IonQ, Inc. Q1 FY2025 Earnings Call

Hello, and welcome to the IonQ First Quarter 2025 Earnings Call. Please note this event is being recorded. I would now like to turn the conference over to our host today, Jessica Hocken Allen. Ma'am, please go ahead.

Good afternoon, everyone, and welcome to IonQ's first quarter 2025 earnings call. My name is Jessica Hocken Allen, and I am a member of the Investor Relations team here at IonQ. I'm pleased to be joined on today's call by Niccolo de Masi, IonQ's Chief Executive Officer; Peter Chapman, our Executive Chairman; Thomas Kramer, our Chief Financial Officer; Jordan Shapiro, our President and General Manager of Quantum Networking; and Dean Kassmann, our Senior Vice President of Engineering and Technology. By now, everyone should have access to the company's first quarter 2025 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 the 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 our 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 10-Q that we have filed with the SEC today. 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, Executive Chairman of IonQ.

I would like to begin today's call by covering some of the high-level themes. First allow me to say that I've been delighted with the seamless transition to Niccolo as our CEO. We have been able to divide and conquer this quarter to accomplish a tremendous amount precisely as I had hoped and our Board envisioned. I was delighted to represent IonQ in both Japan and Korea for World Quantum Day. We signed an MOU with G-QuAT, a division of AIST in Japan, to work towards bringing our quantum compute to this great new market. We also signed an MOU to begin an exciting partnership with Toyota Tsusho and with Intellian in Korea to begin work on quantum networking in space. At NVIDIA's GTC, we showcased progress with AstraZeneca and Ansys, where we demonstrated a 12% simulation time improvement using their engineering design software. IonQ's path to tens of thousands and ultimately millions of qubits is to photonically interconnect qubits across the network to run applications across multiple QPUs acting as one large single quantum computer. This has been our plan since the company's inception. Quantum computers offer potentially game-changing solutions to many of today's largest problems. But like many new technologies, there is a dark side too. With a large enough quantum computer, one of the earliest known quantum applications is factoring prime numbers. Factoring prime numbers, or more specifically, the difficulty for classical computers to do so, is the basis for much of today's technical infrastructure to encrypt data widely used to secure the Internet and other digital systems. Computers are used as the books and records for modern life, and quantum computers will put that all at risk. As we work towards building such a quantum computer, we have the responsibility to provide solutions to protect society from the negative aspects of quantum. With our previous acquisitions of Entangled Networks, Qubitekk, and a majority stake of ID Quantique, we announced our intention to be the leading player in quantum networks and to build the next generation of the Internet that is quantum safe. Our interest in distributed quantum computing using photonic interconnects is highly synergistic with our plans for quantum networking and the quantum Internet. And our interest in quantum networking is highly synergistic with quantum computing. To build the next generation of the Internet, all the same pieces of hardware need to be developed from building intersatellite communications from satellite to the ground, frequency down conversion to a commercial fiber across the ground, routed by quantum optical switches to their final destination, and in military applications, all the way over the air to drones on a battlefield. This is our vision. Under Niccolo's leadership, we have today decisively accelerated our quantum computing roadmap as well as our capabilities to create the quantum Internet. IonQ's architecture and ecosystem allow unique synergies with today's addition of what I believe is the world's leading quantum memory solution. I am proud of the pace at which Niccolo has commenced his tenure as CEO and his ability to bring out the best of our leadership, the Board and indeed IonQ as a rapidly growing public company. It's with this context that I will give the floor over to Niccolo to discuss today's latest announcements.

Thank you, Peter, and thank you all for joining us today. Let me begin by saying I've had a fantastic first 70 days at IonQ. I want to sincerely thank all of our shareholders, customers, and team members for their warm welcome and enthusiastic support. I have now completed my listening tour of all stakeholders, and I'm pleased with the reinforcement of our technical and commercial priorities this has provided. In short, IonQ is focused on being the leading quantum computing and networking company. Our top two priorities in 2025 are delivering on revenue expectations for the year and delivering AQ 64. We have some amazing people at IonQ globally in all functions, but particularly our physicists and engineers who have worked hard on our systems and are now reaching the inflection point they have always envisioned. We will always prioritize and ensure that at all times, the world's greatest quantum talent makes a tone at IonQ. I want to warmly welcome our newest colleagues in Geneva, Switzerland, and Seoul, South Korea at ID Quantique. We closed our purchase of our majority stake on April 30, and we are excited to have the ID Quantique pioneers and leading practitioners of quantum networking, headed up by Gregoire Ribordy, as part of the IonQ family. In order to coordinate our roadmap and global quantum Internet strategy, we today congratulate our colleague Jordan Shapiro on his promotion to become IonQ's first President and General Manager of Quantum Networking. Jordan has been instrumental in both our Qubitekk and ID Quantique acquisitions, and we look forward to his continued strategic contributions to our growth. We are indeed in the business of quantum and believe that running applications and delivering commercial advantage for our customers is our North Star. As many of you have seen, we've had a busy quarter expanding our ecosystem and delivering on yet more global firsts. Peter outlined our expanding traction in Asia this quarter. I would add to these achievements our selection by DARPA for its Quantum Benchmarking Initiative. We are all proud that in Q1, we sold a Forte Enterprise system to EPB of Chattanooga, Tennessee. EPB and its visionary CEO, David Wade, have been pioneers in bringing new technologies to their constituents. Most well-known, perhaps, is their blisteringly fast fiber, which was well ahead of its time and continues to provide the local economy with a foundation for growth. EPB already has a quantum network powered by our Qubitekk team. Last month, EPB purchased half of the compute capacity of a Forte Enterprise system for $22 million, bringing our latest quantum computer to their city and customers. This makes EPB the first commercial customer with both a quantum network and computer. We look forward to working with EPB in their broader ecosystem, including Oak Ridge National Laboratory, to pioneer energy grid distribution optimization, as well as support entrepreneurs building their startups in Chattanooga on IonQ's quantum computer and quantum network. We celebrated National Quantum Day at the New York Stock Exchange last month and unveiled two quantum machine learning breakthroughs from our applications teams for the industrial AI sector. Our own internal research in quantum AI is showing very encouraging signs of improving prediction accuracy in large language models as well as using quantum data analysis with sports data to highlight performance gaps. Today, we're also proud to announce two exciting acquisitions that accelerate our commercial quantum computing roadmap, extend our leadership in quantum networking, and position IonQ to play a key role in creating the quantum Internet. I consider today's acquisitions to fundamentally evolve the chessboard in quantum even more in our favor, increasing IonQ's leadership in the business of quantum. We laid out a roadmap when we went public to become the leader in quantum computing by scaling our systems using our unique quantum networked multicore architecture. Our organic investments in this interconnect led to our AFRL contract last year and expansion worldwide in quantum networking via Qubitekk and ID Quantique. We're delighted today to announce the proposed acquisition of Boston-based Lightsynq. Lightsynq's founders built the first-ever quantum repeater capable of extending the range of quantum networks, a key technology enabling the quantum Internet. Lightsynq's core mission is to use the same memory technology to build the world's best quantum interconnects that link IonQ's quantum processors at high speed. Lightsynq was spun out of Harvard University Research in AWS by its remarkable Co-Founders, Mihir Bhaskar, Bart Machielse, and David Levonian. The team is deeply impressive and will make an immediate contribution towards achieving our technical milestones by its quantum memory, IP expertise, and architecture. Lightsynq owns or controls over 25 patents and patent applications, which will add to IonQ's robust patent portfolio upon closing of the transaction. A key synergy for IonQ is that Lightsynq's technology is expected to accelerate IonQ's existing photonic interconnect activities and enable our commercial systems to scale to tens of thousands and eventually millions of qubits. The Lightsynq architecture is uniquely powerful and will underwrite our quantum computing leadership for decades to come. The parallels are strong, so I would not be surprised if, in the fullness of time, Lightsynq becomes as accretive for IonQ as Mellanox has been for NVIDIA. Equally exciting and importantly, Lightsynq's technology will also power the future quantum Internet by allowing repeaters to ultimately be spaced over 100 kilometers apart. Last year, a pioneering paper of theirs was published demonstrating over one second storage time and over 35 kilometers of deployed fiber. Our commitment to creating the quantum Internet underlies our second announcement today. As Peter previewed in his opening remarks, today we unveiled the continued expansion of our networking vision to incorporate the most vulnerable portions of our world's modern communications. Our Qubitekk team members began forging a path for us in this direction organically, once they formally became part of IonQ. Peter signed a pioneering MOU with Intellian last month to begin work on quantum key distribution, also known as QKD in space. Having seen the tremendous reception from our government agencies, researchers, and commercial customers, we recognized the need to accelerate our quantum computing capabilities in the vital frontier of satellite communications. China has announced progress on QKD in space, and it is imperative for economic and national security that we lead in all dimensions, theaters, and segments of quantum networking. To accelerate our organic plans for quantum networking and someday also quantum computing in space, we announced the planned acquisition of Colorado-based signals platform Capella. This acquisition will bring IonQ a platform of capabilities for signals, communications payloads, and top-secret contracting expertise. Capella's well-known leader, Frank Backes, will head up IonQ's quantum space initiatives and will also bring an injection of top-secret cleared personnel, a facility security clearance, and strong three-letter agency relationships around the globe. IonQ systems are already leading the world in manufacturability and cloud access. Today's expansion brings IonQ new growth vectors for our customers to benefit from, as well as complementary expertise and world-class team members. I couldn't be more proud of our team's effort in my first 70 days and the speed at which we've been able to bring these unique networking and computing accelerants into the fold. Moving on now to Q1 financials at a high level. We're pleased to have delivered a solid quarter and start to 2025, above the midpoint of our revenue guidance range for Q1. Thomas will cover our results and details in our guidance in a few minutes, but I'll say upfront that the geopolitics of our age are a net benefit to IonQ. We ended the quarter with just shy of $700 million in cash equivalents. We have a fortress balance sheet and are investing to win and truly become the leader in quantum. Our investments are not only to accelerate our quantum computing and quantum Internet roadmaps, but to ensure that IonQ is the only ecosystem any customer needs in the business of quantum. Every commercial customer, researcher, student, and government lab that learns on IonQ, we expect will stay on IonQ. Our early mover advantage will compound as our ecosystem breadth and depth grows relentlessly. I look forward to updating you later in the year as we close and integrate today's acquisitions. Whether on the ground or in space, IonQ solutions are poised to be there and lead. We believe our now near-boundless photonic interconnect scalability provides IonQ customers with the winning quantum computing and internet ecosystem, not just this decade, but we expect for the entire 21st century. I am pleased to now hand you over to my colleague, Jordan Shapiro, to say a few words about our quantum networking plans.

Thank you, Niccolo. I look forward to taking on a larger role in shaping the future of IonQ and the quantum industry as a whole. We have a fundamental strength in quantum networking at IonQ, being the only quantum computing company that planned on utilizing it to scale from day one, which has led to a clear advantage as we recognize the early commercial potential of this field. Quantum networking will naturally be the foundation of the quantum internet, which will be a watershed achievement in creating a worldwide ultra-secure communications grid. We've made several crucial acquisitions of some of the most advanced quantum networking companies in the world, first, Entangled Networks, followed by Qubitekk, then a majority stake in IDQ, now Lightsynq and Capella. I was involved in the conception and execution of each acquisition. Now I am excited to take the next steps towards the quantum internet by connecting our customers' quantum computers and data centers together to transmit secure communications and allow for massively powerful blind quantum and distributed compute. Now I'd like to hand the call over to our CFO, Thomas Kramer.

Thank you, Jordan, Peter, and Niccolo. It has been a truly exciting quarter on the commercial front, and our financials are no exception. Let's walk through this quarter's financial results in more detail. As Niccolo mentioned, we had a solid quarter, recognizing revenue of $7.6 million, beating the midpoint of the guidance we previously provided. Moving down the income statement, our total operating costs and expenses for the first quarter were $83.2 million, up 38% from $60.5 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 $40 million, up 23% from $32.4 million in the prior year period. Recall that we are investing heavily in R&D and growing our R&D headcount to support our roadmap and customer commitments. Our sales and marketing costs in the first quarter were $8.6 million, up 28% from $6.7 million in the prior year period. This increase was due to us growing both our marketing and sales teams as we continue investing in our commercial efforts. Our general and administrative costs in the first quarter were $23.8 million, up 70% from $14 million in the prior year period. These increases were primarily driven by an increase in payroll-related expenses. All of this resulted in a net loss of $32.3 million in the first quarter, compared to a $40 million net loss in the prior year period. Accounting for warrants can be confusing, so we have always pointed out the impact they have on our results. This Q1 loss includes a non-cash gain of $38.5 million for the first quarter related to the fair value of warrant liabilities. This is a pure accounting artifact that is not representative of the operating performance of our business. These results also include growth in stock-based compensation expense related to our headcount growth, which was $33.3 million for the first quarter compared to $22.1 million in the prior year period. We saw an adjusted EBITDA loss for the first quarter of $35.8 million compared to a $27 million loss in the prior year period. As Niccolo mentioned, we are making additional investments to accelerate our roadmap as well as entering new segments of the market, and we expect to continue to invest in the ecosystems that support our customers. Given our expansion, we are also prioritizing bringing acquired entities up to U.S. public company reporting standards. All of this means we expect to see an increase to our cost basis for the year. We envision this increasing our adjusted EBITDA loss previously projected by approximately 35%. Turning now to our balance sheet. Cash, cash equivalents, and investments as of March 31st were $697.1 million. Continuing on to our financial outlook, we are reaffirming our revenue guidance for the full year 2025 and expect revenue for the second quarter of between $16 million and $18 million. Back to you, Niccolo.

Thanks, Thomas. We at IonQ have begun 2025 with strong momentum. To recap, we announced a fantastic accelerant to both our quantum networking and quantum computing roadmaps, the proposed acquisition of Boston-based Lightsynq, whose quantum memory is leading globally and whose team are almost all Harvard researchers. We announced a proposed acquisition of Colorado-based Capella, bringing IonQ a platform of capabilities for QKD in space, top-secret contracting expertise, and building the quantum internet. We've successfully sold another cutting-edge Forte Enterprise system, which will be used to establish the first quantum computing and networking hub in partnership with EPB. And we have moved on to the first stage of DARPA's quantum benchmarking initiative. Forte Enterprise now offers global access and increased quantum computing capacity through AWS, empowering customers with real-world business-oriented solutions. Our technical excellence shined at NVIDIA's GTC, where our collaboration with Ansys outperformed classical methods for real-world applications, while our AstraZeneca partnership advances drug discovery, demonstrating quantum's impact in multi-billion dollar markets. Closing our acquisition of ID Quantique solidifies our global dominance in quantum networking. I'm privileged to lead IonQ with the support of our talented team as we advance the quantum revolution and our commercialization leadership. I'm also highly confident the acquisitions announced today will evolve the chessboard of quantum significantly even more in IonQ's favor, ensuring our long-term leadership in both quantum computing and creating the quantum internet. IonQ now benefits from an accelerated path to tens of thousands of qubits and a clear path to millions of qubits. Long-distance quantum repeaters allow the quantum Internet to be built. Operator, please hand the call over now for Q&A.

And today's first question comes from David Williams with Benchmark.

Hi, good afternoon, everyone. Thanks for taking my questions and congratulations on all of the success here this quarter for the entire team there. Maybe first, if we're kind of thinking about these acquisitions that you've made and your recent acquisitions, but also the ones that you just closed. Can you maybe give us any update on in terms of the revenue we should expect from that or maybe any of these across the cost structure that we should think about for our models there? Thanks.

We believe that the actions we've taken will significantly enhance our ability to increase revenue in the future in ways that resemble what you have already observed. We also are confident that this will be accomplished in an accretive manner. Our gross margins are strong. In the interim, while we make these investments, we may need to fund some of them when expenses exceed revenues. However, this is a relatively small amount compared to the three outstanding companies we have announced for acquisition. We previously indicated that our revenue guidance for the year encompasses both organic and inorganic sources, and we anticipate these will play a crucial role in generating revenue moving forward.

Great. Thanks. Appreciate the color there. And then maybe secondly, if you could just kind of help me understand the quantum internet and how do you maybe envision that playing out longer-term into the future? Thanks.

Yes. A significant development today involves existing quantum networks in Chattanooga with EPB and SK Telecom that are currently being used for commercial purposes. However, these networks face limitations due to the absence of repeaters, restricting them to about 20 miles due to signal loss. To cover greater distances, repeaters are necessary, and that's where Lightsynq's quantum memory technology will make a difference. This technology will enable us to build networks that can span much longer distances. For instance, we aim to connect Chattanooga to Oak Ridge National Labs, which is approximately 100 miles away. Currently, achieving that distance would require about four or five repeaters. With Lightsynq, this connectivity can become a reality soon, making it a vital component of our strategy. Additionally, the other acquisition focuses on space-based technology. There's a growing need to establish quantum networks in space, connecting satellites to each other and to ground stations, with enhanced security through QKD networks. The acquisition of Capella equips us with the necessary infrastructure to develop hardware suitable for the unique challenges of the space environment, which differs greatly from standard data center conditions. Capella's expertise in creating hardware that can operate in such harsh environments will be crucial. Ultimately, we plan to leverage our experiences in these environments and offer solutions to other communication satellite companies seeking to secure their communication frameworks. In summary, gaining access to real-world settings through ID Quantique in South Korea, Qubitekk with EPB, and now Capella in space, enhances our capacity to ensure that our technology performs effectively outside of laboratory settings. All these efforts are aimed at expanding our capabilities and ensuring reliable operation in real-world conditions.

Great. Thanks so much for the help and all the color and best of luck on the quarter. Thanks.

Thanks, David.

Thank you. And the next question comes from Quinn Bolton with Needham.

Hi, guys. This is Shadi on for Quinn. Thanks for taking my questions and congrats on all the exciting announcements. Starting with the Lightsynq announcement, you guys highlighted the importance of the quantum repeaters, but just curious if there was any other technology or IP that drove the acquisition.

So, there's actually multiple aspects here, which is, we said it was synergistic to the quantum compute side in the things that we've done with photonic interconnects before required two photons to come together at exactly the same time. And with this, quantum memory allows the photon to be held for some period of time and to be matched up with the other photon to be able to do entanglement. And so this will also not only be for quantum repeaters but also for our compute strategy and doing distributed quantum computing. So we'll increase the throughput of the connectivity of the systems and the error rates that we get therein. And so, it's significant kind of from both sides of the house; both from the quantum networking and also for the quantum compute side.

I'd say, it's all sides of the house. It works on the ground, it works above the ground, helps our computing roadmap, helps our quantum internet roadmap. So it's really quite a remarkable synergistic fit for us.

Got it. Yes, lots of interesting stuff there. And then my follow-up is on the development with EPB. It sounds like the two of you had an established quantum network, which ultimately led to the development of the quantum center. So just curious, if IonQ can quantify the number of quantum networks it currently has. And then if you're able to talk about who or how many different providers these networks span?

Yes, this is Jordan. We today have four quantum networks, including via our acquisition of ID Quantique, and these are serving Defense, the U.S. Air Force that we're building. They're serving EPB in the enterprise and energy sector. They're serving SK Telecom and Singtel in South Korea and Singapore, respectively, both in the telecom sector. So, a diverse set of customers and a diverse set of use cases building on top of these quantum networks.

And those are commercial quantum aspects. Obviously, the company itself has other quantum networking up and running internally as well.

Awesome. Thanks for all the color, and congrats on the progress.

Thank you.

Thank you. And the next question comes from Tyler Anderson from Craig-Hallum Capital.

Hi, guys. This is Tyler Anderson on for Richard Shannon, and congrats on the quarter. So I know Lightsynq has really good dimming quality and error correction capabilities. And I believe they can connect to neutral atoms and ion traps. Could you highlight which modalities they're able to connect to and for which capability you plan on integrating your PICs for? Is this the frequency conversion? And then with the error correction capability, with your capabilities, is this going to be a Gen2 device when it comes out?

Great question. This is Dean Kassmann. So just to clarify, the diamond kind of memory is based off of diamond silicon vacancies. Those vacancies have long coherence times, which is what makes them attractive for both the computing as well as the networking side. They have been able to mature that technology over the last, I would say, three years to five years to where they have been, as you said, able to look at integrations with multiple modalities. So any modality that needs a photon to be able to transmit over fiber, the overall quantum memory can be used with. And so there is a frequency conversion component to make that work. But the frequency conversion technology that they have is very well matured, very robust, and it's very performant. And so at this point, we're looking to leverage both the frequency conversion technology as well as the core quantum memory capabilities into all of our product work, our computing, our photonic interconnects, as well as the networking side.

And if you remember, last year at AFRL, we won a contract to go do frequency conversion pieces and also the optical switch, just other pieces of the story. And those two were one of the things that we would do with that is to make it work with multiple modalities. So obviously with ions and in our modality, but also other modalities as well.

All I would add to that is you raised a strategic question obviously behind, I guess, the question upfront, which is, license standalone business plan is obviously probably different than what it is as part of IonQ. So we're going to be prioritizing, of course, our machines and our technical roadmap. I think it's sort of priority one and two will be that. Probably three or four, we'll discuss whether or not we want partnerships with other modalities. But most interestingly, with Lightsynq beyond our own quantum computing roadmap is, of course, some of their existing customer partnerships on the networking side and quantum Internet side. And a number of those are confidential, but you should assume that they run into the same sorts of customers that Jordan just mentioned a few seconds ago with ID Quantique. They also run into some of the three-letter agency players from Capella. So, really quite happy with the strategic flexibility we're getting from this deal, as well as the optionality and acceleration we're getting from them as well.

Awesome. And then just very quickly, so I can ask a follow-up. Is this going to be a Gen1 or 2 device for repeater?

I'm not right now ready to speak to the kind of generation of the hardware, right? We have to go through integration activity of their technology with ours. We already have worked internally, and so it's not something I'm speaking to at the moment.

How are you defining Gen1 and Gen2?

Error correction. Can you guys hear me?

Understood. I think we're still communicating that larger product component and the different generations in our upcoming discussion on our networking roadmap.

Could you explain how Capella's signals enhance your platform? I've noticed deployments with IDQ in the EU, which I believe are ground stations. The hearing today emphasized the importance of these space capabilities. Can you discuss the size and growth potential of the space-based network opportunity?

We'll defer to how we described last quarter about the networking opportunity, which we and McKinsey believe, based on a recent McKinsey report on quantum networking, is as significant as quantum computing. We anticipate that some of this will be land-based and some will be space-based.

And I'll just add a little bit too, which is Capella has an application today that is revenue-generating. And it's commercial, but it's also military. On the military side, we would like to have secure communications. That would be an added benefit to their capability. So our first kind of, not only will this give us access to an environment to get the hardware to work in space, but it also gives us our first application and first customers to validate this in a real-world application. That's revenue-generating.

Yes, I believe you are right that the current geopolitical situation supports everything IonQ is pursuing. There is a need for sovereign and local systems, which is consistent across all regions where we collaborate with friendly governments. The licensing aspect will also benefit our business. From my viewpoint, as you mentioned, the first and second generations will play a crucial role in our scaling strategy moving forward. We have a comprehensive integrated technical roadmap in place, which we will share more details about in the future.

Awesome. Well, thank you, guys. I'm very happy we're seeing repeater on the call. Congratulations on everything, and congratulations, Jordan.

Thank you.

We'll see you at the next launch.

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to Niccolo de Masi for any closing remarks.

Thank you. Well, let me just thank everyone for joining us on our call today. And of course, I want to thank our team for all of their hard work and our shareholders for their support. We look forward to speaking with you soon and updating the entire financial community on our next earnings call. Thank you, and have a good afternoon.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.