IONQ, INC. This Quarterly Report on Form 10-Q contains statements that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believes," "expects," "intends," "estimates," "projects," "anticipates," "will," "plan," "may," "should," or similar language are intended to identify forward-looking statements. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under "Risk Factors" in Item 1A herein and in our other filings with theSecurities and Exchange Commission (the "SEC"). All forward-looking statements included herein are made only as of the date hereof. Unless otherwise required by law, we do not undertake, and specifically disclaim, any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise after the date of such statement. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, and our audited consolidated financial statements and related notes for the year endedDecember 31, 2021 , filed with theSEC onMarch 28, 2022 . Unless the context otherwise requires, the terms "IonQ ," "LegacyIonQ " "we," "us," "our" and similar terms refer toIonQ Quantum, Inc. prior to the consummation of theBusiness Combination andIonQ, Inc. and its wholly owned subsidiaries after the consummation of the Business Combination. References to "dMY" refer to the predecessor company prior to the consummation of the Business Combination. Overview We are developing quantum computers designed to solve the world's most complex problems, and transform business, society, and the planet for the better. We believe that our proprietary technology, our architecture, and the technology exclusively available to us through license agreements will offer us advantages both in terms of research and development, as well as the commercial value of our intended product offerings. We sell access to a quantum computer with 20 algorithmic qubits, and we are in the process of researching and developing technologies for quantum computers with increasing computational capabilities. We currently make access to our quantum computers available via three major cloud platforms,Amazon Web Services' (AWS) Amazon Braket, Microsoft's Azure Quantum, andCloud Marketplace , and to select customers via our own cloud service. We are still in the early stages of generating revenue. We have incurred significant operating losses since our inception. Our net losses were$4.2 million for the three months endedMarch 31, 2022 , and we expect to continue to incur significant losses for the foreseeable future. As ofMarch 31, 2022 , we had an accumulated deficit of$150.0 million . We expect to continue to incur losses for the foreseeable future as we prioritize reaching the technical milestones necessary to achieve increasingly higher number of stable qubits and higher levels of fidelity than that which presently exists-prerequisites for quantum computing to reach broad quantum advantage.
The Merger Agreement and Public Company Costs
OnMarch 7, 2021 , Legacy IonQ, dMY andIon Trap Acquisition Inc. (the "Merger Sub") entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, at the closing, the Merger Sub was merged with and into Legacy IonQ, with Legacy IonQ continuing as the surviving corporation following the merger, being a wholly owned subsidiary of dMY and the separate corporate existence of the Merger Sub ceased. Commensurate with the business combination, dMY changed its name toIonQ, Inc. and Legacy IonQ changed its name toIonQ Quantum, Inc. IonQ became the successor registrant with theSEC , meaning that Legacy IonQ's financial statements for previous periods will be disclosed in the registrant's future periodic reports filed with theSEC . While the legal acquirer in the Merger Agreement is dMY, for financial accounting and reporting purposes under accounting principles generally accepted inthe United States of America ("U.S. GAAP"), Legacy IonQ is the accounting acquirer and the merger is accounted for as a "reverse recapitalization" (i.e., a capital transaction involving the issuance of stock by dMY for the stock of Legacy IonQ). A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the Company represent the continuation of the financial statements of Legacy IonQ in many respects. Under this method of accounting, dMY is treated as the "acquired" company for financial reporting purposes. 25
--------------------------------------------------------------------------------
Table of Contents
As a result of the merger, Legacy IonQ is the successor to anSEC registrant and is listed on theNew York Stock Exchange ("NYSE"), which will requireIonQ to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. As a public company, we have incurred and expect to continue to incur, expenses for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Business and Technical Highlights
• Announced a major commercial deal with Hyundai Motor Company to develop
quantum algorithms that may improve the charging, discharging, durability,
capacity, and safety of electric vehicle batteries.
• Highlighted our collaboration with
metal hydrides, which can benefit the development of technologies including
batteries and hydrogen storage for hydrogen powered vehicles.
• Announced that the IonQ Aria system achieved a record 20 algorithmic qubits,
representing a massive leap forward not just for IonQ .
• Announced that IonQ Aria will soon be accessible on Microsoft Azure's Quantum
Cloud, bringing the world's most powerful quantum computer out of private
beta and giving full access to the public. This will enable developers
everywhere to learn about and begin leveraging quantum and demonstrates our
dedication to spearheading access in the industry.
• Recent results showed that
their promise of more accurate quantum computing with a 13-fold reduction in
state preparation and measurement errors.
• Secured a sustainable, perpetual source of barium qubits through a
partnership with the
Laboratory (PNNL).
• Announced the invention of a new family of quantum gates in collaboration
with the Duke Quantum Center (DQC) at
gates will eventually lead to more efficient quantum algorithms requiring
many fewer qubits. Importantly, the gates can only be run using the unique
architecture employed by IonQ and DQC systems.
• We were part of a group of private companies and universities that received a
research and development award from
benchmarking project. While contracting is still being finalized, we are the
only quantum hardware maker selected for this multi-year award.
• In
Forte, the next generation in
ytterbium system that uses
incorporates a new beam-steering technology for the lasers that control its
qubits and is designed to allow
and deliver stable beams which we believe can more precisely address and
encode those qubits. Forte is expected to launch with select developer,
partner, and research access in the second half of this year and broader
customer access in 2023.
• Named as one of TIME's 100 Most Influential Companies, honoring
"New Frontiers" category for the Company's impact across the globe.
• Hired world-class talent, with key positions filled by
General Counsel and Secretary (Intuit's Credit Karma) and Anant Sanchetee as
Senior Director of Marketing (Meta, Dreem).
Impact of COVID-19 on Our Business
InMarch 2020 , the COVID-19 outbreak was declared a pandemic by theWorld Health Organization . There are many uncertainties regarding the ongoing pandemic, and we are closely monitoring its impact on all aspects of our business, including how it impacts our employees, suppliers, vendors, and business partners. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders, and business shutdowns. These measures may adversely impact our employees and operations and the operations of suppliers and business partners. In addition, various aspects of our business cannot be conducted remotely. These measures by government authorities may continue to remain in place for a significant period of time and could adversely affect our development plans, sales and marketing activities, and business operations. The evolution of the virus is unpredictable at this point and any resurgence may slow down our ability to develop our quantum computing program. The ongoing COVID-19 pandemic could limit the ability of suppliers and business partners to perform, including third-party suppliers' ability to provide components and materials. We may also experience an increase in the cost of raw materials. The full impact of the COVID-19 pandemic continues to evolve. As such, the full magnitude of the pandemic's effect on our financial condition, liquidity and future results of operations is uncertain. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry, and workforce.
Key Components of Results of Operations
Revenue
We have generated limited revenues since our inception. We derive revenue from
providing access to quantum-computing-as-a-service ("QCaaS") and consulting
services related to co-developing algorithms on our quantum computing systems.
In arrangements with the cloud service providers, the cloud service provider is
considered the customer and we do not have any contractual relationships with
the cloud service providers' end users.
26--------------------------------------------------------------------------------
Table of Contents
We have determined that our QCaaS contracts represent a combined, stand-ready performance obligation to provide access to our quantum computing systems together with related maintenance and support. The transaction price for our contracts generally includes a variable fee based on usage of our quantum computing systems and may include a fixed fee for a minimum volume of usage to be made available over a defined period of access. Fixed fee arrangements may also include a variable component whereby customers pay an amount for usage over contractual minimums contained in the contracts. For contracts with a fixed transaction price, the fixed fee is recognized as QCaaS subscription-based revenues on a straight-line basis over the access period. The Company has determined that contracts which contain consulting services related to co-developing quantum computing algorithms and the ability to use our quantum computing systems to run such algorithms represent a combined performance obligation that is satisfied over-time with revenue recognized based on the efforts incurred to date relative to the total expected effort. For contracts without fixed fees, variable usage fees are billed and recognized during the period of such usage.
We are currently focused on marketing our QCaaS and have entered into, and are continuing to enter into, new contracts with customers.
Operating Costs and Expenses
Cost of revenue
Cost of revenue primarily consists of expenses related to delivering our services, including personnel-related expenses, allocated facility and other costs for customer facing functions, and costs associated with maintaining our in service quantum computing systems to ensure proper calibration as well as costs incurred for maintaining the cloud on which the QCaaS resides beginning in the period that QCaaS revenue generating activities began. Personnel-related expenses include salaries, benefits, and stock-based compensation. Cost of revenue excludes depreciation and amortization related to our quantum computing systems and related software.
Research and development
Research and development expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility and other costs for our research and development functions. Unlike a standard computer, design and development efforts continue throughout the useful life of our quantum computing systems to ensure proper calibration and optimal functionality. Research and development expenses also include purchased hardware and software costs related to quantum computing systems constructed for research purposes that are not probable of providing future economic benefit and have no alternate future use as well as costs associated with third-party research and development arrangements. Sales and marketing Sales and marketing expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, costs for direct advertising, marketing and promotional expenditures and allocated facility and other costs for our sales and marketing functions. We expect to continue to make the necessary sales and marketing investments to enable us to increase our market penetration and expand our customer base.
General and administrative
General and administrative expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility and other costs for our corporate, executive, finance, and other administrative functions. General and administrative expenses also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, information technology, travel expenses and certain non-income taxes, insurance, and other administrative expenses.
We expect our general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of theSEC , NYSE, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue over time.
Depreciation and amortization
Depreciation and amortization expense results from depreciation and amortization of our property and equipment and intangible assets that is recognized over their estimated lives.
27--------------------------------------------------------------------------------
Table of Contents
Nonoperating Costs and Expenses
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities consists of mark-to-market fair value adjustments recorded associated with the public warrants assumed as part of the business combination. Other income (expense), net
Other income (expense), net consists of income earned on our money market funds and other available-for-sale investments, offset by certain other expenses.
Results of Operations
The following table sets forth our statements of operations data for each of the
periods indicated:
Three Months Ended
March 31,
2022 2021
(in thousands)
Revenue $ 1,953 $ 125
Costs and expenses:
Cost of revenue (excluding depreciation and amortization)
(1) 568 181
Research and development
(1) 7,338 3,654
Sales and marketing
(1) 1,871 227
General and administrative
(1) 9,194 2,956
Depreciation and amortization 1,266 445
Total operating costs and expenses 20,237 7,463
Loss from operations (18,284 ) (7,338 ) Change in fair value of warrant liabilities 13,448
-
Other income (expense), net 609
3
Loss before benefit for income taxes$ (4,227 ) (7,335 ) Benefit for income taxes - - Net loss$ (4,227 ) $ (7,335 )
(1) Cost of revenue, research and development, sales and marketing, and general
and administrative expenses for the periods include stock-based compensation
expense as follows:
Three Months Ended
March 31,
2022 2021
(in thousands)
Cost of revenue $ 104 $ -
Research and development 1,698 454
Sales and marketing 73 -
General and administrative 4,797 977
Comparison of the Three Months Ended
Revenue
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Revenue $ 1,953 $ 125 $ 1,828 1,462 %
Revenue increased by
28--------------------------------------------------------------------------------
Table of Contents
Cost of revenue
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Cost of revenue (excluding
depreciation and amortization) $ 568 $ 181 $ 387 214 %
Cost of revenue increased by
Research and development
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Research and development $ 7,338 $ 3,654 $ 3,684 101 %
Research and development expenses increased by $3.7 million , or 101%, to
$7.3 million for the three months ended March 31, 2022 , from $3.7 million for
the three months ended March 31, 2021 . The increase was primarily driven by a
$2.2 million increase in payroll-related expenses, including stock-based
compensation of $1.2 million as a result of increased headcount, and a $1.0
million increase in materials, supplies and equipment costs.
Sales and marketing
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Sales and marketing $ 1,871 $ 227 $ 1,644 724 %
Sales and marketing expenses increased by $1.6 million , or 724%, to $1.9 million
for the three months ended March 31, 2022 , from $0.2 million for the three
months ended March 31, 2021 . The increase was primarily due to an increase of
$1.1 million of payroll-related expenses, including an increase in stock-based
compensation of $0.1 million as a result of increased headcount, and increased
costs to promote our services and other marketing initiatives of approximately
$0.5 million .
General and administrative
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
General and administrative $ 9,194 $ 2,956 $ 6,238 211 %
General and administrative expenses increased by $6.2 million , or 211%, to
$9.2 million for the three months ended March 31, 2022 from $3.0 million for the
three months ended March 31, 2021 . The increase was primarily driven by an
increase of $4.4 million in payroll-related expenses, including an increase in
stock-based compensation of $3.8 million , primarily due to the issuance of
equity awards during the period, and an increase of $1.1 million in director and
officer insurance costs. The remaining increase is primarily due to additional
costs incurred to operate as a public company and other general and
administrative activities as a result of hiring additional personnel.
Depreciation and amortization
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Depreciation and amortization $ 1,266 $ 445 $ 821 184 %
Depreciation and amortization expenses increased by $0.8 million , or 184%, to
$1.3 million for the three months ended March 31, 2022 , from $0.4 million for
the three months ended March 31, 2021 . The increase was primarily driven by an
increase of $0.3 million due to amortization of capitalized internally developed
software and an increase of $0.4 million in depreciation expense associated with
capitalized quantum computing system costs.
29--------------------------------------------------------------------------------
Table of Contents
Change in fair value of warrant liabilities
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Change in fair value of warrant liabilities $ 13,448 $ - $ 13,448 NM
NM-Not Meaningful
The change in fair value of warrant liabilities increased $13.5 million to $13.5
million for the three months ended March 31, 2022 , from zero for the three
months ended March 31, 2021 , as a result of mark-to-market income adjustments
recorded for the public warrants assumed as part of the business combination.
Other income (expense), net
$ %
Three Months Ended March 31, Change Change
2022 2021
(in thousands)
Other income (expense), net $ 609 $ 3 $ 606 20,200 %
Other income increased by $0.6 million , or 20,200%, to $0.6 million for the
three months ended March 31, 2022 , from less than $0.1 million for the three
months ended March 31, 2021 . The increase was primarily driven by an increase of
$0.8 million in interest income earned on our available-for-sale investments,
offset by other expenses of $0.2 million .
Liquidity and Capital Resources
As ofMarch 31, 2022 , we had cash and cash equivalents of$86.8 million and available-for-sale securities of$499.7 million , with$329.2 million classified as short-term investments and$170.5 million classified as long-term investments. We believe that our cash, cash equivalents and investments as ofMarch 31, 2022 , will be sufficient to meet our working capital and capital expenditure needs for the next 12 months. We believe we will meet longer term expected future cash requirements and obligations through a combination of cash flows from operating activities and available funds from our cash, cash equivalents and investment balances. However, this determination is based upon internal projections and is subject to changes in market and business conditions. We have incurred losses since our inception, and as ofMarch 31, 2022 , we had an accumulated deficit of$150.0 million . During the three months endedMarch 31, 2022 , we incurred net losses of$4.2 million . We expect to incur additional losses and higher operating expenses for the foreseeable future.
Future Funding Requirements
We expect our principal sources of liquidity will continue to be our cash, cash equivalents and investments and any additional capital we may obtain through additional equity or debt financings. Our future capital requirements will depend on many factors, including investments in growth and technology. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies which may require us to seek additional equity or debt financing. Upon the closing of the business combination, we received approximately$636.0 million of gross proceeds. The proceeds are invested in money market funds, commercial paper, corporate and municipal notes and bonds, and otherU.S. government and agency securities as disclosed in Note 3 in our condensed consolidated financial statements. We expect to use these investments to fund our strategic operations. Our primary uses of cash are to fund our operations as we continue to grow our business. We require a significant amount of cash for expenditures as we invest in ongoing research and development and commercialization of our products. Until such time as we can generate significant revenue from sales of our QCaaS, if ever, we expect to finance our cash needs through our cash, cash equivalents and investments, as well as equity or debt financings or other capital sources, including potential collaborations and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our quantum computing technology on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our quantum computing development efforts. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled " Risk Factors ." 30
--------------------------------------------------------------------------------
Table of Contents
Other than operating expenses, including our continued investment in our quantum computers, cash requirements for the year endingDecember 31, 2022 , are expected to consist primarily of capital expenditures for corporate facilities. Our material cash requirements as ofMarch 31, 2022 , include operating lease commitments, including the lease of our headquarters inCollege Park, Maryland . As ofMarch 31, 2022 , we have total operating lease obligations of$6.8 million , with$0.7 million payable within 12 months.
Cash flows
The following table summarizes our cash flows for the period indicated:
Three Months Ended March 31,
2022 2021
(in thousands)
Net cash used in operating activities $ (8,324 ) $ (3,898 )
Net cash used in investing activities $ (304,098 ) $ (2,154 )
Net cash provided by financing activities $ 148 $ 5,363
Cash flows from operating activities
Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development, sales and marketing, and general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities. Net cash used in operating activities during the three months endedMarch 31, 2022 , was$8.3 million , resulting from a net loss of$4.2 million , adjusted for non-cash activity, primarily related to the gain recorded as a result of mark-to-market activity for our public warrants offset by other working capital activities. The increase in net cash used in operations from the prior year period was primarily related to increased research and development activities, increased compensation costs as a result of hiring personnel and increased costs incurred as a public company. Net cash used in operating activities during the three months endedMarch 31, 2021 , was$3.9 million , resulting primarily from a net loss of$7.3 million , adjusted for non-cash charges of$0.4 million in depreciation and amortization and$1.4 million in stock-based compensation. The increase in net cash used in operations from the prior year was primarily related to our increased research and development activities and associated hiring of personnel, partially offset by an increase in accrued expenses primarily driven by legal fees related to the merger with dMY.
Cash flows from investing activities
Net cash used in investing activities during the three months endedMarch 31, 2022 , was$304.1 million , primarily resulting from purchases of available-for-sale investments of$311.2 million , additions of$2.7 million to property and equipment related to the development of our quantum computing systems, offset by cash received from maturities of available-for-sale investments of$10.4 million . Net cash used in investing activities during the three months endedMarch 31, 2021 , was$2.2 million , primarily resulting from additions of$1.7 million to property and equipment primarily related to the development of our quantum computing systems,$0.3 million of capitalized internal software development costs, and$0.2 million of intangible assets acquisition costs.
Cash flows from financing activities
Net cash provided by financing activities during the three months ended
Net cash provided by financing activities during the three months ended
31
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Estimates
This discussion and analysis of financial condition and results of operations is based upon the Company's condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions on revenue generated and reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
There have been no material changes to our critical accounting estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.
Critical accounting estimates are defined as those reflective of significant
judgments, estimates and uncertainties, which may result in materially different
results under different assumptions and conditions. Within our Annual Report, we
have disclosed our critical accounting estimates that we believe to have the
greatest potential impact on our consolidated financial statements.
Historically, our assumptions, judgments and estimates relative to our critical
accounting estimates have not differed materially from actual results.
32--------------------------------------------------------------------------------
Table of Contents
Recently Issued and Adopted Accounting Standards
See Note 2, Summary of Significant Accounting Policies, in the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
© Edgar Online, source
