IonQ, Inc.

Greetings. Welcome to the IonQ fourth quarter 2021 earnings call. At this time, all participants are listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jordan Shapiro, VP of Financial Planning and Analysis and Head of Investor Relations. Thank you. You may begin.

Good afternoon everyone and welcome to INQ's fourth quarter and full year 2021 earnings call. My name is Jordan Shapiro and I am the Vice President of Financial Planning and Analysis and Head of Investor Relations here at INQ. I am pleased to be joined on today's call by Peter Chapman, INQ's President and Chief Executive Officer, and Thomas Kramer, our Chief Financial Officer. By now, Everyone should have access to the company's fourth quarter and full year 2021 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 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. We are directed to our press release for reconciliation of such measures to GAAP. Now, before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, please refer to the cautionary statement in today's press release for additional details about these remarks. Please note that these forward-looking statements made during this conference call speak only as of today. Now, I will turn it over to Peter Chapman, President and CEO of INQ. Peter?

Thanks, Jordan, and thank you all for joining us today. I first want to acknowledge the deeply troubling crisis still unfolding in Ukraine. It's a time of great concern for all of us, and it is simply devastating to see the impact it's having on the lives of so many people, including some of our INQ staff members who have family in harm's way. Before I get started, I thought I would share a little history of INQ. When I joined INQ three years ago, the board told me to ignore sales, ignore the competition, and ignore the press. Just focus on building the world's best quantum computer and bring it to market as quickly as you can. In some sense, a field of dreams approach. If you build it, they will come. And that's just what we believe we have done. We believe we have built the world's best quantum computer, as shown in our latest generation IMQ ARIA machine. I tell you this story because it's important to understand where IMQ is in its commercialization efforts and the upside to come. At the beginning of 2021, we had no dedicated sales executives and were selling two 11-qubit machines. Now having finished 2021, I am happy to report that even after tripling our original 2021 contract bookings forecast in September from $5 to $15 million, We beat that number again to end up at $16.7 million for the full year. This resulted in recognized revenue of $2.1 million for the 2022 fiscal year, which was 31% above the $1.6 million we forecasted on the Q3 call. This year, we're starting to stand up our production engineering and manufacturing departments. This group will be responsible for building all commercial quantum computers going forward, including for the first time, selling systems outright to customers, which we anticipate could start shipping as early as 2023. In our outlook today, we have not included any upside related to scaling the sales of these machines. We believe that over the next two years, One or two system sales could push our combined TCV contract bookings over nine figures for the three year period from 2021 to 2023. That said, the quantum industry is nascent, making it hard to predict which quarter particular sales contracts will land. As a result, we expect our contract bookings in the near term to continue to be very lumpy. In 2022, we expect to more than double our sales staff, including our first salespeople in Europe. We are now selling our recently announced R&D machines that are more than 1,000 times more powerful than last year's model. Our forecast for fiscal 22 expects our 2022 revenue to be over $10 million at the midpoint, which will be approximately 5x our 2021 revenue. We estimate full year 2022 bookings at $22 million at the midpoint. This represents a $7 million or 47% increase over our original forecast, which we set out before going public, and a 32% increase from our outstanding 2021 results. Thomas Kramer, our Chief Financial Officer, will go over the rest of our financials in detail shortly. On the technology side, in February, we took a leap forward, not just for INQ, but for the quantum computing industry as a whole. We announced the performance results for our latest generation REM machine. This system achieved a record 20 algorithmic qubits with the independent industry benchmarks from the QEDC. showing that ARIA clearly outpaces every commercially available quantum compute solution today. We are confident that INQ's systems are the best in the world and that we are only furthering our lead. Last week, we were excited to announce that Microsoft customers can leverage the power of INQ's ARIA series quantum computer on Microsoft Azure. We expect this will unlock the creativity of Microsoft application developers worldwide. INQ ARIA is only one part of the story. As part of our plan to scale INQ quantum computers beyond ARIA, we announced in December that we plan to build new systems using barium qubits. Barium qubits have the potential to enable lower error rates and higher gate fidelities which in turn could lead to more accurate and powerful quantum computers. They can also be controlled by visible light lasers as opposed to ultraviolet lasers we use in our uterbium systems. We believe visible light lasers could result in cheaper, more readily accessible components and a promise of faster gate speeds. Another crucial advantage of barium qubits is that they're easier to network together over long distances. Networking quantum systems together is key to making them more powerful and eventually to building a quantum internet. In summary, while ARIA is leading the pack with its uterbium qubits, we believe the addition of barium qubits to power our systems could further our lead in system performance. We believe our investment in barium qubits is already paying off. Earlier this month, we published data from the forthcoming barium-based system showing a 13-fold improvement in state preparation and measurement error, lovingly known as spam error in the industry, one of the key limitations to scaling quantum computers. Expect more exciting news to come from our barium systems later this year. Given the state of the global supply chain, a natural follow-up question might be where do we get enough barium qubits to serve our needs? In February, we announced the results of our public-private partnership with the U.S. Department of Energy's Pacific Northwest National Laboratory to secure a constant supply of barium atoms for our computers. We could not be more thrilled to be working with the esteemed scientists and engineers over at PNNL to make barium-based quantum computers a reality. Next, let's talk about our research and development progress since our last conference call. Last month, INQ announced that together with researchers from Duke University, we outlined a novel method of running a new set of n-qubit quantum gates that operate on many qubits in a single step, including the well-known Toffoli gate. We expect n-qubit gates to lead to substantial breakthroughs in quantum algorithms, making them more efficient and powerful with fewer operations. What's more, this new family of gates can only be run on the proprietary architecture exclusive to our trapped ion computers. Our platform has the most algorithmic qubits in the industry, and now we're enabling those qubits to do even more. We expect these gates to be essential to work across applications such as quantum chemistry, optimization, and machine learning. Last, let me discuss our progress on real-world quantum applications with customers. In January, we were thrilled to announce a new partnership with Hyundai to develop quantum algorithms to simulate battery chemistry for electric vehicles. This work has the potential to greatly enhance charging, discharging, durability, capacity and safety of batteries. With electric vehicle adoption increasing all over the world, battery development is a critical component in the transition to a more sustainable mobility. The Hyundai partnership follows a series of projects on quantum chemistry at INQ. We have previously announced the work with Dow Chemical to demonstrate an end-to-end pipeline for simulating molecules, such as those present in fertilizer creation. Our work with Dow was an extension of previous IMQ efforts to simulate water molecules with our quantum computers. The Hyundai project shows the natural progression of tackling increasingly complex molecules with each project. We believe the experience we gain from manipulating molecules in the new Hyundai partnership will be broadly applicable in related fields such as drug discovery and materials development. In summary, we have confidence in our 2022 contract bookings forecast of $22 million. As we are getting ready to sell full systems over the next couple of years, we believe there is potential for a significant upside for the next 24-month period. Our team is filling out nicely with top talent joining both at the executive and individual contributor level. we're focusing special attention on scaling our sales force. We continue to lead the industry with our technical milestones and are already seeing our endeavor into barium based systems paying off. We are the leader in the cloud quantum computing market as the only company available on all three major platforms and compatible with every major quantum developer language. And although we did not discuss it in detail today, our patent portfolio continues to grow at pace, which we believe will continue to be an asset for decades to come. Between our financial results, technical progress, and significant cash reserves, we believe we are well prepared to maintain our leadership position and drive the adoption of our quantum computing solutions. For more detailed information about ARIA, algorithmic qubits, our barium system, spam error, and the Microsoft announcement, I point you to our website.