IonQ, Inc. (NYSE:IONQ) Q1 2024 Earnings Call Transcript

IonQ, Inc. (NYSE:IONQ) Q1 2024 Earnings Call Transcript May 8, 2024

IonQ, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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. [Operator Instructions] 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. You may begin.

Jordan Shapiro: Good afternoon, everyone. And welcome to IonQ’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 IonQ. I’m pleased to be joined on today’s call by Peter Chapman, IonQ’s President and Chief Executive Officer; Thomas Kramer, our Chief Financial Officer; and Dr. Dean Kassmann, our Vice President of Engineering. 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.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 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. We 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 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 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?

Peter 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. IonQ 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 million to $7.5 million that we discussed in our most recent call. 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. Between our work with customers and our internal research, IonQ is making serious headway towards identifying the first potential production applications of quantum computing.

IonQ operations continue to gain momentum. Our Seattle manufacturing facility is now fully operational and we are already building the first production IonQ Forte Enterprise system that has been sold to a customer. Meanwhile, between new Board members, executives and team members, IonQ continues to hire the leading minds in the quantum computing space. Let’s walk through each area in more detail. First on revenue, IonQ has continued to outperform financially, exceeding the high end of 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 contracts.

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. In our last call, we mentioned that our bookings guidance was impacted due to the uncertainty around the approval of the U.S. 2024 federal budget. 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 QuantumBasel.

We are in various stages of engagement for the remaining four. 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 QuantumBasel. 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 IonQ’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. 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 in 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. Our opinion, and that of others, is that within the NISQ era, applications can be found that can provide commercial advantage 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 from its inception. 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 review on the IonQ 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 through the eyes of our customers and their preference to choose a quantum-based solution over any other alternative. 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 Roetteler, our new Head of Applications join IonQ in March. 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 IonQ, 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 in IonQ 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 IonQ Forte enterprise system that will get shipped to a customer. At the same time, we’re standing up additional infrastructure to manufacture more IonQ 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 QuantumBasel contract that we signed last year. We have IonQ team members on the ground in Switzerland and already assembling components for our first system in this new IonQ Europe data center. That facility will be key for servicing our growing EMEA customer base. While our headquarters in College Park, Maryland and the ecosystem we’ve helped build in the greater DC 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 IonQ. 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 Giamalis. Stacey 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 of the legal aspects of the technology sector, making her the ideal candidate to help scale IonQ’s operations. And with that, I’d like to turn the call over to Thomas for more detailed review of the financials. Thomas?

Thomas Kramer: Thank you, Peter. 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 the access to our systems. 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. In other words, it is difficult to predict quarter-to-quarter or even some cases year-to-year exactly when a particular sale will materialize. The first quarter was such a case, with IonQ having booked $250,000. Our confidence is nevertheless very strong that we will meet our bookings goals for the year.

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. 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 year period, but within our plan for the year. To break this down further, our research and development costs for the first quarter were $32.4 million, up 99% from $16.2 million in the prior year period. Recall that we are investing heavily in R&D and that 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 year period. This increase was due to us growing both our marketing and our sales teams as we continued investing into our commercial efforts. Our general and administrative costs in the first quarter were $14 million, up 33% from $10.6 million in the prior year period. These increases were primarily driven by an increase of $3.7 million in payroll-related expenses. 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. These results include a non-cash 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 headcount growth, which was $22.1 million for the first quarter, compared to $10.3 million in the prior year period.

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. Now, turning to our financial outlook, we are pleased to announce that we will be raising our 2024 bookings guidance to between $75 million 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 million 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. Back to you, Peter.

Peter Chapman: Thank you, Thomas. In summary, we are very pleased with our progress in the first quarter. Our outperformance on revenue and increased confidence on 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 IonQ 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.

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