Ginkgo Bioworks Holdings, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Cost Reduction: Exceeded 2024 cost-cutting target with a $125 million annualized run rate cash OpEx improvement relative to Q1. Completed a 35% RIF, reduced contractor/temp labor by nearly 60%, professional fees by ~40%, and consolidated real estate.
• Cell Engineering Success: Announced a $9 million technical milestone with Merck for biologic manufacturing. Expanded partnerships with Novo Nordisk, including new deals focused on protein discovery/development.
• Data Points Offerings: Launched functional genomics and antibody developability products. Signed deals with leading tech bio and top 10 pharma companies for functional genomics, and pioneer deal with top 25 pharma for antibody developability.
• Biosecurity Update: Updated offerings for H5N1 surveillance include raw milk DNA sequencing, bioinformatics as a service, and comprehensive analyzed data sets, protecting farmer privacy and providing early warnings.

Segment Performance

• Cell Engineering Business: Recognized $45 million in noncash revenue from Motif FoodWorks deal. Excluding this, cell engineering revenue was $30 million in Q3 2024, down 20% from Q3 2023. Supported 136 active programs across 81 customers, a 17% year-over-year increase. Added 25 new programs/contracts in Q3, with 9 out of 11 being government or biopharma programs. Revenue contribution from cell engineering services updated to $165 million to $185 million for the full year.
• Biosecurity Business: Generated $14 million in revenue in Q3 2024 with a gross margin of 28%. Revenue and margin were down quarter-over-quarter due to timing of customer contract signing.

Guidance

• Previously guided total revenue $170 million to $190 million, now updated to $215 million to $235 million due to $45 million noncash deferred revenue release. Cell engineering services revenue updated to $165 million to $185 million. Biosecurity revenue remains at least $50 million. Aim to reach adjusted EBITDA breakeven by mid-2026 while maintaining cash margin of safety.

Risks

• One-off costs such as litigation settlement and employee severance related to restructuring impacted cash burn in Q3. Uncertainty around future one-off costs and their potential impact on cash flow and financial performance.

Question and Answer

Q: Provide clarity on strategy with new tools business.

A: Ginkgo is focusing on reaching adjusted EBITDA breakeven. Expanding into tools allows selling existing assets (robotics, data, AI infrastructure) in a new way, leveraging existing capabilities to sign new large customers without significant new cost to develop products.

Q: Signs of biopharma funding stabilization.

A: Some green shoots in biopharma, with tools business allowing sales to start-ups and major biopharma. Data points offerings show progress in signing new customers.

Q: Impact of cost cuts on one-off costs.

A: One-off costs like severance are expected, with total onetime costs for restructuring estimated at $18 million to $22 million, $15 million of which has been accrued to date.

Q: AI capabilities and platform buildout.

A: AI is a key change driver in biopharma/R&D. Ginkgo is launching AI models via API, integrating with data points for R&D, and exploring full software platform development to leverage AI in biotech research.