Ginkgo Bioworks Holdings Inc

5. 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):

(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 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. In 2024 and 2023, transfers from Level 2 to Level 1 occurred due to lapse of regulatory sales restrictions on marketable equity securities. Additionally, in 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 2024 or 2023.

The table below provides a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value using Level 3 significant unobservable inputs for the years ended December 31 (in thousands):

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, net in the consolidated statements of operations and comprehensive loss.

As of December 31, 2024 and 2023, the Company's notes receivable includes a senior secured note in the original principal amount of $11.8 million, issued by Bolt Threads, Inc. (“Bolt Threads”), which 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 Company previously held a convertible promissory note, also issued by Bolt Threads, in the principal amount of $10.0 million, which bore interest at 8% per annum, was 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 was otherwise payable on demand any time after the maturity date of October 4, 2024. During the year ended December 31, 2024, $10.5 million in principal and accrued interest on the convertible promissory note was converted into 2.7 million shares of the issuer's common stock, which were classified as marketable equity securities until they were sold.

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.

The Company also 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 prior to conversion. 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, 2024 included scenario probabilities ranging from 5% to 45%, a discount rate of 15.5% and estimated time to event date of up totwo 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 ofone totwo years. Significant changes in these inputs could have resulted in a significantly lower or higher fair value measurement. As of December 31, 2024, the convertible debt instruments had an unpaid principal balance of $13.2 million and a fair value of $1.8 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.

In December 2023, the Company entered into an amendment with a customer regardingtwo 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 ranging from 10% to 75%, a discount rate of 15%, time to event date of up toone year, and an 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.

Warrant Liabilities

In connection with the Company's merger with Soaring Eagle Acquisition Corp. (“SRNG”) on September 16, 2021 (“SRNG Business Combination”), the Company assumed 34.5 million warrants (formerly traded on the New York Stock Exchange (the “NYSE,” and such warrants, the “Public Warrants”) and 17.3 million private placement warrants (the “Private Placement Warrants”, and together with the Public Warrants, the “Warrants”), which were initially issued in connection with SRNG’s initial public offering. The number of outstanding Warrants did not change as a result of the Reverse Stock Split. However, each Warrant equals one-fortieth (1/40) of one share of Class A common stock (a minimum of 40 Warrants must be exercised forone share of Class A common stock) following the Reverse Stock Split.

The fair value of the Public Warrants was based on their observable quoted price on the NYSE. However, the Public Warrants were delisted by the NYSE on September 4, 2024, due to abnormally low selling price levels, and subsequently began trading on the over-the-counter markets. As of December 31, 2024, the Company determined that the Public Warrants had no value.

The Private Placement Warrants are identical to the Public Warrants, except that they are exercisable on a cashless basis and are non-redeemable as long as they are held by the initial purchasers or their permitted transferees. As of December 31, 2024, the Company concluded that the difference between the fair values of the Public Warrants and Private Placement Warrants was de minimis. Therefore, the Private Placement Warrants were measured by reference to the value of the Public Warrants and had no value.

As of December 31, 2023, the fair value of the Private Placement Warrants was estimated using a Black-Scholes option pricing model, which was considered a Level 3 fair value measurement. The primary unobservable input used in the valuation of the Private Placement Warrants was expected stock-price volatility, estimated through a Monte-Carlo simulation of the redeemable Public Warrants that assumed optimal exercise of the Company's redemption option at the earliest possible date. A change in this input could have significantly affected the valuation.

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 year ended December 31, 2024, the Company settled $17.6 million in contingent consideration liability through payment of $2.8 million in cash and vesting of 1,413,909 shares of restricted stock valued at $14.7 million. 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 137,427 shares of restricted stock valued at $8.9 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 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:

(1) For FGen and Altar acquisitions, see Note 4. 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.

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, or when observable price changes occur for identical or similar securities from the same issuer.

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

Investment Impairments

During the years ended December 31, 2024, 2023 and 2022, the Company recorded impairment losses of $11.9 million, $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. As of December 31, 2024, the Company determined that the investment had substantially no value.

During the years ended December 31, 2024 and 2023, the Company recorded impairment losses of $1.7 million and $8.3 million, respectively, related to an investment in the preferred stock of a privately held company. The fair value as of December 31, 2023 was determined by deriving the investee’s equity value from a 2021 financing transaction involving its own securities and applying an 87% downward market adjustment 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. As of December 31, 2024, the Company determined that the investment had substantially no value.

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 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 at contract inception during 2023 were scenario probabilities in the range of 20% to 60%, a discount rate of 14% and estimated time to event date ofone totwo years. The significant unobservable (Level 3) inputs used in the fair value measurement at contract inception during 2022 were scenario probabilities in the range of 18% and 65%, a discount rate of 13% and estimated time to event date ofone totwo years.

During the years ended December 31, 2024 and 2023, the Company recorded impairment losses of $7.2 million and $2.7 million, respectively, related to SAFEs. The fair values were generally estimated using the scenario-based method, where various payout scenarios were probability-weighted and discounted to present value.

Additionally, during the years ended December 31, 2024 and 2023, the Company recorded impairments of lab equipment, construction in progress assets, and assets related to an operating lease. Refer to Note 10 for additional detail.