IonQ, Inc. (NYSE:IONQ) Q2 2023 Earnings Call Transcript August 10, 2023
IonQ, Inc. reports earnings inline with expectations. Reported EPS is $-0.16 EPS, expectations were $-0.16.
Operator: Greetings. Welcome to IonQ's Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this is conference is being recorded. At this time, I will turn the conference over to Jordan Shapiro, Vice President, FP&A, Head of Investor Relations. Jordan, you may now begin.
Jordan Shapiro: Good afternoon, everyone, and welcome to IonQ's second quarter 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 Dr. Jungsang Kim, our Co-Founder and Chief Technology Officer. By now, everyone should have access to the company's second quarter 2023 earnings press release issued this afternoon, which is available on the Investor Relations section of our website at investors.ionq.com. Please note that on today's call, management will refer to adjusted EBITDA, which is a non-GAAP financial measure.
While the company believes this non-GAAP financial measure provides useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our press release for a reconciliation of adjusted EBITDA to its closest comparable GAAP measure. During the call, we will discuss our business outlook and make forward-looking statements. These comments are based on 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. Now, I will turn it over to Peter Chapman, President and CEO of IonQ.
Peter?
Peter Chapman: Good afternoon, everyone, and thank you for joining our second quarter 2023 earnings call. It's been another outstanding quarter here at IonQ, as we continue to push ahead and further our lead over our competitors. We finished the quarter with $5.5 million in revenue, which was well above the high end of our guidance range of $4.1 million to $4.5 million. 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 two generations of future IonQ systems in Europe. This commercial milestone brings our year-to-date bookings to $32 million and puts us in striking range to achieve our previously stated goal of $100 million in cumulative bookings during the first three years of our commercialization efforts.
As we'll discuss, this quarter's success gives us the confidence to once again raise the midpoint of our bookings guidance for the full year from our previous outlook of $50 million, up to $52.5 million. Our momentum here at IonQ is accelerating with our groundbreaking technical progress driving our commercial wins. Last quarter, we shared that our team had already accomplished our technical goal for 2023 over seven months ahead of schedule, by achieving a record-breaking 29 algorithmic qubits or AQ on our IonQ Forte system. We have added approximately one AQ per month on average since going public in September 2021. With AQ 29 achieved, we are now focused on reaching AQ 35 and AQ 64. Building on that technology success, we have now closed IonQ's largest commercial deal to date.
In June, we announced that we will be partnering with QuantumBasel, a Switzerland-based industry group to bring two of our future systems to Europe. These systems will follow our technical roadmap, with the first one expected to reach AQ 35, and the second system expected to reach up to AQ 64. We plan to use these systems to serve European industry, government entities, and research institutes with local access to IonQ's powerful quantum systems. 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 datacenter. Our QuantumBasel partnership is significant to IonQ in a few ways.
First, we noted in prior earnings calls that a large sale could create a significant boost in IonQ's near-term bookings. This is such a sale. Additionally, this partnership represents our first deal involving future IonQ systems and is a strong third-party validation of IonQ's ambitious technical roadmap. Looking forward, at AQ 64, IonQ quantum computers will be able to explore a useful computational space of two 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 quintillion. As a reminder, a quintillion is one with 18 zeros after it. To put that in perspective, the Frontier supercomputer at Oak Ridge National Laboratory can calculate 1.1 quintillion floating point operations for a second.
At AQ 64, classical computers will no longer be able to fully simulate an IonQ system, and as a result, we believe these systems will enable customers to tackle certain problems that even the best classical supercomputers can't solve. We currently expect to deliver AQ 64 by the end of 2025. We are committed to achieving quantum advantage and believe we can reach this at AQ 64. 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 IonQ today. We believe IonQ 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 IonQ 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 and it already accounts for the 2023 portion of these potential sales. 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 to 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. To prepare customers to use the upcoming systems on our roadmap, we're working with forward-looking groups to help get their workforces and economies ready for quantum. 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 IonQ 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 IonQ, seeking access to our powerful new systems in order to prepare for the potential of our near-term AQ 64 systems.
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In June, we took another step towards broad accessibility of our platform when we announced that IonQ Forte and the full power of its AQ 29 is available to all our customers worldwide via direct access. Previously, this machine was only available to select partners, but now IonQ 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 to evaluate quantum chemistry algorithms. We believe our work with Oak Ridge represents the most accurate benzene model run on a quantum computer to date. 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 AQ 29, seven months ahead of schedule, and now we have translated that progress to phenomenal bookings growth. We believe IonQ has a clear path to scale with buy-in from institutions and corporations around the world. We could not be more optimistic about the future of IonQ 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?
Thomas Kramer: Thank you, Peter. Before we dive into our financial results, we are pleased to announce that in addition to our groundbreaking partnership with QuantumBasel, we will be opening up our first European corporate office also in Switzerland. This location will allow us to service future customers in the European region and 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 $5.5 million in revenue, which was above the high end of the outlook we previously provided. This reflects us being able to compete work ahead of schedule for some of our milestone-dependent revenue.
We exited the quarter with $32.2 million in bookings year-to-date, representing excellent progress towards our newly revised expectations of between $49 million to $56 million for the full year. While we've already increased our bookings range in June, our pipeline of new business has come into clear 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 comments from previous earnings calls that we expect bookings to be -- continue to be lumpy for quite some time. Moving down the income statement. For Q2 2023, our total operating costs and expenses for the second quarter were $38.6 million, up 79% from $21.5 million in the prior year period, but well within our plan for the year.
To break this down further, our research and development costs for the second quarter were at $19.9 million, up 106% from $9.7 million in the prior year period. Recall that we are making significant investments in R&D and given anticipated demand, are especially focused on investing in our manufacturing capabilities to build more systems than previously anticipated in the near-term. Our sales and marketing costs in the second quarter were $3.6 million, up 68% from $2.1 million in the prior year period. This increase was due to us growing our go-to-market functions and bringing on additional sales and support personnel as we continue our investment into our commercial efforts. Our general and administrative costs in the second quarter were $10.9 million, up 45% from $7.6 million in the prior year period.
All of this has resulted in a net loss of $43.7 million in the second quarter, compared to $1.7 million in the prior year period. It's important to note that these results include a non-cash loss of $15.5 million for the second quarter related to the change in fair value of our warrant liabilities. 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 find that these non-cash gains and losses are less helpful for investors looking to understand IonQ'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 second quarter of $19.4 million, compared to an $11.6 million loss in the prior year period. Note that we projected an adjusted EBITDA loss for the year of $80.5 million. So accounting for this quarter's loss, we believe we are still on track to hit our prior 2023 projection. Turning now to our balance sheet. Cash, cash equivalents and investments as of June 30, 2023, were $509.2 million. We continue to believe that this cash position, which we understand to be the strongest of any public quantum pure player, positions us well to execute on our current roadmap with the current nascent industry structure. Now turning to our second quarter and full year 2023 outlook. We are pleased to increase our revenue outlook for the full year 2023 to a range of $18.9 million to $19.3 million.
This represents our expectation that we will be able to accelerate delivery against milestones on some of our customer contracts throughout the year. We are also introducing third quarter revenue guidance of between $4.8 million and $5.2 million. As we mentioned, we are increasing our bookings outlook for the full year 2023 to a range of $49 million to $56 million. And with that, I would like to turn the call back over to Peter.
Peter Chapman: Thank you, Thomas, and thank you to everyone who has joined us today and of course to the entire IonQ 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&A. I just like to say that and I should have said this earlier, but I wanted to say thank you to Thomas and 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. I'll now turn over the call for Q&A.
