IonQ Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 8 speakers on the call.

Operator

Welcome to the IonQ Second Quarter 2023 Earnings Call. At this time, all participants are

Speaker 1

in a listen only mode.

Operator

A question and answer session will follow the formal presentation. Please note this conference is being recorded. At this time, I'll turn the conference over to Jordan Shapiro, Vice President, FP and A and Head of Investor Relations. Jordan, you may now begin.

Speaker 2

Good afternoon, everyone, and welcome to IonQ's Q2 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 IonQ. I am pleased to be joined on today's call by Peter Chapman, our President and Chief Executive Officer Thomas Kramer, our Chief Financial Officer and Doctor. Jungseang Kim, our Co Founder and Chief Technology Officer. By now, everyone should have access The company's Q2 2023 earnings press release issued this afternoon, which is available on the Investor Relations section of our website at investors.

Speaker 2

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 information for investors, the presentation of this information is During the call, we will discuss our business outlook and make forward looking statements. These comments are based on management's predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC.

Speaker 2

Now I will turn it over to Peter Chapman, President and CEO of INQ. Peter?

Speaker 1

Good afternoon, everyone, and thank you for joining our Q2 2023 earnings call. It's been another outstanding quarter here at INQ, as we continue to push ahead and further our lead over our competitors. We finished the quarter with $5,500,000 in revenue, which was well above the high end of our guidance range of $4,100,000 to $4,500,000 At the same time, we built upon our momentum in the private sector by closing our first major deal designed to put not just one, But 2 generations of future iNQ systems in Europe. This commercial milestone brings our year to date bookings to 32,000,000 and puts us in striking range to achieve our previously stated goal of $100,000,000 in cumulative bookings during the 1st 3 years of our commercialization efforts. As we'll discuss, this quarter's success gives us the confidence to once again Raised the midpoint of our bookings guidance for the full year from our previous outlook of $50,000,000 up to $52,500,000 Our momentum here at INQ is accelerating with our groundbreaking technical progress driving our commercial wins.

Speaker 1

Last quarter, we shared that our team had already accomplished our technical goal for 2023 over 7 months ahead of schedule By achieving a record breaking 29 algorithmic cubits or AQ on our INQ Forte system, We have added approximately 1 AQ per month on average since going public in September 2021. With 8Q29 achieved, we are now focused on reaching 8Q35 and 8Q64. Building on that technology success, we have now closed INQ's largest commercial deal to date. In June, we announced that we will be partnering with Quantum Basel, a Switzerland based industry group To bring 2 of our future systems to Europe, these systems will follow our technical roadmap with the first one expected to reach AQ35 and the second system expected to reach up to AQ64. We plan to use these systems to serve European Industry, Government Entities and Research Institutes with local access to IonQ's powerful quantum systems.

Speaker 1

The beauty of this partnership is that as our first planned on premise hardware project in Europe, we will retain some capacity on each system allowing us to serve other prospective customers in the region from our new European data center. Our Quantum Basel partnership is significant to I and Q in a few ways. First, we noted in prior earnings calls The large sale could create a significant boost in INQ's near term bookings. This is such a sale. Additionally, this partnership represents our first deal involving future INQ systems and is a strong third party validation of INQ's ambitious technical roadmap.

Speaker 1

Looking forward, at AQ64, INQ Quantum Computers will be able to explore a useful computational space of 2 to the power of 64 for running quantum algorithms. In a fraction of a second, this system will be able to explore A computational space of 18 quantillion. As a reminder, a quantillion is 1 with 18zeros after it. To put that in perspective, the Frontier supercomputer at Oak Ridge National Laboratory can calculate 1.1 At 8Q64, classical computers will no longer be able to Fully simulate an iNQ system and as a result, we believe these systems will enable customers to tackle certain problems But even the best classical supercomputers can't solve, we currently expect to deliver AQ64 by the end of 2025. We are committed to achieving Quantum Advantage and believe we can reach this at AQ64.

Speaker 1

Though the technical challenges on the road to this goal are significant, our team is pursuing more than one path to arrive at this historic milestone, which enhances our confidence in doing so. While these milestones are just around the corner, we are seeing belief in our roadmap Driving tangible commercial adoption for INQ today. We believe INQ is the only public company today that is executing against a roadmap that can deliver these technical results and sell systems in this time period. We are seeing increased demand for INQ systems and we now hope to sell a number of systems over the next 18 months in various configurations based on customer needs. Our guidance for this year is a probability weighted average of our pipeline It already accounts for the 2023 portion of these potential sales.

Speaker 1

Thomas will provide more details on our guidance later in the call. At Quantum World Congress on September 27, we will share a more detailed technical roadmap and upcoming product details. We will live stream this presentation, and I encourage anyone interested in learning more about our roadmap or accessing our upcoming systems Please use the link in our press release to sign up for the broadcast. Additionally, we are excited to be hosting an Analyst Day from our College Park office next month with presentations that will also be live streamed via our website. Stay tuned to our investor website for more details on registering for the Analyst Day.

Speaker 1

To prepare customers to use the upcoming systems on our roadmap, we're working with forward looking groups to help get their work As an example, we recently signed a memorandum of understanding with South Korea's Ministry of Science or ICT, to become a core provider of quantum education for Korean students, researchers and industry professionals. We also had the honor to meet with South Korea's President to discuss how INQ Quantum Computing might be able to accelerate the nation's economy. We could not be more thrilled to partner with the South Korean government on this initiative. We believe customers across the globe are partnering with INQ seeking access to our powerful new systems in order to prepare for the potential of our near term AQ64 systems. In June, we took another step towards broad accessibility of our platform When we announced that INQ Forte and the full power of its IQ29 is available to all our customers worldwide via direct access.

Speaker 1

Previously, this machine was only available to select partners, but now, iNQ Forte can be accessed by any of our direct customers. Last week, we published a manuscript with our partners at Oak Ridge National Laboratory On modeling the benzene molecule, benzene is a commonly used industrial solvent and its molecular structure is a widely used benchmark Clearly, we have had another strong quarter as we continue to expand to additional institutions around the world. Last quarter, we delivered on our promise of 8Q29, 7 months ahead of schedule. And now we have translated that progress phenomenal bookings growth. We believe INQ has a clear path to scale with buy in from institutions and corporations around the world.

Speaker 1

We could not be more optimistic about the future of INQ and quantum computing as a whole. Now, I'd like to turn over the call to Thomas for a more detailed review of the numbers. Thomas?

Speaker 3

Thank you, Peter. Before we dive into our financial results, we are pleased to announce that in addition to our groundbreaking partnership with Quantum Basel, We will be opening up our 1st European corporate office also in Switzerland. This location will allow us to service future customers In the European region, it represents a major milestone in the international expansion of IonQ operations. Now, let's walk through this quarter's financial results in more detail. As Peter mentioned, We had an excellent quarter, recognizing $5,500,000 in revenue, which was above the high end of the outlook We previously provided.

Speaker 3

This reflects us being able to complete work ahead of schedule for some of our milestone dependent revenue. We exited the quarter with $32,200,000 in bookings year to date, representing excellent progress Towards our newly revised expectations of between $49,000,000 to $56,000,000 for the full year. While we already increased our bookings range in June, our pipeline of new business has come into clearer focus since that time. Thus, we consider it prudent to raise the range again to accurately reflect what we believe is the most likely weighted average outcome for our bookings In 2023, given that we are still at the beginning of our commercialization phase, I want to reiterate my comment from previous earnings calls That we expect bookings to be continued to be lumpy for quite some time. Moving down the income statement.

Speaker 3

For Q2 2023, our total operating costs and expenses For the Q2 were $38,600,000 up 79% from $21,500,000 in the prior year period, but well within our plan for the year. To break this down further, our research and development costs for the 2nd quarter We're at $19,900,000 up 106 percent from $9,700,000 in the prior year period. Recall that we are making significant investments in R and D and given anticipated demand, are especially Our sales and marketing costs in the 2nd quarter were $3,600,000 up 68% from $2,100,000 In the prior year period, this increase was due to us growing our go to market functions and bringing on additional sales In the Q2 were $10,900,000 up 45% from $7,600,000 in the prior year period. All of this has resulted in a net loss of $43,700,000 in the 2nd quarter compared to $1,700,000 in the prior year period. It's important to note that these results include a non cash loss of 15 $500,000 for the 2nd quarter related to the change in fair value of our warrant liabilities.

Speaker 3

As a reminder, these warrants are sitting on our balance sheet as a result of our business combination in 2021. When our stock price increases, the change in fair value contributes to a steeper GAAP net loss. Conversely, when our stock price decreases, we see a lower GAAP net loss. And importantly, we that these non cash gains and losses are less helpful for investors looking to understand INQ's operational performance, which is why at this stage in our growth, we believe adjusted EBITDA is a more helpful metric. We saw an adjusted EBITDA loss for the Q2 of $19,400,000 compared to an $11,600,000 loss In the prior year period, note that we projected an adjusted EBITDA loss for the year of $80,500,000 So accounting for this quarter's loss, we believe we are still on track to hit our prior 2023 projection.

Speaker 3

Turning now to our balance sheet. Cash, cash equivalents and investments as of June 30, 2023 We're $509,200,000 We continue to believe that this cash position, which we understand to be the strongest of any public Quantum Pure player, Position us well to execute on our current roadmap with the current nascent industry structure. Now turning to our Q2 and full year 2023 outlook. We are pleased to increase our revenue outlook for the full year 2023 To a range of $18,900,000 to $19,300,000 This represents our expectation that we will be able to Delivery against milestones on some of our customer contracts throughout the year. We are also introducing 3rd quarter revenue guidance between $4,800,000 $5,200,000 As we mentioned, we are increasing our bookings outlook for the full year 2023 To a range of $49,000,000 to $56,000,000 And with that, I would like to turn the call back over to Peter.

Speaker 1

Thank you, Thomas, and thank you to everyone who has joined us today and of course to the entire INQ team around the globe who continue to push forward on our mission of a quantum future. Now, I'd like to hand the call over to our operator for Q and A. I'd just like to say that and I should have said this earlier, but I wanted to say thank you to Thomas The rest of the management team for all their hard work. The company is executing very well. I very much look forward to the years ahead and working with this team to continue and accelerate our progress.

Speaker 1

I'll now turn over the call for Q and A.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Please proceed with your questions.

Speaker 4

Hey, good afternoon and congrats to Peter and Thomas and the team. You guys are doing a great job, but congrats on the progress.

Speaker 3

Thank you, David.

Speaker 4

I guess maybe first comments, when we think about you mentioned multiple potential in the next 18 months. How should we think about that in terms of maybe a more realistic way to think about how many machines you could potentially sell and what

Speaker 3

We gave our guidance for this year and we will come back to our guidance for next year on the Q4 call. But recognize that we are accelerating our sales and we're doing We don't know exactly how many machines we will sell at any given point in time. What we Do know is that we have a lot of inbound requests for this. And we actually We have seen this much faster than what we thought. As you recall, when we went public, we talked mostly about access via the cloud.

Speaker 3

And we said that it would become realistic one day to be selling machines and putting them on premise. We're just seeing that happening a lot faster than what we

Speaker 1

thought. Okay.

Speaker 4

So I appreciate the help there. And then can you maybe quantify or can you maybe quantify the magnitude of the interest you've had, not just on the purchases, but maybe just since you really say Q29 and the progress that you've had, I guess over the last 6 months, How have you seen the inbound interest improve? And is there a way to quantify that in terms of what level of interest you're seeing?

Speaker 1

I guess what I would answer here is, as we get closer to 8Q64, it's Clear that there's a lot of interest there. We're well as we said, we're well beyond simulation at that point. And so customers are starting to recognize that that's going to be what I would say is kind of Quantum's Chat GPT moment, if you will, if you know what that means, kind of people are going to wake up to Quantum. So we're seeing that and it's now We're starting to see that excitement come through in terms of inbound.

Speaker 4

Okay. Just one last one, if I can. When you're speaking with customers, is there a if there is hesitation, what do you think causes customers Not move forward, or what do you hear most often as reasoning? It seems like everyone would want to move this direction, but do you ever hear, I guess, what are the negatives or what makes somebody not want to move forward? Is it expense, is it cost or just lift?

Speaker 1

What I would say is it's probably like Sam Altman over at OpenAI, 2 years before ChatGPT, there was a lot of people at that point who said that AI was never going to happen. And so, turn up, they were wrong. So we still have disbelievers in our industry as a large, But we continue to execute against our tech roadmap, just as what we said we were doing. And so we will continue doing that. We're very confident in it.

Speaker 4

Thank you for the time and again congrats.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Quinn Bolton with Needham. Please proceed with your questions.

Speaker 5

Hey, guys. I'll echo the congratulations on another strong quarter, both technically and on the sales front. I guess, Thomas, now that you've had the Quantum Bezel transaction Sort of behind you for a month or 2, can you walk us through sort of how the accounting works? Is it sort of rev rec on shipment? Is it Percentage of completion because it will take a little bit of customization and it's not all delivered at one time.

Speaker 5

And then a related question is, As you sell these systems, will there be sort of like an annual service and maintenance contract that could actually represent A recurring revenue sale alongside of the hardware?

Speaker 3

Absolutely. So While we actually haven't earned out the accounting quite yet because this will extend into several periods into the future, We have a pretty good idea of how it's going to look for the remainder of this year. And we are actually starting up with an contract so that they can familiarize themselves with the power of our flavor of quantum computing before they actually have an on prem flavor of the Sensiob Complete, because of us also having the opportunity to, resell some of this capacity ourselves and using this as a go to market entry point for Europe with localized service. We will get back to that probably already on the next call when we can get into more details of how the recognition will work. But there will be ongoing service already today, but that will be remote.

Speaker 3

When we install the systems on premise in Europe, we will also have ongoing maintenance and actually people on the ground there.

Speaker 5

Perfect. And then for Peter, you guys hit, AQ29, 7 months in advance. You've been Sort of advancing AQs about 1 per month. So hitting 35, seems like you're well on track and we've got Still multiple months left in this year, so maybe even surprises on timing of 8Q35. But I guess as I look forward to 8Q64, That seems like it's where you might start to achieve Quantum Advantage on certain applications.

Speaker 5

It's obviously an acceleration in the 8Qs per month. And so How are you feeling about hitting AQ64 in 2025? What are the biggest milestones? Is it the laser system? Is it The type of ion you're using in the ion traps, what are kind of the biggest challenges to hitting 8Q64 in a couple of years' time?

Speaker 5

Thank you.

Speaker 1

Well, first is we do feel quite confident about hitting it in 2025. And we have kind of here customer validation By Quantum Basel buying one of those machines, which is great. Justin, if there is a technical challenge, I don't want Just to make it sound like it's easy, but it is out back. They kind of have taken all the various Technical challenges and have multiple approaches to be able to de risk the roadmap. So for So outback, there's kind of an appropriate risk analysis that's going on and we're investing in different ways to do it to be able to make sure that we hit that milestone.

Speaker 1

So and It is a whole range of things, everything from quality of lasers to optics. It runs the gamut. So but we are very confident in hitting it, just like we've done so far, hitting our roadmap. Just like we've done so far, hitting our roadmap into the future.

Speaker 5

Great. Thank you.

Operator

Our next question is from the line of Trevor Janovsky with Goldman Sachs. Please proceed with your questions. Yes.

Speaker 6

Hi, all. This is Trevor. Thanks for letting me ask some questions here and congrats on all the progress. So just to start with a clarification, with bookings being $28,000,000 in the quarter and the Quantum Basal System sales equaling $28,000,000 Does this mean there were no other bookings in the quarter? Or how should we think about this?

Speaker 3

It does not mean that. The reason is due to rounding and also foreign currency conversion, but it does mean of course that the majority of the bookings

Speaker 6

Okay. Yes, that makes sense. And another one on the systems. So with your quantum basal agreement for 2 systems being $28,000,000 I guess we can infer about $14,000,000 for each system give or take, but you're also managing 50% of these systems. Does that mean that the ASP of a single system could be $28,000,000 if you're not managing all of it Or any of it at all?

Speaker 6

And what could the gross margin be for a single system sale where you are not co managing the system?

Speaker 3

That's an excellent question. I think the let's go backwards. The gross margin Shouldn't be all that different because when you sell 100%, we aim to use the same pricing model for the second 50%. And when it comes to the actual pricing, there's a lot of different elements that goes into this. I mentioned already that Quantum Basel is already up and running on a remote access to our current service here in the U.

Speaker 3

S. And we will also have service and maintenance on the ground. And we prefer not to break out The specific elements and their pricing, but you're in the right ballpark. These are not cheap machines, which I think we alluded to in an earlier call And we said that we do large deals and we look forward to doing more.

Speaker 1

But for Trevor, for you, we're willing to Set you up with a machine at a reasonable price right now. You can drive it off the line as we're speaking. I'll just add a little bit to that is we have customers in the pipeline here who have different needs And so there's different pricing. For instance, there's companies now which are working on quantum networking and they have different needs and those will be priced differently. They're not looking for AQ64 systems, they're looking for quantum memory to build quantum networks and the future quantum Internet.

Speaker 1

So Each customer is a little different and the pricing is a little different based on what the customer wants.

Speaker 6

Okay. And one more, If I may, so are these customers that are coming to you that are interested in system sales, are they mostly considering 35 and 64 AQ like Quantum Basil or is there also interest in Your ARIA-twenty 9 as well.

Speaker 1

In terms of system sales, Usually these are, as you know, kind of big ticket items that you have to run through a budget year and also a manufacturing cycle. So people are usually looking forward by at least a year and so they're looking at the roadmap. So what I would say is People very much are interested in AQ64. They know they can't get that delivered next year. So then They're thinking, well, can I get access to an AQ35 system, so I can get started and start programming and get my application started?

Speaker 1

But people are really I think we see lots of excitement for AQ64 Systems.

Speaker 6

Awesome. Thanks for the color guys.

Speaker 3

Thank you.

Operator

The next question is from the line of Kevin Garrigan with Westpark Capital.

Speaker 7

Yes. Hey, Peter and Tom, let me echo my congrats on the strong results. Going off of David and Trevor's questions about kind of customer interest, since you launched Forte for commercial use For everyone, can you kind of give us a sense on how many new commercial customers you signed up since and any to point out?

Speaker 3

So, happy you asked that question. As you know, we already have commercial customers on that system since late last And we continue to work with several customers on it. What we also want to make sure It's for everybody else to know that we're open for business and we welcome all incoming calls right after this earnings call.

Speaker 7

Okay. Got it. Yes, that makes sense. Okay. And then just as a quick follow-up, with the announcement of The partnership with Quantum Basel and you guys providing 2 systems, can you give us an update on how things are progressing with your manufacturing facility in Seattle?

Speaker 1

Yes, very much so. So, as you know, probably when you're building a factory, the very first thing you have to do is get building permits. And so we were lucky enough to get those not too long ago. And so construction is Hot and heavy as we speak in Bothell, Washington. And we expect to see this fall the first phase of Construction come to completion and we've already got, I think, roughly 40 people in Seattle.

Speaker 1

So they will start to be reporting to the Bothell office starting this fall. And it is just to let you know, it's the timeline. We're hitting our timelines and It's also on budget as well. Little did anyone know, but we're also a construction company as well. So we We're basically managing building of a manufacturing facility as well.

Speaker 3

Yes. If I might add, this is probably my 20th office build up. And I was just there a couple of weeks ago, and it's beautiful. Like it's Very, very well done. It's orderly.

Speaker 3

Like when I started building out offices, there was not a hard hat insight. And now in order to actually even have a walk through, you put on a vest, you have a nice little hard hat with the ON Q logo on. It's being done very, very professionally, and look forward to the day when we can cut the ribbon.

Speaker 7

Yes, we're all looking forward to that as well. Okay, great. I appreciate the color. Thanks, guys.

Speaker 1

Likewise.

Operator

Thank you. At this time, we've reached the end of the question and answer I'll turn the call over to Peter Chapman for closing remarks.

Speaker 1

Thank you everyone for joining us this afternoon. We look forward to the exciting times ahead for INQ and to seeing you at our Analyst Day and Quantum World Congress. Thanks, everyone. Thank you. Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Remove Ads
Powered by Quartr
Earnings Conference Call
IonQ Q2 2023
00:00 / 00:00
Remove Ads