Ginkgo Bioworks Holdings, Inc. (DNA) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements” sections elsewhere in the Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in Item 1A “Risk Factors” of this Annual Report on Form 10-K. Further, this section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. For discussion related to 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K, please refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K, filed with the United States Securities and Exchange Commission on March 29, 2022.

Overview

Our mission is to make biology easier to engineer.

Ginkgo is the leading platform for cell programming, providing flexible, end-to-end services that solve challenges for organizations across diverse markets, from food and agriculture to pharmaceuticals to industrial and specialty chemicals. Ginkgo’s biosecurity and public health unit, Concentric by Ginkgo, is building global infrastructure for biosecurity to empower governments, communities, and public health leaders to prevent, detect and respond to a wide variety of biological threats.

We use our platform to program cells on behalf of our customers. These “cell programs” are designed to enable biological production of products as diverse as novel therapeutics, key food ingredients, and chemicals currently derived from petroleum. Biology did not evolve by end market. All of these applications run on cells which have a common code—DNA—and a common programming platform can enable all of them. Because of this shared platform, we are able to drive scale and learning efficiencies while maintaining flexibility and diversity in our program areas. Ultimately, customers come to us because they believe we maximize the probability of successfully developing their products.

The foundation of our cell programming platform includes two core assets that execute a wide variety of cell programs for customers according to their specifications: our Foundry and our Codebase.

●
Our Foundry wraps proprietary software and automation around core cell engineering workflows—designing DNA, writing DNA, inserting that DNA into cells, testing cells to measure performance—and leverages data analytics and data science to inform each iteration of design. The software, automation and data analysis pipelines we leverage in the Foundry drive a strong scale economic that we refer to as “Knight's Law.” We expect Foundry output, which we currently measure by daily strain tests, to increase year over year, while the cost per strain test decreases. We expect to be able to pass these savings along to our customers, allowing them to take more “shots on goal” with their programs.

●
Our Codebase includes both our physical (engineered cells and genetic parts) and digital (genetic sequences and performance data) biological assets. Codebase accumulates as we execute more cell programs on the platform. Every program, whether successful or not, generates valuable Codebase and helps inform future experimental designs and provides reusable genetic parts, making our cell program designs more efficient. Historically, we have augmented our Codebase via acquisition of assets such as microbial strains, sample collections, and sequence data. In 2022, our Codebase grew to over two billion proprietary protein sequences as a result of recent acquisitions

As the platform scales, we have observed a virtuous cycle between our Foundry, our Codebase, and the value we deliver to customers. We believe this virtuous cycle sustains Ginkgo’s growth and differentiated value proposition.

●
Foundry: As we take on more work in the Foundry, we benefit from scale economics, which over time may lead to lower program costs. We expect that these lower costs, in turn, will drive additional demand for our cell programming capabilities.

87

Table of Contents

●
Codebase: Cell programs also generate Codebase, which can drive better experimental direction and improve the odds of technical success, further increasing our customer value proposition, which we believe will result in additional demand.

Put simply: we believe that as we scale, the platform improves. We believe that this in turn yields better program execution and customer outcomes, ultimately driving more demand, which drives further investments in scale and platform improvements, and so on. We believe this positive feedback loop has the potential to drive compounding value creation in the future, as every new program we add contributes to both near-term revenues and has the potential to add significant downstream economics and more positive impact.

Our cell programming business model mirrors the structure of our platform and we are compensated in two primary ways. First, we charge usage fees for services, in much the same way that cloud computing companies charge usage fees for utilization of computing capacity or CROs charge for services. Additionally, we negotiate a value share with our customers (typically in the form of royalties, milestones, and/or equity interests) in order to align our economics with the success of the programs enabled by our platform. As we add new programs, our portfolio of programs with this “downstream” value potential grows.

With a mission to make biology easier to engineer, we have always recognized the need to invest in biosecurity as a key component of our platform. We’re building the future bioeconomy with our customers and partners, and we envision the future of biosecurity as a global immune system equipped with the capabilities to prevent, detect, and respond to biological threats. The first, critical step in realizing this future is to build a robust early warning system for biological threats—this is the primary focus of Ginkgo’s biosecurity and public health unit, Concentric by Ginkgo.

In the second quarter of 2020, in response to the COVID-19 pandemic, we launched our commercial offering of COVID-19 testing products and services for businesses, academic institutions, and other organizations in which we generate product and service revenue. We generate product revenue through the sale of lateral flow assay (“LFA”) diagnostic test kits, PCR sample collection kits and pooled test kits, all of which we sell to our customers on a standalone basis. We generate service revenue primarily through the sale of our end-to-end COVID-19 testing services which consist of multiple promised goods and services including sample collection kits, physician authorizations, onsite test administration, outsourced laboratory PCR analysis, and access to results reported through a web-based portal.

Beginning in the first quarter of 2021, we launched our pooled testing initiative which focuses on providing end-to-end COVID-19 testing and reporting services to public health authorities. We are currently offering pooled testing and reporting services for K-12 schools across the United States, at airports through our partnership with XpresCheck and the CDC, as well as through other congregate settings such as our partnership with Eurofins. Our COVID-19 testing business is subject to seasonality, and the demand for COVID-19 testing in schools is diminished, particularly in light of the White House's announcement that the public health emergency will end in May 2023. Over time, Concentric by Ginkgo has added new offerings such as wastewater monitoring and bioinformatic support and has expanded internationally. These expanded offerings were not a material portion of our revenue in 2022, but we expect their relative value to increase in future years.

Prior to 2022, we operated as a single reportable segment. In the first quarter of 2022, we reorganized our operations into two operating and reportable segments: Foundry and Biosecurity. The reorganization reflects changes made to our internal management structure and how our chief operating decision makers evaluate operating results and make decisions on how to allocate resources. Our two operating and reportable segments are described below:

●
Foundry consists of research and development services performed under collaboration and license agreements relating to our cell programming platform. Our cell programming platform includes two core assets: the Foundry, highly efficient biology lab facilities, enabled by investment in proprietary workflows, custom software, robotic automation, and data science and analytics, which is paired with our Codebase, a collection of biological “parts” and a database of biological data used to program cells. The Foundry segment includes costs incurred for the development, operation, expansion and enhancement of the Foundry and Codebase. Foundry revenue, which we may also refer to as cell engineering revenue, is derived from Foundry usage fees and downstream value share in the form of milestone payments, royalties or equity interests.

●
Biosecurity consists of COVID-19 testing products and services primarily provided to public health authorities. Biosecurity revenue is derived from sales of test kits and testing and reporting services fees.

88

Table of Contents

Generating Economic Value Through Cell Programs

Our cell programming platform is a key enabling technology and source of intellectual property for our customers’ products. We earn Foundry revenue for our R&D services as well as through a share of the value of products created using our platform.

We structure Foundry revenue to include some combination of the following:

●
Foundry usage fees, which may comprise cash and/or non-cash consideration, in the form of:

●
upfront payments upon consummation of an agreement or other fixed payments that are generally recognized over our period of performance;

●
reimbursement for costs incurred for R&D services;

●
milestone payments upon the achievement of specified technical criteria;

plus,

●
downstream value share payments in the form of:

●
milestone payments, which may comprise cash and/or non-cash consideration, upon the achievement of specified commercial criteria;

●
royalties on sales of products from or comprising engineered organisms;

●
royalties related to cost of goods sold reductions realized by our customers;

or,

●
downstream value share in the form of equity interests in our customer.

●
downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable.

Customer arrangements which involve non-cash consideration generally fall into two categories: Platform Ventures and Structured Partnerships.

Platform Ventures

Platform Ventures allow Ginkgo to partner with leading multinationals and financial investors to form new ventures in identified market segments with potential to benefit from synthetic biology. In exchange for an equity position in the venture, we contribute license rights to our proprietary cell programming technology and intellectual property, while our partners contribute relevant industry expertise, other resources and venture funding. We also provide R&D services for which we receive cash consideration on a fixed-fee or cost-plus basis. Platform Ventures include:

Motif FoodWorks, Inc.

Founded in 2018, Motif FoodWorks, Inc. (“Motif”) was formed to focus on the application of synthetic biology to reduce the reliance on animal products in the food industry. We entered into an intellectual property contribution agreement that granted Motif rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received shares of common stock in Motif. The initial fair value of our common stock investment in Motif was $65.1 million which has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Motif was capitalized through Series A preferred stock financings that raised approximately $119 million in gross proceeds from an investor group which included certain of our investors, Louis Dreyfus Company and Fonterra Co-operative Group Limited. In June 2021, Motif raised an additional $226 million through a Series B preferred stock financing. Ginkgo also entered into a Technical Development Agreement with Motif under which we provide R&D services in return for cash consideration on a cost-plus fixed margin basis. Motif launched its first product, HEMAMI, in 2021.

89

Table of Contents

Allonnia, LLC

Founded in 2019, Allonnia, LLC (“Allonnia”) was formed to focus on the application of synthetic biology in the waste bioremediation and biorecovery industries. We entered into an intellectual property contribution agreement that granted Allonnia rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received common units in Allonnia with a right to additional units subject to additional closings of Allonnia’s Series A preferred units. The initial fair value of our common units received in Allonnia was $24.5 million, subsequently increased by $12.7 million in 2021, all of which has been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Allonnia was capitalized through Series A preferred unit financings that raised approximately $52 million in gross proceeds from an investor group which included certain of our investors and Battelle Memorial Institute. Ginkgo also entered into a Technical Development Agreement with Allonnia under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis.

Arcaea, LLC

Founded in 2021, Arcaea, LLC (“Arcaea”) was formed to focus on the application of synthetic biology in the beauty and personal care products industry. In March 2021, we entered into an intellectual property contribution agreement that granted Arcaea rights to our intellectual property, subject to mutually agreed upon technical development plans. In return for our contribution of intellectual property and access to our platform, we received common units in Arcaea with a right to additional units subject to additional closings of Arcaea’s Series A preferred units. The initial fair value of our common units received in Arcaea was $11.9 million which has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Arcaea was capitalized through a Series A preferred unit financing that raised approximately $77 million in gross proceeds from an investor group which included certain of our investors, CHANEL and Givaudan. Upon the closing of the Series A preferred unit financing in July 2021, we received an additional 5,229,900 common units in Arcaea. The fair value of our Arcaea common units received in July 2021 of $35.5 million has subsequently been reduced to a carrying value of zero as a result of the allocation of losses under our accounting for equity method investments. Ginkgo also entered into a Technical Development Agreement with Arcaea under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis.

Ayana Bio, LLC

Founded in September 2021, Ayana Bio, LLC (“Ayana”) was formed to identify and design new bioactive compounds for use as complementary medicine to support human health and wellness. Ayana was capitalized through a Series A funding that raised $30 million in gross proceeds from an investor group comprising certain of our investors. We hold an interest in 9,000,000 common units (representing 100% of common units at inception) of Ayana and have also provided Ayana with certain licenses to our intellectual property for use in the development or production of products that we have agreed to research and develop under technical development plans. Prior to the third quarter of 2022, we consolidated Ayana as a variable interest entity. In the third quarter of 2022, we deconsolidated Ayana and began accounting for our retained investment in Ayana as an equity method investment. The initial carrying value of the equity method investment in Ayana was equal to the fair value of our retained interest of $16.0 million as of the deconsolidation date which has been subsequently reduced to a carrying value of zero due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investment. Ginkgo also entered into a Technical Development Agreement with Ayana under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis.

Verb Biotics, LLC

Founded in September 2021, Verb Biotics, LLC (“Verb”) was formed to identify and design new strains of probiotic bacteria with advanced properties for human nutrition, health, and wellness. Verb was capitalized through a Series A funding that raised $30 million in gross proceeds from an investor group comprising certain of our investors. We hold an interest in 9,000,000 common units (representing 100% of common units at inception) of Verb and have also provided Verb with certain licenses to our intellectual property for use in the development or production of products that we have agreed to research and develop under technical development plans. Prior to the first quarter of 2022, we consolidated Verb as a variable interest entity. In the first quarter of 2022, we deconsolidated Verb and began accounting for our retained investment in Verb as an equity method investment. The initial carrying value of the equity method investment in Verb was equal to the fair value of our retained interest of $15.9 million as of the deconsolidation date which has been subsequently reduced to a carrying value of zero due to a basis difference associated with in-process research and development identified as part of the

90

Table of Contents

initial accounting for the equity method investment. Ginkgo also entered into a Technical Development Agreement with Verb under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis.

BiomEdit, LLC

Founded in April 2022, BiomEdit, LLC (“BiomEdit”) was formed to discover, design and develop novel probiotics, microbiome derived bioactives and engineered microbial medicines in the animal health industry. BiomEdit was capitalized through a Series A preferred unit financing that raised approximately $32.5 million in gross proceeds from an investor group which included one of our investors. In April 2022, we entered into an intellectual property contribution agreement that granted BiomEdit rights to our intellectual property, subject to mutually agreed upon technical development plans and, in return, we received 3.9 million voting common units in BiomEdit. In addition, Elanco Animal Health also contributed intellectual property in exchange for 3.9 million non-voting common units in BiomEdit. The initial fair value of our common units received in BiomEdit was $8.9 million which has subsequently been reduced to a carrying value of $0.4 million as a result of the allocation of losses under our accounting for equity method investments. Ginkgo also entered into a Technical Development Agreement with BiomEdit under which we provide R&D services in return for cash consideration on a fixed fee or cost-plus basis.

Structured Partnerships

Structured Partnerships allow Ginkgo to: (i) partner with early stage synthetic biology product companies to adopt our Foundry as their cell programming R&D platform, in which we offer flexible commercial terms on the Foundry usage fees including the ability to pay a portion or all of such upfront fees in the form of non-cash consideration (convertible financial instruments and/or equity securities), in addition to downstream value share consideration (“Startup Structured Partnership”); and (ii) partner with existing entities with complementary assets for high potential synthetic biology applications in a large-scale, multi-program collaboration (“Legacy Structured Partnership”). In 2022, we entered into 12 Startup Structured Partnerships, which provided for prepayments of Foundry usage fees in the form of equity securities or convertible financial instruments in the aggregate amount of $30.7 million, that is recognized as revenue over our period of performance. In 2021, we entered into five Startup Structured Partnerships in which we received $16.5 million in upfront consideration in the form of equity securities that is recognized as revenue over our period of performance. Our Legacy Structured Partnerships are described below:

Genomatica, Inc.

Genomatica, Inc. (“Genomatica”) is a biotechnology company specializing in the development and manufacturing of intermediate and specialty chemicals from both sugar and alternative feedstocks. In 2016 and 2018, we entered into separate preferred stock purchase agreements in which we offered cash and R&D services to Genomatica in exchange for its preferred shares. The initial cost of the investment in Genomatica’s preferred stock was $55.0 million. As of December 31, 2022, the carrying value of the investment is $44.9 million and reflects the historical cost less an impairment loss recognized in the second quarter of 2022.

Synlogic, Inc.

Synlogic, Inc. (“Synlogic”) is a publicly traded clinical-stage biopharmaceutical company focused on advancing drug discovery and development for synthetic biology-derived medicines. In 2019, we entered into several agreements with Synlogic whereby we purchased Synlogic common stock and warrants to purchase Synlogic common stock and agreed to provide R&D services to Synlogic. At inception, the fair value of Synlogic common stock and warrants was recorded at $35.8 million and $14.4 million, respectively. As of December 31, 2022, the fair value of Synlogic common stock and warrants was $4.8 million and $1.9 million, respectively.

See Notes 5 and 16 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details of our investments in and the material terms of our agreements with our Platform Ventures and Structured Partnerships.

Key Business Metrics

A cell program (or “program”) is the work we do for our customers to enable their product(s) of interest. Programs are defined by a technical development plan or objective. We generally exclude proof-of-concept projects and other exploratory work undertaken on a customer’s behalf from the program count. In the near-term, programs deliver multi-year revenue from

91

Table of Contents

platform usage fees. Over the long-term, program growth drives a physical infrastructure scale economic through our Foundry, a data and learning scale economic through our Codebase and accumulation of downstream value share. Our key business metrics comprise New Programs, Current Active Programs, and Cumulative Programs.

New Programs

New Programs represent the number of unique programs commenced within the reporting period. As new programs have multi-year durations, we view this metric as an indication of future Foundry revenue growth, which we may also refer to as cell engineering revenue growth.

Current Active Programs

Current Active Programs represent the number of unique programs for which we performed R&D services in the reporting period. We view this metric as an indication of current period and future Foundry revenue.

Cumulative Programs

Cumulative Programs represent the cumulative number of unique programs Ginkgo has commenced. We view this metric as an indication of our competitive advantage and as a leading indicator of the mid- to long-term potential economic value derived from downstream value share arrangements. The cumulative number of programs also contributes to Codebase, which accumulates with each additional program we conduct over time and drives better experimental direction and improves the odds of technical success in current and future programs.

We believe the preceding metrics are important to understand our current business. These metrics may change or be substituted for additional or different metrics as our business develops. For example, as our program mix changes, our data gathering abilities expand or our understanding of key business drivers develops, we anticipate updating these metrics or their definitions to reflect such changes.

Zymergen Acquisition

On October 19, 2022, we completed the previously announced acquisition contemplated by that certain Agreement and Plan of Merger, dated as of July 24, 2022 (the “Zymergen Merger Agreement”), among Zymergen Inc., (“Zymergen”), Ginkgo, and Pepper Merger Subsidiary Inc., an indirect wholly owned subsidiary of Ginkgo (“Merger Subsidiary”). Pursuant to the Zymergen Merger Agreement, Merger Subsidiary merged with and into Zymergen (the “Zymergen Acquisition”), with Zymergen surviving the Zymergen Acquisition as a wholly owned subsidiary of Ginkgo. As consideration for the transaction, we delivered to Zymergen common stockholders 99,422,907 shares of Ginkgo Class A common stock for an aggregate purchase price of $231.8 million. See Note 3 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Bayer Asset Purchase

On October 17, 2022, we closed the previously announced transaction with Bayer, under which we acquired certain assets and liabilities of Bayer, including Bayer's 175,000-square-foot West Sacramento Biologics Research & Development site, team, and internal discovery and lead optimization platform. As part of the acquisition, we plan to integrate certain research and development platform assets of Joyn Bio, LLC ("Joyn"), the joint venture created by Ginkgo and Bayer in 2017, and initiated the dissolution of Joyn. The acquisition is expected to expand our platform capabilities in agricultural biologicals. As consideration for the assets acquired, we paid Bayer $80.0 million in cash at closing. Concurrently with the closing, we entered into a multi-year collaboration with Bayer to advance multiple cell programs in exchange for quarterly installments and royalty-based downstream value. See Note 3 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

92

Table of Contents

SRNG Business Combination

We entered into the Merger Agreement with Soaring Eagle Acquisition Corp. (“SRNG”) on May 11, 2021. On September 14, 2021, the SRNG shareholders approved and adopted the Merger Agreement and the other proposals described in SRNG’s definitive proxy statement/prospectus included in SRNG’s registration statement on Form S-4 (File No. 333-256121), which was declared effective by the SEC on August 11, 2021. Upon the consummation of the business combination on September 16, 2021, SEAC Merger Sub Inc., a wholly owned subsidiary of SRNG (“SRNG Merger Sub”), merged with and into Ginkgo, the separate corporate existence of SRNG Merger Sub ceased, and Ginkgo survived the merger as a wholly owned subsidiary of SRNG, which was renamed “Ginkgo Bioworks Holdings, Inc” (the "SRNG Business Combination").

The SRNG Business Combination was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under the guidance in ASC 805, Business Combinations, SRNG was treated as the “acquired” company for accounting and financial reporting purposes. We were deemed the accounting predecessor of the combined business, and as the parent company of the combined business, are the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in future periodic reports filed with the SEC. The SRNG Business Combination resulted in proceeds of $1,509.6 million, net of transaction costs of $108.1 million, and included $760.0 million in proceeds from the PIPE Investment (as defined below) that was consummated substantially simultaneously with the closing of the SRNG Business Combination.

As the successor to an SEC-registered and publicly listed company, we will need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal and administrative resources.

Modification of Equity Awards in Connection with SRNG Business Combination

Prior to the SRNG Business Combination, our restricted stock units (“RSUs”) were granted with both a service-based vesting condition and a performance-based vesting condition. We have historically not recognized any stock-based compensation expense associated with these awards as the achievement of the performance condition required a change in control or an initial public offering (both as defined in the underlying award agreement) that was not deemed probable of occurring. The SRNG Business Combination did not meet the performance condition required for vesting of our RSUs.

On November 17, 2021 our board of directors modified the vesting terms of RSUs to allow 10% of the RSUs that met the service condition as of the closing of the SRNG Business Combination (the “10% RSUs”) to vest with respect to the performance condition, effective as of November 19, 2021, the date on which the Form S-8 registration statement covering such shares became effective. The remaining RSUs vested in full with respect to the performance condition on or before March 15, 2022. The change to the vesting terms was accounted for as a modification and resulted in approximately $1,678.4 million and $1,492.2 million of stock-based compensation expense recognized in 2022 and 2021, respectively, related to the modified RSUs. The 10% RSUs representing approximately 5.7 million shares were settled in cash for a total cash payment of $76.5 million equal to the fair value of the stock on the Form S-8 effective date. Stock-based compensation expense also included $193.3 million and $173.5 million in 2022 and 2021, respectively, related to RSU earnout shares which were subject to the same performance condition as the underlying RSUs, in addition to achieving certain target stock price thresholds. The first target stock price of $12.50 per share was achieved on November 15, 2021.

Components of Results of Operations

Revenue

Foundry Revenue

We generate Foundry revenue, which we may also refer to as cell engineering revenue, through the execution of license and collaboration agreements whereby customers obtain license rights to our proprietary technology and intellectual property for use in the development and commercialization of engineered organisms and derived products. Under these agreements, we typically provide R&D services for cell programming with the goal of producing an engineered cell that meets a mutually agreed specification. Our customers obtain license rights to the output of our services, which are primarily the optimized strains or cell lines, in order to manufacture and commercialize products derived from that licensed strain or cell line. Generally, the terms of these agreements provide that we receive some combination of: (1) Foundry usage fees in the form of (i) upfront payments upon consummation of the agreement or other fixed payments, (ii) reimbursement for costs incurred for R&D services and (iii) milestone payments upon the achievement of specified technical criteria, plus (2) downstream value share payments in the form of (i) milestone payments upon the achievement of specified commercial criteria, (ii) royalties on

93

Table of Contents

sales of products from or comprising engineered organisms arising from the collaboration or licensing agreement and (iii) royalties related to cost of goods sold reductions realized by our customers. Royalties did not comprise a material amount of our revenue during any of the period presented.

Foundry revenue includes transactions with Platform Ventures and Legacy Structured Partnerships where, as part of these transactions, we received an equity interest in such entities. Specifically related to the Platform Ventures, in these transactions, we received upfront non-cash consideration in the form of common equity interests in these entities, while the Platform Ventures each received cash equity investments from strategic partners and financial investors. We view the upfront non-cash consideration as prepayments for licenses which will be granted in the future as we complete mutually agreed upon technical development plans. In these instances, we also receive cash consideration for the R&D services performed by us on a fixed fee or cost-plus basis. We are not compensated through additional milestone or royalty payments under these arrangements. Our transactions with Genomatica and Synlogic included the purchase of equity securities and the provision of R&D services. As we perform R&D services under the mutually agreed upon development plans, we recognize a reduction in the prefunded obligation on a cost-plus basis. These arrangements are further described in Notes 5, 6, 16 and 20 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Foundry revenue also includes transactions with Startup Structured Partnerships where, as part of these transactions, we received upfront non-cash consideration in the form of current equity interests or financial instruments that are convertible into equity upon a triggering event. We grant the customer a prepaid Foundry services credit in exchange for the upfront non-cash consideration, which can be drawn down as payment for R&D services performed under mutually agreed upon development plans.

Downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable. Equity investees are accounted for as equity method investments, cost method investments or carried at fair value.

Biosecurity Revenue

In the second quarter of 2020, in response to the COVID-19 pandemic, we launched our commercial offering of COVID-19 testing products and services for businesses, academic institutions, and other organizations in which we generate product and service revenue. We generate product revenue through the sale of lateral flow assay (“LFA”) diagnostic test kits, polymerase chain reaction (“PCR”) sample collection kits and pooled test kits, all of which we sell to our customers on a standalone basis. We generate service revenue primarily through the sale of our end-to-end COVID-19 testing services which consist of multiple promised goods and services including sample collection kits, physician authorizations, onsite test administration, outsourced laboratory PCR analysis, and access to results reported through a web-based portal.

Generally, the terms of these agreements provide that we are entitled to compensation: (i) upon delivery of diagnostic test kits when no service is provided and (ii) when services are included, upon the reporting of results to the customer.

Beginning in the first quarter of 2021, we launched our pooled testing initiative which focuses on providing end-to-end COVID-19 testing and reporting services to public health authorities. We are currently offering pooled testing and reporting services for K-12 schools across the United States, at airports through our partnership with XpresCheck and the CDC, as well as through other congregate settings such as our partnership with Eurofins. Our COVID-19 testing business is subject to seasonality, and the demand for COVID-19 testing in schools is diminished, particularly in light of the White House's announcement that the public health emergency will end in May 2023. Over time, Concentric by Ginkgo has added new offerings such as wastewater monitoring and bioinformatic support and has expanded internationally. These expanded offerings were not a material portion of our revenue in 2022, but we expect their relative value to increase in future years.

Costs and Operating Expenses

Cost of Biosecurity Product Revenue

Cost of Biosecurity product revenue consists of costs associated with the sale of diagnostic and sample collection test kits which includes costs incurred to purchase test kits from third parties.

94

Table of Contents

Cost of Biosecurity Service Revenue

Cost of Biosecurity service revenue consists of costs associated with the provision of our end-to-end COVID-19 testing services, which includes costs incurred to provide sample collection kits, physician authorizations, onsite test administration, outsourced laboratory PCR analysis, access to results reported through our proprietary web-based portal and reporting of results to public health authorities.

Research and Development Expenses

The nature of our business, and primary focus of our activities, generates a significant amount of R&D expenses. R&D expenses represent costs incurred by us for the following:

●
development, operation, expansion and enhancement of our Foundry and Codebase; and

●
development of new offerings, such as Biosecurity.

The activities above incur the following expenses:

●
laboratory supplies, consumables and related services provided under agreements with third parties and in-licensing arrangements;

●
personnel compensation and benefits; and

●
rent, facilities, depreciation, software, professional fees and other direct and allocated overhead expenses.

We expense R&D costs as incurred. As we grow our active programs and customer base and invest in our Foundry and Codebase through organic and inorganic growth initiatives, we anticipate that our R&D expenses will continue to increase. The nature, timing, and estimated costs required to support our growth will be dependent on advances in technology, our ability to attract new customers and the rate of market penetration within our existing customer industries.

Beginning in the fourth quarter of 2021, R&D expenses included a significant charge for stock-based compensation expense as a result of the modification of vesting terms of RSUs and the vesting of certain earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”).

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of costs for personnel in executive, business development, finance, human resources, legal and other corporate administrative functions. G&A expenses also include legal fees incurred relating to corporate, intellectual property and patent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, insurance costs, and facility-related costs not otherwise included in R&D expenses.

We expect our G&A expenses will continue to increase as we pursue organic and inorganic growth initiatives. The increases will likely relate to additional personnel, system costs and increased costs related to business development, finance and legal matters, along with increased expenses related to operating as a publicly traded company, such as fees related to audit, legal and tax services, regulatory compliance programs and investor relations.

Beginning in the fourth quarter of 2021, G&A expenses included a significant charge for stock-based compensation expense as a result of the modification of vesting terms of RSUs and the vesting of certain earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”).

Interest Income

Interest income consists primarily of interest earned on our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest related to our lease financing obligation.

95

Table of Contents

Loss on Equity Method Investments

Loss on equity method investments includes our share of losses from certain of our equity method investments under the Hypothetical Liquidation at Book Value (“HLBV”) method.

Loss on Investments

Loss on investments includes the change in fair value of our marketable equity securities in publicly traded companies and impairment losses recognized on non-marketable equity securities in privately held companies.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities includes the change in fair value of private placement warrants (“Private Placement Warrants”) and publicly traded warrants (“Public Warrants”), which are classified as liabilities and were assumed as part of the SRNG Business Combination. Warrant liabilities are marked to market at each balance sheet date.

Gain on Settlement of Partnership Agreement

Gain on settlement of partnership agreement includes payments made by Amyris, Inc. (“Amyris”) under a settlement agreement.

Gain on Deconsolidation of Subsidiaries

Gain on deconsolidation of subsidiaries relates to our deconsolidation of variable interest entities, Verb and Ayana, in the first and third quarters of 2022, respectively. The deconsolidation resulted in the removal of Verb and Ayana’s assets, liabilities and non-controlling interest balances from our balance sheet and the recognition of our retained interest in each entity measured at fair value as of the deconsolidation date.

Other Income (Expense), Net

Other income (expense), net primarily consists of changes in fair value of our convertible notes with Access Bio, Inc. (“Access Bio Convertible Notes”) and promissory note with Glycosyn, LLC (“Glycosyn Promissory Note”), each accounted for under the fair value option, sublease rent income and loss on disposal of equipment.

Provision for Income Taxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our audited consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. For all periods presented, we have recorded a valuation allowance against the deferred tax assets that are not expected to be realized.

We account for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors, including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.

As of December 31, 2022, we had federal net operating loss carryforwards of approximately $1,838.0 million, of which $139.2 million begin to expire in 2029 and $1,698.8 million can be carried forward indefinitely. As of December 31, 2022, we had state net operating loss carryforwards of approximately $734.1 million, of which $661.9 million begin to expire in 2030 and $72.2 million can be carried forward indefinitely. As of December 31, 2022, we had foreign net operating losses of approximately $1.4 million, of which $0.5 million will begin to expire in 2030 and $0.9 million can be carried forward indefinitely. As of December 31, 2022, we had federal research and development tax credit carryforwards of approximately $30.3 million which begin to expire in 2029. As of December 31, 2022, we also had state research and development and investment tax credit carryforwards of approximately $55.7 million which begin to expire in 2030.

96

Table of Contents

Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, R&D tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our consolidated statements of operations for each period presented:

(1) R&D and G&A expenses included a significant charge for stock-based compensation expense as a result of the modification of the vesting terms of RSUs and all related earnout shares (as further described above in “Modification of Equity Awards in Connection with SRNG Business Combination”). Total stock-based compensation expense inclusive of employer payroll taxes was allocated as follows (in thousands):

Foundry Revenue

Foundry revenue increased $30.7 million in 2022 compared to 2021. The increase was primarily due to progress of Current Active Programs with existing and new customers, including an increase of $10.1 million in downstream value share payments received upon the achievement of commercial milestones. Additionally, revenue increased due to the launch of New Programs and was partially offset by the completion of certain programs. Programs typically require a ramp-up period and/or the achievement of technical and/or commercial milestones before contributing in a meaningful way to revenue.

97

Table of Contents

As discussed above in Components of Results of Operations, Foundry revenue comprises both cash and non-cash consideration. Foundry revenue recognized relating to non-cash consideration increased from $39.9 million in 2021 to $75.8 million in 2022, inclusive of downstream value share milestone payments received in the form of equity securities.

The total number of Current Active Programs increased from 71 in 2021 to 112 in 2022. In 2022, 59 New Programs commenced compared to 31 New Programs in 2021. Cumulative Programs increased from 105 in 2021 to 164 in 2022. The number of customers increased from 33 in 2021 to 56 in 2022.

While the majority of Foundry revenue today is made up of Foundry usage fees, as we increase Cumulative Programs and to the extent our customers successfully commercialize products built on our platform, downstream value share is expected to comprise a larger proportion of Foundry revenue. Downstream value share in the form of equity interest appreciation is not recognized as revenue but is expected to contribute to future cash flows upon liquidation, the amount and timing of which is inherently unpredictable.

Biosecurity Revenue

Biosecurity revenue increased $133.2 million in 2022 compared to 2021 and was comprised of an increase in service revenue of $120.8 million and an increase in product revenue of $12.4 million.

The amount and components of Biosecurity revenue are dependent on the demand for COVID-19 testing products and services which is uncertain in 2023 and beyond. In particular, the demand for COVID-19 testing in schools has significantly diminished, with further uncertainty particularly in light of the White House’s announcement that the public health emergency will end in May 2023.

Cost of Biosecurity Product and Service Revenue

Cost of Biosecurity product and service revenue increased $74.5 million in 2022 compared to 2021. The increase was driven by increased demand for our COVID-19 testing products and services.

Research and Development Expenses

Research and development expenses decreased $97.0 million in 2022 compared to 2021. The decrease was primarily attributable to a decrease in stock-based compensation expense of $191.5 million (inclusive of employer payroll taxes), partially offset by increases, driven by organic and inorganic growth initiatives, in personnel-related compensation and benefits expense of $36.8 million, rent and facilities expense of $21.3 million, professional fees of $15.3 million, depreciation and amortization expense of $10.9 million, and software and technology expense of $9.2 million. Stock-based compensation decreased due to vesting of RSUs and certain earnout shares that were modified in the fourth quarter of 2021, resulting in a cumulative catch-up adjustment recorded in 2021 for the portion of the employee’s requisite service provided as of the modification date (refer to above section “Modification of Equity Awards in Connection with SRNG Business Combination”).

General and Administrative Expenses

General and administrative expenses increased $566.8 million in 2022 compared to 2021. The increase was primarily attributable to increases, as a result of becoming a public company and supporting business scaling through organic and inorganic growth initiatives, in professional fees of $49.8 million, personnel-related compensation and benefits expense of $46.8 million, insurance expense of $8.6 million, travel and entertainment expense of $4.9 million, rent and facilities expense of $4.8 million, depreciation and amortization expense of $3.5 million, and marketing expense of $2.7 million. The remaining increase was attributable to stock-based compensation expense of $444.9 million (inclusive of employer payroll taxes) primarily due to founder equity awards granted in January 2020 and September 2021, which vested in full in October 2022. These awards were also subject to the same modification described above in “Modification of Equity Awards in Connection with SRNG Business Combination”.

Interest Income

Interest income increased $19.4 million in 2022 compared to 2021, primarily due to higher average cash balances in interest bearing accounts and increases in interest rates on cash held in money market accounts.

98

Table of Contents

Interest Expense

Interest expense decreased $2.3 million in 2022 compared to 2021, primarily due to non-cash interest expense on a build-to-suit lease financing obligation, which was derecognized upon the adoption of Financial Accounting Standards Board Accounting Standard Update No 2016-02, Leases (Topic 842) on January 1, 2022 and is now recorded as operating lease expense on the consolidated statements of operations and comprehensive loss.

Loss on Equity Method Investments

Loss on equity method investments decreased $33.5 million in 2022 compared to 2021. The decrease was primarily attributable to our equity method investments in BiomEdit, Verb, Ayana, Joyn, Arcaea and Allonnia.

In 2022, we launched our new Platform Venture, BiomEdit, and recorded a $8.5 million loss on our equity method investment in BiomEdit as a result of the application of the HLBV method during 2022. Upon the deconsolidation of Verb and Ayana in 2022, we recorded an aggregate $31.9 million loss on our retained investments in Verb and Ayana due to a basis difference associated with in-process research and development identified as part of the initial accounting for the equity method investments. Our share of Joyn's losses under the HLBV method decreased by $14.2 million in 2022 compared to 2021, primarily as a result of a $14.0 million gain on the remeasurement of our 50% equity interest in Joyn at fair value as of the business combination date.

The increase in losses related to BiomEdit, Verb and Ayana were offset by a decrease in losses related Allonnia and Arcaea. The fair value of the additional equity we received in Allonnia of $12.7 million in 2021 was reduced to zero during the period as a result of the application of the HLBV method. The fair value of the initial equity we received in Arcaea of $47.4 million in 2021 was also reduced to zero during the period as a result of the application of the HLBV method.

Under the HLBV method, we absorb losses as a common unit holder prior to preferred unit holders due to a substantive profit-sharing agreement where the preferred unit holders receive preferential distribution rights. Because we have no commitment to fund the losses of Verb, Ayana, Arcaea or Allonnia, no further losses on these equity method investments were recognized during the periods presented.

Loss on Investments

Loss on investments increased $41.8 million in 2022 compared to 2021. The increase was driven by fluctuations in the stock prices of our marketable equity securities, a $10.1 million impairment loss recognized on our investment in Genomatica preferred stock in 2022 and mark-to-market adjustments on equity securities received as downstream value share payments upon the achievement of commercial milestones. Non-cash consideration from customers is initially measured at the fair value of the non-cash consideration at contract inception.

Change in Fair Value of Warrant Liabilities

The gain on the change in fair value of warrant liabilities increased $66.4 million in 2022 compared to 2021. The change in fair value of warrant liabilities is primarily driven by a decline in the value of our common stock during the periods, which decreased the fair value of the liability classified warrants.

Gain on Settlement of Partnership Agreement

Gain on settlement of partnership agreement decreased $23.8 million in 2022 compared to 2021 and consisted of a payment received from Amyris in 2021 in full settlement of all amounts due under the partnership agreement.

Gain on Deconsolidation of Subsidiaries

Gain on deconsolidation of subsidiaries relates to our deconsolidation of Verb and Ayana and consisted of $15.9 million and $16.0 million retained interests in Verb and Ayana, respectively, measured at fair value as of the deconsolidation date.

Other Income (Expense), Net

Other income (expense), net increased $9.4 million in 2022 compared to 2021. The increase was primarily attributable to changes in fair value of the Access Bio Convertible Notes and Glycosyn Promissory Note which are marked to market at each period-end, a $5.3 million gain on the convertible promissory notes from Joyn which were remeasured to fair value as of

99

Table of Contents

the business combination date, a $3.9 million increase in sublease rent income, partially offset by loss on disposal of equipment.

Non-GAAP Information

In addition to our results determined in accordance with GAAP, we use EBITDA and Adjusted EBITDA internally to evaluate our performance and make financial and operational decisions. We believe these non-GAAP measures, when viewed with our GAAP results, may be helpful to investors in assessing our operating performance.

We define EBITDA as net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders before the impact of interest income, interest expense, provision for income taxes and depreciation and amortization.

We define Adjusted EBITDA as EBITDA adjusted for stock-based compensation expense, gain or loss on equity method investments, gain or loss on investments, change in fair value of warrant liabilities, gain on settlement of partnership agreement, gain on deconsolidation of subsidiaries, acquired in-process research and development in connection with asset acquisitions and other income and expenses. In 2022, we redefined Adjusted EBITDA to exclude transaction and integration costs associated with planned, completed or terminated mergers and acquisitions. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends because it eliminates the effect of financing activities, investing activities, and certain non-cash charges and other items that are not related to our core operating performance or affect comparability period over period.

Our non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by future income or future expenses similar to those excluded when calculating these measures. Our computation of these measures, especially Adjusted EBITDA, may not be comparable to similarly titled measures of other companies because not all companies calculate these measures in the same way. We compensate for these limitations by providing a reconciliation of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure.

The following table reconciles net loss attributable to Ginkgo Bioworks Holdings, Inc. stockholders to EBITDA and Adjusted EBITDA for the years ended December 31, 2022 and 2021, respectively:

(1)
For the years ended December 31, 2022 and 2021, includes $10.3 million and $5.0 million, respectively, in employer payroll taxes.

(2)
Represents losses on equity method investments under the HLBV method, net of losses attributable to non-controlling interests.

(3)
Represents transaction and integration costs directly related to mergers and acquisitions including (i) due diligence, legal, consulting and accounting fees associated with acquisitions, (ii) post-acquisition employee retention bonuses and

100

Table of Contents

severance payments, (iii) the fair value adjustments to contingent consideration liabilities resulting from acquisitions, and (iv) acquired intangible assets expensed to research and development associated with an asset acquisition.

(4)
For the year ended December 31, 2022, includes $1.2 million in mark-to-market loss on the Access Bio Convertible Notes and Glycosyn Promissory Note and a $5.3 million fair market value remeasurement gain on the convertible promissory notes from Joyn. For the year ended December 31, 2021, includes $3.7 million in mark-to-market adjustments on the Access Bio Convertible Notes and Glycosyn Promissory Note.

Liquidity and Capital Resources

Sources of Liquidity

Prior to the SRNG Business Combination, our sources of liquidity have been predominantly from proceeds from equity offerings, convertible notes offerings, payments received for R&D services under license and collaboration arrangements including those received on an upfront basis and upon accomplishment of milestones, payments received from Biosecurity product sales and services, and government grants. Upon the closing of the SRNG Business Combination in September 2021, we received net proceeds totaling approximately $1,509.6 million, inclusive of $760.0 million from the PIPE Investment. As of December 31, 2022, we had cash and cash equivalents of $1,315.8 million which we believe will be sufficient to enable us to fund our projected operations through at least the next 12 months from the date of filing of this Annual Report on Form 10-K.

Our wholly-owned subsidiary Zymergen was impacted by the closure of Silicon Valley Bank (“SVB”) on March 10, 2023. At the time of closing, Zymergen had a total cash balance of approximately $74 million held in deposit accounts at SVB. Zymergen does not maintain any other material accounts or lines of credit with SVB. The cash balance with SVB represents approximately 6% of our cash and cash equivalents as of December 31, 2022, which is considered to be immaterial to our liquidity.

Material Cash Requirements

We anticipate that our expenditures will increase significantly in connection with our ongoing activities, as we:

●
continue our R&D, activities under existing and new programs and further invest in our Foundry and Codebase;

●
hire additional personnel and secure facilities to support our expanding R&D efforts;

●
develop and expand our offerings, including Biosecurity;

●
upgrade and expand our operational, financial and management systems and support our operations;

●
acquire and integrate companies, assets or intellectual property that advance our company objectives;

●
maintain, expand, and protect our intellectual property; and

●
incur additional costs associated with operating as a public company.

Leases

We have various noncancelable operating leases for office and laboratory space that begin to expire on dates ranging from 2030 through 2036. As of December 31, 2022, we have minimum rental commitments under noncancelable operating leases of $58.1 million in 2023 and $606.7 million thereafter. See Note 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.

Purchase Obligations

In March 2022, we entered into a four-year noncancelable supply agreement with Twist for the purchase of diverse products including synthetic DNA. Under this agreement, we are obligated to spend a minimum of $58.0 million over the four-year term, with approximately $10.0 million payable in the next 12 months and $48.0 million thereafter.

Capital Expenditures

We anticipate our cumulative spending on capital expenditures to be in the range of $60.0 million over the next twelve months, subject to management’s ongoing reassessment, to support our commercial plan as we strategically invest in capacity and technology to deliver new cell programs.

101

Table of Contents

Cash Flows

The following table provides information regarding our cash flows for each period presented:

Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 consisted of net loss of $2,106.4 million, adjusted for net change in operating assets and liabilities of $37.0 million and non-cash charges of $1,891.2 million. The net change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $55.0 million from increased Biosecurity collections partially offset by increase in prepaid expense and other current assets of $8.7 million primarily due to prepaid insurance for directors and officers, decrease in accounts payable of $10.8 million due to timing of invoices, decrease in accrued expenses and other current liabilities of $39.6 million, decrease in deferred revenue of $36.4 million, and lease incentives received of $13.2 million offset by $10.8 million decrease in operating lease liabilities. Non-cash adjustments primarily consisted of depreciation and amortization of $42.6 million, stock-based compensation expense of $1,930.6 million, loss on investments and equity method investments of $97.1 million, non-cash lease expense of $19.1 million associated with operating lease right-of-use assets, partially offset by deferred income tax benefit of $14.6 million related to acquisitions, gain on the change in fair value of warrant liabilities of $125.0 million, non-cash equity consideration of $34.3 million from commercial milestones associated with a customer collaboration arrangement, and $31.9 million gain on the deconsolidation of Verb and Ayana.

Net cash used in operating activities for the year ended December 31, 2021 consisted of net loss of $1,836.6 million, adjusted for net change in operating assets and liabilities of $61.5 million and non-cash charges of $1,644.4 million. The net change in operating assets and liabilities was primarily due to an increase in accounts receivable of $114.1 million driven by an increase in Biosecurity revenue and a decrease in deferred revenue of $10.5 million, partially offset by an increase in accrued expenses and other current liabilities of $44.8 million primarily due to Biosecurity revenue accruals, an increase in deferred rent of $6.0 million as a result of entering into new leases and expanding the terms of existing leases and an increase in other non-current liabilities of $18.6 million primarily due to a $20.0 million customer deposit liability. Non-cash adjustments primarily consisted of depreciation and amortization of $29.1 million, stock-based compensation expense of $1,606.0 million, loss on equity method investments of $77.3 million and loss on investments of $11.5 million, partially offset by gain on change in fair value of warrant liabilities of $58.6 million and non-cash equity consideration of $24.2 million from milestones associated with a customer collaboration arrangement.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2022, primarily consisted of purchases of property and equipment of $52.3 million associated with Foundry capacity and capability investments, purchases of notes receivable and marketable equity securities of $43.7 million, relinquishment of $55.7 million in cash upon the deconsolidation of Verb and Ayana, partially offset by $10.0 million cash redemption of our Access Bio Convertible Note and net cash received from business and asset acquisitions of $74.7 million.

Net cash used in investing activities for the year ended December 31, 2021, primarily consisted of purchases of property and equipment of $56.5 million associated with Foundry capacity and capability investments, purchase of non-marketable equity securities of $5.0 million and acquisition of Dutch DNA for $12.0 million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022, primarily consisted of $99.3 million in net cash proceeds from our underwritten public offering in November, the proceeds of which will be used to offset the cash used to finance the acquisition of certain assets of Bayer and for other general corporate purposes.

102

Table of Contents

Net cash provided by financing activities for the year ended December 31, 2021, primarily consisted of net proceeds received from the SRNG Business Combination of $1,509.6 million, non-controlling interest contributions of $59.9 million related to our then consolidated variable interest entities (“VIEs”), Ayana and Verb, partially offset by repurchases of common stock from our founders of $25.0 million and tax withholding payments related to net share settlement of equity awards of $9.5 million.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, are reflected in our consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Revenue Recognition

We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, we recognize revenue when the customer obtains control of the promised goods or services, at an amount that reflects the consideration we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the promises and distinct performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligations.

Foundry Revenue

We generate license and service revenue through the execution of license and collaboration agreements whereby customers obtain license rights to our proprietary technology and intellectual property for use in the research, development and commercialization of engineered organisms and derived products. Under these agreements, we typically provide R&D services, which includes the provision of a license to our intellectual property. Additionally, the customer obtains license rights to the output of our services in order to commercialize the resulting output of such services. Generally, the terms of these agreements provide that we receive some combination of: (1) Foundry usage fees in the form of (i) upfront payments upon consummation of the agreement or other fixed payments, (ii) reimbursement for costs incurred for R&D services and (iii) milestone payments upon the achievement of specified technical criteria, plus (2) downstream value share payments in the form of (i) milestone payments upon the achievement of specified commercial criteria, (ii) royalties on sales of products from or comprising engineered organisms arising from the collaboration or licensing agreement and (iii) royalties related to cost of goods sold reductions realized by our customers.

Our collaboration and licensing agreements often contain multiple promises, including (i) licenses and assignments of intellectual property and materials and (ii) R&D services, and we determine whether each of the promises is a distinct performance obligation based on the nature of each agreement. As we are generally performing R&D services that are highly integrated and interrelated to the licenses and assignments of intellectual property and materials, the promises are generally inseparable. As such, we typically combine the R&D services, licenses, and assignments into a single performance obligation. However, for certain agreements, we only grant licenses or effects such transfers and assignments upon the successful completion of the R&D services or delivery of a developed product. For these agreements, we typically consider (i) the R&D services and (ii) the licenses, transfers, and assignments as distinct performance obligations, as each is transferred separately and has a separately identifiable benefit. Options to acquire additional goods and services are evaluated to determine if such options provide a material right to the counterparty that it would not have received without entering into

103

Table of Contents

the contract. If so, the option is accounted for as a separate performance obligation. If not, the option is considered a marketing offer which is accounted for as a separate contract upon the counterparty’s election.

At contract inception, we determine the transaction price, including fixed consideration and any estimated amounts of variable consideration. Any upfront cash payment received upon consummation of the agreement is fixed and generally nonrefundable. Variable consideration is subject to a constraint, and amounts are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may include reimbursement for costs incurred for our R&D efforts, milestone payments upon the achievement of certain technical and commercial criteria, and royalties on sales of products from or comprising engineered organisms arising from the agreement. With respect to the R&D reimbursements and milestone payments, we use the most likely amount method to estimate variable consideration. With respect to agreements that include royalties on sales or other contingent payments based on sales, we apply the royalty recognition constraint which requires a constraint until the royalty or value-sharing transaction occurs.

Certain agreements contain payment in the form of shares of equity securities or other financial instruments that are convertible into equity upon a triggering event. Any non-cash consideration is measured at the estimated fair value of the non-cash consideration at contract inception. For equity securities and financial instruments received that are not actively traded, we generally engage a third-party valuation specialist to determine the estimated fair value of the upfront non-cash consideration. The fair value is generally determined based on a recent round of financing or by using a scenario-based valuation model. Significant unobservable inputs are used in the fair value measurements including expectations regarding future financings of the customer, scenario dates and probabilities, expected volatility, discount rates and recovery rates. Changes in these assumptions can materially affect the value of the non-cash consideration and the total amount of revenue recognized for the contract.

For agreements with promises that are combined into a single performance obligation, the entire transaction price is allocated to the single performance obligation. For agreements with multiple performance obligations, the transaction price is allocated to the performance obligations using the relative standalone selling price methodology. For agreements featuring variable consideration, we allocate variable consideration to one or more, but not all, performance obligations if certain conditions are met. Specifically, we assess whether the variable consideration relates solely to our efforts to satisfy the performance obligation and whether allocating such variable consideration entirely to the performance obligation is consistent with the overall allocation objective. If these conditions are not met, we allocate the variable consideration based on the relative standalone selling price methodology. The key assumptions utilized in determining the standalone selling price for each performance obligation include development timelines, estimated R&D costs, commercial markets, likelihood of exercise (in the case of options considered to be material rights), and probabilities of success.

For agreements where the licenses or assignments are considered separate performance obligations or represent the only performance obligation, we recognize revenue at the point in time that we effectively grant the license as the licenses or assignments represent functional intellectual property. For agreements where the licenses and the R&D services represent a combined performance obligation, we recognize revenue over the period of performance using a measure of progress based on costs incurred to date as compared to total estimated costs.

We evaluate our measure of progress to recognize revenue at each reporting period and, as necessary, adjust the measure of progress and related revenue recognition. Our measure of progress and revenue recognition involves significant judgment and assumptions, including, but not limited to, estimated costs and timelines to complete our performance obligations. We evaluate contract modifications and amendments to determine whether any changes should be accounted for prospectively or on a cumulative catch-up basis. We utilize the right to invoice practical expedient when we have a right to consideration in an amount that corresponds directly with the value of our performance to date.

Royalties are recognized as revenue when sales have occurred as we apply the sales or usage-based royalties recognition constraint. We have determined the application of this exception is appropriate because the license granted in the agreement is the predominant item to which the royalties relate.

As we receive upfront payments for technical services under certain of our arrangements, we evaluate whether any significant financing components exist given the term over which the fees will be earned may exceed one year. Based on the nature of our agreements, there are no significant financing components as the purpose of the upfront payment is not to provide financing, but rather to secure technical services, exclusivity rights, and Foundry capacity, or the timing of transfer of those goods or services is at the discretion of the customer.

104

Table of Contents

Deferred revenue represents consideration received by us in excess of revenue recognized and primarily results from transactions where we receive upfront payments and non-cash equity consideration. In instances where we have received consideration in advance for an undefined number of technical development plans (“TDPs”) under our customer agreements, we record the advance payments as deferred revenue, net of current portion on our consolidated balance sheets. Upon the execution of a specific TDP, we reclassify the estimated consideration to be earned under that TDP within the next twelve months as current deferred revenue. We also classify unexercised material rights related to future TDPs as deferred revenue, net of current portion on our consolidated balance sheets. When a TDP is executed, and the material right is exercised, the amount allocated to the material right, which will be earned within the next twelve months, is reclassified to current deferred revenue. All other deferred revenue is classified as current or non-current based on the timing of when we expect to earn the underlying revenue based upon the projected progress of activities under the TDP.

Variable Interest Entities

We evaluate our variable interests in VIEs and consolidate VIEs when we are the primary beneficiary. We determine whether we are the primary beneficiary of each VIE based on our assessment of whether we possess both (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses that could be significant to the VIE or the right to receive benefits that could be significant to the VIE. We reevaluate the accounting for our VIEs upon the occurrence of events that could change the primary beneficiary conclusion.

With respect to our investments in Motif, Allonnia, Genomatica, Arcaea, BiomEdit, Verb and Ayana (subsequent to the deconsolidation of Verb and Ayana) (collectively, the "Unconsolidated VIEs"), we have concluded these entities represent VIEs. However, although we may have board representation and are involved in the ongoing development activities of the entities via participation on the JSC, we have concluded that we are not the primary beneficiary of these entities. This conclusion is supported by the fact that: (i) we do not control the board of directors of any of the Unconsolidated VIEs, and no voting or consent agreements exist between us and other members of each respective board of directors or other investors, (ii) the holders of preferred security interests in the Unconsolidated VIEs hold certain rights that require their consent prior to taking certain actions, which include certain significant operating and financing decisions, and (iii) our representation on the JSC of each respective entity does not give us control over the development activities of any of the Unconsolidated VIEs, as all JSC decisions are made by consensus and there are no agreements in place that would require any of the entities to vote in alignment with us. As our involvement with the Unconsolidated VIEs does not give us the power to control the decisions with respect to their development or other activities, which are their most significant activities, we have concluded that we are not the primary beneficiary of the Unconsolidated VIEs.

With respect to Cooksonia, we have concluded that we hold a variable interest in this entity through our equity interest and we are the primary beneficiary of Cooksonia as we control the most significant activities of Cooksonia, we control 100% of the board of directors of Cooksonia and we hold a controlling financial interest in Cooksonia. Additionally, with respect to Cooksonia’s investment in Joyn prior to Joyn's dissolution in October 2022, as Cooksonia did not control Joyn’s board of directors, it did not have the power to control the decisions related to the development activities of Joyn, which were the most significant activities of Joyn. Accordingly, Cooksonia was not the primary beneficiary of Joyn.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value.

Leases

We determine if an arrangement is or contains a lease at contract inception based on the terms and conditions in the contract. Lease right-of-use assets and liabilities are measured based on the present value of fixed lease payments that are unpaid as of the lease commencement date. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments and use the implicit rate when readily determinable. Our incremental borrowing rate is based on our estimate of the rate of interest we would have to pay to borrow on a fully collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

105

Table of Contents

Determination of Fair Value of Non-cash Consideration in Platform Ventures

The fair value of non-cash consideration received in relation to our Platform Ventures is in return for the license rights conveyed to the counterparty. We value the non-cash consideration, which is generally common stock or common units, at inception of the agreements using an option pricing method (“OPM”). The OPM uses a back-solve methodology to infer the total equity value based on the pricing of the preferred financing round associated with the formation of the respective Platform Ventures, which was contemporaneous with the intellectual property agreements that conveyed our license rights to such Platform Ventures.

Business Combinations

We account for business combinations using the acquisition method of accounting. We recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of the total consideration paid over the fair value of the identifiable net assets as goodwill. Significant management judgments and assumptions are required in determining the fair value of acquired assets and liabilities assumed, particularly intangible assets and their estimated useful lives, the fair value of contingent consideration payable, and for business combinations achieved in stages, the acquisition-date fair value of our previously held equity interest in the acquiree. As a result, we obtain the assistance of third-party valuation specialists in developing these estimates. Significant assumptions used in the valuations include the estimated annual net cash flows (including projected future revenues and costs, terminal growth rates, royalty rates and obsolescence rates), the expected costs to reproduce an asset, useful lives, discount rates, and probabilities of achieving certain technical and commercial milestones. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the estimates and assumptions.

Stock-Based Compensation

Stock-based compensation expense is measured based on grant-date fair values and is recognized over the requisite service period. For awards that vest solely based on a service condition, we recognize stock-based compensation expense on a straight-line basis over the requisite service period. For awards that vest based on performance and market conditions, we recognize compensation expense using the accelerated attribution method on a tranche-by-tranche basis. We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of certain assumptions, including fair value of common stock (for options granted prior to the SRNG Business Combination), expected term, expected volatility, risk-free interest rate and expected dividend yield. For awards with market conditions, we determine the grant date fair value using a Monte Carlo simulation model, which incorporates various assumptions including expected stock price volatility, risk-free interest rate, expected term, and expected dividend yield.

Following the SRNG Business Combination, the fair value of our common stock is based on the quoted market price on the NYSE. Prior to the SRNG Business Combination, the fair value of our common stock underlying our stock-based awards was determined considering our most recently available third-party valuations of common stock and our assessment of additional objective and subjective factors. These judgments and estimates included: (i) a discount for lack of marketability; (ii) external market data; (iii) historical activity by us in selling equity to outside investors; (iv) our stage of development; (v) rights and preferences of our equity securities that rank senior to common stock; and (vi) the likelihood of the various scenarios, among others. Changes to these assumptions could result in different fair values of common stock.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the fair value of our stock-based awards could be materially different.

Recently Issued Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies,” of our consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

106

Table of Contents