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Fair Value Measurements

12 Months Ended

Dec. 31, 2023

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


		As of December 31, 2023
	Classification	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	Cash and cash equivalents	$	913,729	$	913,729	$	—	$	—
Synlogic, Inc. warrants (1)	Investments	654		—		654		—
Marketable equity securities (2)	Investments	19,190		18,401		789		—
Notes receivable	Prepaid expenses and other current assets	12,293		—		—		12,293
Notes receivable	Other non-current assets	13,601		—		11,765		1,836
Total assets		$	959,467	$	932,130	$	13,208	$	14,129
Liabilities:
Public Warrants	Warrant liabilities	$	3,794	$	3,794	$	—	$	—
Private Placement Warrants	Warrant liabilities	1,906		—		60		1,846
Contingent consideration	Accrued expenses and other current liabilities	18,468		—		—		18,468
Contingent consideration	Other non-current liabilities	5,805		—		—		5,805
Total liabilities		$	29,973	$	3,794	$	60	$	26,119


		As of December 31, 2022
	Classification	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	Cash and cash equivalents	$	1,089,026	$	1,089,026	$	—	$	—
Synlogic, Inc. warrants (1)	Investments	1,937		—		1,937		—
Marketable equity securities (2)	Investments	25,714		21,312		4,402		—
Notes receivable	Other non-current assets	37,660		—		30,000		7,660
Total assets		$	1,154,337	$	1,110,338	$	36,339	$	7,660
Liabilities:
Public Warrants	Warrant liabilities	$	6,900	$	6,900	$	—	$	—
Private Placement Warrants	Warrant liabilities	3,968		—		108		3,860
Contingent consideration	Accrued expenses and other current liabilities	6,378		—		—		6,378
Contingent consideration	Other non-current liabilities	18,095		—		—		18,095
Total liabilities		$	35,341	$	6,900	$	108	$	28,333

(1)The fair value of Synlogic, Inc. warrants is calculated as the quoted price of the underlying common stock, less the unpaid exercise price of the warrants.

(2)Marketable equity securities classified as Level 2 reflect a discount for lack of marketability due to regulatory sales restrictions.

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. Transfers from Level 2 to Level 1 during the years ended December 31, 2023 and 2022 were due to a lapse of regulatory sales restrictions on marketable equity securities. The estimated fair value of a portion of the Private Placement Warrants was transferred from a Level 3 to Level 2 fair value measurement as of December 31, 2022, as the transfer of Private Placement Warrants to anyone other than the initial purchasers or any of their permitted transferees results in the Private Placement Warrants having substantially the same terms as the Public Warrants. The

Company determined that the fair value of the transferred Private Placement Warrants is equivalent to that of Public Warrants. There were no other transfers to/from Levels 1, 2, or 3 during any of the periods presented.

Notes Receivable

For all of its notes receivable, the Company has elected the fair value option, for which changes in fair value are recorded in other income (expense), net in the consolidated statements of operations and comprehensive loss.

As of December 31, 2022, the Company held a $30.0 million senior secured note previously purchased from Bolt Threads, Inc. (“Bolt Threads”). In December 2023, the Company and Bolt Threads exchanged the $30.0 million senior secured note for (i) a $11.8 million senior secured note with an estimated fair value of $11.8 million, (ii) a $10.0 million convertible promissory note with an estimated fair value of $12.2 million, (iii) a $5.3 million reduction in the technical services credit previously due to Bolt Threads and recorded as deferred revenue and (iv) a non-exclusive license to certain intellectual property of Bolt Threads with an estimated fair value of $1.6 million, which was expensed as in-process research and development in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2023. The new senior secured note receivable bears interest at 12% per annum, is due December 31, 2027 and is included in other non-current assets as of December 31, 2023 at its estimated fair value. The convertible promissory note bears interest at 8% per annum, is convertible into equity securities of Bolt Threads upon a qualified financing, a non-qualified financing, or special purpose acquisition company transaction, at a conversion price equal to 80% of the price paid per share under the respective conversion scenario, or is otherwise payable on demand any time after the maturity date of October 4, 2024. The convertible promissory note is included in prepaid expenses and other current assets as of December 31, 2023 at its estimated fair value.

The Company used the yield method to value the senior secured note. Under this method, the estimated future cash flows, consisting of principal and interest payments, are discounted to present value using an applicable market yield or discount rate. Increases or decreases in the market yield or discount rate would result in a decrease or increase, respectively, in the fair value measurement. The market yield is determined using a corporate bond yield curve corresponding to the credit rating category of the issuer. The fair value of senior secured note is based on observable market inputs, which represent a Level 2 measurement within the fair value hierarchy.

In addition to the convertible promissory note issued by Bolt Threads, the Company holds a series of convertible debt instruments issued by customers as payment for Cell Engineering services. The Company used a scenario-based method to value the convertible debt instruments issued by customers and by Bolt Threads. Under this method, future cash flows are evaluated under various payoff scenarios, probability-weighted, and discounted to present value. The significant unobservable (Level 3) inputs used in the fair value measurement as of December 31, 2023 were scenario probabilities of between 5% and 85%, a discount rate of 17.0% and estimated time to event date of one to two years. The significant unobservable (Level 3) inputs used in the fair value measurement as of December 31, 2022 were scenario probabilities of between 15% and 55%, a discount rate of 12.5% and estimated time to event date of one to three years. Significant changes in these inputs could have resulted in a significantly lower or higher fair value measurement. As of December 31, 2023, the convertible debt instruments had an unpaid principal balance of $21.0 million and a fair value of $14.1 million. As of December 31, 2022, the convertible debt instruments had an unpaid principal balance of $7.5 million and a fair value of $7.7 million.

In December 2023, the Company entered into an amendment with a customer regarding two outstanding convertible promissory notes, with an aggregate principal amount of $10.3 million. The Company used a scenario-based method to value the convertible notes as of the amendment date. The significant unobservable (Level 3) inputs used in the fair value measurement as of the amendment date included scenario probabilities of between 10% and 75%, a discount rate of 15%, time to event date of up to one year, and estimated fair value per share of the equity securities to which the Company would be entitled to upon conversion of the notes, obtained from a third-party valuation.

The following table provides a reconciliation of notes receivable measured at fair value using Level 3 significant unobservable inputs (in thousands):


	2023		2022
Balance at January 1,	$	7,660	$	11,559
Additions	2,653		7,660
Additions from note exchanges and amendments	13,939		—
Proceeds from notes receivable	—		(10,404)
Settlements	(7,707)		—
Change in fair value	(2,416)		705
Write-off	—		(1,860)
Balance at December 31,	$	14,129	$	7,660

Warrant Liabilities

The fair value of the Public Warrants is based on the observable quoted price of such warrants on the New York Stock Exchange. The fair value of the Private Placement Warrants is estimated using the Black-Scholes option pricing model, which is considered to be a Level 3 fair value measurement. The primary unobservable input used in the valuation of the Private Placement Warrants is expected stock-price volatility. The Company estimated the volatility of its Private Placement Warrants using a Monte-Carlo simulation of the redeemable Public Warrants that assumes optimal exercise of the Company's redemption option at the earliest possible date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is based on the historical rate, which the Company anticipates remaining at zero. Refer to Note 9 for additional details on the Company’s warrant liabilities.

The following table provides quantitative information regarding Level 3 inputs used in the recurring valuation of the Private Placement Warrants as of their measurement dates:


	December 31, 2023			December 31, 2022
Exercise price	$	11.50		$	11.50
Stock price	$	1.69		$	1.69
Volatility	70.5		%	71.5		%
Term (in years)	2.71			3.71
Risk-free interest rate	4.01		%	4.11		%

The following table provides a reconciliation of the Private Placement Warrants measured at fair value using Level 3 significant unobservable inputs (in thousands):


	2023		2022
Balance at January 1,	$	3,860	$	58,558
Transfer to Level 2	—		(125)
Change in fair value	(2,014)		(54,573)
Balance at December 31,	$	1,846	$	3,860

Contingent Consideration

Each reporting period the Company remeasures its contingent consideration liability associated with business acquisitions to its estimated fair value. The fair value of contingent consideration liability related to restricted stock was estimated using the quoted price of Ginkgo's Class A common stock, an estimate of the number of shares expected to vest, probability of vesting, and a discount rate. The fair value of contingent consideration liability related to earnout payments was estimated using unobservable (Level 3) inputs as illustrated in the table below. Material increases or decreases in these inputs could result in a higher or lower fair value measurement. Changes in the fair value of contingent consideration are recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss.

The Company can settle all contingent consideration liabilities, other than those related to the Dutch DNA acquisition, in cash or shares of Class A common stock at the Company’s election. During the year ended December 31, 2023, the Company settled $10.8 million in contingent consideration liabilities through payment of $1.9 million in cash and vesting of 5.5 million shares of restricted stock valued at $8.9 million. Of that amount, $1.4 million related to the Circularis asset acquisition was recorded as an increase to the acquired intangible asset with an offset to additional paid-in-capital as the contingent consideration liability was deemed improbable until the filing of a registration statement. During the year ended December 31, 2022, the Company settled $2.6 million in contingent consideration liabilities through payment of $0.7 million in cash and vesting of 0.5 million shares of restricted stock valued at $1.9 million.

The following table provides quantitative information regarding Level 3 inputs used in the fair value measurements of contingent consideration liabilities as of the periods presented:


Contingent Consideration Liability	Valuation Technique	Unobservable Input	December 31, 2023 Range		December 31, 2022 Range
Earnout payments (FGen, Dutch DNA and Altar acquisitions) (1)	Probability-weighted present value	Probability of payment	10% - 100%		2% - 100%
		Discount rate	13.4	%	12.2% - 13.1%
Earnout payments (Dutch DNA acquisition) (1)	Discounted cash flow	Projected years of payments	2025-2028		2025-2028
		Discount rate	10.3	%	12.0	%

(1) For FGen and Altar acquisitions, see Note 3. In July 2021, the Company acquired Dutch DNA Biotech B.V. (“Dutch DNA”) and is obligated to make contingent earnout payments up to a maximum of $20.0 million, payable upon the achievement of certain technical and commercial milestones by Dutch DNA, as outlined in a Technical Development Agreement executed between the Company and Dutch DNA prior to the close of the acquisition.

The following table provides a reconciliation of the contingent consideration liability measured at fair value using Level 3 significant unobservable inputs (in thousands):


	2023		2022
Balance at January 1	$	24,473	$	8,467
Additions	1,397		19,912
Change in fair value	9,168		(1,262)
Settlements and payments	(10,765)		(2,644)
Balance at December 31,	$	24,273	$	24,473

Nonrecurring Fair Value Measurements

The Company measures the fair value of certain assets, including investments in privately held companies without readily determinable fair values, on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable and when there are observable price changes for the identical or similar security of the same issuer. The fair value of non-marketable equity securities is classified within Level 3 of the fair value hierarchy when the Company estimates fair value using unobservable inputs. It is classified within Level 2 when the estimate is based on an observable transaction price paid by third-party investors for the identical or similar security of the same issuer.

Investment Impairments

During the years ended December 31, 2023 and 2022, the Company recorded impairment charges of $33.0 million and $10.1 million, respectively, related to its investment in Genomatica preferred stock. The fair value estimates used to determine the impairment charges in 2023 were derived using the guideline public company method under the market approach, while an enterprise value analysis was performed in 2022, with an equal weighting between discounted cash flow analyses and the guideline public company method. Significant unobservable (Level 3) inputs included estimated annual net cash flows (including revenue and expense growth rates and capitalization rates), the weighted-average cost of capital used to discount future cash flows, and the selection of guideline public company multiples for revenue and EBITDA. Material increases or decreases in these inputs could result in higher or lower fair value measurements.

During the year ended December 31, 2023, the Company recorded an $8.3 million impairment loss related to a non-marketable equity security. The fair value measurement was determined by deriving an equity value of the investee from a recent financing transaction in the investee's own securities, which occurred in September 2021, and applying a downward market adjustment of 87% to the implied equity value. The equity value was then allocated to the different classes of the securities of the investee using the option-pricing model (“OPM”). The OPM involves making assumptions around the investees’ expected time to liquidity and volatility derived from selected guideline public companies. These assumptions are considered Level 3 inputs.

During the year ended December 31, 2023, the Company recorded a $1.8 million impairment loss related to a SAFE to write-down its carrying amount to its estimated fair value. The fair value measurement of the impairment loss was determined using the scenario-based method, whereby dissolution scenarios with partial recovery and no recovery were probability weighted 15% and 85%, respectively, and discounted to present value using a discount rate of 14%.

SAFEs

During the years ended December 31, 2023 and 2022, the Company received a total purchase amount of $11.0 million and $39.5 million, respectively, in SAFEs from customers as prepayment for Cell Engineering services. The Company used a scenario-based method to value the SAFEs as of each contract inception date, which resulted in total fair value of $4.5 million and $22.1 million for SAFEs received during the years ended December 31, 2023 and 2022, respectively. Under the scenario-based method, future cash flows are evaluated under qualified financing and dissolution scenarios with partial recovery and no recovery in dissolution. The cash flows under each scenario are probability-weighted and discounted to present value. The significant unobservable (Level 3) inputs used in the fair value measurement at contract inception during 2023 were scenario probabilities of between 20% and 60%, discount rate of 14% and estimated time to event date of one to two years. The significant unobservable (Level 3) inputs used in the fair value measurement at contract inception during 2022 were scenario probabilities of between 18% and 65%, discount rate of 13% and estimated time to event date of one to two years.

Additionally, the Company recorded impairments of lab equipment and assets related to an operating lease. Refer to Note 10 for additional detail.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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