Ginkgo Bioworks Holdings, Inc. (NYSE:DNA ) Q1 2022 Earnings Conference Call May 16, 2022 4:30 PM ET

Anna Marie Wagner - SVP of Corporate Development

Jason Kelly - Co-Founder & CEO

Matt Sykes - Goldman Sachs

Tejas Savant - Morgan Stanley

Rahul Sarugaser - Raymond James

Derik De Bruin - Bank of America

Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I'm joined by Jason Kelly, our Co-Founder and CEO; and Mark Dmytruk, our CFO. Thanks again for joining us, and we look forward to providing you with an updating on our last quarter.

As a reminder, during the presentation today, we'll be making forward-looking statements, which involve risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission to learn more about these risks and uncertainties. We'll follow our standard agenda for these calls, by an update on our financial progress, We followers , during our quarterly earnings calls, we will, of course, be updating you on our financial progress, while also taking an opportunity to dive deeper into an area of strategic importance as folks continue to develop a deeper understanding of what we're building.

As I said before their topics you'd like to see in a future deep dive, just look us now we love to include business in the future. As usual we'll end with a Q&A session and I'll take questions from analysts, investors and the public. You can submit those questions to us in advance including, right now, via Twitter, #GinkgoResults or via e-mail at investors@ginkgobioworks.com.

And now, I'll hand it over to Jason to kick things off.

Thanks, Anna Marie. As a reminder Ginkgo's mission is to make biology easier to engineer, right. And this sort of focus on the tools and technology is embedded biology’s really what led to the platform business model that we're really pushing here at Ginkgo. And the way that works as a customer, brings ideas to Ginkgo, for a cell that they want to engineered to do something and we use our platform to engineer to program that cell for them to meet their specifications, right.

And the reason customers want to work with us, there are two core assets in that platform. The first is, our Foundry, right. So this is a highly automated lab and sort of key value proposition for our customers is, we can take what is typically an underutilized fixed cost investment i.e. their internal R&D labs at their site and turn that into a highly efficient variable cost for them if they instead engage with Ginkgo’s Foundry as a service provider of that sort of lab activity.

And the analogy here is something similar to what you saw where companies made the choice to outsource on-prem, servers and IT to cloud server providers that sort of transition is a similar and spirit and then those scale economics also similar [indiscernible] to what we're trying to achieve with the Foundry.

The second asset we have at the company is what we call our code base. And the code base is a data assets and it's basically as we do these projects for customers, we're accumulating physical strains, data genetics, various learnings, we're training models, machine learning models and so on, that we can then make available so that we don't need to reinvent the wheel for every new cell program, when a customer comes to us. We get to leverage the experience of our previous work.

And so further potential customers that might be tuning into the call today, our whole model is to make that platform available for your project as fast as possible. So if you see something we've done in your industry or related project, I’ll say that's similar to something I'm interested in, that means, that's the type of thing, Ginkgo is getting better at. you might that might be a good opportunity to reach out. If you see a technology, we have acquired. We will talk today about, we completed the acquisition of FGen, really interesting tech. That's of interest to you for your Project. We can make that available quickly or specifically for your work. And so it is an idea of making these things available fast so that you don't have to make those investments yourself.

One of the most important metrics for our success coming up, we've got a great quarter here seeing new customers choose to work with Ginkgo for their R&D efforts. So in this first quarter, we added 11 diverse new cell programs, including some that will put us deeper into new areas of engineering for the company. One, I think is really exciting is a company called Light Bio that's engineering plants to glow and so this is a project where we're working to improve the brightness of these opportunities they have. There is project in anaerobic bacteria for microbiome applications are being able to work with cells that grow without the presence of oxygen, right. And so that requires a different types of investments on our platform that we've been making.

Our biosecurity efforts, which we view as a critical component of our platform, we'll talk about, continue to grow well in the first quarter of 2022, particularly as new variants to threaten to disrupt schools opening after the holidays with Omicron. Concentric, our biosecurity and public health business that’s continued to build real trust in the market, has now served well over 5,000 organizations and generated $147 million in the first quarter alone.

We spent a lot of time in our last earnings call, talking about the many challenges of building a business on the back of hard technology, like what we're developing here. We're fortunate to have a strong financial foundation with about $1.5 million in cash, which gives us the runway we believe we'll need to achieve our mission. In the process, we will aim to become the sort of obvious partners for the world's cell programming.

One opportunity that our financial position unlocks (ph) is M&A. We're ramping up our M&A activities in 2022. And since our last call, we closed our acquisition of FGen, as I mentioned and welcome that team led by Andreas Meyer to Ginkgo. We are also announced a series of planned transactions with Bayer, including the acquisition of their West Sacramento R&D team and facility and a large new collaboration with them, which is super exciting. So I'm excited to talk about that transaction. And we'll spend a fair bit of time coming up talking about that.

So with that, I'm going to hand it off to Mark to walk through our first quarter financial performance.

Thanks, Jason. Our first quarter financial results reflect strong growth driven by continued execution of our Biosecurity business. We also continue to see new cell program growth and diversification in our Foundry. Total revenue in the first quarter of 2022 increased to $168 million, representing growth of nearly 4 times the first quarter of 2021.

I'll start by discussing our Cell Programming business, which we also described as our Foundry. We added 11 new cell programs to the battery platform in the first quarter of 2022. As a reminder, our new cell program count is a key KPI that we're particularly focused on, adding more programs benefits us strategically by driving our scale economics, diversifying customers and programs, accumulating code base and simulating potential sources of downstream value share. We only counter program that has a certain expectation of scale and are often doing several proof of concept programs as well, which can ultimately lead to larger paid programs.

We supported a total of 64 active programs in the first quarter of 2022, across 32 customers on our Foundry platform. This represents substantial growth and diversification in programs relative to the 44 active programs in the first quarter of 2021, with strong growth coming from the pharma and biotech industry in particular. Foundry revenue was $21 million in the quarter, a decrease of 5% when compared with the first quarter of 2021. When compared to the prior sequential quarter or the year-over-year comparable quarter, Foundry revenue was impacted by the timing of downstream value share and the mix shift driven by new program still ramping up versus certain large programs completing in 2021.

It typically takes some time for new programs to reach mature run rates and due to our contract structures, we often recognized an outsized portion of the contracts revenue in the later stages of the contract. As expected, we also see some impact from our active decisions to tune deal structures to optimize for future downstream value share in our customer collaborations, sometimes in exchange for lower upfront usage fees. To be clear, this type of volatility is not unexpected at our stage and as we will share later, we are reiterating our full year Foundry revenue guidance.

Also as a reminder, in the third and fourth quarters of 2021, we recognized sizable milestone payments relating to our collaboration with Cronos. In the first quarter of this year, we did not recognize revenue from any material milestones and so this is an example of where timing of downstream value share can affect trend lines, again, something we consider in our annual guidance.

And one additional comment on related party versus third-party revenue mix, related parties represented 63% of Foundry revenue in the first quarter of 2022 compared to 56% in the first quarter of 2021. This mix shift primarily represents the timing of revenue relating to certain programs, and it's not a reversal in the general trend that we saw last year with related party revenue mix decreasing.

As a reminder though, we do not manage the business around related party revenue mix or set particular targets for this metric. As related party revenue simply highlight certain companies in which we are granted a significant equity position in lieu (ph) of royalties as compensation for downstream value. And as we've discussed in the past, this type of transaction is a part of our business model, which we view as strategic, and which we intend to continue.

Now turning to Biosecurity. Our Concentric offering continued its strong upward momentum in the first quarter of 2022, generating $147 million of revenue in the quarter. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID testing offering and the growth was driven primarily by K-12 pooled testing which continued ramping up in Q1 due to the Omicron variant and the demonstrated benefits of pool testing in schools.

Biosecurity gross margin was 42% in the first quarter, consistent with the prior fourth quarter performance. We're extremely proud of what we've accomplished thus far in Biosecurity. It's remarkable what our team has built in such a short time and it's a privilege to be able to provide this service and health community soon. But in this nascent market, we've been consistently cautious about projecting forward revenue due to uncertainty. You'll see that conservatism reflected in our updated guidance and will continue to provide regular updates as the business evolves. Jason will talk in more detail about what we're doing to build on the foundation we have in Biosecurity.

And now I'll provide more commentary on the rest of the P&L. We are (ph) noted, these figures exclude stock-based compensation expense, which is shown separately. Also I wanted to draw your attention to a new segment reporting schedule that we are including in our financials going forward and which is replicated in the appendix to this presentation. R&D expense excluding stock-based comp declined from $60 million in the first quarter of 2021 to $56 million in the first quarter of 2022. We incurred a significant amount of R&D expense relating to our Biosecurity offering in the first quarter of last year, approximately $23 million, which was substantially phased out by the second half of 2021.

R&D expense related to the Foundry increased as expected year-over-year driven by expansion of Foundry capacity and increased breadth of capabilities to support both current and future collaborations. G&A expense excluding stock-based comp grew to $42 million in the first quarter of 2022, compared to $18 million in the first quarter of 2021, as we invested in business development and all other G&A functions to support the growth of new customers and programs, higher level of foundry activity and our biosecurity offering, along with our very extensive public company readiness efforts.

It is important to note that our net loss includes a number of non-cash income and/or expenses as detailed more fully in our financial statements: including one, stock-based compensation; two mark-to-market adjustments on equity investments where we have elected the fair value option; three, reductions in the carrying value of those platform venture accounted for as equity method investments, which we typically record in the quarter that equity is issued to us; and four, mark-to-market adjustments on public and private placement warrants inherited as part of the destock that are now classified as a liability on our balance sheet. Because of these non-cash and other non-recurring items, we look to adjusted EBITDA is a more indicative measure of our profitability.

Adjusted EBITDA in the quarter was negative $2 million, compared to negative $51 million in the comparable prior year period. A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA was favorably impacted by the growth in our biosecurity business in the quarter.

And finally, CapEx in the first quarter of 2022 was $4 million reflecting Foundry capacity and capability investments. CapEx was impacted by timing of equipment purchases and projects and so we would expect to see significantly higher CapEx in future quarters this year.

One final comment on stock-based compensation expense. As a reminder, we provided extensive disclosure in our Q4 earnings release relating to GAAP accounting for the modification of restricted stock units issued prior to Ginkgo becoming a public company. Our Q4 disclosures indicated that as of December 31, 2021 we expected a further $2.2 billion of stock comp expense to be booked in 2022 and beyond relating to this adjustment. The calculation of which was based on the stock price of $13.59 on November 17, 2021. Substantially, all of the $659 million stock compensation expense in the first quarter relates to this wind down and we would expect most of the remainder to be booked in the rest of 2022 with a small tail that extends into 2023 and beyond.

Now, I'd like to provide some commentary on our revenue outlook for 2022. We continue to expect to add an incremental 16 new cell programs with diverse side of end-markets as well as between new and existing customers in full year 2022. We are increasing our full-year guidance for total revenue to $375 million to $390 million, an increase of $50 million from our prior outlook. We are reiterating our Foundry revenue outlook to be in a range of $165 million to $180 million for full year 2022. We have line of sight to material downstream value share in the latter half of the year, which we expect to drive significant growth versus the prior year.

In addition, we have launched over 30 new cell programs in the past three quarters. And as those programs ramp up, we expect to see a higher contribution of revenue from Foundry usage fees. And of course, we have expect our strong pipeline to contribute a significant number of new programs to be launched during the course of the year.

Based on our strong performance and Biosecurity in the first quarter, we now expect Biosecurity revenue to be at least $210 million for full year 2022, an increase from our prior outlook of at least $160 million. As was the case throughout 2021, there still remains significant uncertainty in the biosecurity market in general. Many of the state K-12 testing contracts we are supporting are funded through the end of the school year and there is uncertainty about the funding available and level of testing in the next fiscal school year. Ginkgo is actively working on new opportunities in Biosecurity, including internationally. However, the timing and amount of revenue from these opportunities is also uncertain.

In summary, we are pleased with our overall progress. We are executing on new program growth on the Foundry platform to drive scale economics, program diversity, accumulation of code base, the accumulation of potential future downstream value share. Another strong quarter from biosecurity is contributing positively to cash flow and providing further signals that we are well positioned to capitalize on a longer-term business opportunity, and the company's total cash position of $1.5 billion remains strong and provides us with a multi-year runway to execute on our ambitious growth plans.

And now, Jason, back to you.

Thanks, Mark. This is a great quarter for Ginkgo. Our strategy at the company right now is actually pretty simple. We want to maintain a strong cash margin of safety and as Mark mentioned, ending the quarter with about $1.5 billion in cash, surely, does that for us right now. We want to add new programs from a diverse range of markets and customers, and we want to keep increasing the scale of our platform, which as I talked about earlier, improves the economics of the work we do for customers, right, as our scale goes up, we have lower costs and then ultimately, we can provide that back to customers over time.

If we keep doing that in the coming years, then, well, I think Foundry revenue will be a little lumpy. In other words, we’ll see more or less quarter-to-quarter based on when programs finish and provide that downstream value share which ultimately is a bit out of our control because many of those things are dependent on customer activities. It should position us quite nicely to keep growing year-over-year. And so, I think this is an important strategic point for us as a company and to stay focused on making the investments that allow us to grow that platform with a good margin of safety and add a wide and diverse range of customers. So I'm thrilled we're doing that.

Okay. So the last time we spoke on the strategic session, we spent a lot of time kind of level setting about the current market environment. I'm talking about both the difficulty in what we do at Ginkgo, as well as our strong footing to accomplish that big mission. And so today, I want to go over a few topics. First, as Mark just described, we're ramping up another extremely strong quarter in our Biosecurity business. We'll talk about the impact we've been having there, and some of the new technologies we're piloting to continue to expand that offering.

Second, I want to spend the most time today talking about our recent announced transaction with Bayer. This is a great opportunity for us in ag biologicals and a signal of what we expect to come in other areas. And finally, I hate to say it, but the market hasn't changed the time since our last call, we said that then we will say it again, it's not fun to live through a Bayer market, but we think it's valuable for Ginkgo. We're careful about maintaining a comfortable margin of safety in this kind of market environment and our balance sheet will allow us to accelerate our leadership while others in the sector may need to pull back.

All right, so let's dive in. So as Mark mentioned, we did over $140 million in revenue just in Q1 in Biosecurity. At Ginkgo, we tend to make big bold decisions and leading -- we think we’re right and leading into biosecurity in the early days of the pandemic was no exception. And -- but frankly, the team continues to astonish me with their ability to execute here, and it has not been easy to do this in this environment if you play back the tape to January for example, schools under enormous amount of pressure, Omicron was taking off completely and the team, again I want to just publicly give credit to enormous amount of effort by the team at Ginkgo in Biosecurity to deliver there -- for our customers and their communities.

So the Biosecurity we've built-to-date is a very strong foundation and it's also got us a seat at the table to help shape the solutions that we hope will prevent future pandemics, right. We expect to continue to support local communities and key children safely in school for the statewide K-12 testing programs and we are expanding our offerings over time to actually include less disruptive method. Since, you can see here, announced that one of the demonstrations we're doing in wastewater testing as a way to do testing in schools. As it stands today, we do in most places, group pool testing sort of [indiscernible] in the nose and they're all being collected and run at a nearby lab, could we make that even lighter weight on schools through things like looking at wastewater.

We've also continued our collaboration with the CDC and XpresCheck to provide testing services for travelers and utilizing our sequencing capacity to help identify and track new variance. So our program were quite proud, was the first in the U.S. to identify Omicron sub-variants BA.2 and BA.3 and among the first to detect BA.4 at the country's ports of entry in April 2022. And then we do this work, we share these samples with the CDC laboratories for further characterization and that's been a really nice engagement with public health leaders and the government, I think that's actually quite important in the long for these technologies.

Finally, we're launching pilots across several new modalities, new ways to do this, that we believe will support our more preventative approach to Biosecurity, right, because that's really the future here is making sure things like COVID don't happen again. And as part of that identifying novel pathogens in less disruptive way, I mentioned, wastewater is also technologies like by passive air monitoring and collecting the air in the room, having that get on a filter and doing a test today back in a lab and maybe in the future right there in that device thing kind of like a smoke detectors, right.

And again, highlight these are, we've got a pandemic thrown at us, we weren't expecting that. And we sort of went about it with the technologies we had with some time and sort of monitoring synthetic biology and biotech tools, we can do a lot better. And it's not on this page, but we're also seeing a real traction in our work with international organizations and countries, biology does not respect waters. We've seen that in the pandemic. And so our biosecurity here in the U.S. frankly needs to be global biosecurity that's the only way we get this right. And so we're looking forward to sharing more details with you on our emerging international efforts in upcoming calls.

Before I move Biosecurity, I do want to mention that although, I'm very proud of the value by asset commercial value, biosecurity is trading for Ginkgo as a business. As we said before, one of our cultural tenets here is that we care how our platform is used. In other words, the technology we are developing here at Ginkgo, we wanted to have a positive impact in the world. And I think what we've been doing in K-12 schools is a great example of that.

I wanted to share just a few of the -- many comments from our partners there. So now, Dr. Mark Ghaly, Secretary of California Health & Human Services Agency gave a presentation showed that chart there and talked about how California was among the lowest pediatric hospitalizations compared to other states. This is in part about the important mitigation tools that we've equipped schools throughout this year. We've built put a lot of energy into building up testing capacity last year.

Governor Sununu in New Hampshire talks about the flexibility and scalability of the of the state testing program and that the communities there can scale these programs up or down based on testing data about trans miscibility in that school and I think it's actually a really important point. As you see these things come in waves right. So, having the technology there in the events you needed again to keep your school open which very much was a big part of the story with Omicron in many states, you want to have them available. And from Cleo Hirsch, Executive Director for COVID Response at Baltimore City Public Schools instead of just having to make blanket district-wide decisions, we actually have lifetime data, right and that idea of sort of like a weather map like what's the weather like today? Ask that you can make local decisions. I think it's an important way to think about things in the future for Biosecurity.

And I do want to highlight, Cleo and Baltimore City Public Schools, they were one of the earliest adopters of the sort of regular school testing in the entire country, right. This thing that we're now doing in thousands of schools, really in many ways has pioneered with the folks at Baltimore City Public Schools. I heard teams have been leaders throughout this, to keep their community schools open and safe through the waves of this pandemic. And we're excited to expand on these efforts, as the Biosecurity industry works in close concert with public health leaders right, this is not a private sector, it’s a public sector both together is going to be the best way to do this, just to reduce the impact of infectious disease.

And as I mentioned with modern biotech, we can just do a lot better than the tools we had when this whole thing started and so I'm harden that governments in the U.S. and worldwide I will step up after this kind of wake-up call up of COVID-19 to invest in this infrastructure and we are seeing that and we're quite proud to be playing our role here.

Okay, so I wanted to use most of my time today with you to chat about the planned transaction that we've just announced with Bayer. As a reminder to this earlier Ginkgo is a horizontal platform. In other words, we want to serve any application of engineered cells in any market, whether it's a small company or a large company, we think ultimately we serve all those customers pass by putting them on the same platform. And so as a result, work on diverse programs across a variety of industries and technical approaches, you can see some of our customers hearing and consumer intact, industrials and environment, ag, food and nutrition, pharma and biotech.

And I do think this breadth is one of the things that remains one of the more unique things about Ginkgo in the industry. But today, I do want to kind of laser us in and focus on one of those segments, in particular, our agriculture. Okay. So, we recently announced our plans to acquire Bayer’s agricultural biologicals R&D facility and I'll talk about what I mean by that and their team in West Sacramento, California. And also our planned fall on multi-year strategic collaboration with Bayer. Okay, so as a customer. So I wanted to chat with you about that transaction and the opportunities we see in agriculture. Because I think this is going to be a critical market for Ginkgo coming up as we continue to grow.

All right, so just to state the obvious, and sometimes I think people forgot about the agriculture industry. It is a major backbone of society. It's where you're food comes from, but also the other things like maybe you have cotton shirt on, that's a part of the agriculture industry, getting a hamburger if it's meet or plant based agriculture industry, ethanol going into the fuel blends that's coming from the agriculture industry, and the influence that enable that this industrial ag sector are huge, right. You have hundreds of billions of dollars going to help farmers grow, larger and healthier plants every year.

And if you want, understand as soon as the sort of like two big areas of technology development in ag. So first is the biology itself, right, so take foreign (ph) like the genetics of the corn plants have been being improved for literally thousands of years, right. People have been breeding, right mixing, oh, this is tall plant, let’s breed them together, like that process has been improving the underlying biology itself. I mean, frankly, it's a pre-industrial times. Okay.

And then second is all the technologies wrapped around that biology. So chemical fertilizers, pesticides herbicides for killing weeds, automated farm equipment, drones to map it, all these other things that are sort of wrapped around that plant, okay. And the upcoming story is that in my view the tools of biotechnology and synthetic biology as those improve more and more of these adjacent tech that's kind of wrapped around the biology will become part of the biology itself, okay. And that was a little bit the story of the first error of biotech, which really launched in earnest in the 1990s, Roundup Ready was a very valuable genetic trade obviously it's built Monsanto that was approved in 1996.

So that first round of biotech people are most familiar with that in the area of seeds and traits. In other words, putting genetics into a corn plant itself and in the case of the like around up to try to enable a more efficient herbicide and so, however, the other biology that's out in the field or all the microbes that live in the soil and on the plant itself. Okay. And these are also important contributors to the output of that field of plants. And this is what is called Biologics, agricultural biologicals or biologics in the ag industry and today there are products in the market like this and they're sold using wild microbes.

So microbes that have then identified in the field that, okay, this particular microbe provides a nutrient or provide some defense against the past and so it can be applied as a seed treatment like coated on seed so that when you plan to seed the microbes grow along with it. That's one thing, you have can also apply to the soil or full year, but there is this market for biologicals in the industry today. However, these in the sort of first generation of biotech were passed over as targets for genetic engineering. That was really focused on the plants and that's what has begun to change in the last few years. And so I'll give you my favorite example of this, I really like to give this one because this is around nitrogen fertilizer production.

I was actually a Chemical Engineer, training at MIT and sort of the Pride of Chemical Engineering is a process called Haber–Bosch process and it's how we make synthetic nitrogen fertilizer. You basically pull nitrogen out of the air, right. A lot of nitrogen in the atmosphere, you pulled that air through a big chemical plant, you burn natural gas, but that makes them together with hydrogen, you get ammonia and back that up, you ship it out fields. It's about $80 billion worth of this goes to the farmers those on the crop right. A chunk of it actually ends up in run-off going into local water supplies, creating environmental issues around Algal blooms and things like that. And also, it's about 4% of global natural gas. This is a huge greenhouse gas emitter, but we got to eat, right. And that synthetic fertilizer is absolutely necessary to our food supply today. It is also unsustainable right. In a carbon-neutral future the amount of greenhouse gas we're producing to do this, it's something that we need to get off of.

And so one of the most exciting new solutions to this problem coming up is to leverage biology to produce that nitrogen fertilizer. And what's cool is, we know biology can already do this. So you might remember or like an elementary school learning about crop rotation where you plant lagoons right like a soybean for example. And lagoons have on their roots microbes that are vastly running Haber-Bosch, right. They're pulling nitrogen from the air and they're making it available to the crop, right. But they're doing this for free. And so as a result, we doing this used a lot less fertilizer and the review that crop rotation was that these would help revitalize the soil for a different crop like a corn that does not have those nitrogen fixing or collecting microbes. And so we've had a joint venture with Bayer, joined over the last few years, working on, moving that halfway that nitrogen fixation from these other microbes like live on lagoons into microbes that would live on corn.

And I'm excited that as part of the planned transaction coming up. Bayer will be taking those biological assets forward for further development from our joint venture and this sort of out-licensing to a commercial partner with follow on downstream value coming back to Ginkgo upon commercial success that is the hope for outcome across all our cell programming projects, right, as you know. And so, we'd love to see this sort of nitrogen fixation succeed at scale. It will be a big commercial opportunity. It's also the sort of product that highlights how synthetic biology can have transformational impacts as we march towards a carbon-neutral economy, right. I mean this is the sort of thing that look AI and machine learning and computer is just don't help, right. They don't solve fundamentally a problem because it is a physical problem out and in the real world. We need things like synthetic biology certainly enabled by the tools of machine learning and that, but at the end of the day, you need actual physical objects in the field in biology, in my opinion, is one of the key technologies here. From my perspective, this couldn't be in better hands from here on out than with Bayer to work to commercialize it.

Okay. So it's not just nitrogen fertilizer, that's one piece of this upcoming partnership. There are enormous opportunities to impact greenhouse gas emissions across all of agriculture and we should create more sustainable solutions, solutions that are resilient to changing climate and in tactically you're seeing this now unstable global supply chains that currently support the ag industry are really being tested, right. We've seen this recently with fertilizer prices, what we just been talking about here, but also via regulation in places like the EU that are regulating out a number of chemical pesticides in the coming years, where there is not at the moment a great replacement for that pesticide.

And farmers are going to need something, right to resist that was passed to maintain efficiency and so I think this is really an opportunity for biological solutions and agriculture probably better than there's ever been. But the reason that to-date, we've used chemistry is the stuff works really well, right. So there's been -- there is a high bar on these technologies to really beat those synthetic chemicals and so that's where we think bringing the tools of synthetic biology into ag biologicals is really critical, right. We shouldn't be limiting the tools in our toolkit when attacking these big societal problems and engineered biology will be a significant part of the solution across fertilizers for sure, but also pest control, disease control all these areas, I think biologicals have a shot at developing new products.

Okay. So one of the things we've learned and I'll talk a little bit about our work in industrial biotechnology like making things like flavors and fragrances and foods those types of projects for customers. Is that Ginkgo needed to have a strong understanding of sort of how customers go end-to-end when they work with us, right? And so that includes sort of the beginning of a process around sort of like doing the cell engineering and working with our Foundry and code base, but it also means we need to invest in understanding fermentation and scale up, downstream purification and formulation and things like that to help our customers be able to ultimately bring that product all the way to market and transfer them a process that can go in scale and you've seen us do this for example with our Partner Cronos in Canada recently.

Agricultural biologicals is, there is a difference in that value chain compared to Industrial Biotech’s some parts are similar, but some parts are very different. And we need to have different capabilities that we're going to also offer end-to-end biologicals to anybody in the ag industry that wants to develop it. And so you will see us getting better at things like formulation and downstream purification and also things like greenhouse trials and so as part of this transaction but Bayer, I'm very excited that we'll be bringing in a lot of those assets into Ginkgo. And we believe this transaction will dramatically accelerate the innovation that's possible in ag biologicals.

And so to quickly summarize the three parts of the transaction. First, we plan to acquire Bayer’s West Sacramento agricultural biologicals R&D facility and team, you can see a picture of it after the right, it is absolutely incredible facility. It's got great lab space and also an amazing strain collections. So these are wild strains that have been collected for major. They're a great source of both kind of host cells that you could use to put new genetic extensive, but also there genomes contain interesting genetic code that might be relevant to put into a different cell as we develop these biologics.

So really having that as a code base asset, it's very valuable for us and they have a whole strain banking system. They have pilot fermentation scale to be able to grow these, add biologicals up to then go into at trials on fields, right. And they have greenhouse capacity to do those sort of early greenhouse trials before they would go to wire field trials. The team is absolutely terrific. They have been leaders in this space with several large product innovations in biologicals coming from this team over the past couple of decades. So that's actually a really nice asset for us as we go to, let's say, your start-up customer in ag biologicals and you had a great idea all right, a biological that would help fixed carbon.

Well, we have a team here that's far about different aspects of how natural microbes do that over the last years, they understand what types of things have sort of historically tactically, but able to actually work in a field when it got to brass tacks, and that's all available that's sort of consolatory services are available by engaging with Ginkgo you get access to that team. Second, as part of building this unique ag platform, we plan to integrate the R&D platform joined Bio which is our 50-50 JV with leads by Bayer. The team that has joined is fantastic. And they've been at the forefront of applying synthetic biology to ag biologicals and we are thrilled to sort of super charge them by this transaction.

And last but not least Bayer lands as I mentioned to the start a large new collaboration with us at Ginkgo across multiple programs in multiple years. And so this significantly we believe derisks the investment for us as we have a very large anchor customer to help baseload demand on the sort of end-to-end ag platform as we make it bigger. This collaboration will focus on several different areas including nitrogen fixation, like I mentioned, building on the work as join has done as well as new programs in crop protection. This is also a great trend. We hope to see more of over time where companies are choosing the outsource R&D to platform providers like Ginkgo.

And again, I mentioned this earlier, but the analogy here is the move from on-prem servers and IT departments like cloud computing. We expect, we want to see more of this, right. This move by Bayer is a step in that direction, after the ag industry and we hope it's an indication of where that industry has headed. So I am super excited about this deal to get done and the team and what we'll be able to do together in agriculture, it's a big move for Ginkgo and its great.

I want to give one last bit of detail, just for -- again for potential customers that are listening on the call. So the new capabilities, we expect this transaction to bring us and then we can offer to customers listening on call you can see here, we plan to be able to support customers end to end in ag biologicals and that allows us to work with both small and large customers. As you can see that we’ll, obviously, we can get access to our code base in Foundry like anything else, but we also have these sort of capabilities that are ag specific, translational implant of studies for early screening, helping translate research in the labs, the greenhouse, deeper expertise in formulation for different applications, right. Like you need expertise to know what's the right mixture to put it with you live microbes that allow us to survive and packaging for a year before. It's going to end up on seed and so on.

We have those assets now coming in through the transaction when it closes. And depending on the size of the capabilities of the customer, we can be flexible. So if you're a start-up, you might use every part of it that you see on the slide, but we are the large company, maybe some of the tail-end assets, you want to use your in-house infrastructure your in-house formulation, that's fine. Right. But we want to make sure is that we have a full suite of solutions. So whoever needs those front-end being cell engineering, we have all the end to end offer them so that they don't have any barriers to signing up. And our goal would be to have every developer of Ag Biologicals engage with our platform somewhere on this value chain, right. We believe we have the pieces in place and are excited for the commercial team. At Ginkgo to have the opportunity to find new customers for us in agriculture.

Okay. So I wanted to just end on another quick check in on the market, our investor call I want to focus here. So in our last call, I shared this quote from Amazon's 2,000 shareholder letter, where Bezos references Ben Graham’s famous quote that sort of in the short term, the stock market is a voting machine. And in the long term, it's a weighing machine. Right, and the general idea here is that eventually stocks value tracks to be intrinsic value as they describe it of the company, which is really, the discounted future free cash flows. Right, like that's it, that's how corporations work. And in the near term, though, a million in well on external events, whether it's interest rates or wars or anything else can drive or exuberance can drive stocks up or down, right.

And so we're careful to message to the team and I know folks the team listen this too as well at Ginkgo, that really Ginkgo’s orientation is around making have your company, right. We want to make the right long-term moves that drive our free cash flow. And then we want to make sure we keep a margin of safety in cash to not be influenced by short-term moves in the market to then make bad long-term decisions. You won't see us do that. And we've tried to be very clear about that with the type of investors, we want to get in our cap table.

So again, just to summarize, we have a great cash position and we will be comfortably continue to manage our business to maintain that margin of safety. So we don't need to raise capital at any opportune time. We continue to see strong demand with increased interest from customers that frankly we put about in the door, with three years ago due to our increased brand and scale. We expect to add new programs across diverse customers and industries ranging from large multinationals, brand new start-ups and in this market, there are also more opportunities for M&A, right. We have a deep pipeline, which we expect to open up many more valuable opportunities for us going forward.

Finally, our Biosecurity business has proven to not only be a strong source of cash flows that support our cell engineering business but remains a strategically important part of our platform.

So once again, I want to end on this slide, people forget that when they invest it influences how the world develops, right. And if we want to see breakthrough technologies come into the world, we will need to be careful in this environment and look for companies that have the runway to make it to scale. Though it’s got a rising interest rates in the environment, I think investors will have the opportunity of sort of a breakthrough technology and long dated growth companies at a discount in the near term. Now, but while we should be thoughtful we should also invest in the world we want to see exist.

Happy to take your questions. And I'm really excited for the sort of long-term minded investors will see on our cap table coming up here at Ginkgo. Thanks so much.

A - Anna Marie Wagner

Great. Thanks, Jason. We’ll start our Q&A in a few moments. [Operator Instructions] Okay. I think we're all here. And so as usual, I'll take the first question from [indiscernible] and then, I will be turning it over to the analysts who are on the line. And [indiscernible] that it looks like you are, first raise your hand. So stay tuned on I’ll unmute your line in a second, but the first question, it's going to come from Twitter from the Robert (ph). Please discuss on the call as to why Foundry revenue was light this quarter, you must analysts' estimates quite a bit in revenue was down from the year ago quarter despite 11 new clients. Are you lowering the upfront fees for higher back end economics?

Yeah. I can take that Anna Marie. So Mark spoke to this in the financial section of the talk. But I'll expand on it a bit. So the short answer is that quarters can be lumpy, I can go -- which I'll explain why in a second. And that's why we haven't been providing quarterly guidance. And I know this will take their best swing at it. And as Mark mentioned on the call, we've reiterated our full year guidance. But to give you a bit of a longer answer the sort of three considerations, when comparing Foundry revenue either quarter-over-quarter or sort of year-over-year.

So first is the timing of downstream value. So as you understand as part of our business, we're going to get some amount of fees where customers are paying us, as we are developing an organism (ph) for them. And then, at the end of that project, there will be some type of up and downstream value share, based on a commercial or manufacturing milestone, okay. And the key feature of that, is that as dependent on the customer doing things, right. So if it's a royalty on sales the customer has gotten customers and sell it. If it's our key manufacturing milestone, the customer needs to go to scale and hit that manufacturing milestone, right.

And so there is a fundamental sort of lack of our control on that process, that's just baked into the business model, right. Now, I don't -- this is also a different than sort of like app store economic models where you're taking royalty on an app and app store. Again, it depends on which apps go to market. I think the issue is, worth the beginning of this, right. And so I think this could get smoother over time as we have more products on the market and you have sort of a base of royalties and then new additions or sort of small relative to the base. But for a while things are coming in for the first time, I think you should it expect to be lumpy like this because of downstream value share.

The second sort of why, the question of why is this trending relative to us adding a good number of new clients in the last quarter. So an important thing to understand is, if you look at how our structures or collaboration structures work often most of the revenue during the lifecycle of a program is recognized in its later status, right. So there is some sort of mix as we grow as new programs are ramping up, and as a reminder, we signed 30 new programs in just the last three quarters, we'll see those contribute more revenue and that will offset some of the mature deals completing and rolling off. So even though, you'll see a lot of new programs in the quarter. That's not going to immediately show up in that Foundry revenue.

And then third, as the two other question noted, we do have the ability here to flex our deal structures to optimize for downstream value share versus upfront fees and so on, and so we can make that decision based on a number of reasons, right that could be based on customer interest and so on, and so it can also affect existing deals, just to help you understand this a little bit better. Let's say, we have a flat fee deal with the customer. In other words, we're getting a certain amount of fees regardless of how much lab work we do and we have a number of collaborations like this.

Well, let's say, we are getting close to the end of the product. And we see a big downstream value share milestone waiting for us, we might very rationally choose to spend more effort in our Foundry relative to the flat fee we're getting to get to that milestone, right. And so that's an example where it can even affect what we do historical programs in that balance of sort of fees versus downstream value share could be reflected there as well. So for all these reasons, I think quarterly volatility and Foundry revenue is not unexpected for us and we do take that into consideration when we set the annual guidance.

Okay. Thanks, Jason. All right. Matt Sykes from Goldman Sachs. I will unmute your line.

Great. Good afternoon, everyone. Thanks for taking my questions. Two quick ones. And I’ll just mention both upfront. Just on the last quarter call, you talked about and Jason you just referred to it kind of being able to tune the types of contracts you're signing. And just looking at the number of programs you've put up each quarter. Should we be thinking about maybe you're introducing a lot more selectivity in terms of the number of programs you're taking on or certain agreements to your ability to tune those contracts?

And then, the second question is just on the Bayer collaboration. I think in the release, you mentioned that portion of the operating expenditures will be offset by some of the fees generated for the collaboration. Could you just talk about how much that offset is? And if this collaboration changes your OpEx profile going forward?

Yes, I’ll take the first one and Mark, do you want to take the second? Does that sound great? So, yeah, with regard to how we choose which programs to take on, one of the things we do, I do caution that commercial team is not to try to pick winners in the market. In other words, we don't really see ourselves as an end product developer here at Ginkgo. In other words, I'm not a therapeutic drug developer. I'm not a fragrance developer. I'm not a ag biologicals experts in terms of what's the right next products in that market. Our customers ultimately are.

And so what we're looking for when we're choosing who to get on the platform is often appetite right like how excited are they to basically take this transition, which is a shift from how the market works today, right. Status quo, if you wanted to do a cell engineering project and you launched the company tomorrow, the expectation from your VCs and others will be, you start running lab space, you buy a bunch of equipment, new hires and scientists to get to work. And so one of the questions is like where -- is it a customer who's got the appetite to push a lot and believes in this sort of outsourced R&D and that's why I'm excited about the Bayer deal, but you see that happening with really a large customer in that case for a whole category of work for them. And thereby the way that’s have been only work with Ginkgo, right, but they've decided to sort of outsource that work out to the wider market of providers, right. And so I think like that's one of the big ones.

And then second is just quality of deals, right. What's the opportunity for downstream value share, fees and so on. But there's a lot more to it than that. We're not really again trying to over fit to either a certain market or things like that or sort of, we take it as it comes.

Mark, do you want to address the Bayer transaction?

Yeah. Sure, Matt. So, as you know, when we talked about the deal, when we disclosed, we did say we're on some operating expenses, but that the collaboration with Bayer itself in the new programs with their -- with baseload demand pretty well and largely offset the acquired burns. So I wouldn't look at the Bayer transaction is in any way materially changing our OpEx profile and certainly, it wouldn't change in any significant way or sort of cash runway.

Thanks. Tejas Savant from Morgan Stanley. You will be up next. I’m going to unmute your line now.

Hey, guys. Good evening, and thanks for taking the questions here. So Jason, one follow-up on the Bayer partnership here. It doesn't sound like it, but can you just clarify to the extent to which this is exclusive in the sense that you do now have an anchor tenant who clearly has a strong interest in the field. Is this sort of preclude you or perhaps sort of make other potential customers, especially the larger ones a little bit where you of engaging with Ginkgo? And then as a sort of unrelated follow-up there, any color that you can share on those OUS opportunities on the biosecurity front. I know you mentioned funding uncertainty beyond July 1 in the past but outside the U.S., if you can help us sort of prioritize or size some of the opportunities that might come into focus for biosecurity in the next 12 months that will be helpful? Thank you.

Yeah. So one of the things we think about on the, let's say, those answer (ph) question about the Bayer transaction, just to repeat it right, it's sort of like, hey, if you're taking our large customer in a certain category does it prevent you from working with other companies in that sector, right. And so I think one of the things we tried to be clear about with customers broadly at Ginkgo is that the model here is to be like an Amazon Web Services, right. You’re competing companies, leveraging Amazon Web Services, it's a net business -- net benefit to the entire industry because everybody is getting better economics on one piece of the stack needed to get a product to market and there's plenty of other places to compete above that sort of base sort of platform in this case of delivering web services and data centers and all that, okay.

And so that is very much the model and we are very clear about that with partners. We do are always arguing right like any customer is going to try to lock us into an exclusivity and just I appreciate we have now finished signing that Bayer deals I certainly can't comment on exactly how it's going to work, but I again say is, our intent here and the reason we're acquiring large team and platform in West Sacramento is to make that broadly available, right. And I do think both large company in the space and sort of in the space will be excited to get access to our platform when the deal is concluded. But it is always a discussion with partners on that, but that's our philosophy when it comes to how we want to work in the market.

Second question was about outside of the U.S. opportunities around biosecurity?

Yeah, I mean, so we don't have anything specific there yet to ask, but what I would say is, we have a core belief that biology doesn't respect orders. We think COVID-19 is a just existence proof of that fact. And so, if you're the U.S. government, for example, and you're trying to enable U.S. biosecurity. I think the right framework to think of its global biosecurity. And I think COVID-19 was a wake-up call that there were a lot of cracks in our current system of global biosecurity. I think you're going to see and you're hearing people talk about this from 18 different directions. United Bill Gates (ph) just said a thing out about his idea for a certain type of organization to be able to jump into hotspot areas and things like that.

Look, I don't actually know what that ultimately this will look like. But what I will say is, our expectation, I think for the biosecurity arena is that we do need to operate globally. If we want to be really the pre-eminent provider of sort of biosecurity technologies. That's a right way to think about the business. So that was really what we're getting out there with that comment.

Got it. Thank you, guys, I appreciate the color.

Thanks, Tejas. All right, Matt Larew (ph) from William Blair. I’m going to unmute your line. You are next.

Hey, Jason, Marie and Mark. Thanks for taking our question. So just wanted to get an update on how funded dynamics and the volatile markets that we've seen an impact in the rate and maybe you, we're bringing on new customers or new programs on your platform and whether or not you've seen these factors drive slowdown in company decision making? And just exactly how much of an impact that had on the number of programs that you added in the quarter? And then, a bit of a follow-up is just, in terms of the new customers and the new programs that you added, as you seen this impact in terms of the volatile markets and fund dynamics may slow down new customers coming onto the platform or are you also seeing some existing customers that we hold off on adding new programs at a rate that you would have expected to be a few months ago?

Yes. So this is a good -- sorry. Yeah, I'll jump in on this because I find it fascinating. So I think journey (ph) is out a little bit. There is different dynamics that can either favor us or heard us, right. So obviously companies being fledged (ph) in dry pools of venture capital, should drive money to service businesses providing services to those companies right, Like that feels obvious. The only caveat is the normal mental models that raise those files of money, rental lab, buy a bunch of equipment and higher scientist to do the work, right. So their actual model to date is not to outsource the service providers, it's to use all that money to build our R&D team to do cell engineering and so we are trying to effect this like again this mentality shift, which is what I am so excited about seeing in the Bayer deal, well, cash pressure on small Biotech is going to help change people minds, right.

So you might look at that and say, well, you know if I want that big lease, cost in Kendall Square, right. I don't know, if I want to buy, there's several million dollars’ worth of equipment right on the first weeks of the company, right. So there is an interesting trade off there where I think it remains to be same and obviously, just to flag it also the private funding markets lag a bit, but I think there is and you're reading a lot about this. Now, it's not a lot of the ease you are starting to crack down there too. But it's been a little lagging. So I mean, I think maybe the next quarter, we'll see a little more of it play out. Does that makes sense?

Yeah. Very helpful. Thanks, Jason.

Thanks Max. All right. Rahul from Raymond James. I’m going go ahead and unmute your line. You are next.

Perfect. Thanks, team. Appreciate you taken our questions. So clearly there is lot of interest around the Bayer deal as is our question. So one of the things we talked about nearly early days, well Jason remark was that, a way to get to the, to spend 500 projects in 2035, was to sign up these anchor partners and of course with Bayer, we're seeing this first anchor partner. So my question is two parts, one, how should we see this partnership as you consummate the deal that lend to potentially greater rate of new on boarding of projects? And second, how does this partnership portend similar anchor partnerships in other sectors, particularly by a farmer?

So it's a very good question. So yeah, I mean I would say that the general two interesting things here. So general any large customer for Ginkgo and like I think good example, this has been like drive on in the fragrance and right, where if we initially do initial and that gives us a very small pilot project many years ago, but any first project that then goes well can lead to more business, right. So I think that's like just one very generic frame here is like taking a large company customer, building a relationship proving it out and then expanding from there and that because of the size of their R&D budgets in the scale of their needs. They actually could be many future projects, okay. So that's all still true, and we're doing that across many, many customers if that was the definition of anchor customer. I think we have many other anchor customers as well.

I do think what's unique in this case is really a strategic choice that is making to actually just do this work externally. And I think in therapeutics, you kind of see this -- we're like a lot of the large pharma company and I'm really focused overwhelming in many cases on really their skills in development and kind of past research off into what is ultimately like a small biotech ecosystem. So I think that kind of model, you're starting to see a little bit a taste of it in ag biologicals that's a really exciting trend for a platform like us. And so I will flag that there is that extra element. But other than that, I mean, yes, we do good work with them and this will get off if it -- closes with multi-year partnership that we should be able to keep doing more and more. I mean that's really the idea behind Ginkgo.

Terrific. Thanks for taking the question.

Thanks, Rahul. All right. Mark Massaro with BTIG. I’m going to unmute your line. You are up next.

Great. Can you hear me?

Terrific. So yeah, I wanted to ask one of your partners is Berkeley Lights and I believe they're scheduled to deliver one or more workflows over to your facility in Boston later this year, if not already did recently. Can you just speak to what type of capability Berkeley can deliver to your Foundry and whether or not that can enable the potential for new customers or new capabilities?

Yeah, sure. So maybe I'll just expand a little bit on, like, how we drive improvement in our Foundry, right. So you saw share when we gave year-end update sort of our we would call, night’s law which is the sort of gold tripled the output of our foundries and roughly half the cost of this metric that we track or strain test. So, like how do we continue to drive that underlying technology improvement at the company. And so some of the things are like automation. If you come into our new facility, you see more and more sophisticated automation. Some of the things are the biology and biochemistry like a reinventing new better ways to do the experiments we do. But the third area is really in liquid handling not to nerd out much on this, but like the size of the droplet of liquid that you can manipulate in the lab as that shrinks you actually use less reagents, right. So it helps to reduce that, it help us continue that cost drop as we're doing this work.

And so, the reason we like the Berkeley Lights machines is they're using a microfluidic technology that really allows us to continue to substantially shrink the reaction volumes that we're working with, when we're doing not everything like those machines aren't they're not really, they are not general purpose liquid handlers, but for the type of work they're doing is certain, a wide class of assays that are roughly based on what you can see with a high-power microscope pretty neat and so that's why we like them. We think it's ultimately a very flexible platform and that's why we have the relationship that we do, but that's the category it's and it's in that sort of continuing to shrink the volume of liquid we can work with to help us drive night’s law (ph) which we ultimately think serve the whole industry by helping to reduce the laboratory costs of cell engineering.

Great. And just as a follow-up to that. I know you've got a question from Twitter, the Foundry revenue came in a little bit light of our estimate. I guess should we expect your related party revenue to kind of kick back up later this year and maybe can you give us a sense for how you expect to end the year both as related party and third-party as a percentage of Foundry revenue for the year?

Yeah. So Mark, do you want to add about sort of what we would say about the year, and then I can maybe to related parties, generally.

Yes. So, Mark, I mean we don't break out sort of guidance in that kind of a sub-segment. But just to maybe reiterate some comments we've made in the past, so related party. So first of all, we generally speaking, we're not expecting related party to be a mid-sort of a significant or outsized source of growth when you compare 2022 versus 2021. And the sort of uptick in related party as a percent of total revenue that you saw this quarter is not sort of a general shift in trends. As you know last year, the general trend was that mix was declining and it has more to do with just timing and even if you look at a base of 20 million of revenue, a couple of million bucks here or there can actually slaying a mix shift. So I wouldn't really read into the kind of uptick this quarter and some kind of a trend, and I would just reiterate what we said in the past, which is the related party revenue mix isn't something that I would expect to be sort of an outsized contributor to growth for the year.

My only addition there, Mark mentioned this on the call, but it's not something we manage to right, the related parties fall out of basically type a deal structure that will offer where again depending on the company. They may prefer in lieu of royalty us to take equity in the company, as an example, that’s one of the deal structures that end up with us holding equity, right there's others too, but like it's generally us using equity as a deal-making tool that's creating related parties. And as far as I'm concerned, it's a sales weapon for us, right. So I'm happy to keep doing it, but it is something again that we're not managing towards, I want to highlight that it just a case way it goes at the end of the day.

Next question will be from Steve Mah, Cowen. Steve Mah, I’m going to unmute your line now.

Okay. Great. Thanks for the question. A lot of ground already covered, but maybe a follow-up question on new partner adds. And Jason, you talked about using Ginkgo can ultimately save money versus buying their own infrastructure, but have you seen a trend where there is a push towards more back-end loaded deals as smaller partners try to conserve cash and if so, can you see any read through to Ginkgo in the short term.

Yeah. That's a good question. Yeah. I would say you will see certainly among smaller companies more cash sensitivity in this environment, right. I think that's a true, like I was saying earlier, you might see at least more interest in outsourcing, which I think is true right. Like so that dynamic, I feel, again, I don't have the data on this yet, but because I think the squeeze hasn't come as much on the private companies but it well, but actually, you could see a change in our interest in outsourcing, but then there is certainly going to I think be more gas sensitive going to start to be typically.

So yes, you would see some of that trade that also could be traded and us taking equity again, right and lieu of cash and things like that. So again we have tools in our toolbox to help there. But I would say that that is a sensitivity for the smaller companies. For the larger company is not as much, right often there, the mental model for those companies is like, I'd love to there, like, I don't want to do downstream guys you'd rather pay cash online, right like again, it depends on the partner, but that's pretty common in therapeutics for example, right. So, I think it's going to affect the different size customers differently soon.

Okay. Yeah. Thanks for the color. And then a quick one, Biowork 7 when is that going to be completed and are you going to have enough capacity for the expected 60 new program adds this year? Thanks.

Mark, I don’t know if you have a view, information on what we said about completion. Go ahead.

Yeah. I don't have a completion date. I will say that the relatively low CapEx that you see in Q1 is not indicative of the actual efforts that we're putting into that build out. And so there is just a lot of like there's timing of kind of project expenditures equipment lead times. And so, yeah, but I actually don't know the completion date. That said, it's not something that is a major driver to capacity that we need this year in order to meet this year's revenue.

Thanks, Steve. All right. Looks like last analyst question here is going to come from Derik De Bruin of BMA. Derik, I’ve unmuted your line.

Great. Hey, thanks. So, just some questions, so you talked about adding 60 programs for the year. I'm just sort of curious on what's then -- in terms of how to think about active programs. Because if you looked at it, I mean if you look at this quarter you ended Q4 with 60, you finished it was -- you ended 4Q with 60, you did 64, so that you added 11. So that basically means you had seven that went away were concluded. Can you talk about how you sort of think about the net new program adds? And also just, I know we've talked a lot about or so thinking about this, but how many of these programs are concluded, can -- do you think will add downstream value there something is going to come out with or things that we're just like research projects and basically it's like how do we sort of model the revenue per active program because it's, I know it's sort of like a moving target, it's lumpy but it's sort of matters of the model?

Yeah. Well said. So yes, a couple that maybe and again, if I could restate, so how do we think about net new program adds, and then, I think sort of research projects versus commercial, so I think the second one first. So when we're talking about a new program that is something that's got commercial intent and our intent there is to have downstream value share and so on. So pure research projects with our intent to get to a product. I think we might do something like that, but it would end up in the programs. So that's my first point on that. Now that doesn't mean by any stretch that every program is going to be successful, right. I mean, and that's the nature, I think I've sort of biotechnology today, right. This is also not the customer expectations, right. In other words, if you're starting a biotech company you want to take the best shot you can with the dollar you have, but you are far from guaranteed for example that your therapeutic is going to go to market, right. And so sort of and that varies by industries or in other industries that are having a more contained problem would have a higher expectation of likelihood of any given program succeeding probably a lower value in that program, right. And so we have that sort of dynamic and what I like about Ginkgo is we have a nice portfolio, all right.

Now, net program adds right is basically a function of, again new programs launching and then all programs finishing and either waiting on balancing value or just ending if they weren't successful. And so, at the end of the day, my view on it is kind of like the most important thing is adding new programs. And then doing the best job we can with the infrastructure we have for the customers that the customer walks away saying this was better than what I would have done myself, right. If the program works. I think we tend to get extra credit probably then we deserve in the sense that like some of that is going to be some random chance based on the biology and if it fails we probably get, not a little harder than we deserve but in the end of the day, the customer wants to see that we've done a better job than I think they could have done of the dollars that I think is what returns repeat business to us.

So the short answer is, I don't look at that too much the net new program at. I do look at, are we keeping up with night’s law right, are we bringing in demand scaling our Foundry and I'm very focused on that and I'm focused on, are we getting programs out the door, where the customer is happy with the work, but then downstream value share will come as it comes, right. I again I try not to overfit to that because it's not under our control and a number of them won't work for just because Biology, Biology today is still -- so I know not in, at the most satisfying answer, but that's the reality of how we think about it. It remains unpredictable is the short answer there.

Got it. And just as a follow-up on this one. I mean when you sort of go back and you will get your Analyst Day documents that you put out way back on interest, which is basically a year ago on this one, you're -- how do you sort of think about visibility in terms of the programs that you put out there? I mean, I think you add 136 in the model for 2023, 268 or something like that in the model for 2024. How do you -- how should we think about -- how should we think about your view on this now that you're into this and I think the question has been asked about the volatility in the markets. And just going on a bit. I mean, what's your confidence level on those out your projections to put out there?

Yes. So I don't think there is any specific views on sort of beyond ‘23 in terms of guidance and numbers. What I will say is, again, I think what we are trying to effect is a shift in the status quo of how this work is done. So overwhelmingly everybody is still doing it themselves, all right. So, yeah, market conditions are little worse. It's not like I mean an existing outsource cell engineering market. I'm again affecting that change in the market and making the amount of difference, I need to make even with a number of programs, we're talking about there is still small compared to the total amount of cell engineering projects going on across every biotech companies from ag to materials to food pharma, right. And so, and again I don't know which way that capital tightening will drive. It might mean less total programs happening across the industry, but higher percentage outsourced, which at Ginkgo's current scale where we're barely penetrated is great. So I know, but I just don't know today, how that's going to play out. I think that the watch the next couple of quarters, especially.

Got it. And final question, how should we think about the Bayer program and sort of like that -- that's you bring it out. So how should we think about revenues from that program and when we could potentially see something materialize?

Mark, I'll let you answer that, so you can finishes this off.

Yeah, sorry, on the Bayer revenues.

Revenues on the Bayer. Yeah, [Multiple Speakers]

I guess, yeah Derik . So it's a pretty complicated transaction and the GAAP accounting for that is still very much kind of TBD. And so, yeah, I just can't really comment on that right now.

Got it. Okay. Thank you very much.

And on-Q, all of our video came [indiscernible]. This is Jim telling us that we should end the call, but thanks for all the great questions, everybody. And I think that concludes our cameras are back that got [indiscernible], but I think that wraps up our call today. Jason any final words with us.

On Derik’s question, I wanted to just crack something, on Derek's question with the roll forward of the program just because I know we have a lot of listeners and it's kind of a nuance. But there are just so you know the current active program of kind of 60 was not be 12/31 balance an active program is -- a program that was active at any time in the quarter. So you're kind of roll forward math would be a bit off, it doesn't change the point you're making, but I know we just have a lot of listeners on this call. I didn't want to leave that sort of point unaddressed. And so some of those programs would have terminated in the actual fourth quarter not after 12/31, it's just, it's a nuance happy to kind of take it offline.

T's crossed and I's dotted. Okay, all right. Well, thanks again, everybody. We appreciate your time today and thanks for that last clarification, Mark. Take care, everyone.