Q2 2022 IONQ Inc Earnings Call
Greetings and welcome to eye on Q second quarter, 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Jordan Shapiro, Vice President of financial planning analysis and head of Investor Relations. Please go ahead Sir.
Afternoon, everyone and welcome to Inq's second quarter, 2022 earnings call.
My name is Jordan Shapiro and I'm, the Vice President of financial planning and analysis and head of Investor Relations here at I N Q.
I'm pleased to be joined on today's call by Peter Chapman.
He is president and Chief Executive Officer, Tom.
Thomas Kramer, our Chief Financial Officer Dr.
Doctor Crisp on row, our co founder and Chief scientist and doctors junk thing, Kevin our co founder and Chief Technology Officer.
By now everyone should have access to the company's second quarter 2022 earnings press release issued this afternoon, which is available on the Investor Relations section of our website at.
Investors don't like <unk> Dot com.
Please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure.
The company believes this non-GAAP financial measure provides useful information for investors presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
This call a discussion of certain non-GAAP measures you are directed to our press release for a reconciliation of such measures to GAAP.
Before we begin please note that some of our remarks on this call will be forward looking.
Therefore, please refer to the cautionary statement in today's press release for additional details about these remarks. Please.
Please note that these forward looking statements made during this conference call speak only as of today.
Please refer to today's press release and the company's quarterly report on Form 10-Q for that.
The quarter ended June 32022, which is filed with the SEC and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Now I will turn it over to Peter Chapman, President and CEO of Inq Peter.
Thank you Jordan and thank you everyone for joining us today.
We had quite the quarter and I'm excited to fill you in on the tremendous progress we've made here at <unk>.
With respect to our technical progress we had previously reported six months ago that are already in a class of quantum computers and achieved a record 20 algorithmic cubits.
As you all remember algorithmic cubits is a benchmark consisting of common quantum algorithms that represent the kind of jobs customers want to run.
The algorithms used in the benchmark, we're gonna find by the quantum of industry group QED C with input from various hardware companies and users.
Today I am excited that we are bringing to the cloud a computer with more than 130000 times the computational power of.
Our previous cloud offering.
Specifically, we have been hard at work to dramatically improve areas performance and I can share today that we have achieved a record breaking twenty-three algorithmic cubits.
Every time, you add an algorithmic Cuba, you double the computational power, which is the useful computational space for running algorithms.
Moving from 'twenty to 'twenty three is therefore, an eight X increase in areas computational power all in just six months since February of this year.
This further cements our is lead as the most powerful known quantum computer in the world in terms of its ability to run useful quantum algorithms.
This is significantly better than what we initially had expected for area in other words, we're well on our way towards meeting our 2022 technical goal of twenty-five algorithmic cubits.
And are confident of hitting that target.
Initial test shows that our next generation systems that we've discussed on prior earnings calls our already outperforming even the best ARIA data on several key metrics.
With ARIA exceeding expectations, we believe the future is even brighter for our next generation.
And as you May remember, we plan to offer Forte to initial customers. Later this year for those who are interested in using I didn't use the latest and greatest.
Moreover, with the progress we're making on our barium systems, we expect even better performance and have a high degree of confidence in meeting our technical milestones in the coming years.
Meanwhile, we are thrilled to announce that I think you ARIA, which we believe to be the most powerful commercial quantum computer in the world with twenty-three algorithm acuity will be available tomorrow to all users of Microsoft Azure quantum.
Anyone with access to Microsoft's platform can process jobs on the ARIA.
It takes only a few minutes to set up an azure account.
And to start programming on our inq quantum system.
[noise] announcement furthers, our commitment to making industry, leading hardware publicly accessible to current and future generations of quantum programmers.
I mean in Q systems are performing best in class and customers have noticed existing customers are expanding their engagements with high in Q and we've recently added new customers, including Airbus and doubt.
Airbus is leveraging I asked you to use area to explore optimization problems that are at the core of their aerospace business such as how do we efficiently load cargo on aircraft.
The plant them algorithm, we're developing with Airbus will account for a number of critical aviation variables that make this problem, particularly difficult for classical algorithms to solve.
Now a global leader in chemistry, and material science is using our air to explore the boundaries of quantum computing applications and materials discovery research.
He joined other eye into customers, who are partnering with us to explore the intersection of quantum machine learning materials science and chemistry.
We continue to see compelling results on the projects, we've initiated to apply our systems to real business problems, both internally and with customers.
In June we announced the results of our partnership with GE research to develop a quantum algorithm that manages financial risk exposure.
<unk> used a large dataset generate the risk models across up to four variables.
This technique is broadly applicable to industries, which have risk management needs, such as finance insurance and supply chain management.
Recently, we also signed a formal agreement to collaborate with the University of Maryland on a project for the National Science Foundation for this I think you will build and host a quantum router as part of the new quantum network. The mid Atlantic region quantum Internet spanning und's campus and the surrounding area.
The work is not only important for quantum communications, but also continues our work towards connecting multiple quantum computers together to form even more powerful systems.
We are also pleased to provide an update on the multimillion dollar DARPA contract awarded to support our computing for which <unk> is a participant.
Over the last months or some contract was finalized and our work with DARPA and so part of it is underway.
Internally, we're investing in cutting edge research for problems that we think will benefit the most from quantum computing and deliver near term business value. For example, we recently published a series of quantum methods for natural language processing or N. L. P. A technology that is <unk>.
<unk> seen only ubiquitous and voice interfaces like Amazon's Alexa in email applications like Gmail, and then chatbot functionalities like those you may have experienced in customer support.
Our team created N L. P algorithms to represent linguistic qualities like ambiguity beignets and novelty on a quantum computer. These elements are notoriously difficult to represent and no. Previously published work has demonstrated ambiguity resolution or language generation.
Working on alive quantum hardware, we think quantum techniques of this nature could eventually be embedded in these N O P applications, delivering a smoother and more powerful user experience.
We are seeing a wealth of opportunities present themselves across enterprise government and academic customers.
And each time, we achieved remarkable results with our customers they become advocates and case studies for the value of inq quantum computing.
This virtuous cycle is the cornerstone of the go to market flywheel that we're developing alongside our technology.
Lastly in July 2022 we welcome Kathy Cho Inq board of directors.
Kathy brings with her deep technical experience from her role as SVP of SaaS engineering at new tactics.
Go to market experience as the sales and operations executive at Vmware and a background in mechanical engineering and manufacturing from Stanford.
Kathy joins in there, saying, the CFO and executive Vice President of Army, but it is our two newest independent board members.
We're thrilled to welcome Kathy to our board.
I will now turn the call over to Thomas for a more detailed review of the numbers and corporate initiatives Thomas.
Thank you Peter.
Before I jump into our financial results I wanted to touch on some important progress we made at the organizational level.
I'm excited to share that we have identified at the facility in Seattle to host our first assembly lines for manufacturing quantum computers.
We're gearing up production to support anticipated customer demand and our quantum that working R&D.
To support our plans for production, we have hired Dave may as vice President of product engineering.
But the males joins us after meeting systems engineering site quantum where he oversaw teams throughout systems R&D and operations and brings a robust understanding of quantum hardware with him.
Additionally, we are expanding our sales reach internationally with the creation of <unk> first international entities, and Germany and Israel.
We also named knowing okay as a managing director in <unk>, Germany to oversee our sales growth in Europe .
I'm joined says after almost three decades the IBM. Most recently at the program director of IBM quantum Europe .
We are thrilled to welcome Dave I know him onboard as we gear up to service a rapidly expanding market.
As more and more organizations are starting to explore quantum we are getting ready to capture this demand on a worldwide stage.
More than $24 billion was invested in quantum worldwide between 2016 and 2021.
And the pace of investment is not slowing down.
As a local example, U S government investment in quantum inflammation science R&D nearly doubled from 2019 to 2022 going from a reported 449 million to a requested 877.
And I am cute this manifests itself in increasing request to participate in Rfps, which we expect will contribute to the commercial momentum we are experiencing.
With both a large number of inbound leads and opportunities themselves being larger in size our belief in the long term market opportunity is as strong as ever.
Now, let's walk through the second quarter results in more detail.
We outperformed our revenue projections for the quarter with $2 $6 million in recognized revenue due to faster than expected implementation and increased usage.
This compares to $93000 in the prior year period and is above the high end of our previously provided range.
Moving down the income statement for Q2 2022, our total operating cost and expenses for the second quarter were $21 $5 million up 114% from $10 $1 million in the comparable prior year period.
To break this down further.
Our research and development costs for the second quarter with $9 $7 million up 76% from $5 $5 million in the year prior period.
We continue to invest heavily in R&D and given anticipated demand of building more systems than originally expected for this year.
Our sales and marketing costs in the second quarter with $2 $1 million up 145% from $871000 in every year prior period.
We continue to believe investment in sales and marketing today will position us for increase in commercial momentum for years to come.
Our general and administrative costs in the second quarter with $7 $6 million up 160% from $2 $9 million in the comparable prior year period.
This change is largely attributable to an increase in stock based compensation expense, which was $2 $8 million for the second quarter compared to one $7 million in the comparable prior year period.
All of this resulted in a net loss of $1 $7 million in the second quarter compared to $10 million in the prior year period.
It's important to note that these results include a noncash gain of $16 $1 million for the second quarter related to the fair value of our warrant liability.
Additionally, we saw an adjusted EBITDA loss for the second quarter of $11 $6 million compared to a $7 million adjusted EBITDA loss in the prior year period.
Turning now to our balance sheet cash cash equivalents and investments as of June 32022 were $571 $3 million. We continue to be this gives us sufficient cash reserves to get to profitability without needing to raise additional funds and given our current roadmap.
Focusing on our full fiscal 'twenty to outlook, we continue to have confidence in our full year 2022 revenue range of 10.2 to $10 $7 million, we expect third quarter revenue to be between $2, six and $2 $9 million.
We achieved $600000 in bookings for the quarter.
Compared to $57000 into Q2, 2021 period.
As for full fiscal 'twenty two.
Maintaining our expected range of $23 million to $27 million.
This range reflects the high level of interest we've seen from customers and our confidence that the deals. We are currently negotiating will close.
As we have noted on prior calls.
Can you to expect bookings to be lumpy for quite some time.
This means that while we have confidence in our overall economic performance.
Times be hard to accurately predict exactly in which quarter deals will close.
We believe providing bookings outlooks on an annual basis, rather than on a quarterly basis with better capture our business outlook and intend to provide only annual outlooks moving forward.
While we believe we will achieve our bookings forecast. We also feel it is prudent to acknowledge the risk associated with the present market conditions, which is leading to contracting delays across the technology sector.
We have identified $12 million of late stage opportunity in our bookings forecast that we believe is likely to close.
Precise timing is unclear, which may lead us to Miss some or all of this out here in 2022.
Nevertheless, we remain confident that these customers will contract with iron.
We have noted the increasing demand we are seeing across the market. Our expectation is that large late stage opportunities in our pipeline will eventually be prevalent enough that this lumpiness against it smoothed out in the meantime, our team is approaching the market with gusto to capture that might find cute.
In summary.
Yeah happy to say that even in these market conditions, we remain confident in our forecast and our ability to keep our spend in line with previous expectations.
More than half a billion dollar cash position continues to be a significant advantage for the company.
And enable us to make investments in R&D and manufacturing to continue delivering a market leading systems.
Thank you Thomas.
The second quarter was marked by landmark technical progress on our systems and a rapidly expanding set of customer applications that are already delivering compelling results. The future continues to be bright for quantum computing.
We could not be more proud of the team.
And we are grateful to have you along side us for this journey.
And with that I'd like to have the operator open the line for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.
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One moment, please while we poll for questions.
Our first question comes from Quinn Bolton with Needham and company. Please proceed with your question.
Hi, guys. Congratulations on the nice results, especially on the 23 algorithmic Kubitz for I guess wanted to start with the comment that you'll be bringing our year to date.
Sure one of them beginning tomorrow, obviously, you've talked about bringing that computer to cause your this year. So congratulations on that.
Achievement, but I guess I'm wondering since.
Permitting is available on other public clouds, how easy will it be to bring Orient to other public clouds. Later this year and is that in your current plants and then I've got a follow up thanks.
And Quinn a good a good question.
Just on the technical I'll answer the technical part first which is all the machines to support the same API, whether it's an old machine or a latest generation. So as largely there's there's kind of not much work on the cloud providers part to get to the latest machine, it's mostly configuration work that they have to.
Do just inside their system into administratively to say, hey, there's a new system and those kinds of things actually you know to be honest, probably setting up a new new rates and those kinds of things are more difficult than it is actually integrating one of our new systems. So that part is relatively easy.
See you know, we look forward to make to explore other avenues.
For ARIA on other systems, but we're not making any comments on that today.
Understood and then for Thomas.
I know there've been some delays in government contracting this year, just with Covid and work from home et cetera, but I'm wondering on the $12 million of late stage bookings you identified that could be subject to delays.
22 into 2023 can you comment is that mostly government related contracts is it heavily skewed to commercial.
What's the mix between government and commercial in that $12 million.
So we're not actually breaking up segments and given that we've always said, we have a lumpy business and so we have a small number of contracts are often very large and so given that these contracts are still in negotiation, we would liked to dish.
Closest to me unless we can.
But it's it's a mix of contracts and the good news for US is that we have buyers who are interested.
And we continue our discussions but these are complex sales, it's not like you walk into a supermarket and grab a snickers bar.
Well were renegotiating the Safeway, if we can be listed there.
[laughter], Okay. Thank you very much.
Thank you.
Our next question comes from Sam Peterman with Craig Hallum. Please proceed with your question.
Hi, guys. Thanks for taking my question I wanted to follow up on the bookings maybe asked a different way, but I.
I know you're not changing your revenue guidance for fiscal 'twenty, two which is consistent with how you talked about those bookings on the last call.
But curious if you're if you're seeing any impact to.
Essentially your fiscal 'twenty three.
Revenue outlook from some of these bookings push outs or just from the general.
Market environment out there.
Probably technology pushing out some of those contracts are not asking for a number obviously you haven't guided to that but just curious qualitatively. How you guys are thinking about or whether that might impact your fiscal 'twenty three revenue.
So we will get back to our 'twenty three outlook on the Q4 call.
We will give a detailed expectations of it.
What we're seeing here is that there is interest.
Our technology.
And so far we continue to have great confidence in what we think is going to happen in 'twenty three.
Okay fair enough.
I guess my second question on the improvement in the algorithmic Kubitz ferrario.
Could you talk a little bit more about what enabled that and then if those.
Improvements are kind of the if those improvements will translate to other systems like Forte for example.
Absolutely. This is Jonathan responding to your question.
So there are many different fronts that we've been pushing one is obviously improving the performance of the hardware.
We've also been making great strides in learning how to mitigate some of the errors that are in our systems and a more intelligent and effective way and also we've been pushing on performance of our software tools, including compilers and Optimizes. So all of these things allow us to take the same algorithm.
And then make it more effectively execute a boatload of machine and then with a higher probability to get the right answer. So it's really a combination of all of the technology developments on many fronts that have made this possible.
I'll just jump in on the switches everything which I think was part of your question everything that we're learning on ARIA I think is some of it very directly like the compiler works at that juncture. Hank mentioned is applicable across everything we're doing but even the things that we're learning on ARIA is something that often translates.
Two our next machine and it gives us a hint as to what to do on the next one so it's it is kind of today and also tomorrow.
Got it thanks guys.
Our next question comes from twice you Hari with Goldman Sachs. Please proceed with your question.
Hi, good afternoon. Thanks, so much for taking the question I've got two as well my first one.
Thomas I wanted to go back to the contracting delays you talked about.
Just wanted to clarify is this sort of macro driven where your customers whether it be private companies or governments, becoming a little bit more more prudent and careful with their investments or if there's something more tech related quantum related.
Any color there would be would be helpful. And then as my second question on profitability.
You guys talked about building more systems this year and that's driving I think it was R&D spend a little bit higher.
You also talked about your your.
Location in Seattle.
And you know building out your presence in Germany, and Israel. So I guess the question is should we be thinking about the timing of profitability being point of being pulled in or pushed out relative to your prior expectations or or no change to how youre thinking about hum.
How how youre thinking about converting to profitability. Thank you.
Yeah.
Good to hear your voice again until she those excellent questions and I'll just start from the back so I don't forget the.
When it comes to our expenses and a lot of this is also investments as opposed to just a P&L expense we.
Have no changes in our plans. This is essentially what we had planned to do all along and yes, we have more on machines in production that doesn't really affect our P&L since a lot of that is capitalized.
What it does do is it allows us to have more capacity come online in the near to medium future actually make that medium future because we're not planning to double our capacity overnight, but we do want to be able to satisfy all the demand that's out there.
And right now with the record breaking performance that we have it's it's just prudent of us to make more machines.
Onto your.
Other question is it is.
It is a macro related I think some of it is macro related but some of that's also just that you shouldn't really large purchases.
And they are purchases in a technology that the world essentially has not seen before and so there's just a lot of back and forth and everybody needs to understand it and you know a lot of the time.
There are people like me on both sides.
And we're like we know the price of everything and the value of nothing.
And.
It just takes longer to get like all the number crunchers and illegal to to get to it we are not seeing a slowdown in demand.
Okay.
Got it thank you.
Yeah.
Okay awesome.
As a reminder, if he would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from David Williams with Benchmark. Please proceed with your question.
Hey, Thanks, so much for letting me ask the question and congrats on all the progress.
One what I wanted to ask maybe quickly and you kind of talked about the build out of the hardware sales and manufacturing there. It seems like you're moving fairly quickly and just kind of curious if you're thinking that may be the the ARIA platform could be introducing these machines are faster.
Ration and then maybe if there's any component of the business related to the networking side versus the computing side.
Oh, David excellent questions. We actually are building a second <unk> system here in College Park and in record time, so and that's to meet upcoming demand as well.
M D. The answer though in the Seattle.
Maybe just even to help it a breakdown as to what to two locations are going to do in the Seattle office there'll be working on manufacturing of quantum computers, and kind of bringing the Henry Ford effect. If you will to do that so that team is very much focused on building rack mounted quantum computers that can be.
Easily manufactured here in College park, they have a different charter, which is to work on improving the performance and.
So those are kind of the teams have different kind of goals. If you will between the two locations and your insight about machines is is spot on the if you wanted to do networking you have to have more than one who wants a computer to do it. So one of the one of the reasons that we are building.
Gearing up manufacturing is to have enough free machines, so that R&D and do experiments for quantum networking, we can get the software written for those things. So that's kind of part of it as well you asked one last question I think which is kind of it will these be rel machines.
I think there are more than likely going to not be our M machines into the future.
It'll be a next generation you know forte or better is it will be the first one is rolling off the assembly line.
In Seattle.
Greg This is Greg.
Right.
Sorry, Chris Monroe here I might add about your networking question Hum as you might know we're going to scale, our quantum computers by networking many chips together that's always been in our plans.
We're starting to spin up that effort right now I would say are in our current system, we don't need that yet, but that's what you know when we when our systems get more powerful that's how we would do it and that said also where we're just now kicking off a big program with the University of Maryland on developing protocols for networking optically now.
Working our ion trap quantum computer systems.
Okay, all very great color. Thanks, So after that certainly appreciate it and then I know this question was asked earlier, but I was just going to dig in a bit but you know you talked about the performance improvements on the Rts system and I know that was a bit of a surprise and and maybe just digging in is this it doesn't sound like it's it's just specific so.
Are there areas I guess did you kind of look across your platform. Today are there other areas that you could squeak out additional performance maybe in the classical compute side or maybe even the algo side do you think there is there is that.
There's still room to optimize or do you feel like you've kind of squeeze out all of your performance at this point.
Yeah.
Yeah. So.
Aye.
Go ahead, John Zang.
Yeah, I think we have plenty of room to continue to squeeze if you think about carrying a very complex algorithms and getting us to get into very specific machine. There tends to be a lot of different steps that has to be taken up many of them into software domain and many of them in improving the hardware.
I'm, finding I'm quite a bit of opportunities, especially as we understand that some of these applications deeper.
Then.
Finding ways to improve the the mitigation of errors in our systems, we continue to find opportunities in these many of these things actually carry into the future. So I think this is one of the areas where I'm as we focus on kind of performance metric high to a realistic and practical algorithms, we're finding compounding opera.
And it is to continue to improve the performance. So that we can actually run bigger and more challenging problems on the same unimproved and hard work and I'll just add a little bit to the switches. We had talked about improving then the native hardware in the past we've talked about error correction.
Burgeoning area of of quantum at the moment is kind of what we'll call. It air mitigation and that's kind of in the middle which is a kind of a new field and in part. That's also what's happening here. It's one part is the reason that we've managed to get our year to go.
Further than we initially planned.
And again, adding to that a little color is that the type of errors that are machines experience.
Without getting too technical there, they're sort of mis calibrations there.
Don't they don't destroy the quantum information, it's still in there and the types of areas, we have and that's not true of all quantum computing systems. We we we knew we were able to mitigate.
And we're seeing that now that our our compilers and software are able to squeeze more out.
Without doing active error correction, we're going to do that too, but we you know we're going to have the whole kind of spectrum of very mitigation than full blooded error correction as our systems grow.
Oh again, all great very very good color certainly appreciate it and one last one if I might and just on the barium any update there and how how much performance advantage do you think you would have today. If you were had that employed on the area system. Thank you.
<unk>.
Yeah, we continue to make progress in and make a and increasing your effort in improving our validating Varian systems are we a have already express some of the progress we've seen to date, but we are we will actually share more as we actually have more concrete information no not much more to concretely to report at this time.
Yeah.
Okay.
Yeah.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Yeah.
Our next question is from Martin Smith.
Oh yeah.
It looks like we lost in one second.
Ladies and gentlemen, we have reached the end of the question and answer session and I would now like to turn the call back over to Peter Chapman for closing remarks.
Hi, Thanks, everyone and thanks for listening in today and the great questions that are that were presented to US we are very happy with the progress we made this quarter.
And we continue to look forward to.
Two hitting our both earnings and bookings numbers as we outlined today.
I want to say a huge thanks to the inq team for making the technical progress that they've made so far and we look forward to talking to you all in 90 days or so so thanks again have a great day.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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