Q3 2022 IONQ Inc Earnings Call
So this is the operator the conference call will start momentarily.
Thank you.
[music].
Greetings and welcome to <unk> incorporated third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
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.
This conference is being recorded.
I'd now like to turn the conference over to your host Jordan Shapiro. Thank you you may begin.
Good afternoon, everyone and welcome to ion queues third 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 Inq.
I am 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. Chris Monro, our co founder and Chief scientist, Dr. Jonathan <unk>, our co founder and Chief Technology Officer.
By now everyone should have access to the company's third quarter 2022 earnings press release issued this afternoon, which is available on the Investor Relations section of our website at investors <unk> Dot com.
Please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure.
While the company believes this non-GAAP financial measure provides useful information for investors. The 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.
You are directed to our press release for a reconciliation of such measures to GAAP.
During the call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today.
Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC.
Now I will turn it over to Peter Chapman, President and CEO of <unk> Peter.
Thanks Jordan.
This has been a fantastic quarter and I'm excited to dive into the details with you.
But to start I'd like to contextualize, where <unk> stands today after a year of being public.
To date, our system performance has consistently outpaced every other quantum computer available to the public.
As you'll hear today, we're continuing to hit our technical milestones and we believe that we are building the winning approach for quantum computing.
We are translating our technology into meaningful business impact for our customers.
And are currently on track to hit all of our commercial milestones for 2022.
We also have a strong balance sheet.
Which we view as a competitive advantage and the quantum computing industry, especially in this market.
While we are disciplined in managing our costs, having this cash allows <unk> to accelerate while others may have to pull back.
The market is noticing customers are noticing governments are noticing and talent is noticing the results are increasingly clear.
<unk> is the place to be for quantum computing.
We believe we have a clear plan to continuing leading the quantum of industry and to make quantum computing a ubiquitous technology.
Our focus is to win the quantum space race by reducing the time to market for quantum computers that rivals the best supercomputers.
With that context, let's jump into the Q3 results.
This quarter was another record quarter on so many levels.
First I'll start with a financial recap.
We generated a strong $16 $4 million of new bookings.
That brings <unk> to $21 $2 million of bookings as of the end of the third quarter and puts us firmly on track to achieve our annual bookings number of between 23% and $27 million.
As a result, we expect 50% year over year growth in annual bookings based on us hitting the midpoint of $25 million.
We recognized $2 $8 million in revenue for the quarter, which we believe supports our full year 2022 revenue range of 10.2 to $10 $7 million.
This compares to $223000 in the prior year period.
More importantly, we believe our bookings will set us up for a very strong continued year over year revenue growth in 2023.
I will turn the microphone over to Thomas in a few minutes to discuss the full financial story.
Yeah.
But before doing so we have lots to discuss on our technical progress for the quarter.
I would refer you to our public roadmap published two years ago in December 2020, which covers algorithmic cubits or Ecu the core technical benchmark for our systems.
The road map shows us progressing from an AQR of six it had in 2020 goal of $25 in Q. This year growing to 64 <unk> in 2025.
I am very happy to announce we have achieved our goal for this year of 25 algorithmic cubits on our R. S class machine.
This announcement continues our success in hitting our public roadmap.
29, 35, and <unk> 64, a queue our next.
A huge shout out to the technical team at Inq, when ultimately hit the milestone, but did so ahead of schedule.
As you know every time you add an algorithmic cubit you double the computational power, which is a useful computational space for running algorithms we.
We started the year with an Ecu was six available on the cloud the.
The latest achievement isn't increasing computational power of more than 500000 times in a single year.
We continue to believe that around 40, Ecu early quantum machine learning applications will demonstrate clear quantum advantage over classical hardware.
Based on our roadmap. We believe this critical milestone is a mere two to three years from now which is just around the corner.
It takes time to develop quantum applications inq was providing leading companies the hardware and applications expertise to invest in quantum now less they'd be left behind in the near future.
Occasionally people are confused when they hear other quantum technologies posting much higher physical cubic counts the nine queues.
We believe the algorithmic cubits benchmark resolve that leveling the playing field to show how useful.
Computer is for real customers.
So for the avoidance of doubt, let me be clear I in Q systems are exceeding every other universal gates at quantum computer we know of in terms of algorithmic cubits.
We've covered our exciting news on the systems level, but now I'd like to switch focus down to the chip level.
Those who follow US will know I think you also develops a line of custom chips.
Last year, we unveiled our first custom made chip evaporated glass trap or <unk> for short.
<unk> utilizes a single layer two or out buyers across the chip and ushered in an unprecedented level of performance.
Today I'm happy to announce our next generation custom chip called the multilayer glass trap or Mg T.
We believe this technology should enable higher cubic per chip going beyond the capabilities of our E. G. T. Two fit hundreds of cubits and a multicore arrangement.
Additionally, we have been developing photonic integrated circuits or pics for short.
Knowledge did offers a robust and compact way to deliver a laser light to trapped ion cubits.
This quarter, we have received our first batch of pick devices, we plan to integrate those into our future I on traps with the goal of increasing the integration levels of our ion trap chip.
We believe this will help us scale up the number of Kubitz on a single chip, while reducing system size complexity and per cubit cost.
We expect.
The MTT chip will allow us to fit a greater number of physical cubits into a single quantum processing unit.
We believe that picks will allow us to deliver light in a much more compact and robust way as we scale to multiple QP use to deliver an even more powerful quantum computer.
We look forward to providing future updates as we continue our scaling efforts for <unk> systems architecture.
Back on the business side I will end with some of our commercial milestones another area, where we had an incredible quarter.
In September we announced our $13 4 million dollar contract with the U S Air Force Research lab or a F. R. L.
This multipart contract will supply air Pharrell will cloud access to compute on our cutting edge trapped ion systems and with hardware components to further their research in quantum networking.
I want to clarify that this sale does not constitute a full system sale such as we had discussed on our prior earnings calls we.
We are actively pursuing full system sales with a number of interested parties and we continue to believe that a sale of that nature could occur in the next 12 to 18 months.
I think you also kicked off our second exciting new project with the U S. Government in Q3. This one with the department of Energy's Oak Ridge National Laboratory.
Our new agreement focuses on researching benchmark circuits to be used for the discovery of new quantum chemistry applications.
I think you will provide cloud access as well as applications development research support to or now.
We aim to break new ground in a variety of interesting new computational chemistry and physics applications.
Our commercial success this quarter was not limited to working with the government.
It is my pleasure to announce that <unk> is now a trusted quantum compute provider to Dell Technologies, Inc.
In Q and Dell have formed this new partnership to offer a world class hybrid computing solution, combining the best of quantum computing Inq's ARIA system with the best of classical computing LS power edge servers.
With our combined forces customers will now have the ability to seamlessly transition workloads between classical and quantum hardware.
Beyond these new contracts, we've also signed several new contracts and renewed our partnerships with several existing customers.
As I accused commercial momentum picks up steam we're also focused on making our systems increasingly accessible and usable delivering a full stack approach to quantum computing.
This past quarter, we added I accuse ARIA to Microsoft's Azure quantum cloud, meaning that anyone with an Azure account can now access I think is most powerful quantum computer.
<unk> new capacity of twenty-five algorithmic cubits will be available to customers in the near future.
This was a phenomenal third quarter for ion Q on all counts.
We hit our egg Hugo innovated on our quantum chips and put ourselves within striking range of our financial targets.
We could not be more thrilled about the road ahead.
We are proud of the inq team for the incredible hard work day in and day out and we remain committed to building the world's most powerful quantum computers to solve the world's most complex problems.
I'd now like to turn this call over to Thomas for a run through of our financials as well as updates on our corporate initiatives Thomas.
Thank you Peter.
Now, let's walk through this quarters financial results in more detail.
As Peter mentioned, we had an excellent quarter, recognizing $2 $8 million in revenue.
Just above the midpoint of the outlook, we previously provided.
We also exited the quarter with $21 $2 million in bookings year to date, which puts us on track to hit our previously stated expectation.
<unk> $23 million to $27 million for the full year.
Given that we are still at the beginning of our commercialization phase I want to reiterate my comments from our last earnings call.
That we expect bookings to continue to be lumpy for quite some time.
Moving down to the income statement.
For Q3, 2022, our total operating costs and expenses for the third quarter were $27 $7 million up 156%.
From $10 8 million in the prior year period.
But well within our plan for the year.
To break this down further.
Our research and development costs for the third quarter with $13 3 million up 115% from $6 2 million in the prior year period.
Recall that we are investing heavily in R&D and <unk>.
Given anticipated demand and building more systems than previously projected this year.
Our sales and marketing costs in the third quarter with $2 million up 54% from $1 3 million in the prior year period.
This increase was due to us growing our go to market function as we continue our investment into our commercial efforts.
Our general and administrative costs in the third quarter with $10 1 million up 304% from $2 5 million in the prior year period.
This increase is largely attributable to the growth and stock based compensation expense, which was $4 $5 million for the third quarter compared to $837000 in the prior year period.
All of this resulted in a net loss of $24 million in the third quarter compared to a net loss of $14 8 million in the prior year period.
It is important to note that these results include a noncash loss of $1 2 million for the third quarter related to the fair value of our warrant liabilities.
You saw an adjusted EBITDA loss in the third quarter of $13 4 million compared to a $7 $9 million loss in the prior year period.
Note that we projected an adjusted EBITDA loss for the year of the $5 million and have announced a loss of $35 3 million year to date.
So we expect to remain well within our plan for the year.
Turning now to our balance sheet.
Cash cash equivalents and investments as of September 30th 2022 with 555.8.
$8 million, we continue to believe this gives us sufficient cash reserves to get to profitability without needing to raise additional funds given our current roadmap.
Now turning to our full year 2022 outlook, we are pleased to be maintaining both our revenue and bookings outlook for the full year 2022.
As a reminder, we anticipate revenue of between $10 to $10 7 million.
Expect bookings of between 23 and $27 million.
Context year to date, we have booked $21 $2 million.
Overall, we are incredibly excited about our commercial and financial progress year to date as well as the state of the quantum computing industry as a whole.
The market for quantum is currently growing rapidly despite global market headwinds that much of the world with technology industry.
Currently experiencing.
In these difficult market conditions, many companies have retreated from their earlier from national predictions.
In contrast, <unk> has stood by our earlier estimates and we continue to exceed our projections.
Meanwhile, interest in quantum continues to be promising having quantum strategy is becoming in a substantial imperative for corporations and governments.
We believe investments in quantum is driven by factors that supersede spending limits and done market such as what we are seeing with government customers.
We already achieved substantial support from the U S government this year, but it's worth to note that the D. O D alone is expected to increase our investment in quantum information science from $661 million this year.
$710 million requested for 2023.
I am curious taking actions like making our data centers government compliant suddenly we can try to capture a portion of that opportunity.
We at <unk> could not be more pleased with the continued growth of the industry as a whole and we believe we are well positioned to continue as a market leader in this space and we are happy to report another quarter of meeting and exceeding our financial and commercial targets.
Back to you Peter.
Thank you Thomas.
In summary, once again I. Thank you is meeting and exceeding all of the expectations, we have shared with the market.
We finished the quarter with $7 $3 million in revenue and $21 $2 million in bookings year to date, putting us on track to hit our financial goals for the full year.
Our cash cash equivalents and investments at the end of Q3 totaled $555 $8 million, which we continue to believe will provide us with sufficient runway to get us to profitability without the need to raise additional funds.
We achieved our 2022 core technical milestone.
25, algorithmic cubits ahead of schedule.
We signed groundbreaking agreements with new customers in both the public and private sector.
And despite the turbulent economic conditions currently facing the technology industry, we continue to solidify ourselves as the industry leader capable of consistently executing on our ambitious vision.
To those who have been tracking I. Thank you for years. We appreciate your support and hope you are pleased with how we have furthered our goals since going public just one year ago.
So those of you who are new to the <unk> story or had been waiting to dig in.
Get you to join US as we continue to take I in Q and the quantum industry to new Heights.
And with that I'd like to have the operator open the line for questions.
Yeah.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
And confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll.
Our first question comes from Quinn Bolton with Needham <unk> Company. Please proceed with your question.
And then.
Glass trap, what kind of increase in cubic count do you think you'll be able to achieve and how important is that to get into the <unk>.
For algorithm acuity target by 2025, thank you.
Hello.
Okay.
Sure Jonathan would you like me to take that.
Jumping on.
No go ahead, Chris take it Okay, Yes, hi, Chris Monroe Chief scientist.
So our glass crafts will allow us to have multiple multiple zones on a single chip we call that a multi core architecture and that will give us the ability to control many more cubits.
It's basically as simple as that we know how to add kubitz and.
To get to 64 algorithmic cubist to get to those numbers, we need higher fidelity component fidelity has done the kubitz as well we know how to make the kubitz it's more about.
We control them, all and so the glass routes give us much more flexibility on scaling the number of cubits.
You had mentioned the Pic technology that I think probably.
Involves the lasers used to.
I meant the gauge is that also how important is that new pic technology to to get into it.
Yes.
It's not.
Technology is not immediately needed it.
In the short term, but it's more of a research effort at the company right now we anticipate needing this for further gains down the line, but not immediately.
Got it okay. Thank you.
Our next question comes from David William with Benchmark. Please proceed with your question.
Hey, good afternoon, and congrats on all the progress and hitting all the milestones that it's definitely refreshing to see.
Thank you.
I guess, Peter maybe maybe first to you and others can jump in but just kind of thinking about maybe the balance sheet strength and the bookings that you're receiving everything is moving the right direction, but I guess as I think about the landscape in all of your technology is a bit different I think than most others I would assume there may be some IP assets or infrastructure.
Sure other components.
Out there that could be beneficial to to accelerate your progress.
Just kind of curious if youre seeing anything in terms of IP or any other maybe consolidate and accelerate your path forward here if that something that you would be interested in doing.
It's a great question and in fact, we are there is a kind of a number of different aspects here.
First it's a difficult environment for <unk>.
For little startups right now so that provides opportunities for four.
Fine.
Get some bargain so to speak and then.
The other thing is vertical integration in terms of of the hardware itself.
And we started some of that as well. So you would expect just in the next year just to hear more about that.
Okay, great. Thanks, so much for the color there and then maybe.
You talked about the obviously increase from six debt to that between five on a cubic or algorithmic cubits.
Can you help me understand exactly what that means it's hard to I guess visualize it 5000 times increase in power can you help me understand are there any metrics you can put around that that maybe a little easier to wrap my head around.
Maybe Jenny thing or Chris I will kind of pocket, but maybe you could talk about how to visualize that one.
Yes, I can I can help with that this is something.
So the.
The way, we consider the power of quantum computing is in terms of what kind of computation of space that has access during the computation, meaning how much if you want to model. This with classical memory, how much memory classical memory will be needed to actually finish that computation.
And as our quantum computers get more and more powerful we can actually access exponentially large computational space.
And we measure that by being the ability to run some some benchmark algorithms and.
That capability is measured in algorithmic cubit, so going from algorithmic cubits of six means you can actually run.
Algorithms that fifth sixth cubist with some level of complexity.
<unk> algorithm cubit, a 25 is youre actually now using 25, cubit and running funnel computer computation with much deeper complexity and the amount of.
If you work to stimulate this was a classical computers the amount of.
Memory space, you would need will have to be about half a million times more ought to be able to do that so and of course, the quantum computer to do that with the power of quantum.
Yeah.
Okay very good that's very very helpful. Thanks, so much for that.
And Joanne I'll jump back in the queue, but thanks, thanks for the help.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from Richard Shannon with Craig Hallum. Please proceed with your question.
Well hi, everyone. Thanks for taking my questions as well.
Maybe a quick one on your Air Force Research Labs contract announced at the end of September any way you can describe over what time this might be recognizing this as say ratable kind of recognition or are there milestones specifically that could make that revenue recognition is somewhat lumpy.
Hi, Richard Thomas.
Yeah, absolutely I can take that so.
This is a multiple element contract.
And there are two distinct.
This thing parts, one is an access agreement, which will be ratably recognized over three years.
And the other is where we're helping <unk> build a network node, which will be very important for this entire industry.
Going forward and that is milestone based.
We will come back with projections for how this is recognized next year on the Q4 call.
Okay. That's helpful.
And then maybe a follow on question on this topic here if I caught it correctly I think another quantum company also announced the contract with the Air Force Research Labs, I think two weeks after yours.
Can you differentiate what you're doing with them versus what the other company is how that inter operates or or as distinct from what they're doing please.
So these are very separate agreements and we have not been involved with this other company.
And their agreement okay.
Okay.
That is helpful. I did want to follow up on a previous question on the fix here kind of twofold My first one.
Yeah.
On my own here is what kind of a pick as this is a silicon photonics Becker can you guys describe it any more detail and then in response to the last question you said, it's something down the road here can you give us a sense of.
Where that intersection point within your roadmap that will be required.
Yes. This is Jonathan Kim.
The answer yes.
Pick will be based on general scope of integrated Silicon Photonics technology.
And I think at this point.
We are not in a position to guide exactly when this will be intersecting with our future products.
Okay. That's fair enough my last question I'll jump out of line since we both have had both good chunk swing and Chris I'll ask.
Just kind of the progress over the year that you've been public here.
In terms of the Cuban Arrogates using your trapped ion technology here I think one of your thesis.
<unk> founding the company here in the public markets.
Our rates are better maybe if you can.
Kind of quote and summarize the research that you've seen over the last year, and where where are rates play out versus other technologies and even other companies versions of their technology, it's ion trap and otherwise that would be great. That's all for me. Thanks.
Maybe I'll start real quick Chris Monroe here.
Again, we know with the ion trap technology that there is a type of air we expect at some level and we're not at that level. Yet. So what that means is all of our errors are not intrinsic to the quantum technology that Cupid itself.
They are dominated by the controllers and for us that means optics. It means it means electronics and so forth and this is all the time why we've had such confidence in our ability to execute on our roadmap so over the last year.
We've certainly learned that we can exploit the types of areas that we know are there that are dictated by controllers, they're not inherent errors, they're not so called coherent.
And that means that we can expand the scope of error correction and theres many different types of ways.
To mitigate that kind of air junk, saying why don't you step in if you want to add to that.
Sure. So in the research area and I think we.
Including My Research group at Duke University, and my colleagues are really kind of have gained a much deeper understanding of what the what the dominant uncontrolled ore sources are and we've also been inventing kind of control techniques to actually overcome those in many different.
I think we lost our speaker.
Great. Thanks, David.
Yes, I think John Thanks stepped up but I'm well aware of junk things.
Research in.
In this area and they've been able to isolate errors to such an extent that we know how to in a sense by algorithmic design make the arris cancel themselves out.
That's one method of what we call air mitigation.
And we are we know error correction is it is something that we will be deploying as we scale, our ecu numbers up but are mitigation is.
I think its just another card, we can play and taking care of those areas and to get to your <unk>.
Fundamental question.
Never did we talk about the fundamental areas of our cubits.
And because they're Adams because their atomic clocks, we're not yet at the level, where we're limited by those so again, we are forging forward and we expect the next few years to sort of continue along that vein.
Alright, great. Thanks, guys.
Our next question is from Kevin Garrigan with West Park Capital. Please proceed with your question.
Yeah, Hey, guys, let me Echo my congrats on the progress and thanks for taking my question I apologize for any background noise I'm in the airport right now so just one quick question for me.
Regarding your partnership with Bill can you give us a sense of how the conversations with Delaware and how you were able to capture that partnership I mean today, the kind of believe ion trap is the future for quantum computing architecture or is your audio system.
Performance, what they were looking for any color there would be great. Thank you.
Yes, if I can.
Can help with that.
Think that the.
The Dell HBC group in particular, who we've been working with.
Has seen a lot of interest in quantum from people who own HPLC systems. This is.
What is typically called hybrid quantum.
Supercomputing and obviously <unk> is a leading player in that marketplace, so they're seeing kind of customer demand and.
They reached out to us too.
Fire, if we would be interested in working with them to work on a solution. So for the last roughly year or so we've been working on the software back and forth between the two of us to get.
The software ready to go.
Hardware would be working.
Together and at Supercomputing 2002.
Is kind of the is the culmination of that which is going this week.
And Youll see us in the Dell Booth.
Talking about hybrid compute also hybrid computers.
Marriage between supercomputers and quantum computers is is a large focus of.
The Doa.
In terms of what to do next after the exome scale project.
It's also an important area for government and obviously for industry going forward.
Yeah.
Our next question is from Trevor Johnson with Needham. Please proceed with your question.
Yeah, Hey, guys. This is trevor on for Quinn Bolton he had jumped.
But real quick on the second <unk>.
Can you give us a timeline on when that is going to be finished and will this likely be the last audio system being built.
Yes, I can I can take that.
The next <unk> system will be.
Randy roughly towards the end of your first quarter.
Is whether it will start to come online.
And then.
This will probably be the last RIS system that we built.
After this it will be <unk> and other.
Technologies, rather we built the second one for both redundancy and also vehicle to hit kind of customer demand.
Okay and do you expect the glass trap to help fidelities at all or is that more for just the scaling.
Christopher Jonathan would you like to take that.
Yes, I can take that Chris here.
No we don't.
The trap itself that is the electrodes that confined to Adams.
Have almost no impact on the performance of the quantum system and again this harks back to the advantage of having suspended individual atoms electrodes are miles away Atomically speaking you know they are there.
There are almost no.
A fraction of a millimeter way and add them to a very small thing so having different electrode structures.
Really don't affect the Cuba directly it's all about ease of control being able to.
I think of it like the magnetically levitated trained the train tracks or.
Not directly influence and the performance of the trains and Thats really what we have here.
Awesome and then just one quick one did.
Did the harmonies <unk> increase as well like it did last quarter.
Hi.
No we brought it up to any fixed, but that's where it stands today.
Okay.
It was probably need hardware hardware modifications to get better.
Okay.
Thank you.
We've reached the end of the question and answer session I would now like to turn the call over to Peter Chapman for closing remarks.
Well just thanks, everyone for your time today, it's obviously been a.
Fantastic quarter.
We will look to close out the year, we believe obviously that both on our projections for our recognize revenue and bookings will be successful.
And we look forward to talking with you.
At the for the Q4 call.
In the spring.
Thanks, everyone I appreciate the time.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.