Q4 2023 IonQ Inc Earnings Call

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Greetings and welcome to the Q4 tariff exposure.

Operator: Greetings and welcome to the IMQ fourth quarter and four-year 2023 earnings call. At this time, all participants are in a listen-only mode.

<unk> 23 earnings call.

At this time all participants.

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Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then 0 on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Jordan Shapiro. Thank you, and you may close.

A question and answer session inspired the formal presentation.

If anyone should require operator assistance during the conference. Please press <unk>.

I think that when you click on key pad.

I can remind that this conference.

Accordingly.

I'd now like to turn the conference over to you.

Jordan Shapiro thank you.

Good afternoon, everyone and welcome to Inq's fourth quarter and full year 2023 earnings call.

Jordan Shapiro: Good afternoon, everyone, and welcome to INQ's fourth quarter and full year 2023 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 INQ. I am pleased to be joined on today's call here in Seattle by Peter Chapman, INQ's President and Chief Executive Officer, Thomas Kramer, our Chief Financial Officer, Dean Kassmann, our Vice President of Engineering, as well as Pat Tang, our Vice President of Research and Development. By now, everyone should have access to the company's fourth quarter and full year 2023 earnings press release issued this afternoon, which is available on the Investor Relations section of our 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.

My name is Jordan Shapiro and I'm, the Vice President financial planning and analysis and head of Investor Relations here at <unk>.

I'm pleased to be joined on today's call here in Seattle, Peter Chapman I think he is president and Chief Executive Officer, Thomas Kramer, Our Chief Financial Officer, Peter Cashman, Our Vice President Engineering as far as our Vice President of research and development.

By now everyone should have access to the company's fourth quarter and full year 2023 earnings press release issued this afternoon, which is available on the Investor Relations section of our website at investors don't Inq dotcom.

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 financial information presented in accordance with GAAP.

Jordan Shapiro: We are directed to our press release for a reconciliation of adjusted EBITDA to its closest comparable gap 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. However, actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our 10-K that we filed with the SEC today. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law. Now, I will turn it over to INQ's CEO, Peter Chapman. Peter.

Were directed to our press release for a reconciliation of adjusted EBITDA, which 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 in our 10-K that we have filed with the SEC today.

We undertake no obligation to revise any statements to reflect changes that occur after this call except as required by law.

Now I will turn it over to <unk> CEO, Peter Chapman Peter.

Thank you Jordan and a warm welcome to everyone on the call.

Peter Hume Chapman: Thank you, Jordan, and a warm welcome to everyone on the call, including our two new board members. We are most proud to have attracted new directors of such caliber and stature. This past year, 2023, was a landmark period in INQ's journey. It is with immense pride and enthusiasm that I announce we've yet again closed the year on a high note.

Putting our two new board members.

We are most proud to have attracted new directors of such caliber in stature.

This past year 'twenty twenty-three wasn't a landmark period and I accused journey.

It is with immense pride and enthusiasm that I announce we've yet again what was the year on a high note.

Peter Hume Chapman: I&Q had a strong fourth quarter, generating $6.1 million in revenue to bring our full-year recognized revenue to just over $22 million, beating the upper end of our projected range. I am delighted to report that we have surpassed our annual bookings guidance, achieving $65.1 million in bookings for the year and greatly exceeding the bookings midpoint of $40 million we set at the beginning of 2023. This accomplishment has propelled us past our ambitious target of $100 million in cumulative bookings within our first three years of commercialization, as announced two years ago. It's a testament to the exceptional performance of both our technical and commercial teams. Thomas will walk you through the numbers in more depth. So today, I would like to try something slightly different for our earnings call.

I think you had a strong fourth quarter generating $6 1 million in revenue, bringing our full year recognized revenue to just over 22 million, beating the upper end of our projected range.

I am delighted to report that we have surpassed our annual bookings guidance, achieving $65 1 million in bookings for the year and greatly exceeding the books range midpoint of 40 million, we said at the beginning of 'twenty two 'twenty three.

This accomplishment has propelled us past our ambitious target of 100 million in cumulative bookings within our first three years of commercialization.

We announced two years ago.

It's a testament to the exceptional performance of both our technical and commercial team.

Thomas will walk you through the numbers in more depth.

So today I would like to try something slightly different for our earnings call.

Peter Hume Chapman: I hope to give you a sense of how much has evolved for quantum computing in the last three years since INQ went public, and why you should be paying close attention to INQ now. Specifically, I will explain INQ's potential in supporting the AI industry, provide insights on when we expect quantum computing to deliver commercial advantages, and share how this contributes to our market opportunity in 2024 and beyond. Back in 1981, in his seminal lecture, Simulating Physics with Computers, Richard Feynman said these memorable words: " Nature isn't classical, dammit.

To give you a sense of how much has evolved for quantum computing in the last three years since I think you went public.

And why you should be paying close attention to I think you know.

Specifically I will explain I think huge potential and supporting the AI industry provide insights on when we expect quantum computing to deliver a commercial advantage and share how this contributes to our market opportunity in 'twenty 'twenty four and beyond.

Back in 1981 in his seminal lecture simulating physics switch computers, Richard Feynman said these memorable words.

Nature isn't classical dammit, and if you wanted to make it a simulation of nature, you better make a quantum mechanical.

Peter Hume Chapman: And if you want to make a simulation of nature, you better make it quantum mechanical. And by golly, it's a wonderful problem because it doesn't look so easy. Underlying his insight was the realization of three facts.

And by Golly, it's a wonderful problem because it doesn't look so easy.

Underlying his insight was the realization of three facts.

Number one.

Peter Hume Chapman: Number one, the real world is neither digital nor analog but quantum. Our quantum reality deals heavily in probabilities, not just deterministic answers. The natural world is governed by quantum mechanics, which ultimately describes the behavior of everything via a strange world of small particles where entanglement and superposition rule. Quantum mechanics, quantum probability, and quantum statistics give us new and exciting tools to solve high-value problems. Feynman's second insight was that it was difficult for digital computers to simulate anything quantum. We can see that today in action.

The real world is neither digital or analog a quantum.

Our quantum reality deals heavily and probabilities not just deterministic cancers.

The natural world is governed by quantum mechanics, which ultimately describe the behavior of everything.

Yeah, a strange world a small particles were entanglement and superposition rule.

Quantum mechanics, quantum probability and quantum statistics give us new and exciting tools to solve high value problems.

And then secondly insight was that it was difficult for digital computers to stimulate anything quantitative.

We can see that today in action.

<unk> with 80 gigabytes of memory.

Really 32 cubits.

However, every time you added Cupid two that simulation you double the GPU memory required.

Peter Hume Chapman: The GPU with 80 gigabytes of memory can simulate 32 qubits. However, every time you add a qubit to that simulation, you double the GPU memory required. As a result, to fully simulate 64 qubits, you would likely need 3.6 billion GPUs. [inaudible] And with our upcoming Tempo system, which we expect will deliver AQ64, we anticipate that the market for classical machines running quantum simulations will no longer be able to keep up. Feynman's third insight is that there are a set of problems that consume compute resources at an exponential rate and which classical computing will likely never be able to solve, even with Moore's Law and the advent of both GPUs and CPUs. I will note that large language models underpinning generative AI are on this path.

As a result, so fully stimulate 64 cubits, you would likely need Threep wait 6 billion Gpus.

We recently announced state using inQ4 Jay we hit our 'twenty 'twenty four technical milestone thirty-five algorithmic cubits or a queue.

Full year early placing us beyond what can be stimulated on an 80 gigabyte GPU.

And with our upcoming tempos system that we expect will deliver 864, we anticipate that the market for classical machines running quantum simulations will no longer be able to keep up.

Find minutes third insight is it there were a set of problems that consumed compute resources at an exponential rate.

And which classical computing will likely never be able to solve.

Even with Moore's law and the advent of both Gpus and Cpus.

I will note that large language models underpinning generative AI are on this path.

Peter Hume Chapman: These models are starting to change the world, becoming the new foundation for our interaction with AI. And while so many of us have spent time using chat GPT, we might not all be aware of the enormous resources required to bring this technology to life and to operate it classically. INQ customers have recently reported that to train the latest LLMs, it takes 30,000 servers, each with eight GPUs. It takes upwards of three months and one billion dollars to train a single model.

These models are starting to change the world, becoming the new foundation for our interaction with AI and.

And while so many of US just spent time using chat G. P. T. He might not all be aware of the enormous resources required to bring this technology to life and to operate it classic.

<unk> customers have recently reported that to train the latest L. L. M takes 30000 servers each with eight Gpus.

It takes upwards of three months and $1 billion to train a single model.

My intuition is that the main reasons for this is that human intelligence the way our brains sink in process the world around us it would be a quantum process and not a classic one.

Peter Hume Chapman: My intuition is that the main reason for this is that human intelligence, the way our brains think and process the world around us, could be a quantum process and not a classical one. If that is the case, it would take enormous computing resources to try to replicate this quantum process with classical computers. These dramatic compute requirements explain why Sam Altman is now talking about the urgent need to increase the electrical output of the world so we can power more classical data. This line of thinking would suggest that the only way to build the next generation of AI is to fill our planet with data centers. What you're seeing is that our need for computational power is exceeding what is now reasonable. Feynman made this realization back in 1981.

If that is the case it would take enormous compute resources to try to replicate this quantum process with classical computers.

These dramatic compute requirements explain why Sam Altman is now talking about the urgent need to increase the electrical output as the world. So he can power a more classical data centers.

This line of thinking which suggests that the only way to build the next generation of AI is to fill our planet with data centers.

What you're seeing is that our need for computational power is exceeding what is now reasonable.

I had been made this realization back in 1981.

Peter Hume Chapman: We expect to do this in several forms as our technology matures. In the near term, you'll hear examples of how we continue to invest in applications of quantum machine learning, such as predictive maintenance and computer vision. Next, we are actively exploring ways to use quantum to supercharge LLMs, which is a fertile area. Lastly, we are looking at new ways to build strong AI, or what we think of as truly intelligent machines without elements.

This is why I think you fully intends to pursue the artificial intelligence market.

We expect to do this in several forums as our technology matures.

In the near term.

Here are examples of how we continue to invest in applications from quantum machine learning.

Such as predictive maintenance and computer vision.

Next we are actively exploring ways to use quantum just supercharge L O labs, which is a fertile area.

Lastly, we are looking at new ways to build strong AI.

Well, what we think of as truly intelligent machines without element.

If we increasingly build our society around AI quantum computing may be the only way or one of the only ways to power all of that compute.

Peter Hume Chapman: If we increasingly build our society around AI, quantum computing may be the only way or one of the only ways to power all that computing. Bloomberg projects the generative AI market to reach a market size of 1.3 trillion within the next 10 years. Replacing even a fraction of the resulting compute load would represent significant revenue for the quantum industry and a meaningful reduction in energy consumption for our planet. We need to augment today's computers with a different technology trend that will drive the next wave of innovation, and Quantum Computing is starting to demonstrate all the necessary pieces. In short, this is why some think IoNQ has the potential to be one of the world's most important technologies. It's also why today's leading players, Google, Amazon, and Microsoft, among others, are all collaborating with IoT on quantum computing. In a short three years, the question on most investors' minds has changed. It is no longer if quantum computing will change the world but exactly when it will. The answer lies where three trend lines intersect.

Bloomberg projects degenerative AI market to reach a market size of 1.3 trillion within the next 10 years we're.

We're placing even a fraction of the resulting compute loop would represent significant revenue for the quantum of industry and a meaningful reduction in energy consumption for our planet.

We need to augment today's computers with a different technology trained.

That will drive the next wave of innovation.

In quantum computing is starting to demonstrate all the necessary pieces.

In short. This is why is something I think you has the potential to be one of the world's most important technology.

It's also why today's leading players Google Amazon and Microsoft among others are all collaborating with science you on quantum computing.

In a short three years the question on most investors' minds has changed.

It is no longer if quantum computing will change the world, but exactly when it will.

The answer lies where three trend lines intersect.

Peter Hume Chapman: The first trend represents progress in quantum computing hardware itself and the growth of computational power. The second trend represents progress in software development that reduces the computational power needed to run quantum applications. [inaudible] This intersection is when we believe we will unlock the first commercial applications for quantum computing, starting with hardware progress first. When we announced last month that we had surged from AQ 29 to an impressive AQ 35, a full year ahead of expectations. We catapulted our computers from being able to consider about 500 million simultaneous possibilities to over 34 billion. Today, I'm able to share that we've actually gone beyond that and have achieved AQ36 on IAQ Forte. In a matter of weeks, we improved from AQ35 to AQ36, effectively doubling the computational space of our systems to simultaneously consider over 68 billion alternatives. This illustrates the exponential progress we're seeing in hardware performance. At AQ64, we expect Tempo will have a computational space more than 500 million times that of Forte Enterprise and will do so with an even smaller footprint. It will be built here in Seattle.

The first trend represents progress in quantum computing hardware itself.

And the growth of computational power.

The second trend represents progress and software development that reduces the computational power needed to run quantum applications.

And the third trend is the reduction of cost and time to produce a quantum computer.

This intersection is y.

We believe we will unlock the first commercial applications for quantum computing.

Taking the hardware progress first.

When we announced last month that we had surged from EQ twenty-nine through an impressive eight years 35 well.

Full year ahead of expectations, we catapulted our computers for them being able to consider about 500 million simultaneous possibilities to over 34 billion.

Today, unable to share that we've actually gone beyond that and it was achieved <unk> 36.

In Q Forte.

In a matter of weeks, we improved from <unk> 35 to <unk> 36, effectively doubling the computational space of our systems to simultaneously considering over 68 billion alternatives.

This illustrates the exponential progress we're seeing in hardware performance.

At EQ 64, we expect tempo will have a computational space more than 500 million times that of 14 of enterprise and will do so with an even smaller footprint.

Tempo will be built here in Seattle.

In the future our design goal is to fit our quantum computers into a single standard data center rack.

Peter Hume Chapman: In the future, our design goal is to fit our quantum computers into a single standard data center rack. Within that rack, we intend to network several quantum processors, or QPUs, together to allow access to thousands of physical qubits with error correction. Our goal is to increase the gate speeds by several orders of magnitude, allowing much larger quantum algorithms to run efficiently. Forte Enterprise and prior systems use a series of bulky mirrors and lenses to direct the laser beam.

Within that rack, we intend to network several quantum processors or Q P. Us together to allow access to thousands of physical cubits with the error correction.

Our goal is to increase the gait speeds by several orders of magnitude.

Allowing much larger quantum algorithms to run efficiently.

Forte Enterprise Empire systems use a series of bulky mirrors and lenses to direct laser beam.

Peter Hume Chapman: Future IoT systems will route light using photonic integrated circuits, or PICs. This technology has several significant advantages, including that we expect the size and cost of our systems to shrink, and for fidelity to improve as well. I am thrilled to announce today that we have our first PICS working in a lab setting, which demonstrates that the engineering process is now possible at IMQ. Last week, we shared that we had officially demonstrated the first critical milestone for photonic interconnects at I&Q. We can now reliably entangle a qubit with photons to enable communication. Later this year, we expect to show that we can connect multiple qubits together across QPUs, and that those connected qubits can be used for distributed quantum computation.

Future Inq systems will route light using photonic integrated circuits or pics.

This technology has several significant advantages.

Clothing that we expect the size and cost of her systems, just shrink and for fidelity to improve as well.

I am thrilled to announce today that we have our first picks working in a lab setting.

Each demonstrates that the engineering process is now possible. Thank you.

Last week, we shared that we've officially demonstrated the first critical milestone or photonic interconnects and I am too.

We can now reliably entangled with Cuba with photons to enable communication.

Later this year, we expect to show that we can connect multiple kubitz together across cube views.

And as those connected kubitz can be used for distributed quantum computation.

Peter Hume Chapman: We envision connecting the QPUs in our next-gen systems with photonic interconnections. Thus, our first trend line and our technical roadmap show that quantum hardware will be ready for commercial applications in two to three years. If quantum hardware progress is accelerating at an impressive pace, quantum algorithmic development is moving even faster. To spot these early signs of commercial advantage, you need to keep a close eye on developments not just here at INQ but in the broader quantum industry as well. Let me provide you with a few examples.

We envision connecting the Q P use in our next Gen systems with photonic Interconnects.

So our first trend line and our technical roadmap shows a quantum hardware will be ready for commercial applications in two to three years.

If quantum hardware progress is accelerating at an impressive pace quantum algorithmic development is moving even faster.

Despite these early science of commercial advantage you need to keep a close eye on developments not just here in Q, but the broader quantum industry as well.

We provide you with a few examples.

Peter Hume Chapman: Thompson Machinery, a Caterpillar dealer serving parts of Tennessee and Mississippi, is working with I&Q on developing quantum AI models for predictive maintenance. Together, we tasked an I&Q quantum machine learning model with detecting potential failures in the company's fleet of bulldozers and compared it directly to a classical model. The quantum model was more likely to detect failures, did so with more precision, and promises to be economically significant. In a recent collaboration with Hyundai Motors on image classification, our quantum algorithm was five to six times more efficient than its classical equivalent and yielded the same accurate results.

Thompson machinery.

Hannah pillar dealer, serving parts of Tennessee and Mississippi.

He's working with inq undeveloped in quantum AI models or predictive maintenance.

Together, we passed an <unk> quantum machine learning model with detecting potential failures and the company's fleet of bulldozers and compared it directly to a classical model.

Quantum model was more likely to detect failures.

With more precision and promises to be economically significant.

In a recent collaboration with Hyundai Motors on image classification, our quantum algorithm. It was five to six times more efficient and that's classical equivalent.

And yielded the same accurate results.

Peter Hume Chapman: ECG recently estimated the market for quantum automotive solutions at upwards of $10 billion. Meanwhile, in a recent project that we will share more about in a forthcoming paper, a quantum machine learning algorithm for chemical manufacturing would be up to 75% more efficient than its classical equivalent and demonstrated potential cost savings for users. According to BCG, quantum chemistry applications could have a market size of up to $50 billion. Quantum algorithms are beginning to show advantages over their classical counterparts.

C. G recently estimated that the market for quantum automotive solutions and upwards of $10 billion.

Meanwhile, in our recent project that we will share more about with the forthcoming paper at quantum machine learning algorithm for chemical manufacturing would be up to 75% more efficient than its classical equivalent and demonstrated potential cost savings for users.

Wording to B C. G quantum chemistry applications could have or market size of up to $50 billion.

Quantum algorithms are beginning to show advantages over their classical counterparts.

Peter Hume Chapman: That speaks to an important trend that industry insiders are noticing. Each day that we continue to work on quantum, we make progress on making the algorithms more efficient. Just last month, a quantum algorithms company published research showing they could reduce a complex material simulation requiring 1.5 trillion gates down to requiring only 410,000. That's a factor of 4 million times improvement, putting the algorithm in the near-term range of quantum computing. Over the last several years, algorithmic work to find ways to do more with a smaller number of qubits has progressed at a much faster pace than the hardware itself.

That speaks to an important trend that industry insiders are noticing.

Each day that we continue to work on quantum we make progress on making the algorithms more efficient just last month, but quantum algorithms company published research showing that you could reduce our complex materials simulation, requiring 1.5 trillion gates down.

Onto requiring only 410000.

That's a factor of 4 million times improve.

Putting the algorithm and near term range of quantum computers.

Over the last several years algorithmic work to find ways to do more with the smaller number of cubits is progressing at a much faster pace than the hardware itself.

Peter Hume Chapman: And this is happening across a wide variety of application areas. What yesterday seemed years away is suddenly within reach due to the hard work of quantum developers. This means that even with more sophisticated IoT hardware in the pipeline for two to three years from now, it is possible that software innovation will support commercial quantum applications even sooner. If you look at all the work we've done with customers over the last three years, a clear picture emerges. One of the particular strengths of quantum computing is machine learning. We said this years ago, and now the world has the data to back it up. As proof points, we have shown that quantum ML models are more expressive and capture the signal better in the underlying data. Furthermore, we have shown that we can create equivalent or better quantum models than classical models using less data.

And this is happening across a wide variety of application areas.

Yesterday, he seemed years away suddenly is within reach due to the hard work of quantum developers.

This means that even with more sophisticated inq hardware in the pipeline for two to three years from now it is possible that software innovation will support commercial quantum applications even sooner.

If you look at all of the work we've done with customers over the last three years, a clear picture emerges.

Are there particular strengths of quantum computing is machine learning.

We said this years ago.

And now the world has the data to back it up.

As proof points, we have shown that quantum of ml models are more expressive and capture the signal better in the underlying data.

We have shown that we can create equivalent or better quantum models, the classical models using less data.

Peter Hume Chapman: We have shown an ability to dramatically reduce the number of iterations required to train those models using quantum computing. And we are now showing that quantum computers can work with sparse data, where classical computing may have limits or just wouldn't work. The third critical trend is the increasing product maturity of quantum computers, that is, making them smaller, cheaper, faster to produce, and more reliable.

We have shown an ability to dramatically reduce the number of iterations required to train those models using quantum.

And we are now showing the quantum computers can work with sparse data for classical computing may have limits, we're just wouldn't work.

The third critical trend is the increasing product maturity of quantum computers that is making them smaller cheaper faster to produce and more reliable.

With the help of U S. Senator Maria Cantwell from the state of Washington, We recently inaugurated our Seattle manufacturing facility, which will support these products.

Peter Hume Chapman: Senator Maria Cantwell from the state of Washington, we recently inaugurated our Seattle manufacturing facility, which will support these products. We are dialed in from that facility this afternoon. We are only a few feet away from the manufacturing floor where our first Forte enterprise systems are being assembled to fulfill rising customer demand. We're also announcing that we've already decided to increase our footprint in the Seattle facility by 50%, given how encouraged we are by the progress we're making and the demand we are anticipating. Speaking of that demand, last year, we announced our intention to capture two quantum markets: computing and networking.

We are dialed in from that facility. This afternoon, we are only a few feet away from the manufacturing floor, where our first forte enterprise systems are being assembled to fulfill rising customer demand.

We're also announcing that we have already decided to increase our footprint in the Seattle facility by 50%, even how encouraged we are by the progress, we're making and the demand we are anticipating.

Speaking of that demand last year, we announced our intention to capture to quantum markets compete.

Computing and networking.

Peter Hume Chapman: Compute hardware customers today, such as Quantum Basel, are looking to jumpstart their local quantum economies with on-premise access to the latest cutting-edge systems. Networking customers, like the U.S. Air Force Research Lab, are interested in communication between quantum systems. Regarding quantum communication, we worry that a rapid advancement in quantum decryption, similar to the other algorithms we discussed tonight, would put the world at significant risk. The internet is already under attack. You can no longer tell if a photo, video clip, or audio clip is real.

Compute hardware customers today, such as quantum Basel are looking to jumpstart their local quantum economies with on Prem access to the latest cutting edge system.

Networking customers like the U S Air Force Research lab are interested in communication between quantum system.

Regarding quantum communication, we worried that a rapid advancement in quantum decryption.

Similar to the other algorithms we discussed Tonight.

We put the world at significant risk.

The Internet is already under attack.

You can no longer tell if a photo video clip our audio clip Israel.

Imagine a world where truth itself is under attack and nothing can be trusted.

Peter Hume Chapman: Imagine a world where truth itself is under attack, and nothing can be trusted. One of the reasons we're getting into networking is that we believe the world will soon need a quantum safe network. Just last week, Apple, the world's largest consumer company, announced that it was taking preemptive steps to defend itself against impending quantum security attacks. DCG estimates the size of the quantum security market at upwards of $80 billion. We believe that between networking and computing, these solutions will need potentially millions of pieces of hardware. That's a sizable opportunity for quantum manufacturing. On the corporate front, it is my pleasure to announce two new members of the INQ Board of Directors who will help us accelerate our commercialization and capture these markets. Robert Cardillo is the former Deputy Director of the U.S. Defense Intelligence Agency and previously served as a National Intelligence Advisor to President Obama, driving the President's daily U.S. intelligence briefings.

One of the reasons, we're getting into networking is because we believe the world will soon need a quantum safe network.

Just last week Apple the world's largest consumer company announced that it was taking preemptive steps to defend itself against impending quantum security attacks.

E C. G has approximated the size of the quantum security market and upwards of 80 billion.

We believe that between networking and computing these solutions will need potentially millions of pieces of hardware.

That's a sizable opportunity for quantum manufacturers.

On the corporate front. It is my pleasure to announce two new members of the eye and cube word of directors, who will help us accelerate our commercialization and capture these markets.

Robert Cardillo is a former deputy director of the U S Defense Intelligence agency.

And previously served as a national intelligence advisor to President Obama.

The President's Daily U S intelligence briefing.

Peter Hume Chapman: With 40 years of intelligence experience, Robert will play an integral role in expanding IMQ's relationship with federal agencies, helping us to meet the unique needs of government customers. Bill Scannell is the President of Global Sales and Customer Operations at Dell, where he oversees an organization of nearly 24,000 sales team members delivering technology solutions to over 180 countries worldwide. Bill brings decades of sales experience and will provide critical insights into our sales strategy, helping to strengthen our leadership in the quantum economy. INQ's leadership is bolstered by our technical expertise. And we want to remind our investor audience that IonQ has a relationship with Duke University where we have an agreement to exclusively capture, royalty-free, all intellectual property generated that pertains to trapped ion quantum computing. That agreement continues to contribute valuable IP to IAQ. Our co-founders, Drs.

With 40 years of intelligence experience, Robert will play an integral role in expanding I accuse relationship with federal agencies.

The thing is to meet the unique needs of government customers.

Bill Scannell is the president of global sales and customer operations at Dell.

Where he oversees an organization of nearly 24000 sales team members.

Marine technology solutions to over 180 countries worldwide.

Bill brings to IL two decades of sales experience and will provide critical insights on our sales strategy, helping to strengthen our leadership and the quantum of economy.

I think whose leadership is bolstered by our technical expertise and.

And we want to remind our investor audience.

<unk> has a relationship with Duke University, where we have an agreement to exclusively capture royalty free all intellectual property generated that pertains to trap I am quantum computing.

That agreement continues to contribute valuable IP in Q.

Our Cofounders doctors first Monroe and journey sang Kim are both professors that do.

Peter Hume Chapman: Frisman Rowe and Jungsang Kim are both professors at Duke, where they are the cornerstones of the Duke Quantum. At the end of this quarter, Jungsang will transition out of his post as our CTO at IQ to turn more of his attention back to his academic duties at Duke. He will continue to advise I&Q on trapped ion quantum computing as a scientific advisor and serve as a resource for I&Q's most senior technical executives, including Dr. Dean Kassmann, our VP of Engineering; Dr. Pat Tang, our VP of Research and Development; and Dr. Dave Mehuys, our VP of Production Engineering. In summary, we had a fantastic quarter and full year in 2020. Heading into 2024, I&Q is focused on supporting the AI industry, using hardware, software, and production improvements that bring us closer to near-term commercial advantage, and is ramping up to capture a sizable and growing pipeline across quantum compute networking and AI. With that, I would like to turn the call over to Thomas.

Where they are the cornerstones of the Duke quantum center.

At the end of this quarter junk, saying will transition out of as opposed as our CTO and IQ to turn more of his attention back to his academic duties at Duke.

He will continue to advise inq on trapped ion quantum computing as a scientific adviser and serve as a resource for I accused most senior technical executive include.

Including Dr. Dean Cashman, our VP of engineering, Dr. Pat Tang our V. P of research and development and Dr. Dave Matthews, Our V P of production engineering.

In summary, we had a fantastic quarter and full year 2023.

Heading into 'twenty 'twenty four I think who is focused on supporting the AI industry, you're seeing hardware software and production improvements they bring us closer to near term commercial advantage and is ramping up to capture a sizable and growing pipeline across quantum compute networking and AI.

With that I would like to turn the call over to Thomas.

Thomas G. Kramer: Thank you, Peter. And thank you to everyone joining us today. With no further ado, let's walk through this quarter's financial results in more detail. As Peter mentioned, we had an excellent quarter end to our year, recognizing $6.1 million in revenue. For the full year, we ended with $22 million in revenue, above the high end of our updated guidance range and up 98% year-over-year.

Thank you Peter.

Thank you to everyone joining us today with no further Ado, let's walk through this quarters financial results in more detail.

As Peter mentioned, we had an excellent quarter.

And two our year, recognizing $6 $1 million in revenue for the full year. We ended the $22 million in revenue above the high end of our updated guidance range and up.

98% year over year.

We ended the year with $65 $1 million in bookings, which was also above the high end of our updated guidance range for 2023 and up 65% year over year.

Thomas G. Kramer: We ended the year with $65.1 million in bookings, which was also about the high end of our updated guidance range for 2023 and up 65% year over year. Given that we are still at the beginning of our commercialization phase, I want to reiterate my comment from our last earnings call that we expect bookings to continue to be lumpy for quite some time. Moving Down the Income Strait, For the fourth quarter of 2023, our total operating costs and expenses were $60.6 million, 121% from $27.4 million in the prior period.

Given that we are still at the beginning of a commercialization phase I want to reiterate my comments from our last earnings call.

We expect bookings to continue to be lumpy for quite some time.

Moving down the income state.

For the fourth quarter of 2023, our total operating costs and expenses were $66 million.

121% from 27 $4 million in the prior year period.

Thomas G. Kramer: For the full year 2023, that number was $179.8 million, 86% from $96.9 million in 2022. To break this down further, our research and development costs for the fourth quarter were $31.6 million, up 131% from $13.7 million in the prior period. For the full year 2023, that number was $92.3 million, up 110% from our $44 million in 2022. Recall that we are investing heavily in R&D and are increasing the production of our systems to meet projected customer demand. Our sales and marketing costs in the fourth quarter were $7 million, up 189% from $2.4 million in the prior period.

For the full year 2023 that number was $179 million of ATC.

86% from $96 $9 million in 2022.

To break this down further.

Our research and development costs for the fourth quarter.

Were $31 $6 million up 131% from $13 $7 million in the prior year period.

Full year 2020 free.

That number was $92 $3 million up 110% about $44 million in 2022.

Recall that we are investing heavily in R&D and are increasing the production of our systems to meet projected customer demand.

Our sales and marketing costs in the fourth quarter were $7 million up 189% from $2 $4 million in the prior year period.

Thomas G. Kramer: For the full year 2023, that number was $18.3 million, up 118% from $8.4 million in the full year 2022. This increase was due to us growing our go-to-market function as we continue our investment in our commercialization efforts. And we expect that trend to continue as we further expand our sales initiative. Our general and administrative costs in the fourth quarter were $15.3 million, up 69% from $9.1 million in the prior year period. For the full year 2023, that number was $50.7 million, up 41% from $36 million in the full year 2022. Stock Base Compensation was $69.7 million for the full year 2023, up from $31.5 million in the full year 2022.

For the full year 2023 that number was $18 $3 million up 118% from $8 $4 million and the full year 2022.

This increase was due to us growing our go to market function as we continue our investment in our commercialization efforts and we expect that trend to continue as we further expand our sales initiatives.

Our general and administrative costs in the fourth quarter.

$63 million up 16, 9% from $9 $1 million in the prior year period.

So the full year 2023 that number was $57 million up 41% from $36 million and the full year 2022.

Stock based compensation was $69 $7 million for the full year 2023 up from $31.5 million in the full year 2022.

Thomas G. Kramer: All of this resulted in a net loss of $41.9 million in the fourth quarter compared to $18.6 million in the prior period and a net loss of $157.8 million for the full year 2023 versus $48.5 million in 2022. It's important to note that these results include a non-cash gain of $7.6 million for the fourth quarter related to the fair value of a warrant viability and $19.2 million in non-cash losses for the full year 2023. We saw an adjusted EBITDA loss for the fourth quarter of $20 million compared to a $13.3 million loss in the prior year period, and a loss of $77.7 million for the full year 2033 versus $48.7 million for 2022.

All of this resulted in a net loss of 41 $9 million in the fourth quarter compared to $86 million in the prior year period.

Net loss of $157 $8 million for the full year 2023 versus $48 $5 million in 'twenty to 'twenty two.

It's important to note that these results include a noncash gain of $7 $6 million for the fourth quarter related to the fair value of warrant liabilities and $19 2 million in non cash loss for the full year 2023.

You saw an adjusted EBITDA loss for the fourth quarter of $20 million compared to a $13 3 million dollar loss in the prior year period.

And a loss of $77 $7 million for the full year 'twenty discrete versus $48 $7 million for 2022.

Thomas G. Kramer: Note that we projected an adjusted EBIT dollars for the year of $80.5 million and have announced $77.7 million in actuals, once again beating our expected plan. Turning now to our balance sheet, cash, cash equivalents, and investments as of December 31, 2023 were $455.9 million. We are confident in our cash position, which positions us well to continue executing against our technical roadmap. Looking forward to a full year 2024 outlook. We are introducing a first quarter revenue target of between $6.5 and $7.5 million.

Nope that we projected an adjusted EBITDA loss for the year of $85 million and have announced $77 $7 million and axles once again, beating our expected plan.

Turning now to our balance sheet cash cash equivalents and investments as of December 31, 2023 were $455 $9 million, we are confident in our cash position, which positions us well to continue executing against our technical roadmap.

Looking forward to a full year of 2024 outlook, we are introducing the first quarter revenue target of between $6, five and $7 $5 million and we are projecting revenue of between 37 and $41 million for the full 2020 for fiscal year <unk>.

Thomas G. Kramer: And we are projecting revenue of between $37 and $41 million for the full 2024 fiscal year. Additionally, we anticipate bookings of between $70 and $90 million for 2024. We remain highly confident in our pipeline that our bookings range acknowledges the unpredictability of US government investment in quantum given the uncertainty of the federal government's fiscal year 2024 budget process. Finally, we anticipate an adjusted EBITDA loss of $110.5 million for the full year 2024 at the midpoint of our Revenue Guidelines.

Additionally, we anticipate bookings of between 70 and $90 million from 'twenty to 'twenty four we remain highly confident in our pipeline, but our bookings range and knowledge is the unpredictability of U S government investment in quantum given the uncertainty of the federal government's fiscal year 2024 budget process.

Thomas G. Kramer: And with that, I would like to turn the call back over to Peter for some closing remarks. Thank you, Thomas. 2023 was another fantastic year for INQ.

With that I would like to turn the call back over to Peter for some closing remarks.

Thank you Thomas.

2023 it was another fantastic year for <unk>.

Peter Hume Chapman: We exceeded expectations on both technical and financial performance, expanded our board and executive team, brought our production facility online, increased its footprint to meet increasing demand, and set the stage for I&Q's continued growth. The quantum market is truly heating up, and we believe it is only a matter of time before we hit the chat-GPT moment and catalyze the next wave of world-defining companies across quantum computing, networking, and AI. In other words, if you think about who IoNQ wants to be in the coming years, it's NVIDIA, Cisco, and OpenAI all in one. And with that, Operator, I'd like to open the line for questions. Thank you.

We exceeded expectations on both technical and financial performance expanded our board and executive team brought our production facility online increased its footprint to meet increasing demand and set the stage for I accused continued growth.

Quanta market is truly heating up and we believe it is only a matter of time before we hit Quantum's chat G. P. T moment and catalyze the next wave of world defining companies across quantum computing networking and AI.

In other words, if you think about who I think who wants to be in the coming years.

It's Nvidia Cisco and open AI all in one.

And with that operator, I'd like to open the line for questions.

Thank you.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue.

Hum.

A question and answer session.

You'd have to ask a question.

And then Brian on the telephone keypad it comes.

Permission to move them, because youre right Christian kids.

You May press Star two.

To your question from the queue.

Operator: For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Joe Moore from Morgan Stanley. Please proceed with your question, Joe. Great, thank you. Thanks, guys, for the report. I wonder if you could just talk about a Q64 next year, kind of, breaking beyond what can be done with classical simulation. Like, at what point will the broader world become aware of that?

So participants.

With me it may be necessary to pick up your handset before pressing the star.

One moment, please while we poll for questions.

The first question comes from Joe Moore from Morgan Stanley.

Proceed with your question.

Great. Thank you. Thanks, guys for the report I Wonder if you could just you talked about Q 60 for next year kind of.

Breaking beyond what can be done with classical simulation like at what point well the broader world become aware of that because I feel like we still we ask questions about quantum and we still got time frame being several years away and I understand you think your technology gets us there quicker, but you know at what point can you demonstrate that capability, where you might expect there to be quite a bit.

Joseph Lawrence Moore: Because I feel like we still ask questions about quantum, and we still get timeframes of several years away. And I understand you think your technology gets us there quicker. But, you know, at what point can you demonstrate that capability? Where might you expect there to be quite a bit more kind of a pickup and investment in the quantum area? Joe, great question.

More kind of a pick up in investment in the quantum area.

Joe Great question, and I think it is the kind of the number one question for for investors.

Peter Hume Chapman: And I think it is the number one question for investors. You know, it's interesting, just looking at simulating our quantum systems alone, we happen to be at a place where, you know, going between 35, now 36, and going to 64, the number of GPUs that would be needed to simulate what it is we're doing. And so, you know, it's kind of already that kind of proof point that says it's increasingly becoming difficult to do what it is that we're doing in a classical way. So now, there's not a huge market for, you know, classical simulation of what we're doing.

You know its interesting just looking at stimulating our quantum systems alone.

We happen to be at a place where you know going between 35 now at 36 and go into 64, the number of Gpus that it would be needed to simulate what it is we're doing.

And so you know it's.

It's kind of already that kind of a proof point that says.

It's increasingly becoming difficult to do what it is that we're doing in a classical way. So now there's not if you're not a huge market for you know classical simulation of what we're doing so it's.

Peter Hume Chapman: So it's a technical proof point, but not a business one. But I do think that, within this time period when we get to 64, we will see a number of different applications. We have a bunch of things that we're working on right now in terms of early work to build applications that will take advantage of our own hardware, and we're increasingly talking with other quantum developers, you know, getting them ready for having that kind of computational power. So it's timing, as I kind of mentioned in today's script, you need these three things to come together, and we think it's roughly in that kind of two to three-year period It has, as I kind of said, the chat GPT moment is when it really starts. Now, you know, I think you'll see telltale signs along the way.

It's a technical proof point, but not a business won but I do think that.

We will see within this time period, when we get to 60 for a number of different applications.

We have a bunch of things that we're working on right now in terms of early work to build applications that will take advantage of our own hardware and increasingly talking with other quantum of developers getting them ready for having that kind of computational power. So it's timing.

As I kind of mentioned in todays script.

You need these three things to come together and we think it's roughly in that kind of two to three time period.

Period for all three pieces to come together, we're really really starts to take off it has as I kind of said the chat G. P. T moment is when it really starts now you know I think you'll see a telltale signs along the way.

Peter Hume Chapman: And there's, you know, potentials for, like, as I said today, algorithmic improvements. Somebody had a breakthrough, you know; there are potentials along the way to do more with less. And that seems to be the history of the industry as well. And you know, it seems just like, every other day, there's somebody that comes out and announces they've managed to optimize the hell out of one particular algorithm and now need a lot less resources. So, you know, we could have a surprise too.

And there's a.

The potential for like as I said today, the algorithmic improvements somebody had a breakthrough you know there's potential for along the way to do more with less and that seems to be the history of the industry as well and you know it seems just like every other day, there's somebody that comes out and then ounces they've managed that.

Optimize the Hell out of one particular algorithm and now need a lot less resources. So you know we could have a surprise to us its kind of you know when we're predicting the future it's kind of difficult to do.

Peter Hume Chapman: It's kind of, you know, when we're predicting the future, it's kind of difficult to deal with. Understandable. Thank you very much. Thank you. The next question comes from Quinn Bolton from Needham & Company. Please proceed with your questions, Quinn. Hi, thank you, and congratulations on a strong finish to 23.

Understood. Thank you very much.

Yeah.

Uh-huh removed Christian comes from Quinn Bolton from Needham.

Thank you for your questions Christine.

Alright, Thank you and congratulations on a strong finish to 'twenty three.

Quinn Bolton: And nice outlook for 24. I guess, first, maybe for Thomas, just talk about the bookings in 20 in the fourth quarter. You know, how diversified were those bookings? Were there any hardware components or systems in that fourth quarter number? And then maybe a similar question looking at the 70 to 90 million bookings guidance. Can you give us a sense of what's the split between hardware or system sales versus more QCAS? Thanks, Quinn. Excellent questions. And we did not have any hardware-related hardware related bookings in Q4. However, you can tell from two things that we are absolutely expecting to see that in 24. Number one, it's just a high number of bookings, which comes from the fact that our systems sell at a very high price, very much worth it. And the other thing is that you can see from the range, like 70 to 90, is a wide range. And that's representative of the fact that our bookings are high. And so you can easily see a swing when something flips from one quarter to the other.

Nice outlook for 'twenty four I guess first maybe for Thomas just talk about the bookings and in 'twenty.

<unk> 20 in the fourth quarter, you know how how diversified.

Were those bookings were there any hardware components or systems in that fourth quarter number and then.

Maybe a similar question looking into the $70 million to $90 million bookings guidance can you give us a sense, what's the split between hardware or system sales versus more acute gas or development or professional services type contracts. Thank you.

Thanks, Quinn, our excellent questions and we did not have any hardware related hardware related bookings in Q4. However, you can tell from two things that we are absolutely expecting to see that in 24 number one the it's just the high bookings number which comes from the fact that our assist.

And sell it at very high price, but.

Very much worth it.

And the other thing is that you can see from the range like 70 to 90 is a wide range and that's representative of the fact that our bookings are high and so you could easily see a swing when something flips from one quarter to the other.

Thomas G. Kramer: We are not yet guiding you to the difference between hardware and software and services, but you should expect that our hardware will outperform in terms of bookings weight. And as a clarification, when we say hardware here, we're going to assume we mean hardware sales of systems. Of course, there is hardware compute time in terms of actual time.

<unk> are not yet guiding to the difference between hardware and software.

Services, but you should expect that our hardware out perform in terms of the bookings weight compared to the other categories and we're just as a clarification. When we talk we say Herbert here, we're going to assume we mean hardware sale of systems of course, there is hardware.

Compute time in terms of of actual time. So if you look at the fourth quarter would be a mixture of selling time on systems and applications development.

Thomas G. Kramer: So, if you look at the fourth quarter, it would be a mixture of selling time on systems and applications development. So I think what we're trying to say here is that we didn't sell a system in the fourth quarter. That's right.

I think what we're trying to say here is we didnt sell it we didn't sell a system in the fourth quarter.

That's correct ultimately we do sell compute.

Thomas G. Kramer: Ultimately, we do sell compute, and when we sell a system all at once, it just is an aggregation of lots more compute at one time. Got it. Got it.

And when we sell a system all at once it just is an aggregation of Lux more compute at one time exactly.

Got it got it Okay and then.

Quinn Bolton: Okay. And then, you know, I'm not sure if I'll get you to answer this question, but I'll ask it. You're guiding to an EBITDA loss of $110 million, $110.5 million.

How much do you know I'm not sure if I'll get you to answer this question, but I'll ask it.

You're guiding to an EBITDA loss of 110 million and.

Half million you know as you look forward I would say I would expect probably 25 and beyond revenue continues to grow. My question is do you think EBITA loss peaks in 2024 and starts to come down in future years or is it too early to call what what your EBITDA loss.

Quinn Bolton: You know, as you look forward, obviously, I would expect, you know, probably as you look to 25 and beyond, revenue continues to grow. My question is, do you think EBITDA loss peaks in 2024 and starts to come down in future years? Or is it too early to call what year EBITDA loss might peak?

Last night peak.

Thomas G. Kramer: We look forward to coming back to you with projections for 2025 on the Q4 call, but what we can tell you is that we are very happy with the investments that were made. We're sitting now in the new executive briefing room in Seattle, and we are getting ready to make more sales both domestically and internationally, and we're very pleased with how the funnel is. Understandable. Had to try. Thank you.

We look forward to coming back to you with projections for 25 on the Q4 call, but what we can tell you is that we are very happy with the investments that were made were sitting now in the new executive briefing room in Seattle, and we are getting ready to make.

More sales, both domestically and internationally and we're very pleased with how the funnel is looking.

Understood and just try it thank you.

No worries.

David Neil Williams: No worries. Thank you. The next question comes from David Williams from Benchmark Company. You may proceed with your questions, David. Hey, thanks for taking the questions, and Peter, thanks for all the great color in your script there. I guess maybe you could talk about the hurdles that you see in front of you in terms of becoming more commercial, and maybe if you could dissect that a bit and talk about where you're seeing from a government perspective, but also what are you seeing from maybe non-governmental entities?

Thank you. The next question comes from David Williams from Benchmark Company. You May proceed with your question.

Hey, Thanks for taking the questions and Peter Thanks for all the great color in your script there.

I guess, maybe can you talk about the hurdles that you see in front of you in terms of becoming more commercial and maybe if you could talk to that a bit and talk about where you're seeing from a government perspective, but also what are you seeing from maybe non governmental entities are you is that really beginning to pick up and are you are you getting interest there specific.

Peter Hume Chapman: Is that really beginning to pick up and are you gaining interest there? Yeah, so in terms of kind of top of funnels, one of our reasons we're, you know, pretty happy at the moment is that international seems to be particularly strong, maybe even stronger than, you know, domestically in terms of government. And so that's one area which is strong. As we kind of mentioned in this, we're, you know, hedging a little bit because, you know, we don't know as to whether or not Congress will pass a budget bill this year.

Kind of related to the progress you've made on your quantum.

Algorithmic cubic's, yeah. So in terms of a kind of top of funnel to one of our reasons, where you know I'm pretty happy at the moment is I'd tell you is international seems to be particularly strong maybe even stronger than you know domestically in terms of of government and.

So that's one area, which is of strength as we kind of mentioned in in this we're.

Hedging a little bit just because you know we don't know.

As to whether or not Congress will pass a budget bills this year.

Peter Hume Chapman: So you know, we have to see how that goes. But I would say kind of roughly at the moment when I look at it from kind of the top of the funnel, there's roughly equal interest in commercial, and so there's heavy interest in the enterprise as well. David, does that conclude all of your questions? Would you have any further questions? Yeah, my apologies. I was unfortunately hit mute.

So you know we have to see how that goes.

But I would say kind of roughly at the moment when I look at it from kind of top of funnel is there's roughly equal interest in commercial.

And so you know there's there's heavy interests in the enterprise as well.

Yeah.

Hey, good does that conclude your question. So if you have any further questions.

Yeah, My apologies I was unfortunately hit mute.

David Neil Williams: So I wanted to ask real quick about Jungsang and his departure from his current role. And I recognize the transitions that have happened here, but just curious if you can provide maybe a little bit more color or maybe just the thought process going forward. I know that we've made it through a lot of the hurdles, but it seems like there's still a lot of work to do. Yeah, wondering if that's going to impact the business. That's a great question. I'm sure that's also, there's always a lot of energy in these topics, so maybe I'll give you a little bit longer answer, which is, you know, when I started here five years ago, there were Chris, Jungsang, and myself. That was it.

So I wanted to ask real quick about about junk singing his departure from his current role.

Recognize that the transitions that happened here, but just curious if you can provide maybe a little bit more color or maybe just the thought process going forward I know that we've made it through a lot of the hurdles, but it seems like there's still a lot of work to do and just wondering if that's going to impact the business going forward. Thank you. That's a great question and I'm sure. That's also.

There's always a lot of energy in these these topics. So maybe I'll give you a little bit longer answer, which is you know when I started here five years ago, there was Chris Stern, saying and myself that was it you know were running on Quickbooks at the time, we had a bookkeeper and as it was in terms of management it was.

Peter Hume Chapman: You know, we were running on QuickBooks at the time. We had a bookkeeper, and in terms of management, it was pretty light at the top. One of the questions, you know, Chris and Jungsang were professors and still are today, and so we have this relationship with UMD and Duke where we capture IP that they generate at their universities through this exclusive arrangement, which is royalty-free to the company, and we gave them, you know, don't quote me on it, but about a little under a half a percent of the company in exchange for that. And so at the very beginning, the question was, how do we, you know, start a company and also keep this relationship, this business, you know, arrangement we have with universities going?

A pretty light at the top one of the questions you know, Chris and drunk, saying, where professors and still are today and so we have this relationship with a U M D and Duke where we capture IP that they generate at their universities through this exclusive.

Arrangement, which is royalty free to the company and we gave them you know don't quote me on it but about little under I think a half a percent of the company in exchange for that.

And so at the very beginning the question was how do we start the company and it also keeps us. This relationship. This business you know arrangement, we have with our universities going and so junk thing was going to take a sabbatical from Duke and come to I N Q2 two.

Peter Hume Chapman: And so Jungsang was going to take a sabbatical from Duke and come to I&Q to help. And Chris was going to move from the University of Maryland to Duke to run what now has become the Duke Quantum Center. And that is important to the company because the, you know, the research that's going on there is, you know, being captured by the company. We have an economic relationship with them, so we have an interest in making sure that that works.

Health and Chris was going to he moved from University of Maryland to Duke to run what now has become the Duke quantum center.

And that was important to the company because the you know the research that's going on there as you know being captured by the company. We have an economic relationship with them. So we have an interest in making sure that that works.

Peter Hume Chapman: And then, Jungsang, it was basically Jungsang and myself, and I was the businessman, and Jungsang was the tech person. And then we started hiring the management team. We got, for instance, Dean to come in in 2021 to come in as VP of Engineering. At that point, Jungsang had that role. And then, you know, he left that role because Dean had taken over, and he then went and became VP of R&D. And then we hired Pat last year, but then he gave up that role.

And then junk thing it was basically junk, saying and myself and I was the business enjoying thing with attack.

Person and then we started hiring the management team. We got we got for instance deemed to come in in 2021 to come in as VP of engineering at that point drunk thing had that role and then you know Junge thing left that role because he had taken over.

And drunk thing then went and became VP of R&D.

And then we hired Pat last year and then he gave up that role and then he went over to applications. You know he was he was our kind of our go to Guy if you will for whatever the open role we had in the Tech and then we've we've gotten now to the point, where we have.

Peter Hume Chapman: And then he went over to applications. You know, he was our kind of go-to guy, if you will, for whatever open role we had in the tech department. And then we've gotten to the point where we have a full management team, and the work that's going on at the Duke Quantum Center is also quite demanding. And so it's just kind of we've run to a full course here where basically you saw, obviously, Chris and now Jungsang going back to Duke to run the thing and to be the professors and continue to teach and do all the things that they do. And at the same time, the company now has a complete management team. And so we're no longer in QuickBooks or, you know, none of those things.

A full management team.

And you know the work that's going over at the do quantum center is also quite demanding and so it's just it's kind of we've ran through a full course here, where basically you saw obviously, Chris and now <unk>.

One thing going back to Duke to run the thing and to be the professors and continue to teach and do all the things that they do and at the same time the company.

Now has a complete management team and so we're no longer in quickbooks or you know.

None of those things so it's in some level somewhat of the maturity of the company drove thing and you.

Peter Hume Chapman: So it's at some level somewhat of the maturity of the company. Jungsang and, you know, is still available, will still be, you know, commencing on next generation designs and all the rest of those things with the team. You know, that's not going to stop. The two of them are professors, Jungsang had taken a leave of absence from Duke to be able to come and join us, and we appreciate the time that he was here to be able to do that. But as an example, for AQ35, that wasn't really Jungsang; that was Dean and the rest of the team.

Is it still available we'll still be you know Covid thing on next generation designs and all the rest of those things with the team.

That's that's not going to that's not going to stop so I know, it's a juicy tidbit for people to chew on but you know it's just.

The two of them are professors, they chunk, saying it taken a leave of absence from due to be able to come in and join US and we appreciate the time that he was here to be able to do that.

But you know as an example for <unk> 35.

You know.

That wasn't that wasn't really junk thing that was being in the rest of the team.

Peter Hume Chapman: The internal engineering group was the ones that were kind of really responsible for that. So I don't want to minimize Jungsang's participation because it's been enormous over the years, but at the same time, we've got a pretty good team now to be able to, and you know we have in our management team three Ph. D.S., and uh... the other side is that about two-thirds of our staff also have an uh... academic, you know, an advanced academic degree. And we strongly have their DNA in the company because, in the early days, many of the people that have been here for years now were originally students at either the University of Maryland or Duke.

The internal engineering group.

It was the ones that kind of really responsible for that so you know I don't want to minimize what junk things participation because it's been enormous over the years, but at the same time, we've kind of.

We've got a pretty good team now to be able to and you know we have in our management team three ph DS.

And the other side is that about two thirds of our staff also have a academic.

And advanced academic degrees and.

And we strongly have their DNA in the company because in the early days many of the people that have been here for years now. We're originally students that either university of Maryland or two.

So.

Peter Hume Chapman: So, you know, that continues on as well. So, anyway, it was a long answer to probably what should be a short question. There you go. Thanks so much for that color, Peter. I certainly appreciate it, and I look forward to seeing you.

That continues on as well so anyway, that's a long answer to to probably what it should be a short question, but.

There you go.

Thanks, so much for that color because certainly appreciate it and look forward to seeing your continued success. Thank you. Thank you.

David Neil Williams: Thank you. Thank you. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press the star and then one. If you'd like to ask a question, please press the star and then one.

Thank you ladies and gentlemen.

If you'd like to ask a question please type stuff right.

I'd like to ask a question. Please press star one.

Shadi Mitwalli: The next question comes from Shadi Mitwalli on behalf of Craig Hallam. Please proceed with your question. Hey, this is Shadi Mitwalli, on behalf of Richard Shannon. Thanks for taking my question and congrats on the slog, dear guys. Maybe a question for Peter. In your prepared remarks, you mentioned the potential to increase the speed of qubits by many orders of magnitude. Ion traps are known to be somewhat slower than

The next question comes from Scott, even 'twenty from Craig Hallum. Please proceed with your question.

Hey, this is shouting that Wally on for Richard Shannon.

Thanks for taking my question and congrats on the solid in your guys.

Maybe a question for Peter in your prepared remarks, you mentioned that potential to increase the speed of kubitz by many orders of magnitude.

I on traps are known to be somewhat slower than other cupid modalities.

Shadi Mitwalli: So how do you expect to be able to accomplish this? And is this using the same barium qubits your forthcoming systems will use? I'll tell you what, we have Pat sitting here who happens to be working on it, so I'm going to let him answer. Okay. So, there are two research paths we're taking. One is really optimizing the current gate schemes that we have, which, as you know, relies upon motion modes in the ion chain.

So how do you expect to be able to accomplish this and is this with the same barium kubitz, you're a forthcoming systems, where he is.

I'll tell you what we have Pat sitting here, who happens to be working on it so I'm going to let him answer right.

So the two research, possibly taking one is really optimizing the code base schemes that we have.

Which as you know relies upon emotional most any one train.

Pat Tang: But we also have another modality that we're looking at as well, using gates that interact electromagnetically. So, that would potentially give a real speed boost to our gatecoins, so you're going to be hearing more of that in our forthcoming courses about that particular research, but that's a very active research, and we recognize the point that you made, and this is being addressed. We're having very good collaborations with different entities to try to, I'm going to attack this issue from all angles, but we're making good progress on this and are going to hear more about this. Thank you for the color on that.

But we also have another modality that we're looking at as well using the <unk> switch interact electromagnetic waves. So that would essentially give a real speed up that's Ok coins.

So you gotta be hearing more that you know who is coming in courses that Pepsico research.

It's a very active research and recognize the point that you made and this has been address as I speak right now and we're having very good collaborations with different entities are twice the size.

<unk> issue at all angles, but we're making good progress on this I'm going to hear more about this in future quarters to come.

Thank you. Thank you for the color on that and then just felt well one more follow up what milestones do we look for in terms of progress and a time frame for success in quantum networking between coupon use in your Ecu 64.

Shadi Mitwalli: And then just one more follow-up. What milestones do we look for in terms of progress and time frame for success in quantum networking between QPUs and your AQ64 system? Once again, we'll redirect this to the techies in the room. So, Pat, take it away.

For system.

Once again, we will redirect to the to the techies in the room, so Pat take it away.

Pat Tang: Yeah, so, Photonic Interconnect is really beyond AQ64, and I'm happy to report that you've probably seen the recent press release. We're very happy about that progress, and we're on track to finish Photonic Interconnect this year. We actually have customers very interested in this technology, and it's our way of being able to scale QPUs beyond AQ64.

Yeah, So photonic interconnect is really beyond.

60, full and I'm happy to report that you've probably seen our recent press release, so very happy about that progress and we're on track to finish the folks like interconnect this year.

We actually have customers very interested in this technology.

It's our method of being able to scale cube Hughes beyond 64. So this is a very important to us we are making great progress on this and you're going to hear us.

Pat Tang: So this is a very important technology to us. We're making great progress on this, and you'll hear us we have stated that we're going to complete this this year and expect more to come from this year's report. So just to add a little bit to make sure people understand, so to hit AQ-64, we don't think that we need photonic interconnects to be able to make that happen. But it is an active area.

We expect that this that we got to complete this year and expect more to come from this year's reports so just to just to add a little bit just to make sure people understood. So to hit 864, we don't think that we need photonic interconnects to be able to make that to work. So.

But it is an active area and as we said we expect by the end of the year to them to see the first demonstration of that.

Pat Tang: And as we said, we expect to see the first demonstration by the end of the year. Thank you for all that, and that's all for me. Thank you. The next question comes from David Williams from Benchmark Company. Please proceed with your questions, David. Hey, thanks for the follow-up. I just want to ask real quickly, are those the photonic interconnects, will those be kind of system agnostic in terms of does it matter which hardware you're working on as long as it's quantum, or is it, So, in principle, the architecture itself can go. But we are using a BERM system, as you know, so the hardware that we've developed is specifically designed for barium, and it requires a special Special Optics, which are geared towards that particular wavelength, but to your point, in principle, the architecture can apply to different modalities.

Thank you for all that and that's that's all for me.

Thank you. The next question comes from David <unk> from Benchmark company.

Questions.

Okay. Thanks for the follow up I just wanted to ask real quickly are those the photonic interconnects will those be kind of system agnostic in terms of does it matter, which hardware you're working on as long as quantum or is it specific to that.

The trapped ion to or your <unk> systems.

So in principle the architecture itself can get lost.

But.

We are using a bathroom system as you know so the hardware that we developed specifically.

For the barium any cause a special set of lasers.

Special optics, which are geared towards that particular wavelength, but to your point and principally architecture kind of point to different modalities.

Great perfect. Thanks, so much.

David Neil Williams: Thank you. The next question comes from Kevin Garrigan from Grace Parks Capital. Please proceed with your questions, Kevin. Yeah, hey, y'all.

The next question comes from Kevin Garrigan from Bruce Cochrane Capital. Please proceed with your question.

Yeah, Hey, al Congrats on the progress and I apologize if any of these questions have been answered I joined a little late I'm sorry.

Kevin Garrigan: Congratulations on the progress. And I apologize if any of these questions have been answered already. I joined a little late.

Kevin Garrigan: So I was wondering if you can kind of give us a sense of, you know, the new customers that you start talking to, do they know what problems that they're trying to solve? Or is there still a major teaching component where you have to kind of go through the process of helping them understand, you know, what they're trying to do and kind of how quantum computing can help? um, That's a difficult conversation or something complex, I guess. Yeah, there's probably a full spectrum of those.

So I was wondering if you can kind of give us a sense of you know the new customers that they start talking to do they know what problems that they're trying to solve or there still are a major teaching component, where you have to kind of go through the process of helping them understand what they're trying to do and kind of how quantum computing can help.

Well, that's a that's a difficult conversation so our complex I guess.

Yes, there's probably a full spectrum of those we try not to do a lot of kind of education work and N P O C stuff.

Peter Hume Chapman: We try not to do a lot of education work and proof of concept stuff. But I would say most of our customers tend to be a little more sophisticated in the overall quantum compute space range or whatever. 20 or 30 customers from a wide range of things, and they're doing 100K engagements and those kinds of things. We don't do those things.

You know, so but I would say most of our customers Hum tend to be a little more sophisticated on in the overall quantum compute space range or whatever so you see sometimes you know companies that have 20 or 30 customers from a wide range of things in there doing a 100 K engage.

Rents in those kinds of things, we don't do those things.

Peter Hume Chapman: So it's, you know, I think, what it is, Thomas, you said we don't do small deals. So it's, no, but, you know, having said that, sometimes we do get, there's, you know, a customer that, you know, is early in their space. But generally, people have a pretty good idea of the problems that their businesses have and, you know, are coming to us to ask, you know, do you think that you can solve X, Y, and Z? And if you look at kind of everything we've reported in terms of working with customers, I mean, these are their pressing problems of the day: how do we, you know, build flying cars if the batteries themselves can't hold And that's a critical question to be able to enable that. So these are the kinds of critical issues for these things. People aren't generally off doing any kind of raw R&D. But it does.

So it's I think what does the time issue said, we don't do the small deals so I'm sorry.

So it's no, but having said that sometimes we do get there's you know a customer that.

Is early in their space, but generally people have a pretty good idea of the problems that their businesses have and are coming to us to ask them.

Do you think that you can solve X y and Z and if you look at kind of everything we've ever reported in terms of work with customers. I mean these are they're pressing problems of the day right you know how to how do we.

Build a flying cars, if the batteries themselves aren't can't hold a charge for long enough.

Yeah, that's a that's a critical quest.

Question to be able to enable that business and so so these are the kinds of critical things for these things are not people arent generally off doing kind of raw R&D. So.

Hopefully you got it got it.

Kevin Garrigan: Yeah, no, that's very helpful. Um, and then just as a follow-up, I was just wondering if you could kind of talk a little bit about the competitive landscape. You know, it seems like every week, every month, a new quantum computing company kind of pops up. So are you seeing any kind of increased competition in the market?

Yeah, No that's very helpful and then just.

As a follow up I was just wondering if you can kind of talk a little bit about the competitive landscape. It seems like every week every month, the new quantum computing company kind of Pops up. So are you seeing any kind of increased competition in the market.

Hum.

You're 100% right.

Peter Hume Chapman: First, I see it as well; there seems to be a breakthrough every day in some kind of what if you watch your news feed. And so if you look at the cycle to go from a breakthrough in a university setting all the way to a finished product, you know, probably for almost every one of these qubit technologies, you're looking at a billion dollar investment. And so I&Q, I think, is not only the best funded, but the fact that we're building a manufacturing plant. It's just kind of way, way, way ahead of everyone else in this marketplace.

First as I see it as well too so there seems to be a breakthrough everyday.

And kind of what the true.

Watch your news feed.

And so if you look at the cycle to go from a breakthrough in the University setting all the way to a finished product.

Probably for almost every one of these qubit technologies Youre looking at a $1 billion investment in multiple years and so.

I am who I think is is not only the best funded but the fact that we're building manufacturing plant.

Just kind of way way way ahead of everyone else in this marketplace and I have said it in the past and I have no problem, saying that which is there might be in the future other qubit modalities, which are better than I am.

Peter Hume Chapman: And I have said it in the past, and I have no problem saying it, which is that there might be other qubit modalities in the future which are better than IAQ. So if you ask me 10 or 15 years, you know, who might, which qubit technology might be the winner, it might not be the ion trap. But in terms of the next five years or so, we believe it will be us, and we will have the advantage of a revenue stream and the ability to decide that, sometime in the future, we want to look at other qubit modalities and other ways of doing things that will give us an advance into the future. So I don't really, you know, it doesn't bother me that, you know, somebody is off doing work that is going to show up That's a different time period.

And.

So if you ask me 10, or 15 years, you know who might which Cuba technology might be the winter it it might not be eye on traps, but in terms of the next five years or so we believe it will be up and we will have the advantage of our revenue stream and the ability to decide that sometime in the future we want.

To look at other human modality, and other ways of doing things and will give us an adventure.

Advance into the future. So I don't really you know it doesn't bother me that.

He is off doing work, which is going to show up 15 or 20 years from now.

That's a that's a different time period so.

Peter Hume Chapman: So the short and long answer, you know, no, we're not worried about the competition at the current time. Yep, got it. Got it. Okay, perfect.

So yeah.

Sure.

No we're not worried about the competition at the current time.

Yep got it got it okay perfect. Thank you.

Kevin Garrigan: Thank you. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I'd now like to hand over the call to Peter Chapman for his closing remarks. Thank you, sir. Well, I want to thank everyone for joining our call today and, of course, thank our team for all their hard work and our shareholders for their support. We look forward to speaking with you soon and updating the entire financial community on our next earnings call. Thank you, everyone. Thank you very much. This concludes today's conference. You may disconnect your lines at this time, and thank you very much for your participation.

Thank you ladies and gentlemen, we have reached the end of the question and answer session I'd now like to hand over the call to Pizza Chairman for closing remarks. Thank you Sir.

Well I want to thank everyone for joining our call today and of course, thank our team for all their hard work and our shareholders for their support.

I look forward to speaking with you soon and updating the entire financial community on our next earnings call. Thank you everyone.

Thank you very much. This concludes today's conference you may disconnect. Your lines at this time and thank you very much.

Yeah.

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