Greetings, and welcome to IonQ's Inc. Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Jordan Shapiro. Thank you. You may begin.

Good afternoon, everyone, and welcome to IonQ's Third Quarter 2022 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 IonQ. I am pleased to be joined on today's call by Peter Chapman, IonQ's President and Chief Executive Officer; Thomas Kramer, our Chief Financial Officer; Dr. Chris Monroe, our Co-Founder and Chief Scientist; and Dr. Jungsang Kim, our Co-Founder and Chief Technology Officer. By now, everyone should have access to the company's third quarter 2022 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 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 such measures to GAAP. 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 most recent filings with the SEC. Now I will turn it over to Peter Chapman, President and CEO of IonQ. Peter?

Thanks, Jordan. This has been a fantastic quarter, and I'm excited to dive into the details with you. But to start, I'd like to contextualize where IonQ stands today after a year of being public. To date, our system performance has consistently outpaced every other quantum computer available to the public. As you'll hear today, we're continuing to hit our technical milestones, and we believe that we are building the winning approach for quantum computing. We are translating our technology into meaningful business impact for our customers and are currently on track to hit all of our commercial milestones for 2022. We also have a strong balance sheet, which we view as a competitive advantage in the quantum computing industry, especially in this market. While we are disciplined in managing our costs, having this cash allows IonQ to accelerate while others may have to pull back. The market is noticing customers are noticing, governments are noticing and talent is noticing. The results are increasingly clear. IonQ is the place to be for quantum computing. We believe we have a clear plan to continuing leading the quantum industry and to make quantum computing a ubiquitous technology. Our focus is to win the quantum space race by reducing the time to market for quantum computers that rival the best supercomputers. With that context, let's jump into the Q3 results. This quarter was another record quarter on so many levels. First, I'll start with a financial recap. We generated a strong $16.4 million of new bookings. That brings IonQ to $21.2 million of bookings as of the end of the third quarter and puts us firmly on track to achieve our annual bookings number of between $23 million and $27 million. As a result, we expect 50% year-over-year growth in annual bookings based…

Thank you, Peter. Now let's walk through this quarter's financial results in more detail. As Peter mentioned, we had an excellent quarter, recognizing $2.8 million in revenue, which is above the midpoint of the outlook we previously provided. We also exited the quarter with $21.2 million in bookings year-to-date, which puts us on track to hit our previously stated expectation of between $23 million to $27 million for the full year. Given that we are still at the beginning of our commercialization phase, I want to reiterate my comments from our last earnings call that we expect bookings to continue to be lumpy for quite some time. Moving down to the income statement. For Q3 2022, our total operating costs and expenses for the third quarter were $27.7 million, up 156% from $10.8 million in the prior year period, but well within our plan for the year. To break this down further. Our research and development costs for the third quarter were $13.3 million, up 115% from $6.2 million in the prior year period. Recall that we are investing heavily in R&D and given anticipated demand are building more systems than previously projected this year. Our sales and marketing costs in the third quarter were $2 million, up 54% from $1.3 million in the prior year period. This increase was due to us growing our go-to-market function as we continue our investment into our commercial efforts. Our general and administrative costs in the third quarter were $10.1 million, up 304% from $2.5 million in the prior year period. This increase is largely attributable to a growth in stock-based compensation expense, which was $4.5 million for the third quarter compared to $837,000 in the prior year period. All of this resulted in a net loss of $24 million in the third…

Thank you, Thomas. In summary, once again, IonQ is meeting and exceeding all the expectations we have shared with the market. We finished the quarter with $7.3 million in revenue and $21.2 million in bookings year-to-date, putting us on track to hit our financial goals for the full year. Our cash, cash equivalents and investments at the end of Q3 totaled $555.8 million, which we continue to believe will provide us with sufficient runway to get us to profitability without the need to raise additional funds. We achieved our 2022 core technical milestone of 25 algorithmic qubits ahead of schedule. We signed groundbreaking agreements with new customers in both the public and private sector. And despite the turbulent economic conditions currently facing the technology industry, we continue to solidify ourselves as the industry leader, capable of consistently executing on our ambitious vision. To those who have been tracking IonQ for years, we appreciate your support and hope you are pleased with how we have furthered our goals since going public just 1 year ago. So those of you who are new to the IonQ story or have been waiting to dig in, we invite you to join us as we continue to take IonQ and the quantum industry to new heights. And with that, I'd like to have the operator open the line for questions.

[Operator Instructions]. Our first question comes from Quinn Bolton with Needham & Company.

[Technical Difficulty] the multilayer glass trap. What increase in cubic count do you think you'll be able to achieve? And how important is that to getting to the 60% for algorithmic qubit target by 2025?

Chris Monroe, Chief Scientist. So our glass traps will allow us to have multiple zones on a single chip. We call that a multi-core architecture, and that will give us the ability to control many more qubits. And it's basically as simple as that. We know how to add qubits and the -- to get to 64“ algorithmic qubits to get to those numbers, we need higher fidelity, component fidelities on the qubits as well. We know how to make the qubits. It's more about how we control them all. And so the glass traps give us much more flexibility on scaling the number of qubits.

And you mentioned the PIC technology that I think probably involves the lasers used to implement the gates. Is that also -- how important is that new PIC technology to get in at 64 hours.

PIC technology is not immediately needed in the short term, but it's more of a research effort at the company right now. We anticipate needing this for further gains down the line, but not immediately.

Our next question comes from David Williams with Benchmark.

And congrats on all the progress and hitting on the milestones. That's definitely refreshing to see. I guess Peter, maybe first to you and others can jump in. But just Thinking about maybe the balance sheet strength and the bookings that you're receiving, everything is moving in the right direction. But I guess as I think about the landscape and although your technology is a bit different, I think, than most others, I would assume there may be some IP assets or infrastructure or other components out there that could be beneficial to accelerate your progress. And I'm just curious if you're seeing anything in terms of IP or any other maybe ways to consolidate and accelerate your path forward here, if that's something that you would be interested in doing.

It's a great question. And in fact, we are. There's a number of different aspects here. First, it's a difficult environment for sometimes for little start-ups right now. So that provides opportunities for buying, gets some bargain, so to speak. And then the other thing is vertical integration in terms of the hardware itself. And we've started some of that as well. So you expect it in the next year to hear more about that.

Okay. Great. And then maybe -- and you talked about the obvious increase from 6 to the 25 on the qubit or algorithmic qubits. Can you help me understand exactly what that means? It's hard to, I guess, visualize the 500,000 times increase in power. Can you help me understand, are there any metrics you can put around that may be a little easier to wrap my head around?

Maybe Jungsang or Chris, I will talk -- maybe you could talk about how to visualize that one.

Yes, I can help with that. This is Jungsang. So the way we consider the power of quantum computing is in terms of what computational space that is access during the computation, meaning how much -- if you want to model this with classical memory, how much classical memory will be needed to actually finish that computation. And as our quantum computers get more and more powerful, we can actually access exponentially large computational space. We measure that by being the ability to run some benchmark algorithms, and that capability is measured in algorithm qubit. So going from algorithmic qubit of 6 means you can actually run algorithms or 36 qubits some level of complexity and algorithmic qubit of 25 as you're actually now using 25 qubits and running on computation with much deeper complexity and the amount of -- if you were to simulate this with a classical computer, the amount of memory space you would need will have to be about 0.5 million times more to be able to do that. And of course, upon computers do that with the power of quantum.

[Operator Instructions]. Our next question comes from Richard Shannon with Craig-Hallum.

Maybe a quick one on your Air Force Research Lab contract you announced at the end of September. Any way you can describe over what time this might be recognized and is this a ratable recognition. Or are there milestones specifically that could make that revenue recognition somewhat lumpy?

Thomas, do you want to take that?

Absolutely, I can take that. So this is a multiple-element contract, and there are 2 existing parts. One is an access agreement, which will be ratably recognized over 3 years. And the other is where we're helping AFRL build a network node, which will be very important for this entire industry going forward. And that is milestone-based. We will come back with projections for how this is recognized next year on the Q4 call.

Okay. That's helpful. And maybe a follow-on question on this topic here. If I caught it correctly, I think another quantum company also announced a contract with Air Force Research Labs, I think, a few weeks after yours. Can you differentiate what you're doing with them versus what the other company is, how that interoperates or is distinct from what they're doing, please?

So these are very separate agreements, and we have not been involved with this other company. and their agreement.

Okay. That is helpful. I did want to follow up on a previous question on the PIC here, twofold. My first one on my own here is what PIC is this a silicon photonic PIC? Or could you describe it in any more detail? And then in response to the last question, you said it's something down the road here. Can you give us a sense of where that intersection point within your road map that will be required?

Yes. This is Jungsang Kim. The answer, yes, this PIC will be based on, in general, scope of silicon photonics technology. And I think at this point, we are not in a position to guide exactly when this will be intersecting with our future products.

Okay. That's fair enough. My last question, I'll jump on the line since we have both the Jungsang and Chris, I'll ask -- just the progress over the year that you've been public here in terms of qubit arrogate using your trap in technology here. I think one of your thesis founding the company here in the public markets is error rates are better. Maybe if you can quote and summarize the research that you've seen over the last year and where are rates play out versus other technologies and even other companies versions of their technologies and and otherwise, that would be great. That's all for me.

Maybe I'll start real quick. Chris Monroe here. Again, we know with the Ion Trap technology that there is a type of error we expect at some level, and we're not at that level yet. So what that means is all of our errors are not intrinsic to the quantum technology, the qubit itself, they are dominated by the controllers. And for us, that means optics, it means electronics and so forth. And this is all the time why we've had such confidence in our ability to execute on the road map. So over the last year, we've certainly learned that we can exploit the types of errors that we know are there that are dictated by . They're not inherent errors. They're not so-called decoherence. And that means that we can expand the scope of air correction, and there's many different types of ways to mitigate that error. And Jungsang, why don't you step in if you want to add to that?

Sure. So in the research arena, I think we -- including my research group at the University and my colleagues have really had gained a much deeper understanding of what the dominant control aero sources are. And we've also been inventing control techniques to actually overcome those in many different [Technical Difficulty].

I think we lost our speaker.

Yes, I think Jungsang stepped off. But I'm well aware of Jungsang's research in this area, and they've been able to isolate errors to such an extent that we know how to, in a sense, by algorithmic design, make the errors cancel themselves out. And that's one method of what we call air mitigation. And we know air correction is something that we will be deploying as we scale our AQ numbers up. But air mitigation is -- I think it's just another card we can play in taking care of those errors. And to get to your fundamental question, never did we talk about the fundamental errors of our qubits. And because they're , because they're atomic clocks, we're not yet at the level where we're limited by those. So again, we're forging forward and we expect the next few years to continue along that vein.

Our next question is from Kevin Garrigan with WestPark Capital.

Let me echo my congrats on the progress. I apologize for any background noise. I'm in the airport now. So just one quick question for me. Regarding your partnership with Dell, can you give us a sense of how the conversations with Dell went and how you were able to capture that partnership? Do they believe ion-trap is the future for quantum computing architecture? Or is your performance what they were looking for? Any color there would be great.

Yes, I can help with that. I think that the Dell HPC group, in particular, who we've been working with has seen a lot of interest in quantum from people who own HPC systems. This is what is typically called hybrid, quantum supercomputing. And obviously, Dell is a leading player in that marketplace. So they're seeing customer demand. And they reached out to us to inquire if we would be interested in working with them to work on a solution. So for the last roughly year or so, we've been working on the software back and forth between the 2 of us to get the software ready to go so that the hardware would be working together. And at Super Compute '22 is the -- is the combination of that, which is going this week. And you'll see us in the Dell booth talking about hybrid compute. Also, hybrid compute this marriage between supercomputers and quantum computers is a large focus of the DOE in terms of what to do next after the exoscale project. So it's also an important area for government and obviously for industry going forward.

Our next question is from [indiscernible].

This is Trevor on for Quinn Bolton. He had to jump. But real quick, on the second ARS system, can you give us a timeline on when that is going to be finished? And will this likely be the last ARIA system being built?

Yes, I can take that. The next ARIA system will be ready roughly towards the end of your first quarter is when it will start to come online. And then this will probably be the last ARIA system that we built. After this, it will be Forte and other technologies, rather – we built the second one for both redundancy and also be able to hit customer demand.

Okay. And do you expect the glass trap to help fidelities at all? Or is that more for just the scaling?

Chris or Jungsang, would you like to take that?

Yes, I can take that, Chris, here. No, we don't -- in fact, the trap itself, that is the electrodes that can find the atoms, they have almost no impact on the performance of the quantum system. And again, this harks back to the advantage of having suspended individual atoms. The electrodes are miles away atomically speaking. They're almost a fraction of a millimeter away and atoms are very small thing. So having different electrode structures really don't affect the qubit directly. It's all about ease of control, being able to I think of it like the magnetically levitated train, the train tracks are not directly influencing the performance of the trains. And that's really what we have here.

Awesome. And then just one quick one. Did Harmony's AQ increase as well like it did last quarter?

Not that no, we brought it up to an EQ of 6, but that's where it stays today. It would probably need hardware modifications to get better.

We've read the end of the question-and-answer session. I'd now like to turn the call over to Peter Chapman for closing remarks.

Well, just thanks, everyone, for your time today. It's obviously been a fantastic quarter. We'll look to close out the year. We believe, obviously, that both on our projections for recognized revenue and bookings will be successful. And we look forward to talking with you at the -- for the Q4 call in the spring. Thanks, everyone. Appreciate the time.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.