that's an area, where you'll see us make sure that we can continue to serve those customers well.

Speaker Change: Does that make sense.

Speaker Change: Okay. That's helpful. Thanks, guys.

<unk> got that all right and then maybe one for Mark can you give us your confidence level and your ability to.

Speaker Change: Thanks, Mike as a reminder to the analysts on the line. If you have any questions. Please raise your hand and I'll call on you, but next step we have Steve MA at TD Count Steve. Your line is now open.

Sublease, the the foundry real estate and consolidated its about fab one.

Steve MA: If we get any from sym bio beta.

You know how companies are you.

Steve MA: Yeah, Yeah, so yeah apologies for the background noise yeah, maybe.

To be able to do that because you put out a pretty big number kind of reducing up to 60% of the cost of that facility.

Steve MA: Great day.

Steve MA: But anyway, maybe just a follow up on Mike's question on the roof and reduction in labor costs.

Yeah. So so first of all just make the comment that we're committed to delivering the cost savings number.

Steve MA: On the services business you have good visibility on what's easy and then you'll take it on as a services project, but what about 130 year programs are in the harder pharma partnerships. Those are obviously more complicated.

Even if we can't get the <unk>.

Lease savings that we're expecting.

So it is a fairly.

I would say, it's not it's a non trivial task for us to do the sort of transformation of the foundry work. So we need to kind of make that happen.

Steve MA: Can you give us a sense or is there a reduction in force is it more targeted and maybe give us a maybe quantitate the percentage of of natural force reduce and he said, 25% on labor, but can give us a sense of like what percentage of your total workforce that is yes.

The opportunities for sub leasing or similar to sort of mitigate the costs of that lease I mean, there's lots of those it will depend on market conditions. Once we're ready to sort of make that move.

Steve MA: So we're working through those numbers now to get get you exact numbers because we don't have exact numbers that we are planning to take 25% out of labor inclusive of a head count reduction, but that's the process, we're going through in the coming weeks I will say that type of Biopharma work is our highest priority stuff right. So those are important long term customers for us we know there's a ton more business.

Okay. So yeah. So we're not I wouldn't say, we're not like just banking on that to make the number but that's the way I would put it. Okay. That's helpful. If I could sneak one last quick one and mark on the downstream value you know I. Appreciate you guys pulling it because of the lumpiness and lack of visibility, but you know are you going to add that back to guidance. When you have good visibility.

Speaker Change: There and so so that's an area, where you'll see us make sure that we can continue to serve those customers well.

D and as you've kind of approach maybe a milestone thank you.

Speaker Change: <unk> got that all right and then maybe one for Mark can you give us your confidence level and your ability to.

Yes. So first of all we do have a significant portfolio of potential downstream value share of royalty rights milestone rights, we have not forgotten about that and.

Speaker Change: Sublease, the the foundry real estate and consolidated about fab one.

Speaker Change: How companies are you'd.

And so that is there I mean, the short answer is yes, once that becomes something that is a more predictable and steady source I think we would start talking about it like that and maybe I'll get back into.

Mark: To be able to do that because you put out a pretty big number kind of reducing up to 60% of the cost of that facility.

Mark: Yeah. So so first of all just make the comment that we're committed to delivering the cost savings number.

Revenue guidance, we're just not there sort of in this time horizon that we're talking about and so where we are.

Speaker Change: Even if we can't get the <unk>.

Speaker Change: Lease savings that we're expecting.

Speaker Change: So it is a fairly.

We're again very focused on getting ginkgo.

Speaker Change: I would say, it's not it's a non trivial task for us to do the sort of transformation of the foundry work. So we need to kind of make that happen.

To that.

Adjusted EBITDA breakeven level without relying on what might or might not happen in terms of downstream belly sure over the next two years. Okay. Thank you.

Speaker Change: The opportunities for sub leasing or similar to sort of mitigate the costs than at least I mean, there's lots of those that will depend on market conditions. Once we're ready to sort of make that move.

Thanks, Steve next up we have Edmund Tu at Morgan Stanley Edmond Your line is now open.

Speaker Change: Okay. So yes, so we're not I wouldn't say, we're not just banking on that to make the number but that's the way I would put it. Okay. That's helpful. If I could sneak one last quick one and mark on the downstream value you know I. Appreciate you guys pulling it because of the lumpiness and lack of visibility, but are you going to add that back to guidance. When you have good visibility.

Yes Edmond.

I mean that.

Okay.

And then last call.

Speaker Change: And as you've kind of approach maybe a milestone thank you.

Hey, guys can you hear me.

Speaker Change: Okay.

Now again yep sorry.

Speaker Change: Yes. So first of all we do have a significant portfolio of potential downstream value share of royalty rights milestone rates, we have not forgotten about that and.

Alright.

Having some lag issues here.

Just a quick question for me on the implement implementation of the new rack automation.

How long do you think it'll take two.

Speaker Change: And so that is there I mean, the short answer is yes, once that becomes something that is a more predictable and steady source I think we would start talking about it like that and maybe I'll get back into.

This new strategy and will there be a ramp up time associated with reaching the optimal efficiency here and how much improvement to revenue conversion do you see this.

Yeah, So maybe I'll speak to some of the timelines. So one of the thing that's great is we're already starting to do this right. So in our current facility in Boston.

Speaker Change: Revenue guidance, we're just not they are sort of in this time horizon that we're talking about and so where we are.

Have a setup of racks in our up to.

Speaker Change: We're again very focused on getting ginkgo.

15, or 20 of the cards and so we're able to start basically moving workloads onto their ax. Obviously the team that is designing and programming and doing final manufacturer. Their access is based out in Emeryville, California, but then they get shipped over here and we're able to to basically start to do the lab trans.

Speaker Change: To that.

Speaker Change: Adjusted EBITDA breakeven level without relying on what might or might not happen in terms of downstream value share over the next two years. Okay. Thank you.

Speaker Change: Thanks, Steve next up we have Edmund Tu at Morgan Stanley Edmond Your line is now open.

<unk> and all of that work well in advance of bio Babylon being open and image 25. So all of that work is theres nothing to slow that down other than how much attention, we're putting to it.

Edmund Tu: Yes Edmond.

Edmund Tu: Let me now.

It's priority is relative to other priorities in the company. So I'm actually pretty excited that that some of that can move quite a lot quicker. There is still then getting at.

Speaker Change: Okay.

Doing like a wholesale move over into bio fab one that's part of our plan here for cost reduction just in terms of simplification of our facilities and so on and that that is more on viasat, one timelines, which is which is mid 25%.

Speaker Change: And then last call.

Speaker Change: Hi, guys can you hear me now again.

Speaker Change: Sorry.

Speaker Change: Having some lag issues here.

Speaker Change:

Speaker Change: Just a quick question from me on the implement implementation of the new rack automation.

Mark I know, if you want to speak to some of the other stuff.

So.

Speaker Change: How long do you think it'll take two.

The question was what impact on revenue might we see from the.

Speaker Change: Lament this new strategy and will there be a ramp up time associated with reaching the optimal efficiency here and how much improvement to revenue conversion do you see this.

Sort of rack driven foundry was that the question.

How much faster we can flow through yes, yes, yes, so that's it.

Speaker Change: Yeah, So maybe I'll speak to some of the timelines. So one of them one of the thing. That's great is we're already starting to do this right. So in our current facility in Boston.

So I think the idea is significantly faster. So if you really look at it sort of how an end to end sell program. Today is both contracted for with a customer and then how we execute on us.

Speaker Change: Have a setup Iraq Macau are up to.

Ginkgo It takes a lot of risk on both the technical success and the timing.

Speaker Change: 15, or 20 of the cards and so we're able to start basically moving workloads onto the racks. Obviously the team that is designing and programming and doing final manufacturer. Their axa is based out in Emeryville, California, but then they get shipped over here and we're able to basically start to do the lab trans Trans.

Of that work performing and it takes it does take a long time to kind of planet and onboard it.

And I mean these are just often very complex long cycle projects, where ginkgo is taking a lot of that timing and technical risk.

Speaker Change: For the all of that work well in advance of bio Babylon being open.

We're rewarded sort of along the way with kind of these micro milestone type payments and it flows into revenue on a very laggy sort of basis. That's just the way the revenue recognition rules work. So you take out a lot of that like these would be shorter cycle projects to begin with.

Speaker Change: 25, so all of that work is theres nothing to slow that down other than how much attention, we're putting two edge.

Speaker Change: It's priority is relative to other priorities in the company. So I'm actually pretty excited that that's some of that can move quite a lot quicker. There is still then getting.

Speaker Change: Doing like a wholesale move over into bio fab one that's part of our plan here for cost reduction just in terms of simplification of our facilities and so on and that that is more on bio fab, one timelines, which is which is mid 25.

There's going to be less need to take on technical or timing risk. The revenue recognition I think it will be more evenly spread over and more matched with the actual work that we're doing.

We're a much tighter time frame.

Speaker Change: Mark I know, if you want to speak to some of the other stuff.

Months instead of years and so.

Mark: So the.

Mark: The question was what impact on revenue might we see from the.

So it will be like I cant tell you that 50% faster than our sort of equivalent size projects, we'll have to see but it will be materially.

Mark: Sort of rack driven foundry was that the question.

Mark: How much faster, we can pull through yeah, yeah, yeah. So.

Faster I think from a revenue perspective, the sort of the equivalent.

Mark: I think the idea is significantly faster. So if you really look at it sort of how an end to end sell program. Today is both contracted for with a customer and then how we execute honest.

Engineering solutions type project.

Got it given my Chumpiest Tonight, I'm going to keep it to one and now as the rest of it. Thank you.

Thanks Evan.

Thanks, and then I'm not seeing any other questions in the queue. So Jason do you have any closing thoughts for us now.

Mark: Ginkgo It takes a lot of risk on both the technical success and the timing.

As I mentioned.

Mark: Of that work performing and it takes it does take a long time to kind of plan and on boarded.

Tough for us internally with a head count reduction I appreciate the support of the team I think is going to come out of this in a much stronger spots to make biology easier to engineer I think we have a chance to do that on a horizontal basis across the entire biotech industry and so excited to take go forward and do that and thanks, everyone for your questions.

Mark: And.

Mark: I mean these are just often very complex long cycle projects, where ginkgo is taking a lot of that timing and technical risk.

Mark: We're rewarded sort of along the way with kind of micro milestone type payments and it flows into revenue on a very laggy sort of basis. That's just the way the revenue recognition rules work. So you take out a lot of that like these would be shorter cycle projects to begin with.

Thanks Al will talk to you all next quarter have a good one.

Our case Wix for my business because of the massive Skype functionality and freedom of creation.

Mark: There's going to be less need to take on technical or timing risk. The revenue recognition I think will be more evenly spread over and more matched with the actual work that we're doing.

Being able to integrate and change and develop Atlanta pace.

For a range of products and services Tonight at all from one place is essentially it gave me time back in my day gas gathering a natural projects. It really just made everything feel more genes.

Mark: Or a much tighter time frame.

Mark: Sort of months instead of years and so.

Mark: So it will cause like I cant tell you that 50% faster than our sort of equivalent size projects, we'll have to see but it will be materially.

Sure.

Yes don't wear out all your collaborate got Charlie.

Uh huh.

Mark: Or anything from a revenue perspective and sort of the equivalent.

In addition.

Well we have.

Mark: Engineering solutions type project.

First of all Greg gable.

Speaker Change: Got it given my Chubby Internet I'm going to keep it to one as well as the rest of our excellent.

A director and.

[noise] energy Jane sending a similar funds and insurance.

Speaker Change: Thanks, and then I'm not seeing any other questions in the queue. So Jason do you have any closing thoughts for us.

Jason: As I mentioned.

Jason: Tough for us internally with a head count reduction I appreciate the support of the team I think is going to come out of this in a much stronger spots to make biology easier to engineer I think we have a chance to do that a horizontal basis across the entire biotech industry and so excited to take go forward and do that.

And moving then to this back of this first section if each of the directors, there, which remain standing until we finish.

I'll go alphabetically down the line and we've got Howard Buffett.

We have.

Speaker Change: Thanks, everyone for your questions.

Speaker Change: Thanks Al will talk to you all next quarter have a good one.

Susan Buffett.

Steve.

Steve Byrne.

Ken additional.

Chris Davis.

Sue Decker.

Charlotte Diamond.

Tom Murphy Junior.

Ron Olson.

Only whites and.

And Meryl witmer okay.

[noise] or two people I would like to thank and then when we get onto the <unk>.

A brief description of the results.

Yes.

First quarter.

First of all I'd.

Like to thank Melissa Shapiro, who puts us whole event together you can imagine the work that goes into it.

[noise]. She just reported in May that we set.

New record for <unk>.

So you can do them I think they brought along six tonnes.

They will sell out.

And one thing I do want to mention we have only one book is a bookstore.

Of the bookworm.

This year.

Normally we have about 25, but we have Portugal poor Charlie's Almanac fourth edition.

And I think we sold about 2400 of them yesterday.

That will be the only book next year, we'll go back to having our usual selection.

But we felt we would.

Turning it over to Charlie this year.

And then.

I would like to introduce.

One further person and that's.

The person who puts up more.

Movie together and you can imagine.

Amount of work it is because.

For example on those scenes that we've used from the past.

John.

If they involve.

Hollywood stars or various people.

We need to get promotional over again show because where we are.

Total them originally we would only show it.

Within the.

Confines of ore.

Auditorium here and.

Of course, it went out on CNBC and.

Just can't imagine how much.

Effort, but also.

The great cooperation we got from.

All of those desperate housewives.

Yeah.

With a desperate housewives, we'd have to get Disney's okay and.

That was easy.

Going down five less desperate housewives.

[laughter] that one month came in towards the end, but.

That's the job of putting this together.

By the same thought all the.

Animals Us then.

Doing this.

For years and years and years and years and I was just would appreciate it if you could just.

Does the spotlight on browser Underwood for just a minute.

[noise] okay.

We put out some results.

Uh huh.

For the first quarter. This morning at seven o'clock or time and.

Some.

Sharp eyed analysts.

And.

Press people already picked up one or two items.

Robert which I'm sure we'll get some questions on later.

But if we could start off with slide number one which is as it should be showing now youll.

You'll see that.

And in the first quarter.

The way and we talk about operating earnings that Berkshire, we wait.

Explain that many times this is why.

We think these figures that will give you the most descriptive of what's really going on in the business.

And take out.

The wild swings in the market.

Otherwise just.

And that was reporting big earnings one quarter and big losses, another quarter, where we'd be.

Pay no attention.

Sure but.

It will see that.

That we had.

A better than average.

Warner.

And J J.

Wants me to.

Point out to everyone that you cannot take the insurance.

Earnings in the first quarter and multiply by four.

Sure.

It just doesn't work that way and insurers.

While we insurers storms around the world.

The major storms for example that would.

Would affect our earnings would be.

Probably number one would be something something.

One along the.

It came in at the wrong place from our standpoint, and that just kept going up the east coast.

That's our.

Yes.

Our number one risk as we evaluate things weren't in all kinds of risks that can be.

Tomorrow, there can be an earthquake 10 years from now and then.

We are in that sort of business with the first quarter does.

It does.

Hit the.

Should be.

Quarter, certainly shouldnt be our worst quarter, the most likelihood quarter there'll be the worst quarter, so third quarter, but anything can happen insurers.

But fortunately nothing much happened.

During the first quarter. So we had much improved earnings.

In insurance underwriting and that our investment income this was almost bound well it was almost certain to increase.

<unk> said that in the annual report because yields are so much higher.

Then they were.

Our last year end.

We have.

A lot of fixed short short term investments that are very responsive to the changes in interest rates. So that figure is up substantially and I can predict that that one will be up.

For the year.

Uh huh.

We've got.

More money.

Thus, we will get to in a minute.

That's fairly predictable.

So that number will be up when you get into the <unk>.

Into the.

Railroad the railroad earnings.

Were down modestly in the butt.

<unk>.

We.

Not immediately but we.

We should be earning.

Somewhat more money than we are earning under.

President traffic conditions, and then traffic conditions could also.

Hit the earnings.

It's a potential earnings of the railroad and.

If you want every Wednesday.

You can get car loadings from the previous week and regarding feels a little day range. If you do get them, but I get them all.

Our available and Youll see this car loadings have been running.

For the industry have been running down.

Modestly.

Uh huh.

These earnings are.

Were as expected.

But we should earn somewhat more money than that on the equivalent amount of card holdings.

Uh huh.

When the <unk>.

Energy company.

<unk>.

We had.

Better earnings, but our earnings were distorted.

They were affected by conditions.

What about on the annual report and will undoubtedly discussion this morning, but.

Off a low base of last year, they were up somewhat.

So you've got a.

Down to the final figure.

11 2 billion.

It is.

It's quite an improvement from last year, but.

We would expect.

Our earnings should go up modestly from year to year, because after all over with.

Retaining like 37 billion last year of earnings So if we put 31 billion.

More you loved it with us.

We should do something thats satisfactory and the goal of Berkshire economic goal.

Is to increase the operating earnings increased shares outstanding.

That simple.

To describe this not quite so simple pull off necessarily but that.

That's what we're attempting to do.

If we'll turn to slide two please.

I've got the history.

And I just picked up.

That make.

Uh huh.

The year.

When we hit 24 billion.

And then we.

Fell off in the first.

Here are the pandemic and then as you say, we've moved up from 27 to 30 to 37 billion.

And.

Interesting thing about these earnings thereafter, depreciation and amortization and taxes and all that sort of thing so.

You can figure that essentially.

Sure.

How does a little over $100 million per day, including <unk>.

Gains on holidays.

Coming into.

Deploy.

And.

We've set up many times.

Tempting to our attempting to deploy that money, but but we have that responsibility and.

Sometimes if you'll turn to the next page.

Well, you'll see how that buildup.

Shareholders' equity silver Berkshire.

Uh huh.

Had the March 31 574 billion.

Through retained earnings and we've been retaining earnings.

Ever since we took control of Berkshire Hathaway accept.

One day.

As I remember.

I think it was maybe 1968 or nine.

Yeah.

The directors declared a 10 cent a share dividend and I think that most of it in the restroom or something at the time.

So.

It's really about that.

The madness.

We've been retaining or you have been saving your money putting it to work.

And sometimes some.

Sometimes we've done things.

Big mistakes and whatever.

Whatever we never got close to payroll mistakes and every now and then we do something that really works and this is Charlie.

Was it out of the past.

It's really.

It's probably been at.

Half a dozen.

Uh huh.

Over 57, or 58 or whatever it would be.

Really important big decisions and Theres been nothing close to favorable.

So.

That continues to be.

The guideline and.

We have accumulated 571 billion.

I Couldnt help.

But.

Second and.

J P Morgan.

At $327 billion at year end, and and they're up to 338, I believe on kind of the quarter.

And but they pay significant dividends they repurchase shares they've got a business that earns better returns on equity.

Hey.

They don't followed and they shouldnt.

Oh, Paul it back exactly like.

And it does show what can be done.

Really we're not our numerical view.

You can save money.

Overtime.

We have a group of shareholders at.

The group of partners originally Charlie an item.

Wanted to save money.

And.

And while they would like.

And that normally just saw you saw at Indoorsy Davis.

And.

The Davis family.

Children grandchildren.

Sure.

Periodically that some other things with them, but they also basically left it with us.

And we were savings vehicle and.

They were able to do very.

Very well.

But they werent.

And we're trying to.

To live life.

Yeah.

Things are points of.

Earlier capitalism.

Mr Bogo.

Houses in.

And.

New England.

The assortment, but standing behind everybody eating and all that sort of thing. So we've had very few what I would call look with me.

Type of people that are attracted there's nothing wrong with it but.

But they just go someplace else.

And they are spending.

Uh huh.

Sort of unbelievable songs out for a while.

By the standards of the past are people nobody.

Nobody.

So.

Yeah.

Or or anything like that on our group deliberate well.

But the math of compounding.

Along.

Long run.

Runway.

I've done wonders and we will talk.

A little later.

Ah.

Right before lunch, we'll give an illustration of that of what can be done with that sort of philosophy.

So.

Our cash and Treasury bills were 182 billion.

As the quarter ends and I think it's.

Fair assumption.

They brought public <unk> 200 billion.

At the.

And are these.

This quarter.

We'd love to spend but we won't spend it unless we think.

Something that.

There's very little risk couldn't make us a lot of money in.

Ah.

And our stock is at.

The level of war.

It's it's add slightly.

The value when we buy in shares but we would.

Really.

Buy it in a big way, except you can't buy it in a big way because people don't want to sell it in a big way.

But.

Under certain market conditions will get deployed quite a bit of money in.

Repurchases.

See on the final slide.

Uh huh.

We have.

More than in the last five years.

We can't buy than like a great. Many other companies because it just doesn't it doesn't trade that with other volume isn't the same because we'd have investors and we and the investors.

The people in this room really.

They don't think about selling.

Many of you had only been checked the price daily.

Ah.

Oh it.

There's people who check the price daily.

And that made the money.

Forgotten about it.

We have over the years.

Uh huh.

And that's sort of the story of Berkshire.

So either.

Increase operating earnings.

And.

We will try to.

Reduce shares when it makes sense to do so and we will hope for an occasional big opportunity.

And we're quite satisfied with the.

Position we're in.

So with that background.

I think we'll turn it over to.

That could work and we will alternate.

Questions between.

And those of you in the audience and.

Okay do you want to start with the first question.

Sure. Thanks Lauren.

Let's start just given what you mentioned there was some news that came out in the 10-Q. This morning. It shows that Berkshire sold another 115 million shares of Apple and this last quarter, that's berkshares largest holding and I think in that vein. We will start with a question from Sherman Lan. He is a 27 year old Berkshire Hathaway class B shareholder.

Malaysia. He asks last year, you mentioned, Coca Cola and American Express being Berkshares too long duration partial ownership positions and you spent some time talking about the virtue of both these wonderful businesses in your recent shareholder letter I noticed that you have excluded Apple from this group of businesses.

Have you or your investment managers is of the economics of Apple's business, where its attractiveness as an investment changed since Berkshire first invested in 2016.

No.

But we have sold shares and.

Sure.

I would say that at the end of the year I would think it's extremely likely that.

Apple.

This is the largest common stock holding we have now.

One interesting thing is that.

Charlie and I.

Lots of common stocks or marketable equities or things that people love to look at.

As being.

Businesses.

And so.

When we.

When we own a dairy queen or we own whatever it may be.

We look at that as a business and when we look.

On Coca Cola.

Our American Express travel, we look at that as a business now.

No.

We can buy.

Really wonderful companies.

In the market as businesses, we can't buy all of them.

All of the shares we can't buy 90% or 80% or anything like that but when we look at Coca Cola American Express and Apple we look at them as businesses now there's differences in tax factors are observers in manager responsible way all bunch of things, but in terms of deploying your money.

We always look at every stock.

As a business and we don't.

We have no way no attempt to made to predict markets. We have no attempt aid too.

Pick stocks I went through many many years.

Doing the wrong thing.

I got interested in the stocks very early and I was fascinated by them.

Ah.

It wasn't wasting my time, because I was reading every book Passmore everything else, but finally I.

Picked up a copy of the intelligent investor.

And it was a few sentences in there.

That said much more eloquently than I can say it but.

If you look at stocks.

As a business.

The market is something this doesn't tell you isn't there to instruct you.

But it's there to serve you.

Lou.

A lot better over time.

Then if you try to take charge and listen to people talk about moving averages and look at the.

The pronouncements.

The thing again.

So that made a lot of sense to me.

The way.

We have been allowed.

Deploy it.

Charlie and I talked about that so of course constantly.

Sure.

It's changed over the years is the amount of capital we have.

That's changed and all that but the basic principle was.

Was it laid out.

My background.

And that book, which.

I picked up for a couple of hours.

And which basically said to me you've been wasting your time now, but maybe you can use what you've learned.

<unk> been reading about and put it to better use and then Charlie came along and told me out even better use and that's sort of the.

Story, why we own America.

American Express, which is a wonderful business and Coca Cola, which is a wonderful business and we own Apple, which is an even better business.

But.

And we will own.

Unless.

Something really extraordinary happens with Apple on the American Express from Coca Cola.

Oh, one Greg thanks over this place.

<unk>.

It's.

It's such a simple approach to this almost deceptive its most things if we keep working harder and harder at or a little more.

More math.

Morpheus.

Investments you don't really have to do that.

You really have to add Bureau.

A mindset properly so.

So we will.

We will end up.

Unless something dramatically happens.

Really changes capital allocation.

Our strategy.

Uh huh.

We will we will have apples are Roger.

The largest investment.

But I don't mind at all under current conditions.

Building.

Sure.

The cash.

Cash position I think.

When I look at the alternatives.

Mobile than the equity markets and I look at the composition of what's going on in the world.

We find it quite attractive in one thing.

May surprise you, but.

Ah.

We.

Uh huh.

Almost everybody I know.

There's a lot more attention.

Ah.

To not paying taxes.

And I think they should.

Yes.

We we don't mind paying taxes at Berkshire.

And.

We are paying a 21% federal rate.

The gains were taking in.

And Apple.

That rate was 35% thought that long ago on the spin and 52% of it.

In the past.

What I've been operating in.

Got it.

The government owns.

The federal government owns a part.

The earnings of the business, we make they don't own the assets, but they don't want a percentage of the earnings.

And.

They can change that percentage.

And the year and the percentage that safe.

<unk> currently has 21% and I would say with at present fiscal policies.

I think that.

Something has to give and I think that.

Higher taxes.

Are quite likely.

Ah.

It's a number of months to take greater share of your income or minor burgers.

Sure.

They can do it.

Ah.

They may decide that someday they don't want the physical deficit there'll be those large because that has got some important consequences and they may not want to decrease spending a lot of them. They may decide that will take a larger.

The nature of what we earn.

And we will pay it.

We always hope with Berkshire.

Pay substantial.

Federal income taxes, we think it's appropriate that the company the country those minutes.

It's been as generous.

To our owners.

It's been the place.

Lucky Berkshire was lucky it was here and.

If lee.

If we send them a check like we did last year, we sent an over $5 billion to the U S Federal government.

And have 800 other companies have done the same thing.

No other person in the United States would have had to pay.

A dime of.

Taxes other income taxes.

No social security taxes, notwithstanding taxes snow.

Yes, but not on the line now.

That.

I would like to.

I hope things developed well enough with Berkshire.

We wish they were in the 800 club road.

And maybe even move up a few notches.

It doesn't bother me at least.

To write that check and.

I would really hope within all of America is done for all of you shouldn't bother you that we do it.

If I'm doing it at a 21% this year and we're doing it at a higher.

Percentage later on I don't think you'll actually mined.

The fact that we sold a lateral this year.

Okay, Let's go.

With section one.

Hi, Mr. Smith.

Matthew Lai from China, Hong Kong I'm running my less that this thing company called EFT asked up and we are so grateful that you learn from you and you really inspire US My question is besides the electrical car company B IP.

And the worst circumstances, you will reinvest and reconsider to invest Hong Kong and China company. Thank you.

Well.

Our primary investments.

Well, what we have been the United States.

Sure.

We do thank you.

The companies, we invest in the I'd say as an American Express does business around the world and no company hardly does business around the world like Coca Cola.

There.

They are the preferred.

Soft drink.

Something.

Maybe like a 170 or 180 out of 200 companies 200 countries.

Those are rough approximations from.

Two years back probably but but.

At.

Degree of acceptance.

Worldwide.

Ah.

I think it's.

Almost unmatched I can't really think of any company that hasn't American Express.

Uh huh.

<unk> has a position.

And the.

Credit card.

Which I think is extremely.

Strong.

<unk>.

And.

Part of that was one of the direct part of the reason for that is one of the directors.

Introduced a few.

A few minutes ago conditional but.

It is it has strengthened.

Dramatically over the last 20 years for other reasons.

So we will.

The BYD investment.

Uh huh.

And well.

We've made them we've made the commitment in Japan, which I did five years ago and that was just overwhelmingly was compelling.

This is extraordinary.

Extraordinarily compelling.

And we put it we bought it as fast as we could.

And.

We spent a year.

We've got a few percent of our assets.

Very big companies, but thats the problem of being our size, but you won't find us making.

A lot of investments.

Outside the United States, Although we're participating through these other companies in the world economy.

But I understand.

Ah.

The United States rules.

Weakness or strengths or whatever it may be.

I don't I don't have the same feeling for.

Or.

Economies generally.

Around the World I don't I don't pick up on other cultures.

Extremely well.

And Lucky thing is I don't have to because.

Okay.

Women, some tiny little country that is no.

Just doesn't have a big economy, but I'm in the car.

Alright.

Uh huh.

After starting off with that.

Half a percent of the world's population zehnder up with well over 20% of the world.

Two of them.

Amazingly short periods of time so.

So.

We will be.

American oriented.

Uh huh.

If we do something really big is extremely likely to be.

In the United States.

Uh huh.

Charlie.

And all of those years Theres only two times.

He told me.

Yeah.

This one is really.

It would it would always go along with me and say well.

When I was suggesting is something to say well.

This is really not that great, but it's probably the best you won't come up with so I'll go along with the idea.

Okay.

So Charlie Charlie twice as part of the day, what would maintenance et cetera.

Ah.

Bye Bye bye.

B Y D was one of them and Commscope was the other.

We bought a certain amount of.

Costco when they bought quite a bit of BYD, but but.

But looking back.

He already was aggressive, but I should've been more aggressive.

And Costco it wasn't we weren't but he was right.

Big time.

And both companies and.

I will.

I'm aware of what goes on in most markets but.

I think it's unlikely that.

We make any.

Large commitments.

It almost any country you can name all of them.

We don't rule out entirely.

I feel extremely good about our Japanese position, then we will have that.

I don't know how many years.

Greg will be something with at some point.

And we couldn't be happier with that much.

But you really have to.

We really have a different outlook.

And looking at it.

Yes.

Well, we look at your money, which we couldnt.

Golden Bear to lose and we feel that we were very light.

Most likely the.

It truly major mistakes.

The states and in many other countries.

Okay Becky.

This next question comes from Stanley Holmes, who is a Berkshire shareholder from Salt Lake City.

Yes, and as 2024 annual letter to shareholders Chairman Buffett noted the severe earnings disappointment experienced in Berkshire Hathaway energy last year and express concerned about earnings and asset values in the utility industry recognizing that investors are worried about climate change related expenses and the new uncertainties cloud there.

<unk> environment, the chairman suggested that some jurisdictions may adopt the public power model. There are now signs that policymakers in Utah, and stating, citing states of remedy may already be poised to move in that direction. The Utah legislature recently mandated states right to serve as sole purchaser of energy from it in.

In state power plant and understood in some circumstances purchased the power plant before it can be retired the state utility regulator will be legally bound to prioritize public purchases of power and facilities that could include assets owned by Berkshire Hathaway energy specific work utility Rocky Mountain power will Berkshire <unk> continue.

To invest resources in jurisdictions, where corporate assets may be subject to confiscatory state policies and actions and how its Berkshire energy working with officials in Utah to minimize potential corporate losses, if and when state control has asserted over its electrical utility sector.

Greg joined with me and the answer on this but.

I would say our feeling is that Utah is actually.

Very likely to treat us fairly weather.

Action is an.

In granting appropriate rates they'll give us the return we expected generally expected.

In terms of our own properties or if they decided for some reason to go to public power I think they would compensate us fairly.

Yeah.

And the $19 30, George Norris Senator from Nebraska.

Turning Nebraska public power.

Right and.

Our experience.

Would.

Indicate that.

Three enterprise as its role in that.

Ah.

We can run.

Hey.

Okay.

Privately owned.

You would totally company.

There will be more efficient for society.

Leased in most states people can do.

With public power.

But what has happened is that.

There's going to be enormous amounts of money enormous amounts of money.

Spent.

Power.

And we've been clear.

If you're going to do it.

With.

Private owners, there is nobody better situated than Berkshire.

Two.

<unk>.

The.

A portion.

A large portion of the needs of the country.

And we will do it.

At at a rate of return.

That is.

It does not.

Yeah.

That's designed to make us.

I think this one.

Rich or anything like that.

What rate of return but.

We won't do it if we think we're not going to get any return would it be kind of crazy.

We've seen actions in a few states.

Sure.

Uh huh.

Sure.

Some of the cost.

Associated with climate change are not being.

Regardless of this.

<unk>.

Cost of the utility shouldn't occur will believe me that was publicly owned as I would've incurred two but but we will do what societies tells us.

And we haven't got the money and we've got we've got the knowledge to participate in something that is enormously important for the country, but we're not going to do we're not going to.

We're not going to throw a good one.

Money after after bad and I don't worry about it.

My understanding is right.

You can elaborate on this now immediately.

But I don't regard Utah.

Yes.

Being unfriendly.

To the idea of your total lease being treated fairly.

Charlie.

[laughter].

Yes.

I had actually checked by yourself a couple of times already.

Also with us once again.

It's a great Honor award.

Yeah, when we warn you touched on it initially in your letter.

Relative to the <unk>.

Challenges in the industry and then you've just alluded to the significant investment that has to go into the energy industry. The utility sector for for many years to come.

And I think we start there if I think of our different utilities, and we'll definitely come to Utah and Pacific Corp.

But if you look at the underlying demand that is building in each of those utilities and the amount of dollars that are going to have to go in to meet that demand. It's absolutely incredible. So when you raised in your letter. It's a really important issue we have to have a regulatory compact that works between.

If it's a public utility asked to work in <unk>.

Concert.

State, Utah being an example.

Or it ultimately becomes potentially a public power entity.

Just to just to set the frame a little bit if I think of.

Which you mentioned and the underlying we've made substantial investments there it's been very consistent with both the.

Public policy that statement legislator wanted and enacted.

Specific laws to encourage that.

But that utility is more than 100 years old right now.

And if we look at the demand.

That's in place for mid American Iron, Iowa utility over the next say into the mid 2000 Thirty's.

Associated with AI and the data centers that that demand doubles.

In that short period of time.

And that happened and it took a 100 years plus to get where we are today and now its going to double and for.

And that will require substantial amounts of capital from the from mid American and its shareholders and how that will function as if we have a proper regulatory compact in place, which which you've highlighted if.

If we then go to say, Nevada, where we own two utilities there.

And cover the lion's share in Nevada.

Can you go over a similar timeframe and you'd look at the underlying demand in that utility.

And so you go into the <unk>.

Later 2000 Thirty's.

It triples.

The underlying demand in billions and billions of dollars have to be put in our rate base will literally go from.

It's not a modest level now.

But you're talking.

Probably an incremental six to 10 billion at least of rate base going into that type of entity, which requires.

Again, the alignment with the state and their policies and a proper recovery of our underlying both capital and.

Our return on capital.

So when we come to the wildfires that's been a substantial challenge because it's the first time theres been a lot of discussion around.

One of our utilities, one experienced significant losses associated with the.

The wildfires.

What portion of those costs will be recovered and that's really the dialog we're in and does that properly properly work.

When I think of the wildfires where.

There's been many claims in our recent additional claim last week for $30 billion and it's we don't take that lightly but it is an incremental claim to an already existing lawsuit that's in place and.

And when I think of Pacific Corp.

We're in a place where.

First and foremost.

All the litigation will be challenged because of the basis for it.

At least we believe Theres places, where it's unfounded and we will continue to challenge it.

And it will take many years can be resolved as Warren highlighted in the letter, but if you think of Pacific Corp.

And the litigation there.

Number one.

How we how we think and operate those assets have to change.

Because we've had a regular we've worked with the states across all our states for many years with the fundamental bold to be to keep the power on.

And our teams and our employees worked incredibly hard to keep the power on the Anda out through storms. Unfortunately through the 2020 fires the instincts were not to turn off the power the <unk>.

Instinct was to keep the power on to cheap hospitals.

Fire stations responding Ami.

Not in their mind or at least culturally it wasn't in our minds to de-energize. So the first thing we had to do we step back and say, we've got a fundamentally changed the culture not just at Pacific Park, but across all of our utilities. The first thing we have to recognize is that there is now going to be switched.

Situations, where we prioritize de energizing.

The assets and that's completely different than we've had we've operated those assets as I've highlighted for 100 plus years. So we start with the culture. We had to change at the second thing is we've now changed our operating systems. So that we can turn off the power very quickly if there is a.

Fire, that's encroaching, we will turn off our systems now and will go the minute.

The conditions are safe again will reenergize it, but we've had to do that and then the.

Third thing is continuing to invest in a way.

That allows us to try to minimize the risk of a fire, but when you get back to Utah and Pacificorp. The challenge. We do have is within Pacific Corp. As we go through both litigation and through continuing to operate that entity.

<unk> is a certain amount of cash.

Capital and profits that will remain in that entity and being reinvested back into that business, but but fundamentally as we go forward, we need both legislative and regulatory reform.

Across the Pacific Corp States, if we're if we're going to deploy incremental capital.

Incremental contributions into that business as Warren said, we don't want to.

Through good capital after.

Bad capital so it will be very disciplined there, but the reality is there are opportunities to solve.

Legislative and regulatory solutions.

And the Best example, we actually have and I think it's the gold standard across the country as Utah. So.

So it was Warren touched on it's.

It's a state we're happy we're investing in it as part of Pacific Corp. So theres, a certain amount of balance there as to how we do it but.

And the last legislative session at that existed.

<unk> actually passed the bill.

It does a couple of very important things one it caps.

Non economic damages on wildfire claims.

So if you go back to the wildfires, we have in Oregon.

And the claims Youre hearing filed for.

There is economic damages associated with them and in those harms should receive economic damages associated with that but unfortunately.

And even though Theres legislature in case line, Oregon that says.

Wildfire non economic damages should not be awarded.

Very substantial non economic damages being awarded there, Utah took a very proactive position to say, we won't cap those non economic damages and it creates an environment again, it's back to that is there an environment, where you want to invest in yes, and then and then incrementally they've created.

A very substantial funds.

Literally called the wildfire fund for for fires in Utah that will help facilitate both liquidity and the ability to resolve the situation. So Utah, we believe including the legislation that.

A lot of other things came out of it is the actual gold standard as we go forward. So very important issue for Berkshire Hathaway energy.

But at the same time it is a Pacific Corp issue.

The risk of regulatory compacts, not being respected much broader one that we'll always evaluate and be careful how we deploy our capital but.

More specific we'll manage through it and I see other very good significant opportunities and pacificorp.

I mean in Berkshire Hathaway energy.

The return on the return on equity investment.

It's Ben.

Promulgated and achieved over the years.

It's been particularly in recent years.

Well below the return on equity.

This has been achieved by American industry generally.

So.

Sure.

Yeah.

Whether whether you earn X or X plus a half a percent or.

Minus a half a percent that differs by state.

Some states are more attractive than other.

But.

Whether you.

Earn X.

Or go broke it.

There's not an equation that works and.

Yes.

We won't put our shareholders.

Money, they didn't give it to us to lose it all.

He might lie ahead of us better.

Plus I have presented an X minus a half a percent, but it's unlikely you would totally industry will never be as good as well.

I mean, just we're mostly as it goes.

Businesses, we own.

In other arenas I mean, you're looking for return on tangible equity.

Coca Cola or America.

American Express sure.

To really topped off Apple.

It's just.

<unk>.

Just a whole different game, but the new total leaves the trade has been.

Uh huh.

The compactor spin that you get a <unk>.

Modest return.

And.

Climate change comes along and it causes a way more fires.

That's just a cost of doing business.

It doesn't mean that we can't do things to mitigate.

<unk>.

Fires in the future you can make different policies on it when you turn off the lights, but somebody's going to do somebody's going to put up.

Many many hundreds of billions maybe in the trillions.

I'm a change enters into that.

It can be done through a public power or it can be done through private.

Enterprise to quite a degree.

And we would be certainly good for 100 billion or more.

Yeah.

We're not going to throw good money after bad.

Yes.

Okay.

Stu.

Station for.

Yeah.

Hi, I'm, Joe visiting from San Francisco, How do you think about the rollout of technological advances, especially generative AI on more traditional industries. Thank you.

Yeah, I made a mistake and calling on for but I'll get back to later on.

Yeah.

Don't know anything about them.

AI.

But I do I do.

Hi.

That doesn't mean I deny its existence or important or anything of the sort of <unk> and <unk>.

Last year I said that.

We love the Genie out of the model one way one we developed.

Nuclear weapons and.

That Genie is wind up doing some terrible things.

Lately.

The power of that journey as well.

Scares me.

I don't know that I don't know any way to get the Genie back in my model.

Why is somewhat similar.

It's all it's part way out of the bottle.

It's enormously important and it's going to be done by somebody so.

We may wish we'd never seen that genie or wouldn't make do wonderful things I'm certainly not the person that kind of evaluate that and I probably wouldn't have been the person because of evaluated during world War.

Two whether we.

Tested the 20000 ton.

Our Bom that we felt was.

Absolutely necessary for me.

Yeah, a lot of states.

Actually say was in the long run, but we also had asthma.

I think it was it was on a parallel side in terms of saying you may ramp with this test.

Right.

Atmosphere in such a way that civilization doesn't continue.

We decided to let the genie out of the bottle and is accomplished the immediate objective, but weather whether its going to change the future Society.

We will find out later now AI.

I had one experience.

That does make me.

Some of them are solved just explain it.

Barry.

Recently.

Fairly recently.

<unk>.

Hi.

Hey.

An image in front of my eyes on.

Screen.

And it was.

It was me.

As my voice.

And I'm wondering what kind of clothes or.

Oh.

Why for my daughter, and wouldn't have been able to detect any difference and it was delivering that message, but nowhere came from me so yeah.

Yeah.

When you think of the potential for scamming people.

If you can.

Reproduce.

Yeah.

Images, so I can't even tell.

I need money.

Your daughter, I've just salad.

I had a call.

Car crash.

So $50000 required I mean, scamming has always been part of the American scene.

But this would.

Me.

I was interested in investing in scamming.

It's going to be the growth industry of all time medicine enabled.

In a way.

Obviously.

It has potential for good things too, but I don't know how you.

Based on the one I saw recently.

I practically would send us to send money to myself overruns, some crazy country.

So.

I don't have any advice on the world and also because I don't think we've.

We know how to handle what we did with the nuclear.

Jamie but I.

I do think.

As someone who doesn't understand it and I'm thinking about it.

It is.

It has enormous potential.

For good an enormous potential for arm.

Just how that plays out.

Uh huh.

I'd like to mention about that.

Jean <unk>.

We will not be participating.

The afternoon.

Session. So.

Could focus on any if there are insurance questions do you want to ask.

They're a good one.

This next question is for both water and energy.

It's from been known as a Minneapolis shareholder who's been a shareholder since 1995 when he says in an interview this past year, Todd Combs said that in first meeting you in 2010. He told you Geico is better at marketing and branding progressive as a data company and data is going to win in the long run than it appears.

You did not prioritize data analytics, a geico until a decade later when you made Todd C E O.

As business units like Geico age and need new strategic direct and direction I Wonder if berkshires hands off management approach as a source of vulnerability will you. Please review your thinking on changes made a geico and explain how Berkshire is structured to react if the Berkshire CEO sees that a business unit is strategically off track and a G I hope you're well.

Continue to update us on yours, and Todd's progress at remedying, the data analytic shortcomings that geico.

Jim would you like to yes.

As Loren has pointed out in the first.

One of the.

One of the drawbacks that geico is faced with it hasn't been doing as good a job as matching rate with risk and segmenting in pricing product based on the risk characteristics.

This has been a disadvantage geico.

A few years now we are trying to fill a play ketchup technology is something that is unfortunately, a bottleneck but.

That again, we are making progress.

And equally importantly, we have hired people who are much better than what they they inherited in terms of data analytics and pricing and slicing data.

Yes, I recognize we're still behind we're taking steps to bridge the gap and hopefully.

By the certainly by the end of 'twenty, five we should be able to be.

Along with the better players and it comes through data analytics, whether it's pricing, whether it's claims or <unk>.

The other factor that drives the economics of the insurance business.

I would add equating railroad risk.

Yeah.

This is important in every line of charge versus something else, which are involved with us deciding whether a given rate.

Offers us.

Chance.

<unk> ability that we will take.

I think a little money.

But.

Sometimes we're only risking losing a little and sometimes we're risking losing use your models, but but but geico.

And progressive has done a better job that and that recently, but but our fundamental advantage got golf courses that we have lower cost than virtually anybody and that's cost advantages.

Been dramatic we've driven our underwriting expense ratio.

Oh, 10% and theirs.

Sure.

But it's just very very very few companies that can compete with us. So so it isn't.

So it's not in the least the survival question it doesn't even.

Exactly a profitability thing but.

We would rather have.

X percent of the market on the half of.

X percent, but but.

We.

Roughly.

Uh huh.

I think in the month of March.

We're just.

We didn't we didn't lose policyholders becomes $16 million or whatever it is of them.

We've got the lowest cost operation so.

It's it's it's it's not a threat.

Promote.

Survivals that upfront.

Not a threat.

Two even profitability, but on the other hand, we would like to be growing.

With something but.

Is the best model around in the insurance business.

<unk>.

Of delivering at a low cost and we now have a recognition that we didn't have.

Back when legal but when started the 1936, but at the same principle that work then.

If you're going to offer somebody a good Robert cheaper than the other guy.

And.

And everybody.

Has to buy it.

It's a big business.

It's very attractive to be and then guy who was a very attractive business and it's got a slowest costly and it does have to do a better job of matching rate to risk but.

Our low cost.

Mass effect.

For a while but we could we could do.

Without progressing up as much as we've shown up in the matching of rate to risk.

Todd has been working intensively that he's made a lot of progress, but there is.

There's still work to do.

But in the meantime, we're not going to shrink and.

Uh huh.

We should make.

That are underwriting profits for most companies in the auto insurance business.

Okay I'm gonna backup.

Go to.

I think that legislation two out of it earlier so.

Do we have somebody there.

Yeah. Good morning, My name is Sebastian Saar Turner I'm from Munich, Germany, Berkshire Hathaway is.

Battery respective company in Germany.

And my question is who are your most trusted advisors is today is it tends and taught it Greg and honestly it.

Is it your wife children, and what do you value about them. Thank you.

It depends whether they are advisory committee on money on other things.

Hi.

Mike.

John My wife totally.

But that doesn't mean I ask them what starts to buy it.

Yeah.

But.

The.

I was.

In terms of managing money.

There wasn't anybody better than in the world to talk to for.

Many many decades in Charlie and that doesn't mean I didn't talk to other people, but if I didn't think I could do it myself.

Wouldn't have done it.

Uh huh.

So.

It does.

That makes sense and I talk to myself.

On the investments.

And and.

Yeah.

My children have gotten a whole lot wiser over the years.

And.

So I listened to Oh.

A lot of things.

Oh.

My daughter on who to vote for locally because she knows a lot more about that than I do.

And all.

I'll listen.

No my Wi Fi and a lot of things and I won't get into details.

So.

Yeah.

It is it is important.

You don't live a life.

You surround yourself and limit yourself to.

The people you Trust.

It won't be much fun, I mean, I've literally been in the position.

Ever since I was in my twenties.

Of being able to.

Two.

Have people I trusted around me and Ive been mistakes occasionally.

But they filter out overtime, we will learn.

The.

When I found Charlotte for example, one.

And all kinds of matters not just investment.

Yeah, I know that somebody that.

Uh huh.

I'll put us this wasn't even think about this.

Charlie.

Over the years, we worked together not only never once.

Slide than ever but it didn't even shape things so they told half lives quarter wise too.

Stack the deck in the direction that you wanted to go it was.

Absolutely.

<unk> considered.

Total.

Most important.

I realize now that occasionally got him in trouble or general partners or something.

The woman I really prefer the way you used to do you or the way that some of the overhead across the room.

It was but in terms of having a partner.

Yeah.

Simply cannot think.

Have a conversation I ever had with Charlie.

And the least misled mayor shaped this way or anything in the short so when you've got that in your life.

Discharge salespeople.

You sort of forget about the rest.

Okay.

This question's for AG.

From May have a railcar.

Climate change seems to be impacting the insurance industry heavily with major players pulling out of markets like California, because of wildfire and flooding risks combined with pants, increasing how does Mr. Jane C. This risk expanding to other regions and how has the thesis on insurance investments change because of it.

Yeah.

Climate change climate risk is certainly a factor that is become come into focus in a very very big thing.

Now the one thing that mitigate the problem for us, especially in some of the reinsurance operations. They are in is our contractual liabilities are limited to a year in most cases.

As a result of it at the end of the year, we get the opportunity to reprice, including the decision to get out of the business altogether. If we don't like the pricing business, but the fact that we are making bets that di is down to one year at a time certainly makes it possible for us to stay in the business longer term than that.

Might have otherwise.

Because of climate change clearly prices need to go up.

It is difficult to be very scientific about how much the prices need to go up they need to go up a lot and we keep increasing prices and hope we stay above ahead of the curve, but that doesn't happen in all cases.

The regulators don't make it any easier by tying our feet to the ground and making it difficult for us to withdraw from certain territories, though to make.

Dramatic changes in the pricing of certain products.

As a result of which a number of insurance carriers, including ourselves have decided to not trade business in certain states.

I think the regulators are getting a little more realistic about the and they are waking up to the fact that the insurance carriers need to make some kind of a return a decent return for us to keep deploying.

Deploying our capital.

It's a constant battle back and forth it's Ben.

Against the capital providers. These last few years, but I think we're coming back into balance. If you look at the results that have been recently announced by the insurance carrier everyone's now making record profits off.

Obviously that is not lost but certainly for the next several months I think the insurance industry. In spite of climate change in spite of increased.

Risk of buyers then flooding.

It's going to be an okay place to be.

Climate change.

Increases the risk.

Yes.

In the end it.

It makes our business bigger over time.

Not if we miss price them, well, so roll broke but.

But we do it one year at a time overwhelmingly and.

And I would say this.

I would rather have a G assessing the centre in 8000 underwriter.

Our insurance managers in the world.

The.

The factors arent.

Yeah.

We'll take Atlantic Hurricanes it.

It would be our probably our biggest risk.

Yeah.

There's no question that you can measure the temperature of the water.

In the Atlantic.

And.

You know what more does the.

Okay, but you don't know what necessarily.

Whether that's good or bad because it make.

Cause them to turn faster.

It makes it may change the path as well as the intensity and frequency of.

Of the of losses.

But well well right at one year at a time and we'll have a good underwriting.

We don't have to tell you what's going to happen five years from now or 10 years from now and.

People, who don't have sort of.

Analytical insurance mines.

Comment on this.

Subject really.

Don.

Spanned our knowledge.

It's we've got a lot of letters from people, but I'm sure a good iqs.

They don't really know.

They've done.

I don't understand the insurance business.

And they're not wrong I don't think in my mind about climate change.

But.

If there was no risk they know what's your orange business.

We're in the business.

<unk> it.

We do it one year at a time.

And there's some exceptions, where you can't do it.

What are your your decisions to extend for a long time in the future.

Uh huh.

We try to avoid those but again.

You don't need a thousand people.

Analyzing.

Water costs are I think he is.

One very very very smart guy and.

And we brought them.

Okay.

The only thing I'd add is that climate change much like inflation.

And right can be a friend of the risk bearer.

And it has been for us.

If you look at Geico would add 175000.

Policies roughly in 1950.

Roughly 40 Bucks.

A car.

So that was $7 million.

Volume.

Now we have.

We're getting over $2000 well.

All of the advances.

Technology and everything like that if we had been weathered some formula what we did about $40. So it's about a terrible business but.

But in effect by making the cars much safer as I've also made a much more expensive to repair and a whole bunch of things have happened and clothing inflation.

So now we have a $40 billion business from something that was $7 million.

Uh huh.

Backbone.

Colorado, So if we had operated in a non inflationary world.

Geico would not be a.

A $40 billion company.

Yeah.

Okay.

We're now finally coordinated to workstation three I believe.

Luke I have run I, we're in I'm Liam twice, so for Newmark, Ontario, Canada, I got invest Berkshire. Thanks to my Dad, who brought me down to this meeting I'm. So excited to be here, most 27 year old titles.

Sure wrappers, but instead, my idols or Warren Charlie rule missed forever and also your cousin, Jimmy who Unfortunately had to go to this year two it's a tough year as a Canadian similar with Greg I always wonder if our Canadian economy, and what do you think about the Canadian economy, we got some feedback.

<unk> Bank stocks right now and I don't know what your opinions on our on this and I also wonder.

And their nineties, if the rumors are true and you're still able to Mcdonald's I like fast in myself, but I always wonder and 90 theory is still able to ethos and enjoy the cultural Hill.

Thanks, Lauren Okay, well, we've got a Canadian here, so I'll, let him answer.

The first part.

And if you watch me, you'll see what I like to eat.

I'll go to it great Okay.

Yeah, well, we are fortunate to have a number of operations up in Canada.

It goes across many of our operating entities and then as Warren touched on all the businesses that we have a piece of that we're invested in are up in Canada. So the presence is significant.

We're always looking at making incremental investments there because it's it's.

Environment, we're very comfortable with Warren touched on understanding the U S environment business environment.

I would put Canada equally in that.

Bucket that we understand it would be comfortable and I would say the economy moves very closely.

In the U S. So the results we're seeing out of our various businesses that report both the U S and Canadian operations.

Alright drastically.

Right.

And there's a few that were on the energy side. For example, we make very substantial investments up there in Alberta, but again, its very consistent with how that economy is growing and I would see it being very consistent.

Consistent with what we see here.

Warren anything too yeah, no we weren't.

Good idea.

It's obviously there aren't many big companies up there is on the road.

States, but but.

When we get to.

I got one from Canada, but just the other day that I sent over to Greg to that but when we see anything that suggests they get there.

It's of a size with interest here and meets other requirements.

Uh huh.

We don't have any hesitancy.

<unk>.

Putting big money in.

In Canada.

And there are things that we actually can do.

Fairly well.

But.

Well in Canada.

And will benefit from.

From <unk>.

Berkshire participation, we did it some years ago.

Not that many years ago, but but.

It was a financial institution up there and.

They had a problem in.

And they did that.

Remember 30, plus.

That'll various.

The people that were kicking out around him. Meanwhile, places getting closer to the edge for not a fundamental problem in.

Uh huh.

Sure from our August one up there.

I heard about it on a Monday or something in total wastewater went up there.

We offered a solution or in a couple of days or something.

It was getting close to the brakes on.

We do not feel uncomfortable in any way shape or form.

Putting our money into Canada, we're actually.

We're actually looking at one thing now.

Yeah.

But.

And all that they still have to meet our standards on terms of what we get for our money.

But they don't have.

If a memo we don't have any mental blocks about.

Our country and of course, there's a lot of the countries, we don't understand at all so.

Canada.

That's terrific when you've got.

A major economy, not the size of the U S, but a major economies.

Absolutely.

Do you feel confident about operating there.

Okay. Okay.

I warn you just said that you'd rather have a G running risk assessment at the insurance operations than any other thousand insurance adjusters in the world. So I'd like to follow up with a question that came in from Mark Blackley in Tulsa, Oklahoma. He said worn for years have spoken about the incredible impact of G. It has had on Berkshire, you've often Joe.

So if you in a G. During the sinking boat and we can only say one of your swim for it just went to a G.

While we often discuss plans for the next CEO of Berkshire Little as mentioned on who we're one day replace a G. How should we think about the future of the Berkshire insurance operations, given how challenging it maybe to find another AG and like you hear Ajay start on thoughts on this as well.

Well I would say, we wont find another gate, but.

Fortunately a good bit younger than I am so I hope you have to worry a little bit about maybe first before you start worrying about it.

[laughter].

Uh huh.

It.

We won't find another G, but we have an operation.

He has created.

And.

At least part of it.

It's there are certain parts of it.

That are almost impossible for.

Betters to imitate and if I was in their shoes, I wouldn't I wouldn't try and Emma.

Imitate them.

And so we've institutionalized.

Some of our advantages.

Got a G.

Well he had.

His presence allowed us to do it.

And he did it.

But now we've.

We've created a structure.

That didn't exist when he came in 1986, nothing close to that exist with us or with anybody else.

And.

Insurance is the most important business.

At Berkshire.

Yes.

Marketable securities are important but.

They're not in the car.

As exactly as is.

Our insurance business.

And.

Ah.

We won't have those same business at Fuji isn't running up.

Well have a very good business.

Thanks Jean.

And I've been in the business when he came in 1986.

Yeah.

I first wanted to guide 2000, 1950 with first bought National Indemnity a 1957.

And it was something that we'd made quite about the money and the stocks up.

Insurance companies, but.

Ah.

We needed we.

We needed a shade in.

Unfortunately came out of the office on a Saturday.

It was.

Tired of working.

That's something where it really didn't.

Okay.

It just didn't challenges it was out of luck.

I said, well, we got a lot of challenges so.

I don't know.

Perfect.

He has never seen an insurance policy.

Sure on stock, but here are the keys and that's worked out very well.

Uh huh.

Thank you very much Warren.

Thank you very much everyone.

The fact of the matter is nobody is irreplaceable and we have Tim Cook here in the audience I believe who have proved that and.

Set an example for a lot of people who follow.

That's a great observation.

Now having said that I will also add that our board is conscious of the succession issue not only at Warren's level, but also at my level and every year. They have me sitting in front of them answering question.

Having Michelle my ideas with them in terms of what would happen.

The operations, if I get hit by a truck.

We go through the various operations he have a review with them a short list of people I think ought to be candidates for replacing me and in addition to that I go a step further and identify a particular individual as the person I would hand over the keys to if something were to happen to me, obviously that would be.

Subject to change, but we take this issue fairly seriously and I think at the end of the day.

S T as Tim Cook it through to US it would be the biggest non issue of the day you have to.

Well keep still keep evolving around the axis.

Okay.

We know what we.

We want we know what we will do.

Do we know it's a good answer, but we know it isn't it isn't we want.

Don't have another G.

Station five.

Hi, My name is Ann and Unakas and I'm wondering as you add one more day with Charlie what would you do with it.

Yeah.

[noise] well.

It's kind of interesting because <unk>.

I did have one more day I mean, it wasn't a full day or anything but.

But he.

We.

We always.

Lived.

In a way where we were.

Happy with what we were doing every day I mean, Charlie.

Charley liked.

Good morning.

He liked.

<unk> mentioned in the movie he liked.

Wide variety of things so it was much.

Broader than I was but I didn't have any great desire to be as broad as it wasn't he didn't have any great desire to be us.

As narrow as but we had a lot of fun.

Doing anything.

<unk>.

We play golf together, we played and TV together, we we did everything together and and.

And.

You may find kind of interesting.

Much fun.

Perhaps even more to some extent.

With things that failed.

Because.

Then we really had to work and work our way out of them.

And.

Sensors more.

More fun.

Having having somebody that's your partner.

And digging your way out of thoughtful when there is just sitting there.

And watching.

And the idea that you got 10 years ago, just continually produce more and more profit so it wasn't.

Yeah.

He really really for me, though on he wanted to 99.9 years.

If you pick two guys.

He never.

Publicly said they never did it.

A day of exercise, except where it was required when he was in the army. So you never did a day a voluntary exercise.

I never thought about what he ate.

Uh huh.

That's it.

At.

Uh huh.

We started it every day.

Charlie It was <unk>.

Interested in more things that I was.

But we'd.

We never had any.

Doubts.

The other person period.

Oh by that and another day with them, we'd probably the same thing we were doing the earlier days, but.

And we wouldn't have wanted to another we only had one day.

That's a great advantage.

Not knowing.

What are you going to what they are going to die.

Sure.

And.

Charlie you always said you know that.

Tell me where.

I'm going to die so I'll never go there well.

Okay.

Yeah.

Got it.

There's sort of this.

And.

He went everywhere whether it's in mind.

And therefore.

It was not only interested in the world.

At 99, but the world was interested in him.

It's remarkable.

They.

Hey.

Okay.

I would.

Hold on.

In the last few years.

I've never seen anybody that.

Was peaking.

At 99.

Ed.

And.

And where the world wanted.

And see them.

I mean, they actually wanted to go lots of $3 51, north of your industry.

And whether it was.

Well I could name a whole bunch of names, but just I'll start with <unk>.

Oscar but go down the list and they all wanted to meet Charlie and Charlie was happy.

To talk with them and.

The only the only.

Person I can think of otherwise with the Dalai Lama.

I don't know if they have a lot of awesome common.

[laughter], but but.

It was.

He loved those lives the way you wanted to do.

And.

He got to say when they wanted to say.

Hey, like I loved having a podium.

And.

Again, I can't remember any time.

But it was more of a macro as a matter of images didn't happen.

And.

Calling him was.

Fun back one.

Distance rates were high.

And.

We didn't talk as often.

So yours in recent years as it used to be on daily.

For long periods.

And we did keep learning and we like learning together.

Okay.

Yeah.

We tended to be a little smarter because.

One is two years went by because we had mistakes and we had other things where we were.

Or something.

Yeah.

And the fact that.

He and I were on the same wavelength in that respect.

That's the world, we're still a very interesting place to us when they got to be 99, and I got to be 93. So I don't have a perfect answer for you there, but I can tell you the ingredients that would.

Go into.

Sometimes people would say the mayor Charlie one of these meetings you all if you could only me.

Have a wash with one person.

Oh I'm flipped over the last 2000, or so years, who would you want to have it.

He says I have already met all of them.

He ran all of our books.

And he eliminated all the trouble of going to restaurants later for anything like that I just went through a bulk of it isn't that Ben Franklin and.

He really.

It was remarkable.

No one else to meet because he.

Aid, where all their stuff and they like Ben Franklin stopped, but it wasn't like mine, but but.

But with Ben Franklin, They just had to read about it.

It doesn't have to go have lunch with him or her it was short.

But it's an interesting question what you should probably ask yourself is that.

Who do you feel.

That.

He didn't want us to start spending.

A lot of State Bureau life, well and.

And then figure out a way to.

Start meeting them.

Or tomorrow.

And beat them as often as you can because why wait a little last day.

Don't bother with the others.

[noise], Okay Becky.

This question comes from Carol again in Switzerland.

Europe.

And this is for both Mr Buffett and Mr. Jain.

As political instability in the world is growing with a rise in the number of armed conflicts and trade tension. There is also increasing risk of cyber attacks. What are your views on cyber security insurance asking this question in general for retail small businesses and large companies, including critical key infrastructure such as power plants.

<unk> airports nuclear plants et cetera, do you see a potential for profit, making in cyber security insurances and what are the key challenges.

Yeah.

Okay, Let me start.

Cyber security cyber insurance has become a very fashionable product these days.

Yeah.

Over these last few years it is at least a $10 billion market right now globally.

Profitability has also been fairly high I think profitability of at least 20% of the total premium.

Has ended up with traffic in.

In the pockets of the insurance.

Now having said that.

We at Berkshire tend to be very very careful when it comes to taking on cyber insurance liabilities.

For the part of actually for two reasons. One is it's very difficult to know what is the.

Quantum of losses that can be subject to a thickness single occur.

And the aggregation potential of cyber losses.

Especially if some.

Cloud operation comes to a standstill.

That aggregation potentials can be huge and not being able to have a worst case gap on it is what scares us.

Secondly, it's also very difficult to have some sense of what the.

What we call loss cost or the cost of goods sold could potentially be and its not just for a single loss, but for losses across overtime.

They have been fairly well contained.

100 cents on the dollar of the premium losses over the last four five years I think have not been beyond 40 cents on the dollar, leaving a decent profit margin, but having said that there's not enough data to be able to hang your hat on and see what you got.

True loss cost is.

So in our insurance operations I have told the people running the operation is have discourage them from writing cyber insurance.

The extent they need to write it system satisfies it means.

I have told them no matter how much you charge, if you tell yourself that.

Each time you write the cyber insurance policy you are losing money, we can argue about how much money, losing but the mindset should be.

Making money on it you're losing money and then we should grow from there.

So it is good it's projected to be a huge business. My guess is at some point it might become a huge business, but it might be associated with the huge losses and our approaches to sort of stay away from it right now until we can have access to some meaningful data and hang our hat on data.

Well you just made.

You just heard Y O G. It isn't valuable because.

Uh huh.

When you insure something you really want to think of what how much can you lose.

And.

The question.

I remember the first time it was happened I think in the 1968, one that we're the riots in various cities.

Because.

I think Bob I think it was the Bobby Kennedy depths et cetera, it off for the Martin Luther King does I'm, not sure, which one but in any event when you write a policy.

You have a limit on that policy.

But the question is.

Is.

What is one of that.

So with.

Yes.

If somebody.

Fascinated in some town.

And that causes losses.

So businesses all over the country.

If you've written all those thousands of policies you have one event.

Or do you have a thousand events.

And.

There is no push water.

That kind of a dilemma.

Zen do more than cyber.

Because if you think about it.

If.

Let's say you are writing.

$10 million a month per <unk>.

For risk.

That's fine.

It was $10 million.

For some of them you can take it but the problem is a threat.

One event turns out effect.

A thousand policies on somehow they're all linked together.

In some way.

And of course, the side that way.

Yeah.

You've written something.

In no way, we're getting the proper price for them and could break for the company.

And I will tell you the most.

Most people want to be in anything thats fashionable when they write insurance on cyber and easier shooting right a lot of it.

The agents like they're getting a commission on every.

Policy they right.

You've got to have somebody in charge of the things that understands that you may get an aggregation of risk you don't ever ramped up but it may be worth something some earthquake happening someplace shift because you have all much of.

Policies.

Million dollar limit.

I would say that.

Human nature is such that.

But.

Most insurance companies will.

They're very excited and their agents will get very excited it's very fashionable and it's kind of interesting.

And.

As Charlie would say and maybe Rob poison.

Yes.

Yeah.

Okay, well that cheerful here will go decision sex.

Yeah.

Good morning. This question is for Warren Buffet and Glenn Abel My name is Maria printers, I am retiring from Las Vegas, Nevada.

I'm here today as a member and she spun Nevada and good after the ban lifted let D leaders for them by a man of Jess.

I am also us.

Well almost.

Represented in Maryland.

Families in Nevada, who are struggling to pay their utility bills.

One that says stool affordable clean electricity.

I want to do they why is and the energy wishes him by the Berkshire Hathaway.

<unk>.

New gas plant instead of investing in solar energy with Nevada.

And this sign is they are in the country.

Can I expect.

Do you see future latest shape.

Dangerous investments and the fossils levels more seriously.

Thank you.

And thank you Maria.

Greg you want I'm sure.

Thank you.

So as we touched on with NV energy even earlier theirs.

A lot going on there.

Think of there's no question solar is a great opportunity for NV energy and we will continue to.

Utilize it as a resource and continue to invest in it.

In that utility than any other utility we have in Nevada.

We're also in a point, where when you think of a transition that's going on within the energy sector. We are transitioning from carbon resources to renewable resources as was noted but it will not occur overnight that transition will take many years and as we use it.

Renewable resources, such as solar or wind.

They are in intermittent.

And we do try to combine it with batteries, but.

At this point in time.

Cannot transition completely away from the carbon resources, so if I think of Nevada.

In the next two years or last two coal units are actually in the next year or last two coal units will retire, but we are replacing them with.

The new gas unit, which is truly needed to make sure that system remains reliable and available to our to our customers and that's and that's done in conjunction with our with the state.

Representatives and our regulatory agencies to make sure. We can serve those customers every day and every minute we have great. Examples in Iowa, where at times, a 100% of our energy comes from wind.

And we're and we're thrilled with that.

I believe we hit that for example on Earth day.

Every we had enough win that we can meet the demand of that state, but the next day, if the winds blowing we need our gas resources, our gas plants to to fill that gap and really that's the situation. We still have in in Nevada. So we'll continue their transition to renewable resources be it.

Solar in Nevada, and wind in other areas combined with batteries, but for the foreseeable future. We do see gas being a very important resource to help maintain reliability and meet meet our customer needs customer needs and to meet it in an affordable way.

Also an important piece of that so.

Thank you for your comments.

Yeah, we.

And we've got the capital to do whatever.

Makes the most sense at a place like Nevada.

Nebraska, Nevada I.

I don't know take each day calls or ruling commission something they were but they probably call as a public service commission or something like.

And they're making that decision.

Stu.

What they think.

Okay.

Can and should be done.

In terms of getting from where.

A vastly complicated.

No totally business.

Moves towards something different without.

Saying things up in the meantime.

Now, having the lights go off and they.

I think they would probably agree with you I'm very much more of a they what they were they wanted to get.

They can't they can't do it tomorrow.

Because they are intermittent.

Problems.

Our job is to make sure the lights stay on and their job is also to move.

Sure.

Toward.

But our sources.

But.

So it will never be the.

The only source.

Of of electricity because.

Uh huh.

Well, Greg May normalizes, but barring some of them.

Real breakthroughs in storage and that sort of thing.

Yes, generally a battery right now to do it in an economical way as a four hour battery.

And when you think of the time without.

The sun being available.

That's a challenge out there theres a lot of those technology advancements and that stretching out.

So dollars that a lot of things you can accomplish things, but the reality is that there is a.

But there's a careful balance of of the reliability and also balancing as you.

As it was noted that rates do matter and how much customers are paying so delicate balance of both delivering reliability, but doing it in a.

Affordable way.

A friend Don Gaiter.

We're working on.

Shortening or lengthening the time the battery works and so you've got some very smart people work out but it is something that you actually do overnight.

I can understand why people wanted the overnight but.

It is going to take a lot of money. It's got they've got a lot of good ideas and smart people.

Bill and Greg.

Not me I don't I don't understand why the damn well I just go on with my inventory switch, but those are as follows.

And there's plenty of them working on it and we got plenty of money to implement it but there are.

There are certain things that are.

That's just.

Take a certain amount of.

Tom.

Barbara hates it when I use this example, but.

It's really true that you can't create a baby.

And one month by getting nine women pregnant.

Yeah.

You may want.

I had a baby.

So there are certain laws of nature that you have to work with them.

Becky.

This question comes from Rich Mccloskey and Dunedin, Florida.

Says warrant and a G. When did you let us know what you think about the car and property insurance situation in Florida as a resident both seem out of control since the Florida market seems to be some mismanaged is this an opportunity for Berkshire.

Yes, the Florida market, both for auto insurance and for homeowners insurance.

Has had a few tough years.

The two problems, we faced in Florida, and all the risk there is faith in Florida, one is the lawyers and the amount of corruption that takes place in the Florida market.

Keeps skyrocketing, making it difficult for us to price drop the price of product and make a profit and.

And secondly, the amount of activity in terms of storms, both the frequency and the severity.

Also so severe that.

The losses in Florida tend to make it very difficult for risk better to make money.

Having said that we've had we Fortunately had a very good run at Florida last year, we increased our exposure in Florida, as we talked about last year and Fortunately nothing bad happened. So a lot of our premiums that were in the top line flow straight to the bottom line.

Florida is a large market.

There is a market that's.

Subsidized by the rest of the country I don't think those.

That's going to stand the test of time, the Florida market that legislators are trying to improve it they have passed a law that is.

Bringing down the amount of fraud that takes place in Florida, and I Hope, Florida would be fairly buoyant insurance market because at the end of the day they do believe.

In the free market more than some of the other states that have a insurance crisis, like California, and New York.

So, yes, Florida has a problem.

Prices will go up fairly substantially but at the end of the day I think we achieved a degree of battle. So that the risk bearers can make a decent profit and will be deploying capital out there.

Okay station summit employees.

Yeah.

Hi, My.

My name is Christine Han a great yeah.

From a courthouse, California, Thank you for being an excellent teacher and in part in your wisdom to us throughout the year.

What advice would you like to share today that you believe everyone needs to hear.

Well too bad you didn't that you're out of that but.

Most of us would like to hear.

Yeah.

Oh they are.

Oh, I would say that.

But if I had one piece of advice.

I would.

Sure.

Well on your Lucky get live in those countries because it's just the starwood because you've got opportunities here that wouldn't exist.

Much of the world.

But I would like I would like.

Really.

Charlie's advice.

Thinking how you like your own.

I'll bet, you worry to read and then.

Start.

So I think the educational pass the social pass.

But whatever.

They've been.

That's your particular.

Particular situation in terms of associating.

And perhaps.

Certainly in my day, it would've been mirroring.

The person that would.

Does it help you do that well.

Well.

Charlie would say.

They were offering.

Some similar benefits to the partner.

And.

So the opportunity in this country is and always has been.

Equally limitless.

When you think of going back.

Not that many centuries.

I don't know if you were gonna be a shepherd or something like that.

Yeah.

Grandson was outdoor.

Nor are we going to be a shepherd I mean, nothing nothing really happened.

And what has happened in the last 200 years.

With the combination of the industrial revolution, but whether it's size or education or health.

Name.

We are so lucky.

To be born.

When we were the people in this room and and many of us.

Lucky enough to be born on United States as well.

Sure.

Uh huh.

Yeah.

That book, they're entering the best World suburb.

Existed.

And.

You want to find the people for sure than the activity is to participate in.

That said you.

And if we get lucky.

Charlie do you find things that interest you young, but if you don't find them right away it keep working and.

Uh huh.

I always tell students to take the job yet.

And find the job that you would like to have if you didn't need a job and sometimes you can find that very early and sometimes sometimes cultural various experiences, but don't forget what you're trying to actually are trying to do.

And there's no place to do it like this country and find the person that you'd like to share your life with.

Other cases and then.

Sometimes you get lucky and do that early.

And.

And sometimes you make mistakes and.

Uh huh.

But.

Uh huh.

I would.

I would try to run it.

Very very general way I would try it.

Figure out how you would want to look back on your life and think about yourself and <unk>.

And.

Let's start today that go on the path for leached.

To that goal and expect expects some.

Some difficulties along the way but.

If you're if you're thinking that way or you are more likely to get there.

[noise] Becky.

This question comes from asked XR mayor seek and Hamburg, Germany.

What has changed for Berkshares operating Ceos since Greg able energy chain became Vice Chairman for example, can and do the operating Ceos still reach out to Warren Buffett directly.

Well that's right.

The answer might surprise, you, but they they are overwhelmingly.

The operating executives.

Yeah.

I prefer to talk to us.

Two of them.

Or two.

Hello, Jay.

Uh huh.

I didn't understand.

Understandable because.

I don't really do much in I don't operate at the same level of efficiency that I would've 30 years ago or 40 years ago, I don't know the managers as well as I would have when we were smaller.

Who's got more accomplished in a day that I can now.

And you've got when you have somebody like Greg energy.

You know why subtle for me basically.

So it's it's it's worked out.

Extremely well.

And.

Uh huh.

I almost can't imagine anything working better because.

Greg.

And a year accomplishes.

He sees more of them understand more about their problems.

Couldn't give them suggestions he's got incredible.

Incredible amounts of energy in.

And.

Nobody has more wisdom energy.

Insurance and <unk>.

They've got access.

In insurance to them.

Al.

They hadn't before we stuck some of those titles on insurance, whereas with Greg a much expanded things one.

When it became.

The vice chairman and charge off of really everything except insurance so.

He is.

If you polled our managers.

Fall under his jurisdiction.

What should be a lot of them are.

They.

That they would.

Much prefer unless.

Like appeal they werent.

Paying as much attention to our business and I Wouldnt do anything about it, but but Greg what and they still like it when he does it they can deliver.

He can deliberate knows very well to the people who are.

There's some there'll be some people if you have.

Yeah, 20 children and you're very rich you'll have some that will be go getters anyway, and you'll have some of that.

That won't.

We are very very rich company.

<unk>.

We don't.

Uh huh.

We haven't had a history.

Being very tough on people, but.

Posted.

We've had.

Some that would do that.

Greg will do something about it and Charlie and I wouldn't have.

Because we didn't know what should be done because we were doing so well ourselves.

It just wasn't we.

We didn't we wouldn't make the effort we didn't want to change our lives that way plus we slowed down in various ways physically had enough of it itself.

So I would I would.

I would say that.

The number of.

Calls I get.

For managers is is essentially an awfully close to zero.

And Greg is.

Handling those.

All in.

I don't know quite how it does it but.

But.

We've got the right person I can tell you that and with the G.

Hey.

It is.

Less physical moving and the insurance people are more used to working with the G.

Obviously over the years so.

I wouldn't say that.

Changing the title will be changed as much there because it was in charge of insurers anyway.

So that's.

Yeah.

You can go to business school.

And they can give you a way better answers.

I've, just given you, but but that's the way we do it at Berkshire.

Yeah.

If I can add a comment.

From my perspective, the transition has worked out very very well.

But I think the credit really goes to how Warren has handled this situation.

What I mean by that is after the transaction was announced.

And a lot of the operating managers used to be.

They were used to calling Warren directly on some issue or the other.

When they were after the transition when they would continue to do so.

Warren would very skillfully.

And his manner handle them such that he would not answer what they were looking for but at the same time made them feel good.

And told them that he sort of enjoyed hearing from them and talking to them.

As a result of which you know the transition took place people got the message.

The message here.

And we're very responsive to it and it's a non issue as far as today is concerned.

I'd probably add yeah.

Okay.

The only thing I would add is we do have an exceptional set of managers across both the.

Non insurance and insurance.

Yes were made it incredibly easy, but so did a it was a very easy transition because they care deeply about Berkshire they care deeply about the culture and they very much wanted it to be a success and we're fortunate to have.

Those managers and insurance and non insurance so thank you.

What Greg was talking about.

They really wanted more direction and in some cases than I gave them yeah.

I just sat there reading in the Wall Street journal or whatever.

I guess I don't.

Yeah.

There one way or another there are more than 24 hours at Newsday at all and I just don't know how he covers to ground it does but he knows more.

Other people are.

Okay.

We've got the same feeling in terms of.

Judging the attractiveness of businesses are making capital decisions and that sort of thing but.

But.

He is willing to work I mean.

And I couldn't get as much done anyway.

What I could do in <unk>.

And.

A couple of hours.

Maybe take it a rationale it I just don't read as fast and everything so.

But.

It's working very well and and.

This place spending happened to me.

It would be working.

Extremely well the next day.

Get any phone calls.

Actually we can we can bring something up so we've got some answering machine that people think I'm still around here or something like that.

[laughter] so anyway, that's that's a.

Much.

Much less and you learn in school bus that's the way we do it at Berkshire Okay.

Station eight.

They are often Gregg and Angie thank.

Thank you for having us you're teaching have not only made us better investors, but more importantly, better people. Thank you for that.

My name is rajeev ever ladder, and I'm from New Jersey, Iran. In India focused fund called do that she India Hi, My question is related to India.

In an economy and Indian equities have done quite well in the last 510 20 years.

It is the fifth largest economy and we'd be the third largest in the next few years.

My question is is books higher actively looking for opportunities in the Indian equity market and what will allow you to buy anything meaningful there. Thank you.

Yes. It was a very good question and obviously India.

Hello.

I'm sure there are loads of opportunities in a place like India.

And.

The question is do we have any advantage in.

In either insights into those businesses or context that will make possible some.

Some.

Transaction.

That Mike.

Mike.

When the parties in India would particularly want us to participate.

I would say that that's.

Something that.

More energetic.

Management.

At Berkshire.

Could pursue.

Because we do have the reputation now Berkshire is known not unlike the zone in the United States, but it's known around the world.

And.

Our Japanese exploration has been fascinating.

With respect.

So there may be a unexplored.

Or.

Unattended to opportunity in that area I'm not the one to do it.

But that maybe something that.

In the future.

And might be opportunities there.

There are opportunities. So the question is is this.

This Berkshire have some kind of advantage in.

Actually pursuing those opt.

Opportunities against particularly against people that are using.

Other People's money.

Where they get paid based on asset.

An asset manager or something.

Start I mean, there are plenty of people in the game.

Who.

Buying I'm running businesses.

Do not really have our philosophy.

Okay.

They're gonna get rich no matter what happens and.

And.

Okay.

Their payment may be based on.

How much they buy rather than what they buy.

So.

We'll see how the next management.

The game out of it.

At Berkshire, and Fortunately you don't have too long to wait on that but generally I feel fine, but but but I I I know a little bit about actuarial tables and.

I just.

Well I would say that's it.

It shouldn't be.

Taking on any.

For your employment contracts like several people.

Doing in this world of an age where it can't be quite sure that sure where you're going to be an employer.

Yeah.

Okay.

Yes.

But.

You're absolutely right about about.

Yeah.

If it were energetic.

Had some way.

Two.

Become.

Hey.

Buyer of.

Or a party.

That people, particularly wanted to do business.

With.

Japan was great.

And.

And it could be great, but India, and Japan aren't the same I mean, I don't adapt myself terribly well to the different efforts.

Different cultures.

And some people were really good.

And almost anybody's better than I am, but I stumbled into.

One or two but.

Uh huh.

That could happen in <unk>.

And.

Two of Berkshire Hathaway.

Becky.

This is a question from Rafael the Pinot from Spain.

Berkshire has grown tremendously thanks to among other things its architect Mr. Monger and you it's general contractor, where all tremendously thankful to you for taking US along the way we are aware that both of you and many others have spent an enormous amount of time, ensuring berkshares culture provides a solid footing on which to grow the building.

You'll also currently have a very talented bench of what we may label as subcontractors and Mr able Mr. Jain Mr Combs and Mr. Weschler.

However for a long time, you've had the advantaged that talented subcontractors have wanted to work with a once in a generation architect and general contractor.

Do you envision Berkshire will overcome the loss of set advantage when the contractor bench needs to be renewed again and what are our potential renovation works and this great building that may necessitate a new architect.

Yeah, well, that's a great question to which the Charlie and I are obviously talked a lot about over time and of course.

We.

We will not.

For sure to the extent it.

It remains.

Sort of entity that it is.

We'll not need do attract people very often.

It would be absolutely crazy for anybody.

For our board of directors.

However.

They get anybody to run this business.

That's all you should retire at 65.

It may be that they should retire the next day on what you've learned what they really like managing something or it may turn that you wanted to keep him around delay they really started being affected by all age which hits different people with different times, but it hits everybody eventually.

And so we.

It's very likely.

That.

If it's.

If the directors and it's very tough because they will be active.

Acting against conventional wisdom, which which is always difficult and but I think we've got the group on that end.

They will not have to make a decision very often.

If they pick the right.

C E O that's 99% of the job of the directors and the ethane.

The other.

1% is this.

<unk>.

Do you have a good method to correct. It if you've made them.

One decision and that's extremely hard to do.

In our present system, it's not impossible, but.

Uh huh.

It's just not something that happens it's too good a job to be a record.

To try and throw over somebody.

Particularly if you.

Can use the money from directorships and you want.

To be on other boards and everything we do not have a perfect system in.

In terms of boards of directors at all and it's it doesn't operate at all.

Shouldn't say at all but it doesn't it.

Yeah.

It doesn't operate.

As.

As people May think.

They generally operate so.

We will.

No.

We've really got problems solved for 'twenty.

20 years, unless something untoward happens and if something untoward happens then.

Then the directors.

Need to fine probably within our own organization.

It's somebody that they've got confidence in.

Two.

Maintain the.

The special advantages we have.

Over another 20 years periods.

Things that are.

Low probabilities, but you still have to think about them.

And we are in that position now now if you ask me.

Whether if something happened Greg today.

Everybody says don't travel on the same plane the thing to do as I travel the same auto.

Don't go down that often called crash all the time I've seen all these corporate policies or that was you were kind of crazy.

When do you think about the real risk, but in any event.

Uh huh.

We do.

Greg is going to have to tell the doctors about.

What if something happened tomorrow. He has to tell the doctors about what should be done if anything happens to them.

And that's not an easy thing.

No and.

I don't have.

Well it will be his decision.

And then the directors really.

That aside whether he's made the right one but.

Hey.

It will make the right one.

Ah.

And what did you really have to hope is that you got lucky on.

How long managers.

Stick around.

Yeah, My Nate Taranto century, and yeah, Mike means six or seven.

Yeah.

But.

Let's see.

I think the answer is you need a little luck and you need some break in the mortality tables.

We've got an entity.

And if you really aspire to be a certain kind of manager.

Have a really large admittedly.

There's nothing like it in the world.

We've got something to offer.

The person who.

We want to have.

Sort of like Charlie said about marrying the best person that roll out real well.

We've got something that.

The right person would want to marry basically in terms of Berkshire.

And if we get the wrong person than the directors have to do something about it.

And that probably won't happen, but it's always a contingency.

A possibility I should say.

Greg having been put on the spot like that too.

You don't have to name anybody now, but I'm sure the crowd would love it.

Greg: Well the only thing I would add one is.

And it's really how the comments started was around culture.

The culture, we have at Berkshire, and that being our shareholders being our partners and our managers of our business, having that ownership mentality, that's never going to change and that will attract the right managers.

At every level. So I think as Warren said, we have a very special.

Company in Berkshire, but it's that culture that makes it special and that's not going to change.

Okay.

[noise] stays at nine.

I'm never sure were nine is hi, I'm Sherman lung a bookshelf shareholder in a workflow family office in Kuala Lumpur, Malaysia.

Sherman Lung: Just really happy to see you are in and the team and where I come from your hero and both you and Charlie have positively transform mine and many many other malaysians in southeast agents lies not only financially but also in how we navigate our lives and relationships. Thank you very very.

Very much.

Speaker Change: Well. Thanks. Thank you. Thank you.

That makes us feel good.

Speaker Change: Sure is.

Speaker Change: What have your team's greatest learnings been odd business capital allocation stock picking and portfolio allocation.

Speaker Change: Throughout the COVID-19 pandemic do it over the last five years and water I. Appreciate if you can get your views as well as.

Speaker Change: Your representation on cat and taught as always directly from Greek any RG two on their respective businesses. Thank you yeah hi.

Speaker Change: I don't think I wanted to give the individual appraisals.

Speaker Change: And.

Speaker Change: But one.

Speaker Change: Maybe what you're doing.

Speaker Change: Is in terms of Calvert allocation, which is it.

Speaker Change: My job.

Speaker Change: I'll go out and sell insurance policies or anything in the short.

Speaker Change: And you represent.

Speaker Change: A group of shareholders like we do represent weeks we are.

Speaker Change: Totally clear on our mission.

Speaker Change: And.

Speaker Change: It may be that other people don't agree with them, but I would say that in a great. Many places.

Speaker Change: Uh huh.

Yeah.

Speaker Change: I just don't agree with our mission.

Speaker Change: And.

Speaker Change: I would say that for example.

Anybody that wants to return retire at 65 would be disqualified from being CEO of.

Speaker Change: Berkshire than they might get.

Speaker Change: They might get retard. The next day, if there were the wrong person, but that.

Speaker Change: There's a certain things we don't want.

Speaker Change: The.

Speaker Change: We're well fixed now.

Speaker Change: And.

That the odds are very good.

Speaker Change: But far from a certainty.

Speaker Change: That takes care of an extra point of yours.

Speaker Change: No.

Speaker Change: Okay.

Speaker Change: But you have to provide for the contingency in.

Speaker Change: And.

Uh huh.

Speaker Change: Aye.

Speaker Change: There are several.

Speaker Change: People on the board no what I would do on that but it's up to Greg, but Greg and I go at the same time than that.

Speaker Change: And then you'll move into making another decision and.

Uh huh.

So there are a few people know my thoughts on that but.

Speaker Change: But.

Speaker Change: The job of the directors is then the.

Speaker Change: Come up with the right C O N.

Speaker Change: The right C E O.

Speaker Change: Can't make a terrible business great.

Speaker Change: Tom Murphy.

Speaker Change: Who is the best.

Speaker Change: It was the best businessman leisure I've ever known.

Speaker Change: And Tom Murphy.

Speaker Change: No.

Speaker Change: He said.

Speaker Change: Okay with buying the right business.

Speaker Change: Murph brought a million other attributes to it after that.

Speaker Change: But.

Speaker Change: Yeah.

Speaker Change: Yes.

Charlie: It's Charlie.

Charlie: Yeah.

Charlie: But was he had to say on that.

Charlie: But basically.

Charlie: We could have brought in.

Charlie: Tom Murphy and told him his job was to run the textile business.

Charlie: And it would've done a little bit better.

Charlie: But it showed a fail.

Charlie: And.

Charlie: One of the reasons I'll start with the textile business as long as I did.

Charlie: Was that I liked can chase so much and I thought it was a terrific guy.

And it was a very good manager.

And.

Charlie: They've done a jerk.

Charlie: With equip the textile business much faster and better off but.

Charlie: So the answer was for them to get them there.

Charlie: In the TV business like Marvel done AD supported.

Charlie: Merci.

Charlie: Figured that out early and they started with a pathetic.

Charlie: Operation, which was a VHF and <unk>.

Charlie: Albany, New York competing against G and everything and it was operating out of a home for retired Nanjing. They only pay those aside let's say, let's face the street yet.

One.

Charlie: Car dashing around towers and they call. It News chart number six.

Charlie: From that he built.

Charlie: An incredible company any build out because it was the best manager I've ever.

Charlie: <unk>.

Charlie: But beyond that was undergoing business.

Charlie: And.

Charlie: Ah.

Charlie: Yes.

Charlie: The key will be to have we had to find another Tom Murphy and then animal a bunch of good businesses.

Charlie: And he or she will know what to do with it.

Speaker Change: Oh, that's not us.

Speaker Change: Besides issue, but yet.

Speaker Change: And most companies because you really can't get more precise than that I mean, you can have committees.

Speaker Change: Management consultants.

Speaker Change: But it.

It wasn't a management consultant.

Speaker Change: Tom Murphy and.

Speaker Change: And.

Speaker Change: I forget whether it was doing.

Speaker Change: Sales volume was a couple thousand a week at first and then suddenly it.

Speaker Change: Oh God I got to 2000. It is now my goal 3000 I'm talking about.

Speaker Change: Surpassed all of these people like CBS and ABC that roadmap the world by the tail.

Speaker Change: Well, it's just a wonderful lesson in life to get just to be able to view something like that I learned.

Speaker Change: An awful lot from.

Speaker Change: When he said to me.

Speaker Change: But.

Speaker Change: Just throwing by watching it somebody like him operate I mean it.

Speaker Change: It's like watching a great golfer a great analyst.

<unk>.

Speaker Change: Got them learn something about the kind of swing.

Speaker Change: All up or something like.

That's that's not a great answer for you, but it's it's.

Speaker Change: So far it's worked.

And I think it works.

Speaker Change: I'm pretty sure it works with Greg.

And it's up to people in the future one.

Yeah.

I'm underground or wherever they put me.

Speaker Change: Uh huh.

Speaker Change: To really make a decision every 20 years or something like that on average that's the right decision, but correct. It if it turns out to be the wrong decision.

Speaker Change: It's what our board of directors is for them.

Speaker Change: Sure.

Speaker Change: And we've got.

Speaker Change: The people on the board.

Speaker Change: That.

Yeah.

Speaker Change: Really understand that responsibility.

Speaker Change: They take it seriously.

Speaker Change: But they don't take themselves too seriously and.

Speaker Change: So therefore they don't.

Speaker Change: They don't want all of them.

Speaker Change: They don't necessarily want to do a lot of things just to look busy.

Speaker Change: And they arent using us as a stepping stone to get on other boards.

Speaker Change: But we've got people with that.

Speaker Change: At.

Speaker Change: Really believe in what we're doing and.

Speaker Change: And they're the ones that.

Speaker Change: Aren't going to map to make this.

Speaker Change: Place work and if they've got buggy on Greg's.

Speaker Change: Mortality.

Speaker Change: They can do just what doesn't go this way for 20 years or so.

And then make another decision and.

Speaker Change: And Berkshire has.

A great tool in the world.

Speaker Change: Available.

Speaker Change: B.

Speaker Change: What it is now and continues to be what it is now.

<unk>.

Speaker Change: They've gotten from.

Speaker Change: 20 million I'm not worth to 500.

Speaker Change: 70 billion.

And.

Speaker Change: Uh huh.

Speaker Change: There aren't as many things to do what we can do a few big ones better than anybody else can do and there will be okay at all times.

One we're the only one.

Speaker Change: Willing to.

Speaker Change: Eric.

Speaker Change: And at those times.

Speaker Change: We wanted to be sure of the U S government thinks will run asset to the situation.

Speaker Change: Viability.

Software.

Speaker Change: And I'll ask the banks, where it was in 2009 there was they were all tarred with the same brush.

Speaker Change: <unk>.

Speaker Change: But we want to be.

Speaker Change: Sure.

Speaker Change: The brush.

Speaker Change: Determines our future.

Speaker Change: You know this is not hard and.

Speaker Change: And I think we're in the.

Speaker Change: I don't think anybody's got a better position to deal with in Berkshire.

Speaker Change: Right.

Speaker Change: [noise] buggy.

Speaker Change: This question is from Johan hailing who writes.

Speaker Change: You're sitting on 168 billion of cash, which he told US today is now more than a $182 billion.

Speaker Change: Questions are one what is above it waiting for and two why not at least deploy some of it.

Speaker Change: Well I think that's fair.

Speaker Change: It is easy to answer.

Speaker Change: Uh huh.

Speaker Change: I don't think.

Speaker Change: Anybody's sitting at this time.

Speaker Change: Well it has.

Speaker Change: As.

Speaker Change: Any idea of.

Speaker Change: How to use it effectively and therefore, we don't.

We don't use it then we don't use it now at 5.4%, but we wouldnt use it if it if it was at 1%.

Speaker Change:

Speaker Change: Don't tell them that.

Speaker Change: The federal reserve that.

[laughter] preferred but the.

Uh huh.

Speaker Change: We don't.

Speaker Change: The only swing at pitches, we like and.

Speaker Change:

If.

Speaker Change: Anybody who tried to swing at every pitch.

Speaker Change: Felt that because they haven't swung in a pitch for tube for the last two pitches, they ought to swing or a third one or something like that.

Speaker Change: It's.

Speaker Change: But there are times.

Obviously, but I would say this I would not like to be running 10 billion now $10 million I think we can.

Speaker Change: I think Charlie or I could earn returns on because I think.

Speaker Change: Or is there just a few things that happened out of a very very small scale, but but.

Speaker Change: It.

Speaker Change: If we had $10 billion.

Speaker Change:

We wouldn't.

Speaker Change: I Wouldnt basically see.

Speaker Change: I don't know many more opportunities than we've found though it's true that something like Japan, we could've done.

Speaker Change: It's a company that a 30 or 40 billion and with Mike Wood.

Speaker Change: Great.

Great returns on equity, but if I saw one of those now I'd do it for Berkshire.

It isn't like them.

Speaker Change: Got a hunger strike or something like that going on.

Speaker Change: It's just that.

Speaker Change: Things arent.

Attractive.

Speaker Change: And.

Speaker Change: There is.

Speaker Change: Although there are certain ways that can change and we'll see what they do.

Speaker Change: Yeah.

Speaker Change: Okay station 10.

Mr. Buffett. This is an incredible meeting that you host every year. My name is Shawn Cali, I am a real estate agent with Berkshire Hathaway home services in Arizona, and California, My mother, Cindy My brother and my two sisters, all sell real estate with Berkshire Hathaway home services for many years, we love being a part of the Berkshire family.

Speaker Change: And along with the 70000 other agents that sell real estate for the company are Mr.

Mr. Buffett home services of America recently settled our class action lawsuit regarding commissions for $250 million last week and this is a this element is about 100 million more than Keller Williams, $166 5 million more than anywhere real estate, which is better homes and gardens and coldwell banker as a realtor with Berkshire Hathaway home service.

Speaker Change: Says in multiple markets and a shareholder who's been coming to this meeting for 15 straight years.

Speaker Change: That's one of the reasons I got involved with real estate is because of this meeting what are your thoughts on buying and selling a home in light of this recent settlement and that maybe.

Maybe ask the note to Greg in a G. Two would you consider a berkshire agent when buying your next home.

Yeah.

I don't buy them that often that somebody just how people have noted but.

Speaker Change: I certainly would consider them but.

I'd say the probability of that happening is all bad.

Speaker Change: I really appreciate the fact, you have joined up with us, but I'm gonna when and in terms of the AR.

Speaker Change: The.

Speaker Change: Settlement.

Greg kept me informed but I turned it over 100%.

Speaker Change: So Greg you want to talk about it I'm sure.

So thank you for you and your family for being an agent and working for for a company Berkshire Hathaway home services I think there's a few questions in there one.

Greg: There's no question the industry will go through some transitions because of that settlement ours would be every other major player in the industry settled.

Greg: The National Association of Realtors settled for more than 400 million. So.

Greg: Effectively everybody was swept up in that.

Greg: The settlement and it did set the grounds for the both home services and for the industry to move forward.

Greg: There's a lot of the changes that happened in or being propose associated with that settlement, but for.

Greg: The one thing that I think you hopefully would absolutely agree with the real.

Greg: Real estate agent is still an important part of these transactions. It's the one time in our lives where we make these massive.

Greg: Investments and having that counsel and guidance is critical and that's really what our business in those other businesses.

Greg: Rely on how the commission structures change and how it's negotiated which is really what.

Greg: Settlement was it was no longer that.

Greg: Buyers.

Greg: Would automatically pay.

Greg: Our commission agent to the type of selling Egypt that now has to be negotiated.

Greg: That will impact things, but I think the real leaders.

Greg: We will continue to be a very important part of that and I think home services in the industry will remain very relevant and then the only thing I would share with our shareholders on a broader basis is that obligation resides with home services and can be met by home services and that was an important condition.

Greg: Because they were also pursuing Berkshire, and Berkshire Hathaway energy and we said you can pursue a separately but.

Greg: That settlement will reside with home services will be an obligation of that they decided the ultimate settlement and and.

Greg: And we'll go forward from there so worn any other combo, yes, I've sold two houses and my last.

Greg: Well.

Greg: Oh, gosh ninety-three refraction here and.

Greg: And I've I've I've bought one Ah Ah that I.

Greg: I still have obviously bought the other two it and.

Greg:

Greg: I I have I haven't.

Greg: Not negotiated down.

Greg: The commission even though.

Greg: Last one silver 7 million or something like that people do negotiate down commissions to some extent, but I can tell you I've looked at the figures in either.

Greg: I think the system was really worked out very well.

Greg: When I got all those.

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