Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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 June 30, 2024
	Classification	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	Cash and cash equivalents	$	686,688	$	686,688	$	—	$	—
Synlogic, Inc. warrants (1)	Investments	255		—		255		—
Marketable equity securities	Investments	20,332		20,332		—		—
Notes receivable	Prepaid expenses and other current assets	10,937		—		—		10,937
Notes receivable	Other non-current assets	14,776		—		12,498		2,278
Total assets		$	732,988	$	707,020	$	12,753	$	13,215
Liabilities:
Public Warrants	Warrant liabilities	$	1,035	$	1,035	$	—	$	—
Private Placement Warrants (3)	Warrant liabilities	493		—		120		373
Contingent consideration	Accrued expenses and other current liabilities	15,953		—		—		15,953
Contingent consideration	Other non-current liabilities	5,241		—		—		5,241
Total liabilities		$	22,722	$	1,035	$	120	$	21,567

		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 (3)	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

(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.

(3)The fair value of Private Placement Warrants classified as Level 2 is equivalent to that of Public Warrants 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.

Transfers to and 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. During the six months ended June 30, 2024, transfers from Level 2 to Level 1 occurred due to lapse of regulatory sales restrictions on marketable equity securities. Additionally, as of June 30, 2024, a portion of the Private Placement Warrants' estimated fair value was transferred from Level 3 to Level 2 as a result of the Private Placement Warrants having substantially the same terms as the Public Warrants when transferred to anyone other than the initial purchasers or their permitted transferees, leading the Company to determine their fair value to be equivalent to that of the Public Warrants. There were no other transfers between Levels 1, 2, or 3 during the six months ended June 30, 2024 or 2023.

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 condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2024 and December 31, 2023, the Company held a senior secured note in the principal amount of $11.8 million and a convertible promissory note in the principal amount of $10.0 million, both issued by Bolt Threads, Inc. (“Bolt Threads”). The senior secured note bears interest at 12% per annum, is due December 31, 2027 and is included in other non-current assets 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 based on certain conditions as defined in the note agreement, 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 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 the senior secured note is based on observable market inputs, which represents 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. 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 June 30, 2024, included scenario probabilities ranging from 20% to 27%, a discount rate of 15%, and estimated time to event date of up to 2 years. The significant unobservable (Level 3) inputs used in the fair value measurement as of December 31, 2023, included scenario probabilities ranging from 5% to 85%, a discount rate of 17% and estimated time to event date of one to two years. Significant changes in these inputs could have resulted in a significantly lower or higher fair value measurement. As of June 30, 2024, the convertible debt instruments had an unpaid principal balance of $22.7 million and a fair value of $13.2 million. 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.

The following table provides a reconciliation of notes receivable measured at fair value using Level 3 significant unobservable inputs for the six months ended June 30 (in thousands):

	2024		2023
Balance at January 1,	$	14,129	$	7,660
Additions	665		3,137
Change in fair value	(1,579)		(1,489)
Balance at June 30,	$	13,215	$	9,308

Warrant Liabilities

In connection with the Company's merger with Soaring Eagle Acquisition Corp. (“SRNG”) on September 16, 2021, the Company assumed 34.5 million publicly-traded warrants (“Public Warrants”) and 17.3 million private placement warrants (the “Private Placement Warrants”) previously issued in connection with SRNG’s initial public offering. The fair value of the Public Warrants is based on the observable quoted price of such warrants on the New York Stock Exchange (“NYSE”). 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.

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:

	June 30, 2024		December 31, 2023
Exercise price	$	11.50	$	11.50
Stock price	$	0.33	$	1.69
Volatility	122.8 %		70.5 %
Term (in years)	2.21		2.71
Risk-free interest rate	4.70 %		4.01 %

The following table provides a reconciliation of the Private Placement Warrants measured at fair value using Level 3 significant unobservable inputs for the six months ended June 30 (in thousands):

	2024		2023
Balance at January 1,	$	1,846	$	3,860
Change in fair value	(1,324)		1,175
Transfers to Level 2	(149)		—
Balance at June 30,	$	373	$	5,035

Contingent Consideration

In connection with various business acquisitions, the Company is required to make contingent earnout payments payable upon the achievement of certain technical, commercial and/or performance milestones. The Company also issued restricted stock in connection with acquisitions, which is subject to vesting conditions and is classified as contingent consideration liability.

The Company can settle a majority of its contingent consideration liabilities in cash or shares of Class A common stock at the Company’s election with the remainder payable in cash. During the six months ended June 30, 2024, the Company settled $5.4 million in contingent consideration liabilities through payment of $0.9 million in cash and vesting of 3.9 million shares of restricted stock valued at $4.4 million. During the six months ended June 30, 2023, the Company settled $3.8 million in contingent consideration liability through payment of $1.5 million in cash and vesting of 1.2 million shares of restricted stock valued at $2.3 million. Of that amount, $1.4 million 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 not probable of occurring.

The fair value of contingent consideration related to earnout payments from acquisitions was estimated using unobservable (Level 3) inputs as illustrated in the table below. The fair value of contingent consideration 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. 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 condensed consolidated statements of operations and comprehensive loss.

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:

			June 30, 2024		December 31, 2023
Contingent Consideration Liability	Valuation Technique	Unobservable Input	Range		Range
Earnout payments (FGen and Dutch DNA acquisitions)	Probability-weighted present value	Probability of payment	5% - 100%		10% - 100%
		Discount rate	19.5%		13.4%
Earnout payments (Dutch DNA acquisition)	Discounted cash flow	Projected years of payments	2028 - 2031		2025 - 2028
		Discount rate	10.6	%	10.3	%

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

	2024		2023
Balance at January 1,	$	24,273	$	24,473
Change in fair value	2,284		8,453
Settlements and payments	(5,363)		(2,364)
Balance at June 30,	$	21,194	$	30,562

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 observable price changes occur for the identical or similar security of the same issuer.

The fair value of non-marketable equity securities is classified within Level 3 in the fair value hierarchy when the Company estimates fair value using unobservable inputs to measure the amount of the impairment loss. The fair value of non-marketable equity securities is classified within Level 2 in the fair value hierarchy when the Company estimates fair value using the observable transaction price paid by third party investors for the identical or similar security of the same issuer.

During the three months ended June 30, 2024, the Company recorded a $4.9 million impairment loss related to its investment in Genomatica preferred stock. The fair value measurement was determined using the guideline public company method under the market approach. The significant unobservable inputs used in the valuation included the selection and analysis of guideline public companies, revenue multiple and other unobservable assumptions. The fair value measurement is classified as Level 3 in the fair value hierarchy.

During the six months ended June 30, 2023, the Company received a total purchase amount of $11.0 million in Simple Agreement for Future Equity (“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. Under the scenario-based method, future cash flows were evaluated under qualified financing and dissolution scenarios with partial recovery and no recovery in dissolution. The cash flows under each scenario were probability-weighted and discounted to present value. The significant unobservable (Level 3) inputs used in the fair value measurement were scenario probabilities of 20% to 60%, a discount rate of 14% and estimated time to event date of one to two years.

The Company recorded impairment losses of zero and $1.8 million related to SAFEs during the three months ended June 30, 2024 and 2023, respectively, and $5.2 million and $1.8 million during the six months ended June 30, 2024 and 2023, respectively. The fair value was generally estimated using the scenario-based method, where various payout scenarios were probability-weighted and discounted to present value.