IonQ Inc. Q1 2023 Earnings Call
Yeah.
[music].
Greetings and welcome to the Q first quarter 2023 earnings call at this time.
All participants are in listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded I would now.
I'd like to turn the conference over to your host George Shapiro, Vice President and head of Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to Inq's first quarter 2023 earnings call My.
My name is Jordan Shapiro and I'm, the Vice President of financial planning and analysis and head of Investor Relations here at Inq.
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. Chris Monro, our co founder and Chief scientist and doctors Young sang Kim our co founder and Chief Technology Officer.
By now everyone should have access to the company's first quarter 2023 earnings press release issued this afternoon.
It is available on the Investor Relations section of our website at investors Inq 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 reconciliation of adjusted EBITDA to its closest comparable GAAP measure.
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 our most recent filings with the SEC.
Now I will turn it over to Peter Chapman, President and CEO of I N Q Peter.
Thanks Jordan.
Good afternoon, everyone and thank you for joining us for our first quarter 2023 earnings call.
We finished the first quarter was $4 $3 million in revenue, which was above the high end of our expected range. Meanwhile, we booked $4 $1 million in new contracts and are maintaining this year's annual booking guidance Thomas will share more details on our commercial activity in financials.
Later in the call.
We continue to move forward at full speed that I think you trailblazing in our industry in our view, we have distance ourselves from the pack of pure play quantum computing companies by having the best cash position by a wide margin.
We also believe we are sufficiently funded to get the company to profitability based on our current roadmap I think you will continue to focus on achieving quantum advantage in developing commercial applications for our customers.
And I in Q, our primary focus has been not on the quantity of cubits in our system, but on the quality of the cubits and their operations for quantum computers. This quality also known as fidelity is a key differentiator in successfully completing computational tasks.
We measure the fidelity of our systems using an application oriented benchmark, we call algorithmic cubits or Ecu.
Aq is based on work pioneered by the quantum economic developing consortium and independent industry group and evaluates quantum computers utility in real world settings.
Last year, we achieved our goal of hitting twenty-five ecu.
This year, we sent an even more ambitious goal of hitting 29% <unk> by the end of the year.
Recall that every additional ecu corresponds to roughly doubling useful computational space, meaning we can run much more powerful quantum algorithms.
Today I am excited to share that we have hit our 29, a huge target meeting our 2023 technical goal seven months early.
This achievement made possible by the hard work and dedication of the full inq team brings dramatically more powerful quantum computing capability to our customers and puts us one step closer to reaching quantum advantage.
What's more I am excited to announce that we hit this target using inq Forte, our newest world class quantum system. You may remember that we first announced work on our Forte system Midway through last year with the goal of running customer jobs and Forte before the end of 'twenty.
'twenty two.
We achieved that goal.
Our next major technical milestone is achieving 35, Ecu, which is particularly significant.
And 35, EQ simulating the operations of quantum algorithms using classical hardware can become exceedingly challenging and costly we expect at 35 Ecu. Some customers will have an increasingly clear business case for running models on actual quantum computers rather.
And attempting to stimulate those models with classical computers.
If you're watching the quantum industry for signs of our computer's, becoming more practical well more powerful than classical computers, hitting 35, Aq is an important milestone to track.
The next steps will be for our systems to take on problems there beyond the capacity of even the best quantum simulators and subsequently to tackle problems that even the best supercomputers can't solve.
We anticipate each of these milestones driving further commercial adoption.
Since going public about 20 months ago, we've been dramatically increasing our ecu going from six eight you commercially available on our I N Q harmony systems to now 29, a Q on Q Forte.
That represents an increase of more than one <unk> per month on average.
Similarly, if you look ahead to our goal of hitting 64 <unk> by the end of 2025 that also represents an average increase of more than one <unk> per month.
Yes.
Moore's law famously predicted the number of transistors and integrated circuit would double roughly every two years.
As a reminder, each additional EQ roughly doubles the power of our systems as measured by the useful computational space for running quantum algorithms.
Moore's law was about doubling every two years.
And I in Q, we've been doubling our systems power every month on average for.
For example, the most recently from twenty-five Ecu to twenty-nine Ecu represents a 16 fold increase in computational power.
Yeah.
Potential customers are noticing the superior performance of <unk> systems, and wisdom of N for Inq compute time rapidly rising we have been accelerating our system manufacturing efforts.
Today I am proud to announce that we've completed construction of our second ARIA class quantum computer also known as <unk> to.
This new machine will join our L. One on the public cloud this quarter.
Bringing our year to online is a crucial step for our commercial efforts as it improves our redundancy capacity and order processing speed.
Speaking of customers, we are proud to announce that as part of our commercialization efforts earlier. This year, we signed a contract with the United Arab Emirates Quantum Research Center Technology Innovation Institute to explore how quantum computing can give the UAE a competitive edge disagrees.
<unk> is a testament to the trust and confidence the global leaders have in iqs cutting edge technology, and our ability to drive breakthroughs in quantum computing.
In addition to bringing on more customers. We're also seeing strong results from existing customers, taking advantage of our increasingly powerful systems Inc.
In collaboration with Fidelity Center for applied technology or F. Cat, we are proud to announce new work in the field of quantum Monte Carlo our newest accomplishment focuses on speeding up Monte Carlo simulations and <unk>.
Widely used statistical analysis method, and finance science and engineering.
A year ago, we started investing in quantum artificial intelligence or quantum AI. Our first output of that work is a paper on modeling human cognition, which has now been published in the peer reviewed scientific journal entropy.
We are excited by the potential for quantum to power not just machine learning, but also artificial general intelligence, our Agi <unk>.
The point at which AI is strong enough to accomplish any task than a human can.
With application areas for quantum becoming increasingly clear. We are also forging channel partnerships that will help us distribute inq compute access to a broad set of customers around the globe. We added a new enterprise partnership in April when Inq joined forces with bearing point.
A global management and technology consulting firm to power their growing quantum team in Europe .
Bearing point has offices in 24 countries around the world and has over 5000 employees with their quantum team soon to be trained on our systems.
Bearing point Premier clients will be offered access to I think us world class quantum computing systems and application development services.
Our momentum here at Inq continues to build we hit our key technical target for the full year well ahead of schedule and beat our revenue goal for the quarter innovated with our customers to solve new problems and tapped into a new channel partnership in Europe .
Lastly, it is my pleasure to introduce Pat Tang the newest member of the Inq leadership team.
Pat will be taking over as vice President of research and development. He brings to inq over 23 years of technology experience. Most recently as a VP of engineering at Amazon's Lab 126.
Pat is one more testament to the best in class talent that is convening and I in Q.
And with that I would like to turn the call over to Thomas for a more detailed review of the financials 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 $4 $3 million in revenue, which was above the high end of the outlook. We previously provided.
This reflects us being able to compete work ahead of schedule for some of our milestone dependent revenue.
While we experienced some accelerated revenue recognition from Q2 into Q1, we anticipate that full year impact will be lower given how projects and milestones are distributed between periods.
We exited the quarter with $4 $1 million in bookings, which is a great start towards our stated expectations of between $38 million to $42 million for the full year.
Given that we are still at the beginning of our commercialization phase I want to reiterate my comments from Premier earnings calls that we expect bookings to continue to be lumpy for quite some time.
Moving down the income statement for Q1 2023, our total operating costs and expenses for the first quarter were $32 $3 million up 60% from $22 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 first quarter were $16 $2 million.
121% from $7 $3 million in the prior year period.
Recall that we are investing heavily in R&D and given anticipated demand are especially focused on investing in our manufacturing capabilities to build more systems than previously anticipated this year.
Our sales and marketing costs in the first quarter were $2 $7 million up 43% from $1 $9 million in the prior year period.
This increase was due to us growing our go to market function and additional sales and support personnel as we continue our investment into our commercial efforts.
Our general and administrative costs in the first quarter were $10 $6 million up 15% from $9 $2 million in the prior year period.
All of this resulted in a net loss of $27 $3 million in the first quarter compared to $4 $2 million in the prior year period.
It's important to note that these results include a noncash loss of $3 $6 million in the first quarter.
Related to the change in the fair value of our warrant liabilities.
We saw an adjusted EBITDA loss for the first quarter of $15 $9 million compared to $10 3 million dollar loss in the prior year period.
Note that we projected an adjusted EBITDA loss for the year of $85 million. So the this quarter's loss. We believe we are still on track to hit our prior 2023 projection.
Turning now to our balance sheet cash cash equivalents and investments as of March 31st 2023 were $525 $5 million. We continue to believe that this cash position, which we believe is the strongest of any quantum pure player give.
So sufficient cash reserves to get to profitability without needing to raise additional funds given our current roadmap.
Now turning to our second quarter and full year 2023 outlook.
We are pleased to increase our revenue outlook to $18 eight to $19 $2 million for the full year 2023.
This represents our expectation that we may be able to accelerate delivery against milestones on some of our customer contracts throughout the year.
We are maintaining our bookings outlook for the full year 2023 of $38 million to $42 million and we are introducing second quarter revenue guidance of between 4.1 and $4 $5 million.
As a reminder, we expect bookings of between 38 and $42 million for the full year 2023.
And with that I would like to turn the call back over to Peter.
Clearly we have been hard at work in executing diligently against our technical and business roadmap.
Our early foundations as a company and our underlying trapped ion architecture are yielding the dividends we expected.
The naturally high fidelity of our approach has laid the groundwork for us to begin solving the engineering problems around scalability.
Our technical achievements are driving exceptional demand for more I N Q computers, which we are fulfilling with new systems like are you too.
Meanwhile, we are trailblazing and system performance and manufacturer ability.
We are seeing excellent progress on the commercial side of the business, adding new customers and adding value to existing ones, particularly in the growing area of quantum artificial intelligence.
The time to figure out how quantum computing can accelerate your business is now.
And with that I would like to turn the call back over to our operator for the Q&A session operator.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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One moment, while we poll for questions.
Okay.
Our first like our first question comes from the line of Scott Fessler with Morgan Stanley . Please proceed.
Hi, guys congrats on a great quarter.
Congrats on adding argued to the cloud as well I assume this is a reflection of how well are you one has gone on the cloud.
You know with the achievements you guys have made around Forte as you said 16 times more powerful than ARIA has there been any discussion of bring that to the cloud as well.
Hey, Scott this is Peter.
So certainly the reason we built <unk> two was because of the demand.
And with Forte as well, we're looking at what we want to do next with that they're that too we have customers clamoring to get access to that as well.
Haven't made the decision yet as to when we will put it out on the cloud or <unk>.
Versus internal but certainly that.
The demand for that system is seen as exceptional as well.
Thanks, and if I could get a quick follow up and as well you've just you've discussed on prior calls the expectation of making a full system sale. This year could you maybe discuss any updates around that.
Well, we're continuing there is theres quite a bit of interest, especially as these systems become more.
More powerful as we start to get into <unk> 35, and <unk> 64 customers understand that that means that we're getting to a point, where we can do things to get to a quantum advantage and so theres a lot of interest in the systems now, especially now that we've gotten beyond 'twenty nine.
And so we're not ready to report deals close, but there's obviously conversations going around in the background. We should also clarify that we did not actually specify that there would be a system sale in this calendar year only that we expected one to happen in the next 12 to 24 months.
And also that there are elements of hardware sales baked into our forecast it may or may not be at full system. So that we continue to see interest in that this from several parties and actually in Sebo Ah <unk>.
Segments of the market. So we continue to believe that this is indeed going to happen in the timeframe that we previously mentioned.
Understood. Thank you.
These are big ticket tell so.
So there they take a little longer.
Okay understood. Thanks.
Our next question comes from the line of Richard Shannon with Craig Hallum. Please proceed.
Okay.
Hi, guys. Thanks for taking my question as well.
I guess my first question is it's a two parter here.
I realize I'm kind of comparing things that arent similar but on the theme of getting Forte twenty-nine Ecu ahead of time and then also.
More tactically or near term.
Accelerating some milestones or lie to you or to recognize more revenues in the first quarter, what's kind of the dynamics here. That's driving this acceleration maybe you can kind of.
You know the compare any or can you compare and contrast, any themes that might be.
Consistent over those two dynamics just that'd be great. Please Peter.
Okay.
Yeah, Yeah on the on the technology side, I think we have been making investments for the last few years and in thinking about how to continue to improve the performance of our system and I think that is paying off and it's paying off in a way that we make strides.
And get to to get to these are technical milestones ahead of time.
And when it comes to revenue recognition.
That reflects the fact that two things actually.
Earlier, we've had a predominance of a quantum as a service, which is more or less like SaaS and revenue get straight line, which means that it will be very.
Very simple to forecast, but we have started to move over to a more of a percentage complete type of revenue recognition contracts, which means that when we're able to start the work earlier and implement more of it earlier, we will also be able to implement a.
We'll get more revenue recognition early and Thats, what we particularly saw in Q1, and which has been good and we anticipate that most of that will actually flow through to an increase in the end of year revenue.
But there are some acceleration that we think that that was merely a acceleration from Q2 to Q1 said wouldn't persist two.
Then that all of the next periods, but we are happy to announce that this does mean that we're able to raise our revenue recognition guidance.
Okay Fair fair enough. Thanks for all that detail My second question is.
I, just generally less last conference call about our system sales and whether they'd be government or maybe more or academic or commercial customers and I remember your answer from that in the kind of following up with one of the previous questions here about system sales.
I've seen some evidence of kind of RFID for government contracts you know for I think like nine figures kind of dollars here that could include.
You know the possibility of a quantum hardware sale or are some of the potential our earliest possibilities for system sales are those related to any government contracts that youre aware of either published or not or are they another kind of other dynamics driving that interest.
We have interest both in the governments both nationally internationally and also enterprise customers. When it comes to system sales. So there is interest from multiple multiple parties.
And.
And obviously in both <unk> and our national budget point of view, there's quite a bit of money for quantum and systems and we're competing for those dollars.
Okay Fair enough I appreciate all the detail guys I'll jump out of line.
Thanks Richard.
Our next question comes from the line of Quinn Bolton with Needham and company. Please proceed.
Yeah, Hey, guys. This is trevor on for Quinn and congrats on the 29 Ecu that's exciting to see.
And I guess to start I know the next goal is $35 eight Q in 2024, and I don't want to put pressure on you, but with your progress doing one Ecu a month could this milestone be reached in the first half of 'twenty four.
So.
We're not changing the roadmap, but at the same time, obviously, we're executing well.
Up to this point on hitting the milestones.
Milestones early and we continue to expect that we will execute well.
What I guess would you say that gap from 29 to 35 is.
Much more difficult from 'twenty five to 'twenty nine.
And no the answer is now.
Well it is going to be this in this case, we're increasing by six so it will be 64 times more powerful in terms of the compensation base. Yeah. So there'll be some work involved but our we feel quite confident that 35 and 24 in 2024 is a goal we can accomplish.
There isn't anything was there isn't anything major to getting to 35, just hard work okay.
Okay.
And do you expect the integration of the second ARIA device and the cloud to have a material impact on revenue growth I'm trying to get a grasp of the impact that.
The system downtime in waiting us may have on current revenues and if this system will help alleviate some of those problems.
So it will certainly alleviate the challenge of always having uptime and this was planned for us because it takes some amount of time to build these systems and the revenue from that system is built into our forecast for the year.
Okay.
Awesome, that's all I have thanks, guys.
Thanks Glenn.
Our next question comes from the line of David Williams with Benchmark Company. Please proceed.
Hey, good afternoon, and congrats on the execution the progress here.
Hum.
Yeah, I wanted to touch a little bit just as you think about that transition from 29% to 35, and maybe or even just to get into that 29. What are the what are the keys I guess is it what areas are you improving is it around the system is that the optical side is it the I O where are the improvements coming from.
Or is it just better higher quality cubits during the manufacturing process, just trying understand where this is where you're getting the benefits.
Yeah.
As we have said in the past, our kubitz or individual atoms, there and get it any better and I think it's really about how we control our systems and operate them.
So you know as we have discussed some time ago Forte actually has an improve optical system to drive our gates and I think we're really seeing the benefits of that the design upgrade but also we're actually learning how to operate these systems more optimal he has a lot of this is really coming from improving the quality of our gates and our ability to.
Rand run longer circuits are without any unexpected degradation.
For the most part is these things are often.
So a large part of the benefit is often in software and not in hardware. So.
It's we're.
We're doing a better job controlling it in software.
Okay.
Okay very helpful. Thanks, Thanks, So I'm sure there's quite a few areas to what's in that technology that you can that you can tweak to getting that performance as well is that correct assumption.
That is certainly correct.
Where all the hardware is under control of software to how good a job you do everything from pulse shaping of light to the timing and all the rest of that fall under control. So if we can build a better piece of software.
We can get better performance out of this.
Sometimes it requires hardware changes every everyone's well somebody says all right. We can replace X y and Z and we can get better but it is often mostly in software.
Okay very good and then I guess lastly for me, maybe it's a two part but just kind of thinking about the regulation. That's been proposed how do you see that in the second lien can you kind of talk about maybe what Pat does in terms of your R&D efforts and what your expectations are there.
Yes.
No.
There are obviously the regulations for AI, we expect as we get into that field more that they some part of that would be.
We control kind of what we do.
In the future and.
We're supportive of an intelligent government regulation.
I'm not sure it does happen does that exist but.
You get the concept.
And then.
Pat Pat experience that lab 126, <unk> hundred 26 was the group that.
Did all of the hardware for Amazon and prior to LIBOR in 2006, he was over at Apple working on their hardware. So.
He very much has both a R&D background physics background and also very much a product background he's used to.
Helping build real products and if you look at the evolution of Inq, we're kind of started off as an academic organization, we're moving to an engineering organization and now the next the last transformation as to our product organization.
Pat is going to take on the challenges related to R&D that have a little bit longer.
Timeframe the engineering organization is as always being pressed too.
Two to build that next system to hit the next day Q number.
Pat will have a little more.
Time his time horizons is probably closer to three to four to five years. So he can take on more ambitious goals.
Which are necessary to be able to hit numbers beyond <unk> 64.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question will come again from the line of Scott Fessler with Morgan Stanley . Please proceed.
Yeah. Thanks for the additional question so as your existing contracts start to roll off over the next year or two we'll call. It how should we expect pricing to change maybe general Virgin as you offer some you know way more higher powered hardware to your customers.
Yeah.
That is an excellent question, what we like to see is that we provide more value to the to our customers and we want to continue to create more and more value. We don't think that this is time to start a gouging or customers, we wanted actually too.
Partner with them, but there is definitely room for a price to drift up as we provide more and more value to the market.
And like any kind of traditional hardware, what you're seeing is kind of last year's hardware is being offered more cheaply.
And the latest generation is usually.
At least as expensive, maybe more especially here, where you've got such a huge leaps and computational power.
Okay.
Got it and then one more if if time allows us as.
As you move as you move from 29 eight <unk> to 35 next year can you just talk about some of the you know the.
The big headline applications that you think.
Open up once you hit that 35 Ecu number.
It's it's very much a quantum machine learning is the things that we think in the roughly 35.
So we are investing heavily on the application side.
The other aspect that we do we expect is not just in ml, but also in agi. So we started to invest in investment and investigation that more than a year ago, which was the <unk>.
First part of that was the paper, we just produced which ran on our hardware, but we're investing in that as well so we expect.
And our strong AI, our hei to be even better on quantum hardware going forward. So.
I don't know yet if 35 will be enough, but we're investing in that we do feel very strongly that in Q ml quantum ml that you'll start to see quantum advantage in those applications.
Thank you for that I appreciate it.
Yeah.
Okay.
Thank you.
Ladies and gentlemen, we have reached.
Another question and answer session I would like to turn the call back to Peter Chapman for closing remarks.
I want to thank everyone for joining us today and thank you for all the thoughtful questions I'll finally, I want to thank the entire inq team for their hard and diligent work that allowed us to achieve the key technical and business milestones, including 29 eight Q. This quarter, we truly believe that we are changing the.
A world one day at a time.
And I look forward to speaking with all of you very soon.
Thank you.
Yeah.
Thank you.
This concludes today's conference.
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