Q1 2024 IonQ Inc Earnings Call
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Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the IonQ First Quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jordan Shapiro, Vice President, Financial Planning and Analysis, Head of Investor Relations. Thank you.
Good afternoon, ladies and gentlemen, and thank you for standing by.
Operator: Welcome to the <unk> first quarter 2024 earnings call at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Should you require operator assistance during the conference. Please press star zero to signal an operator.
Operator: Please note this conference is being recorded.
Operator: I'll now turn the conference over to your host Jordan Shapiro, Vice President financial planning and analysis head of Investor Relations. Thank you you may begin.
Jordan Shapiro: Good afternoon, everyone, and welcome to INQ's first quarter 2024 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'm pleased to be joined on today's call by Peter Chapman, INQ's President and Chief Executive Officer, Thomas Kramer, our Chief Financial Officer, and Dr. Dean Kassmann, our Vice President of Engineering.
Jordan Shapiro: Good afternoon, everyone and welcome to Inq's first quarter 'twenty 'twenty four 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 thank you.
Jordan Shapiro: I'm pleased to be joined on today's call by Peter Chapman, and Key's, President and Chief Executive Officer, Thomas Kramer, Our Chief Financial Officer, and Dr. Dean Cashman, our vice President of Engineering.
Jordan Shapiro: By now, everyone should have access to the company's first quarter 2024 earnings press release issued this afternoon, which is available on the investor relations section of our website at investors.inq.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 advice 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.
Jordan Shapiro: By now everyone should have access to the company's first quarter 'twenty 'twenty four earnings press release issued this afternoon, which is available on the Investor Relations section of our website at investors to Inq Dotcom. Please.
Jordan Shapiro: Please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure.
Jordan Shapiro: While the company believes this non-GAAP financial measure is useful advice 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.
Jordan Shapiro: During the call, we will discuss our business outlook and make forward-looking statements. These comments are based on our beliefs as of today. However, actual events or results could differ materially from the outlook and other forward-looking statements due to a number of risks and uncertainties, including those mentioned in our 10-Q filing with the SEC. 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 Peter Chapman, President and CEO of IonQ. Peter, Thanks.
Jordan Shapiro: You are directed to our press release for a reconciliation of adjusted EBITDA, which closest comparable GAAP measure.
Peter Hume Chapman: During the call, we will discuss our business outlook and make forward looking statements. These comments are based on our beliefs as of today actual events or results could differ materially from the outlook and other forward looking statements due to a number of risks and uncertainties, including those mentioned in our 10-Q filing with the SEC. This week, we undertake no obligation to revise any statements to reflect.
Peter Hume Chapman: Changes that occur after this call except as required by law.
Jordan Shapiro: Now I will turn it over to Peter Chapman, President and C E O I N Q Peter.
Peter Hume Chapman: Thanks, Jordan, and thanks again to everyone for joining us today. I am very pleased with our results for this quarter. There was a lot to discuss during our call, but the four key takeaways are as follows. INQ started 2024 by exceeding the high end of our revenue guidance range. Specifically, we delivered $7.6 million in revenue relative to our range of $6.5 to $7.5 million that we discussed in our most recent call.
Peter Hume Chapman: Thanks, Jordan and thanks again to everyone for joining us today I'm very pleased with our results for this quarter.
Peter Hume Chapman: There's a lot to discuss during our call. It's a foreign key takeaways are as follows.
Peter Hume Chapman: I think you started 2024 by exceeding the high end of our revenue guidance range, specifically, we delivered $7 $6 million in revenue relative to our range of six five to $7 $5 million and we discussed in our most recent call.
Peter Hume Chapman: With the U.S. federal budget passed and continued interest from customers in quantum computing and quantum networking, we are raising our bookings guidance for the year. We booked $250,000 in the first quarter, and our current pipeline is stronger than ever.
Peter Hume Chapman: With the U S. Federal budget passed and continued interest from customers in quantum computing and quantum networking, we are raising our bookings guidance for the year, we booked 250000 in the first quarter and our current pipeline is stronger than ever.
Peter Hume Chapman: Between our work with customers and our internal research, INQ is making serious headway towards identifying the first potential production applications of quantum computing. I&Q operations continue to gain momentum. For example, our Seattle manufacturing facility is now fully operational.
Peter Hume Chapman: Between our work with customers and our internal research I think he was making serious headway towards identifying the first potential production applications of quantum computing.
Peter Hume Chapman: And we are already building the first production I&Q Forte enterprise system that has been sold to a customer. Meanwhile, between new board members, executives, and team members, INQ continues to hire the leading minds in the quantum computing space. Let's walk through each area in more detail.
Peter Hume Chapman: I think you operations continue to gain momentum.
Peter Hume Chapman: Our Seattle manufacturing facility is now fully operational and we are already building. The first production I think your Forte enterprise system that has been sold to a customer.
Peter Hume Chapman: Meanwhile, between New Board members executives and team members in Q continues to hire as a leading minds and the quantum computing space.
Peter Hume Chapman: Let's walk through each area in more detail.
Peter Hume Chapman: First on revenue, INQs continue to outperform financially, exceeding the high end of the revenue guidance range by bringing in $7.6 million last quarter. This marks the 10th quarter that we have outperformed our quarterly revenue midpoint since going public in 2021. We attribute this beat to outstanding execution by our technical delivery team, which has allowed us to accelerate the progress on deliverables towards our contract. Given that these great results reflect the acceleration of existing contracts, we are maintaining our full year revenue guidance.
Peter Hume Chapman: First on revenue I think it was continue to outperform financially.
Peter Hume Chapman: Exceeding the high end of revenue guidance range by bringing in $7.6 million last quarter.
Peter Hume Chapman: This marks the 10th quarter that we have outperformed our quarterly revenue midpoint since going public in 2020 one.
Peter Hume Chapman: We attribute to speed to outstanding execution by our technical delivery team.
Peter Hume Chapman: Which has allowed us to accelerate the progress on deliverables towards our contracts.
Peter Hume Chapman: Given that these great results reflect the acceleration of existing contracts, we are maintaining our full year revenue guidance. We remain highly confident in our revenue performance and we'll continue to update the market on our full year outlook during our quarterly earnings call.
Peter Hume Chapman: We remain highly confident in our revenue performance and will continue to update the market on our full-year outlook during our quarterly earnings call. In our last call, we mentioned that our bookings guidance was impacted due to the uncertainty around the approval of the US 2024 federal budget.
Peter Hume Chapman: In our last call, we mentioned that our bookings guidance was impacted due to the uncertainty around the approval of the U S. 'twenty 'twenty four federal budget.
Peter Hume Chapman: With that risk now passed, we believe that we've identified in excess of $50 million of federal opportunities in 2024, not related to system sales. And on the system sales side, we are currently planning to build five Forte enterprise systems in this production run. One of the five has already been sold to Quantum Basel, and we are in various stages of engagement for the remaining four.
Peter Hume Chapman: With that risk now past, we believe that we've identified in excess of $50 million of federal opportunities in 'twenty 'twenty four not related to system sales.
Peter Hume Chapman: And on the system sales side, we are currently planning to build five Forte enterprise systems in this production run.
Peter Hume Chapman: One of the five has already been sold to quantum basket.
Peter Hume Chapman: We are in various stages of engagement for the remaining four.
Peter Hume Chapman: After this Forte Enterprise production run, we plan to swiftly turn our attention to manufacturing tempos, the first of which has also been sold to Quantum Basel. Our sales pipeline is expanding significantly across multiple countries, government agencies, and industries, and is at an all-time high, giving us even more confidence in INQ's near and medium-term financial prospects and growth trajectory. All of this leads us to raise our bookings guidance for the year to a range of $75 million to $95 million.
Peter Hume Chapman: After this forte enterprise production run we plan to swiftly turned our attention to manufacturing temper their first of which is also been sold to quantum Basil.
Peter Hume Chapman: Our sales pipeline is expanding significantly across multiple countries government agencies and industries.
Peter Hume Chapman: It is at an all time high giving us even more confidence in the eye and she is near and medium term financial prospects and growth trajectory.
Peter Hume Chapman: All of this leads us to raise our bookings guidance for the year to a range of 75 million to $95 million.
Peter Hume Chapman: We are excited at this prospect of achieving that unprecedented level of sales. Next, for our third topic, I wanted to shed some light on why there are divergent points of view on the question of when quantum computing will take off. There is one camp within the quantum industry who believes that fault-tolerant quantum computing and millions of qubits are required, and by extension, still years away.
Peter Hume Chapman: We're excited that this prospect of achieving that unprecedented level of sales.
Peter Hume Chapman: Next for our third topic I wanted to shed some light on why there are diverging points of view in the question of when quantum computing will take off.
Peter Hume Chapman: There is one camp within the quantum industry, who believes that fault tolerant quantum computing and millions of cubic are required and by extension still years away.
Peter Hume Chapman: Our opinion, and that of others, is that within the NISC era, applications can be found that can provide commercial advantages in large markets. We have had our application team looking at applications that will run on our near-term, next-generation systems that meet that requirement. We now have several application areas that look extremely promising. These applications, if we are able to achieve them, have the potential to be game changers in their respective markets. This has been the allure of quantum computing from its inception.
Peter Hume Chapman: Our opinion and that of others is that within the NIST error applications can be found they can provide commercial advantage in large markets.
Peter Hume Chapman: We have had our application team looking at applications that will run on our near term next generation systems that meet that requirement.
Peter Hume Chapman: We now have several application areas that look extremely promising.
Peter Hume Chapman: These applications, if we are able to achieve them have the potential to be game changers in their respective markets.
Peter Hume Chapman: This has been the allure of quantum from its inception.
Peter Hume Chapman: One in particular that I am personally excited by is the pharmaceutical space, an industry with the ability to change lives for the better for everyone. Earlier today, I published my yearly letter to shareholders, which I hope you'll take a few minutes to read on the INQ blog. The letter also discusses commercial advantage, the term we use to describe our goal of building and enabling production-ready applications for quantum computing. Commercial advantage is defined in the eyes of our customers and their preference to choose a quantum-based solution over any other alternative.
Peter Hume Chapman: One in particular that I am personally excited by is the pharmaceutical space and industry with the ability to change lives for the better for everyone.
Peter Hume Chapman: Earlier today I published my yearly letter to shareholders, which I Hope you will take a few minutes to review on the eye.
Peter Hume Chapman: And in Q blog.
Peter Hume Chapman: The letter also discusses commercial advantage the term we use to describe our goal of building an enabling production ready applications for quantum computing.
Peter Hume Chapman: Commercial advantage is defined through the eyes of our customers and their preference to choose a quantum based solution over any other alternative.
Peter Hume Chapman: This is about the practical results that all of our research and development unlocks and being laser focused on building systems that are purchased by customers to deliver real-world commercial value. We were excited to have Dr. Martin Rodler, our new head of applications, join I&Q in March. Martin spent the last 10 years as a leader of Microsoft quantum applications.
Peter Hume Chapman: This is about the practical results that all of our research and development unlocks and being laser focused on building systems that are purchased by customers to deliver real world commercial value.
Peter Hume Chapman: We were excited to have Dr. Martin wrote alert, our new head of applications join I. Thank you in March.
Peter Hume Chapman: Martin spent the last 10 years as a leader of Microsoft quantum application efforts with Martin's leadership, and our deep bench of applications talent, we believe the future looks bright for inq delivering commercial advantage to our customers.
Peter Hume Chapman: With Martin's leadership and our deep bench of applications talent, we believe the future looks bright for INQ, delivering commercial advantage to our customers. Lastly, I want to spend a few minutes sharing some of our corporate announcements that continue to inspire confidence and IQ for myself and our team. The first is that we're fully delivering on the promise of our Seattle manufacturing facility. The facility is up and running. And we're currently manufacturing our first I&Q Forte enterprise system that will get shipped to a customer.
Peter Hume Chapman: At the same time, we're standing up additional infrastructure to manufacture more IEQ systems at scale and are leveraging the facility for cutting-edge research and development as well. We now have nearly 100 employees located in the Seattle area. Meanwhile, we have almost completed construction of our new data center in Basel, Switzerland, which you may remember is key to our delivery on our $28 million quantum basil contract that we signed last year.
Peter Hume Chapman: Lastly, I wanted to spend a few minutes sharing some of our corporate announcements they continue to inspire confidence and I. Thank you for myself and our team.
Peter Hume Chapman: The first is that we're fully delivering on the promise of our Seattle manufacturing facility the.
Peter Hume Chapman: The facility is up and running and we're currently manufacturing our first <unk> Forte enterprise system that will get shipped to a customer.
Peter Hume Chapman: At the same time, we're standing up additional infrastructure to manufacture more ecu systems at scale.
Peter Hume Chapman: And are leveraging that facility for cutting edge research and development as well.
Peter Hume Chapman: We now have nearly 100 employees located in the Seattle area.
Peter Hume Chapman: Meanwhile, we have almost completed construction of our new data center in Basel, Switzerland.
Peter Hume Chapman: Which you May remember is key to our delivery on our $28 million quantum Basel contract, we signed last year.
Peter Hume Chapman: We have INQ team members on the ground in Switzerland and are already assembling components for our first system in this new INQ Europe data center. That facility will be key to servicing our growing EMEA customer base. While our headquarters in College Park, Maryland, and the ecosystem we've helped build in the greater Washington area remain our commercial and technological epicenter, we are very happy with the company's progress on national and international expansion. We are also strengthening our ranks at I&Q.
Peter Hume Chapman: We have in Q team members on the ground in Switzerland, and already assembling components for our first system in this new I think you Europe data center.
Peter Hume Chapman: That facility will be key for servicing our growing EMEA customer base.
Peter Hume Chapman: All our headquarters in College Park, Maryland, and the ecosystem that we've helped build in the greater D. C area remain our commercial and technological epicenter, where.
Peter Hume Chapman: Very happy with the company's progress on National and international expansion.
Peter Hume Chapman: We are also strengthening our ranks that I am sure you may remember that we announced in the first quarter. The addition of two new industry export Board members Robert Cardillo, the former director of the National Geospatial Intelligence Agency under President Obama and Bill scandal.
Peter Hume Chapman: You may remember that we announced in the first quarter the addition of two new industry export board members. Robert Cardillo, the former director of the National Geospatial Intelligence Agency under President Obama, and Bill Scannell, President of Global Sales and Customer Operations at Dell Technologies, where he oversees 24,000 sales team members. More recently, we announced the addition of our new chief legal officer and corporate secretary, Stacey Yamaliza. Stacey has served as the Chief Legal Counsel of six companies in a variety of technology sectors over the last two decades.
Peter Hume Chapman: President of global sales and customer operations at Dell technologies, where he oversees 24000 sales team members.
Peter Hume Chapman: More recently, we announced the addition of our new Chief Legal Officer, and corporate Secretary Stacy Yamana lease space. He has served as the chief legal counsel of six companies in a variety of technology sectors over the last two decades. She has an extensive track record and deep understanding.
Peter Hume Chapman: She has an extensive track record and deep understanding of the legal aspects of the technology sector, making her the ideal candidate to help scale INQ's operations. And with that, I'd like to turn the call over to Thomas for a more detailed review of the financials. Thomas. Thank you, Peter.
Thomas: As the legal aspects of the technology sector.
Thomas: King her the ideal candidate to help scale Inq's operations.
Peter Hume Chapman: And with that I'd like to turn the call over to Thomas for a more detailed review of the financials Thomas.
Thomas: Thank you Peter.
Thomas G. Kramer: Let's walk through this quarter's financial results in more detail. As a reminder, we prioritize our go-to-market efforts on selling large, meaningful contracts with customers that understand the potential for quantum and are willing to make sizable commitments today to secure access to our system. As a side effect, and as we have mentioned in every prior earnings call, given the large size of the contracts we are selling, we expect sales to be lumpy.
Thomas: Let's walk through this quarters financial results in more detail.
Thomas G. Kramer: As a reminder, we prioritize our go to market efforts and some large meaningful contracts with customers that understand the potential for quantum and are willing to make sizable commitments today to secure the access to our systems.
Thomas G. Kramer: In other words, it is difficult to predict, quarter to quarter or, in some cases, year to year, exactly when a particular sale will materialize. The first quarter was such a case, with IMQ having booked $250,000. Our confidence is nevertheless very strong that we will meet our bookings goals for the year.
Thomas G. Kramer: As a side effect and as we have mentioned in every prior earnings call given the large size of the contracts. We are selling we expect tends to be lumpy in other words, it is difficult to predict quarter to quarter or even some cases year to year exactly when a particular sale would materialize.
Thomas G. Kramer: First quarter was such a case.
Thomas G. Kramer: In Q, having booked $250000.
Thomas G. Kramer: Our confidence is nevertheless, very strong that we will meet our bookings goals for the year.
Thomas G. Kramer: As Peter mentioned, we had a strong revenue quarter, recognizing $7.6 million, which is above the high end of the range we previously provided. This overperformance was primarily due to our ability to make more progress than previously anticipated on some of our contracts that use percentage of completion revenue recognition. Moving down the income statement for Q1 2024, our total operating costs and expenses for the first quarter were $60.5 million, up 87% from $32.3 million in the prior period, but within our plan for the year to break this down further.
Thomas G. Kramer: As Peter mentioned, we had a strong revenue quarter, recognizing $7 $6 million, which is above the high end of the range. We previously provided this over performance was primarily due to our ability to make more progress than previously anticipated on some of our contracts that use percentage of completion revenue recognition.
Thomas G. Kramer: Our research and development costs for the first quarter were $32.4 million, up 99% from $16.2 million in the prior period. Recall that we are investing heavily in R&D and, given anticipated demand, are building more systems than previously projected this year. Our sales and marketing costs in the first quarter were $6.7 million, up 151% from $2.7 million in the prior period. This increase was due to us growing both our marketing and our sales teams as we continue investing in our commercial efforts. Our general and administrative costs in the first quarter were $14 million, up 33% from $10.6 million in the prior period. These increases were primarily driven by an increase of $3.7 million in payroll-related expenses.
Thomas G. Kramer: Moving down the income statement for Q1 2024, our total operating costs and expenses for the first quarter were $65 million up 87% from $32 $3 million in the prior year period, but within our plan for the year.
Thomas G. Kramer: To break this down further.
Thomas G. Kramer: Our research and development costs for the first quarter were $32 $4 million up 99% from $16 2 million in the prior year period.
Thomas G. Kramer: Recall that we are investing heavily in R&D.
Thomas G. Kramer: Given anticipated demand and building more systems than previously projected this year.
Thomas G. Kramer: Our sales and marketing costs in the first quarter were $6 $7 million up 151% from $2 $7 million in the prior year period. This increase was due to us growing both our marketing and our sales teams as we continued investing into our commercial efforts.
Thomas G. Kramer: Our general and administrative costs in the first quarter were $14 million up 33% from $10 $6 million in the prior year period.
Thomas G. Kramer: These increases were primarily driven by an increase of $3 $7 million and payroll related expenses.
Thomas G. Kramer: All of this resulted in a net loss of $39.6 million in the first quarter, compared to $27.4 million in the prior period. These results include a non-cash gain of $8.6 million in the first quarter related to the fair value of our warrant liabilities. They also include growth in stock-based compensation expense related to our headcount growth, which was $22.1 million in the first quarter, compared to $10.3 million in the prior year
Thomas G. Kramer: All of this resulted in a net loss of $39 $6 million in the first quarter compared to $27 $4 million in the prior year period.
Thomas G. Kramer: These results include a noncash gain of $8 6 million for the first quarter related to the fair value of our warrant liabilities. They also include growth in stock based compensation expense related to our head count growth, which was $22 1 million for the first quarter compared to $10 $3 million in the prior year period.
Thomas G. Kramer: We saw an adjusted EBITDA loss for the first quarter of $27 million compared to a $15.9 million loss in the prior year period. We project an adjusted EBITDA loss for the year of $110.5 million. Turning now to our balance sheet, cash, cash equivalents, and investments as of March 31, 2024 were $434.4 million. We continue to believe this cash position is the strongest of any publicly traded company focused exclusively on full stack quantum computing.
Thomas G. Kramer: We saw an adjusted EBITDA loss for the first quarter of $27 million compared to a $15 $9 million loss in the prior year period.
Thomas G. Kramer: We project, an adjusted EBITDA loss for the year of $110.5 million.
Thomas G. Kramer: Turning now to our balance sheet cash cash equivalents and investments as of March 31 2024.
Thomas G. Kramer: $434 $4 million, we continue to believe this cash position is the strongest of any publicly traded company focused exclusively on full stack quantum.
Thomas G. Kramer: Now, turning to our financial outlook, we are pleased to announce that we will be raising our 2024 bookings guidance to between $75 and $95 million, reflecting a larger pipeline and increased confidence in the close and timing of certain deals. We are maintaining our revenue guidance for the full year 2024, and we currently expect revenue for the second quarter of between $7.6 and $9.2 million. I want to echo Peter's earlier comment about the cadence of our new contract bookings, with the majority of each falling into the back half of the year, considering the end of the United States government's fiscal year in September.
Thomas G. Kramer: Now turning to our financial outlook. We are pleased to announce that we will be raising our 2024 bookings guidance to between $75 million to $95 million with.
Thomas G. Kramer: Reflecting the larger pipeline and increased confidence in the close timing of certain deals.
Thomas G. Kramer: We are maintaining our revenue guidance for the full year 2024, and we currently expect revenue for the second quarter of between 7.6 and $9 $2 million I want to Echo Peter's earlier comment about the cadence of our new contract bookings with the majority of each phone into the back half of the year, considering the end of the United States.
Thomas G. Kramer: Government's fiscal year in September.
Thomas G. Kramer: Peter.
Operator: In summary, we are very pleased with our progress in the first quarter. Our outperformance on revenue and increased confidence in our 2024 bookings pipeline are both promising for IAQ's financial performance this year. Meanwhile, we are delighted to have a clear line of sight to commercial advantage applications. We have launched the production facilities and hired a deep bench of team members that will allow I&Q to continue our path of leadership as we commercialize quantum. And with that, I'd like to have the operator open the line for questions.
Speaker Change: Thank you Thomas in summary, we are very pleased with our progress in the first quarter.
Operator: Our our performance on revenue and increased confidence on our 'twenty 'twenty four bookings pipeline are both promising for <unk> financial performance this year.
Operator: While we are delighted to have clear line of sight to a commercial advantage applications. We have launched the production facilities and hired a deep bench of team members that will allow <unk> to continue our path of leadership as we commercialized quanta.
Operator: And with that I'd like to have the operator open the line for questions.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If, at any time, you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. Our first question is from Quinn Bolton with Needham & Company.
Speaker Change: Thank you at this time, we will be conducting a question and answer session.
Nathaniel Quinn Bolton: I would like to ask a question. Please press star one on your telephone keypad.
Nathaniel Quinn Bolton: Confirmation tone will indicate your line is in the question queue.
Operator: If at any time, you wish to remove your question from the queue. Please press star two for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Operator: Our first question is from Quinn Bolton with Needham <unk> company.
Unknown Executive: Hey guys, congratulations on the continued technical and financial milestones. I guess I wanted to follow up on the confidence around increasing your bookings guidance to 75 to 95 from 70 to 90 last quarter. Obviously, it sounds like you guys have a better line of sight on when some of these contracts may close, but if there's any further insight you can give us on your level of confidence in some of these bigger deals, that would be great. Then I've got a follow-up question for you.
Nathaniel Quinn Bolton: Hey, guys. Congratulations on the continued technical and financial milestones I guess I wanted to follow up on the on the confidence around increasing your bookings guidance of 75% to 95% from 70 to 90 last quarter.
Unknown Executive: Obviously, it sounds like you guys have better line of sight to win some of these contracts may close, but if theres any further.
Unknown Executive: And so you can you can give us on your level of confidence in some of these bigger deals that would be great and then I've got a follow up question for you.
Unknown Executive: I can take that one. Yes, if you compare this time versus last year, if we look at the top of the funnel, that has increased significantly. And in addition, we're in various stages of contracts, and so that gives us confidence in kind of being able to get to these numbers. So having the federal budget approved was certainly one portion of that that gave us more confidence. But, as you know, it ain't over until it's over, until you actually get the final signature on a contract.
Speaker Change: Yeah, I can take that one.
Speaker Change: Yes, it's.
Unknown Executive: If you look compare this time versus last year.
Unknown Executive: If we looked at top of the funnel that has increased significantly.
Unknown Executive: And in addition.
Unknown Executive: You know we're in various stages of contracts and so that gives us.
Unknown Executive: Engagements and gives us confidence in it.
Unknown Executive: <unk>.
Unknown Executive: And kind of being able to get to these numbers so having the federal budget.
Unknown Executive: <unk>, we're certainly one portion of that that gave us more confidence, but as you as you know and then over till its over until you actually get a final signature.
Unknown Executive: So we've gone through and weighted, as we normally do, take kind of the funnel and weigh the opportunities and what we think is likely to happen and give them weightings, and that's how we come to the number. So we're feeling more confident about the year than even just 90 days ago.
Unknown Executive: On a contract so.
Unknown Executive: We've gone through and waited as we do normally take kind of the funnel and wait the.
Unknown Executive: The opportunities and what we think is likely to happen. Thank.
Unknown Executive: Thank you for waiting and that's how we come to the number. So you know we're we're feeling more confident about the year then.
Unknown Executive: And even just 90 days ago.
Nathaniel Quinn Bolton: Perfect. The second question I have is, Peter, in your script, you mentioned after the budget was approved that you had identified 50 million new opportunities not related to hardware sales and wondered if you could just, again, expand on some of those opportunities. Are they contracts? Are they programs? You know, what types of opportunities do you see? And then, I guess, do any of those 50 million play into your bookings, your higher bookings guidance for 2024? Thank you.
Speaker Change: Perfect second.
Speaker Change: Second question I have is.
Nathaniel Quinn Bolton: Peter in your script you.
Nathaniel Quinn Bolton: Mentioned after the budget was approved having identified $50 million of new opportunities not related to hardware sales wondering if you could just again expand on some of those opportunities are there contracts or they programs.
Nathaniel Quinn Bolton:
Nathaniel Quinn Bolton: What types of opportunities do you see and then I guess do any of that 50 million play into your bookings your.
Nathaniel Quinn Bolton: Higher bookings guidance for 2024, thank you.
Peter Hume Chapman: So, these are, you know, we've talked in the past about, you know, selling, for instance, one system over the next 18 months, if you remember. So, these $50 million are not related to system sales, but they are related in quantum. And so, but it's not, you know, we kind of wanted to separate out the opportunity for system versus non-system sales.
Peter: So these are you know we we've talked in the past about selling for instance, one system over the next 18 months, if I remember well.
Peter Hume Chapman: This $50 million is not related to system sales, but they are related in quantum and so.
Peter Hume Chapman: No.
Peter Hume Chapman: But it's not kind of wanted to separate out the opportunity.
Peter Hume Chapman: System versus non system.
Peter Hume Chapman: Sales. So that's really what it is and so in any of those contracts usually are are back loaded towards the end of the year because of that.
Peter Hume Chapman: So, that's really what it is. And, you know, those contracts usually are backloaded towards the end of the year because that's just the way the government works. So, we would expect to see them later this year. And I think that's, you know, there's not much else to it.
Peter Hume Chapman: It's just the way the government works. So we would expect to see them later this year.
Peter Hume Chapman: And I think that's there's not much else to it.
Unknown Executive: Yeah, maybe further clarify that this is the 50 million dollars on a probability weighted view that is included in the guidance number.
Speaker Change: Yeah, maybe a further clarifying is that this is the.
Unknown Executive: $50 million Unempowered ability weighted view is included into the guidance number.
Unknown Executive: Correct.
Nathaniel Quinn Bolton: Kevin, but just, you know, are these sort of like DARPA or government-funded programs to investigate or advance certain applications within quantum? Is that the sort of, you know, it's non-systems, so just trying to get, you know, some sense of, you know, are they more sort of programs to develop applications or software, things that are not hardware related? Is that the best way to think about them?
Unknown Executive: Yes.
Unknown Executive: Or are these sort of like DARPA or government funded programs to investigate or advance certain applications within quantum is that the sort of non system. So.
Nathaniel Quinn Bolton: Just trying to get some sense or are they more.
Nathaniel Quinn Bolton: Sure.
Nathaniel Quinn Bolton: Programs to develop applications or software.
Nathaniel Quinn Bolton: Things that are not hardware related is that the best way to think about them.
Unknown Executive: We don't want to break out guidance by different segments, but these are other kinds of pieces of hardware that are needed in the quantum ecosystem. So, and of course, there will be a software component to it as well. All the hardware has some sort of software that goes with it.
Nathaniel Quinn Bolton: It's.
Unknown Executive: We're not we don't want to break out kind of guidance by different segments, but these are.
Unknown Executive: Other kinds of pieces of hardware, which are needed in the quantum ecosystem.
Unknown Executive: And of course, there will be a software component to it as well.
Unknown Executive: You know that all of the hardware has some sort of software that goes with those.
Unknown Executive: Guys who may be hardware components but not full system sales; it may be software, so you're just trying to make the distinction; it's not a complete quantum system like the AFRL or the quantum basal deals.
Speaker Change: Got it so maybe hardware components, but not full system sales. It may be software. So youre just trying to make the distinction is not a complete quantum.
Unknown Executive: System like the AFR al the quantum basal deals that's exactly yet.
Unknown Executive: That's exactly it, yep. Understood.
Nathaniel Quinn Bolton: understood. Okay, thank you for that clarification.
Speaker Change: Okay. Thank you for that clarification.
Nathaniel Quinn Bolton: Sure.
Operator: Thank you. The next question is from Shadi Mitwalli with Craig Hallam.
Nathaniel Quinn Bolton: Thank you. Our next question is from Shoddy Macquarie with Craig Hallum.
Shadi Mitwalli: Hey, this is shouting that Wally answer to Shannon.
Shadi Mitwalli: I have a two part question here starting off with quantum networking what is <unk> seeing in the market for quantum networking versus computing in the near term.
Shadi Mitwalli: And then do you expect anything material from quantum networking in bookings this year.
Shadi Mitwalli: The answer is that networking seems to be quite strong, you know, going alongside with system sales. And these things...
Shadi Mitwalli: Yeah the answer.
Shadi Mitwalli: Is that networking seems to be quite strong.
Shadi Mitwalli: Going alongside with the system sale and these things are complementary because you know next generation quantum computers are going to be networked together to be able to build larger and larger quantum computers. The.
Shadi Mitwalli: The other pieces is which is kind of new to us as is the quantum communication side.
Shadi Mitwalli: And that also using kind of our base technologies.
Shadi Mitwalli: So you know, we see quite a bit of interest in the networking side, so you'll be hearing more and more about that and it is included in our bookings guidance through the networking portion.
Unknown Executive: Awesome. Thanks for the color on that.
Shadi Mitwalli: Awesome. Thanks for the quick color on that and then I just got a follow up on something that was mentioned last quarter in regards to reducing the time and cost of building a quantum computer.
Unknown Executive: You're able to give some more color on how that will be achieved and no. It is it something external all more supply chain or something done more internally.
Unknown Executive: It's a little of both. One is making the systems themselves more manufacturable. Wherever we can, can we subcontract it out to a contract manufacturer to build a subassembly for us? So that is kind of the ongoing process which is going to happen over the next couple of generations. And in addition, it's just a process inside. We have a group of people who are 100% focused on assembling quantum computers, and so their time is not being interrupted by any kind of having to think about building next generation systems. So we've kind of separated out on the workforce basis.
Shadi Mitwalli: And then I just got a follow-up on something that was mentioned last quarter in regards to reducing the time and cost of building a quantum computer. Are you able to give some more color on how that will be achieved? And you know, is this something in the external supply chain or something done more internally? It's a
Unknown Executive: It's a it's a little of both.
Shadi Mitwalli: You know one is is making the systems themselves more manufacturer level.
Speaker Change: Uh huh.
Shadi Mitwalli: Wherever we can can we solve it out too.
Shadi Mitwalli: You know our contract manufacturer to build them.
Shadi Mitwalli: Sub assembly for us so that is kind of the ongoing process, which is going to happen over the next couple of generations.
Shadi Mitwalli: And in addition, it's just purely process inside we have a group of people.
Shadi Mitwalli: Who.
Shadi Mitwalli: Our our 100% focused on assembling quanta.
Shadi Mitwalli: Quantum computers, and so theyre not being there.
Shadi Mitwalli: Their time is not being interrupted by kind of having to think about building next generation systems. So we've kind of separate it out on the the workforce faces one group, which is does nothing but assemble quantum computers and another group, which is working on now engineer.
Unknown Executive: One group, which does nothing but assemble quantum computers, and another group, which is working on engineering and R&D, and simple things like getting the process repeatable. And of course, as you know, in the past, we might have built one or two systems in a generation. Now, as you just heard, we're building five in Forte Enterprise. And as you would expect, by the time you get to the fifth one, you've gotten better at it, and it's just getting faster. So, you know, we're not quite yet to the Henry Ford assembly line for quantum computers just yet, but, you know, that's where we're trying to head.
Unknown Executive: Engineering and R&D.
Unknown Executive: And you know simple things like getting hitting the process repeatable and of course as you know in the past, we might've built one or two systems in a generation you know now you just heard we're building five in <unk> and <unk> enterprise and as you would expect by the time you get to the first one you've gotten better at it.
Unknown Executive: And she was getting faster so you know we're.
Unknown Executive: We're not quite yet to the Henry Ford You know Assembly line for quantum computers, just yet, but that's what we're trying to head.
Shadi Mitwalli: Awesome, that's all from me, and congrats on a solid quarter.
Speaker Change: Awesome, that's all for me and congrats on a solid quarter. Thank you.
Operator: Our next question is from David Williams with Benchmark.
Shadi Mitwalli: Our next question is from David Williams with benchmark.
David Neil Williams: Hey, good afternoon. Thanks for taking my question. I guess first, Peter, just thinking about the five Forte systems that you're building in Seattle, clearly you've got a lot of confidence if you're going to go and build these systems maybe ahead of the contract. So I guess if you were going to CandyCapper or Qualify, how you're thinking about your contracts and your bookings here, given the investment in those five Forte machines, how would you rank that in terms of maybe I know it's clearly more confident, but it feels maybe more solidified given you're moving forward with the building.
David Neil Williams: Hey, good afternoon. Thanks for taking my question I guess first just thinking about the five <unk> systems that you're building in Seattle, clearly you've got a lot of confidence if you're if you're going to go in building systems. Maybe ahead of the contract. So I guess, if you if you were going to Kenya or qualify how youre thinking about your contracts and your bookings.
David Neil Williams: Here given the investment in the 514 machines, how would you rank that in terms of maybe where you were 90 days ago and it was clearly more confident but it feels maybe more solidified that given you're moving forward with building those yeah.
Peter Hume Chapman: Yeah, no, you're 100% right. The things are not cheap, you know; the parts themselves are not cheap. So, you wouldn't go out and make the expense unless you thought you could sell them. You know, and at the same time, these are big-ticket sales. So, you know, predicting exactly which quarter or something it will appear in is always risky. So, obviously, over some reasonable period of time, we do think that we have a pretty good shot of selling the remaining four, right? We've already sold one. So, it's the remaining four.
Peter: No you're 100% right.
Peter Hume Chapman: Things are not you know the parts themselves are not cheap so you.
Peter Hume Chapman: You wouldn't go out and make the expense unless you thought you could you could sell them.
Peter Hume Chapman: And at the same time. These are big ticket sale, so you know predicting exactly which quarter or something and it will appear in it's always risky so.
Peter Hume Chapman: Obviously over some reasonable period of time, we do think that we have a pretty good shot at selling the remaining four and we've already sold one so.
Peter Hume Chapman: So it's the remaining four.
David Neil Williams: Thanks for the color there. And then, maybe just secondly, you talked about some new application areas that you're particularly excited about, and you gave an example of pharmaceuticals. Can you maybe talk through some of the other areas where you think there's some really great opportunity and maybe where you're most excited?
Speaker Change: Alright, thanks for the color there.
David Neil Williams: And then maybe just secondly, you talked about some new application areas that you're particularly excited about and you gave an example of pharmaceuticals.
David Neil Williams: Maybe talk through some of the other areas, where you think there is some really great opportunity and where are you most excited.
Peter Hume Chapman: So, you know, some of the things which we've already kind of, you know, pointed out, which is obviously quantum machine learning, is something that we continue to believe will be one of the first applications. Pharmaceuticals, in particular, we're very excited about. There's been a lot of recent work at INQ and others in terms of making progress on being able to simulate chemistry. So, you know, we're excited about that work. Optimization is always a sweet spot for, you know, quantum computing.
David Neil Williams: So some of the things, which we've already kind of you know signposted, which is obviously a quantum machine learning.
Peter Hume Chapman: It's something that we continue to believe will be one of the first applications pharmaceuticals in particular, we're very excited about.
Peter Hume Chapman: There's been a lot of recent work at.
Peter Hume Chapman: I think you and others in terms of making progress on being able to simulate chemistry. So.
Peter Hume Chapman: We're excited about that work.
Peter Hume Chapman: Optimization is always a sweet spot for <unk>.
Peter Hume Chapman: So that would be as well. And then, you know, the last one, which is probably, at the moment, maybe the highest speculative, you know, speculative one, which would be strong AI or AI in the more chat-based GPT or better. I'm trying to separate out ML from AI.
Peter Hume Chapman: Quantum so that would be as well and then.
Peter Hume Chapman: The last one which is probably at the moment you know maybe the highest speculative spec.
Peter Hume Chapman: Speculative, one which would be strong AI are.
Peter Hume Chapman: AI and AR and the more like chat GPT are better sense.
Peter Hume Chapman: So I'm trying to separate out ml from AI.
David Neil Williams: Okay, great. Thanks again.
Speaker Change: Okay, great. Thanks again.
Operator: As a reminder, ladies and gentlemen, it's star 1 to enter the question queue. Our next question is from Kevin Garrigan with West Park Capital.
David Neil Williams: As a reminder, ladies and gentlemen, and star 110 to the question queue.
Operator: Our next question is from Kevin Garrigan with West Park capital.
Kevin Garrigan: Yeah, hey guys, let me echo my congrats on all the progress. I'm just wondering if you can give us some color on commercial and enterprise customer adoption for quantum computing. Are any of those types of customers seeing sales expansion in your pipeline as well?
Kevin Garrigan: Yeah, Hey, guys, let me Echo my congrats on all the progress I'm. Just wondering if you can give us some color on commercial and enterprise customer adoption for quantum computing or are any of those types of customers seeing sales expansion in your pipeline as well.
Unknown Executive: I think, you know, all across the board in quantum, if you, you know, if you look kind of what's going on regionally within the United States and across the world, there's quite a bit of investment and interest in systems. And if nothing, that seems to be heating up. So it's certainly a good time to be in quantum at the moment.
Kevin Garrigan: Okay.
Speaker Change: I think you know all across the board in quantum if you.
Unknown Executive: If you look kind of what's going on.
Unknown Executive: Only within the United States and across the World.
Unknown Executive: There's quite a bit of an investment.
Unknown Executive: No.
Unknown Executive: Available in interest in systems.
Unknown Executive: And if nothing that seems to be heating up.
Unknown Executive: No.
Unknown Executive: Alright.
Unknown Executive: Really a good time to be in quantum at the moment.
Kevin Garrigan: Yeah, no, I definitely agree with that. Okay, perfect. And just as a quick follow-up, kind of going off of Quinn's question on the $50 million regarding government opportunities. Are these kind of new opportunities or projects that the government is starting to figure out how to use quantum computers, or are they kind of geared more towards the current computers that the government has just kind of aren't good enough to perform the applications that they're you know that they want, so they're looking to switch to something better such as quantum computing?
Speaker Change: Yeah, I definitely agree with that.
Speaker Change: Okay perfect.
Kevin Garrigan: And just as a quick follow up kind of going off of <unk> question on the $50 million.
Kevin Garrigan: $50 million or regarding the government opportunities.
Kevin Garrigan: Or are these kind of new opportunities or projects that the government are they starting to figure out how to use quantum computers or are they kind of geared more towards you know the current computers that the government has just kind of aren't good enough to over perform the applications out there.
Kevin Garrigan: They want so they're looking at switched.
Kevin Garrigan: Switch to something better such as quantum computing.
Peter Hume Chapman: I think increasingly lots of people, not just, you know, INQ has thought this for quite a long time, but, you know, it's just, you know, we're starting to see people start to say, hey, actually, this quantum thing actually might be real. And so, you know, even the naysayers are actually coming out now and saying, hey, we actually might have useful quantum computing in the near future. And, you know, and that obviously spreads into the government, you know, as well. And so I'm just talking about it broadly, you know, across the entire industry.
Kevin Garrigan: I think increasingly.
Peter Hume Chapman: It's increasingly lots of people not just <unk> for for quite a long time, but you know it's just we're starting to see people start to say hey, actually this quantum thing actually might be real.
Peter Hume Chapman: So you know there are slower than even the naysayers are actually coming out now and saying Hey, we actually might have useful classroom computing in the near future and you know in that that obviously spreads into the government you know us as well.
Peter Hume Chapman: And so and I'm just talking about it broadly you know across the entire industry.
Peter Hume Chapman: So, you know, there's been lots of work recently on fault tolerance as an example that gives people confidence about quantum in general. So, you know, if you were to go back, you know, it's just funny. You go back five years, I've been at the company five years, you know, five years ago, people said, oh, you don't even know you could build a quantum computer. And then it was, oh, you'll never be able to build, you know, a quantum computer with fault tolerance. But we're making progress. It's a, it's a slow process, you know, it's a bit of a slow process, but we're getting there.
Peter Hume Chapman: So theres been lots of work on recently on fault tolerance as an example, it gives people confidence.
Peter Hume Chapman: About quantum in general So you know if you were to go back you know it's funny you go back five years I've been at the company in five years.
Peter Hume Chapman: Five years ago people said, Oh, you don't even though you could build a quantum computer.
Peter Hume Chapman: And then it was all well you'll never be able to build a quantum computer fault tolerant and now we're getting to the point, where it's like Oh that actually looks like that might be reasonable.
Peter Hume Chapman: So we're making progress it's a it's a slow you know it's a bit of a slow process, but were getting there.
Kevin Garrigan: Yeah, no, absolutely not. Okay, perfect. Thanks, guys.
Speaker Change: Yes, no absolutely okay perfect. Thanks, guys.
Kevin Garrigan: Yeah.
Peter Hume Chapman: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Peter Chapman for his closing remarks.
Kevin Garrigan: Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Peter Chapman for closing remarks.
Peter Hume Chapman: I want to thank everyone for joining us today and for all the questions. Finally, I want to thank the entire INQ team for the continued hard work that allowed us to achieve everything we have so far and everything we look forward to in the future. Thanks again, everyone.
Peter Hume Chapman: I wanted to thank everyone for joining us today and all of the questions. Finally, I want to thank the entire inq team for the continued continued diligent work that allowed us to achieve everything we have so far and everything we look forward to in the future. Thanks again, everyone.
Operator: This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Thank you for watching!
Speaker Change: This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Operator: Okay.
Operator: [music].
Operator: ........... BF-WATCH TV 2021