IonQ, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results. IonQ develops trapped-ion quantum computers and sells cloud access, related consulting, and specialized systems. It remains an early-stage business investing heavily in research and development.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.1 million | $2.8 million | $15.9 million | $7.3 million |
| Operating loss | $42.2 million | $24.9 million | $103.3 million | $62.1 million |
| Net loss | $44.8 million | $24.0 million | $115.9 million | $29.9 million |
| Net loss per share, basic and diluted | $0.22 | $0.12 | $0.57 | $0.15 |
| Cash used in operating activities | Not separately stated | Not separately stated | $52.2 million | $29.8 million |
Revenue grew 122% in Q3 and 118% for the nine-month period, primarily due to new service contracts. Operating expenses rose substantially: nine-month R&D increased 100% to $60.7 million, sales and marketing increased 89% to $11.3 million, and G&A increased 32% to $35.4 million. Management cited higher headcount and compensation, stock-based compensation, materials and equipment, marketing, and public-company professional fees.
Cost of revenue, excluding depreciation and amortization, was $2.0 million in Q3 and $4.9 million year to date. On that basis, gross margin was approximately 67% for Q3 and 69% for the nine months, versus approximately 73% and 72%, respectively, in the comparable periods. These figures exclude depreciation and amortization.
Interest income was $5.0 million in Q3 and $14.1 million year to date, up from $2.1 million and $3.9 million, respectively, largely reflecting higher interest rates. Fair-value changes in public warrant liabilities produced losses of $7.6 million in Q3 and $26.8 million year to date; the comparable 2022 nine-month period included a $28.4 million gain. These mark-to-market changes are volatile and do not represent operating cash flow.
Balance sheet, cash flow, and liquidity
- At September 30, 2023, cash and cash equivalents were $37.1 million; short- and long-term investments totaled $448.0 million. Management reported $485.1 million of cash, cash equivalents, and available-for-sale securities, excluding $2.4 million of restricted cash.
- Total assets were $565.4 million, total liabilities $66.9 million, and stockholders’ equity $498.5 million. The filing reports no borrowings; liabilities include operating leases and $30.6 million of warrant liabilities.
- For the first nine months, operating cash use was $52.2 million, investing activities provided $44.6 million (primarily net security maturities), and financing activities provided $0.8 million. Cash, cash equivalents, and restricted cash ended at $39.6 million.
- Operating lease obligations totaled $15.7 million, with $1.5 million payable within 12 months according to MD&A. The lease maturity table reports $15.7 million of undiscounted payments before imputed interest and lease incentives.
- Accumulated deficit was $310.2 million. Accounts receivable was $3.0 million, while unearned revenue was $5.7 million.
Changes, outlook, and material items
- Management said available liquidity should fund working capital and capital expenditures for at least the next 12 months, while noting this depends on internal projections and changing market and business conditions. The company expects significant losses and higher operating expenses for the foreseeable future and may need additional capital; financing may be unavailable or dilutive.
- IonQ announced a $25.5 million contract with the U.S. Air Force Research Laboratory for two barium-based systems and unveiled future Forte Enterprise (#AQ 35) and Tempo (#AQ 64) systems. It reported achieving #AQ 29 with next-generation barium qubits.
- At its September analyst event, IonQ said it believed error mitigation, rather than full error correction, could support reaching #AQ 64 and commercial advantage for certain applications. Its stated technical target is an #AQ 64 system by the end of 2025; this is a company objective, not a guarantee or formal financial forecast.
- Remaining performance obligations were approximately $73.1 million, including funded and unfunded firm orders; IonQ expected about 35% to be recognized within 12 months. Options not exercised are excluded.
- Revenue concentration remains significant: three customers represented more than 10% of Q3 revenue and two did so for the nine-month period. UMD-related revenue was $1.3 million in Q3 and $3.3 million year to date.
- The securities class action was dismissed with prejudice on September 29, 2023, but plaintiffs filed a post-judgment motion on October 26 seeking to amend their complaint. IonQ said the possible loss, if any, could not be reasonably estimated. A separate Glatt-related matter remains disclosed; management did not expect a material adverse effect.
- Inflation, higher interest rates, supply-chain constraints, geopolitical events, and potential financing difficulties were identified as risks. The company also cited technical, manufacturing, customer-adoption, competitive, key-supplier, customer-concentration, cybersecurity, and intellectual-property risks.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter. IonQ expected to become a large accelerated filer and cease being an emerging growth company on December 31, 2023, increasing compliance requirements and costs.
Important facts for investors to verify
- Whether revenue growth and the $73.1 million remaining-performance-obligation balance convert into delivered, funded revenue, given customer concentration and government-contract risks.
- Cash-burn trends against the $485.1 million reported liquidity, planned R&D and capital investment, and management’s 12-month liquidity assessment.
- Progress toward #AQ 64 by the end of 2025 and evidence supporting the company’s expectations for commercial advantage using error mitigation.
- The effect of stock-based compensation, warrant-liability remeasurement, and equity-award dilution on reported losses and share count.
- Developments in the stockholder litigation motion, the Glatt matter, and the transition to large-accelerated-filer reporting and auditor-attestation requirements.