What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-28 · 47 added, 56 removed, 185 unchanged (36% of the section changed)

2 unchanged sentences

All statements contained in this Annual Report 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.

The words “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” “could,” 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.

9 unchanged sentences

References to “dMY” refer to the predecessor company prior to the consummation of the Business Combination.

We are developing quantum computers designed to solve some of the world’s most complex problems, and transform business, society and the planet for the better.

This section provides an analysis of our financial condition and results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023.

A discussion of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2023, filed on February 28, 2024, which is available free of charge on the SEC's website at www.sec.gov and our investor relations website at investors.ionq.com.

We are developing quantum computers and networks designed to solve some of 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.

Today, we sell specialized quantum computing hardware together with related maintenance and support.

Today, we sell specialized quantum computing and networking hardware together with related maintenance and support.

We also sell access to several quantum computers of various qubit capacities and are in the process of researching and developing technologies for quantum computers with increasing computational capabilities.

1 unchanged sentence

This cloud-based approach enables the broad availability of quantum-computing-as-a-service (“QCaaS”).

We supplement our QCaaS offering with professional services focused on assisting our customers in applying quantum computing to their businesses.

We supplement our offerings with professional services focused on assisting our customers in applying quantum computing and networking to their businesses.

We also expect to sell full quantum computing systems to customers, either over the cloud or for local access.

We also offer quantum networking products which offer customers secure communication networks and enable networked quantum computing.

We are still in the early stages of commercial growth.

1 unchanged sentence

Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and further commercialization of our quantum computing systems.

Our net losses were $157.8 million and $48.5 million for the years ended December 31, 2023 and 2022, respectively.

Our net losses were $331.6 million, $157.8 million and $48.5 million, for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024, we had an accumulated deficit of $683.7 million.

We expect to continue to incur significant losses for the foreseeable future as we prioritize reaching the technical milestones necessary to achieve an increasingly higher number of stable qubits and higher levels of fidelity than presently exists—prerequisites for quantum computing to reach broad quantum advantage.

We expect to continue to incur significant losses for the foreseeable future as we prioritize reaching the technical milestones necessary to achieve an increasingly higher number of algorithmic qubits and higher levels of fidelity than presently exists—prerequisites for quantum computing to reach broad quantum advantage.

The Merger Agreement

4 unchanged sentences

and Legacy IonQ changed its name to IonQ Quantum, Inc.

the successor registrant with the SEC, meaning that Legacy IonQ’s financial statements for previous periods have been disclosed in the registrant’s periodic reports filed with the SEC.

IonQ became the successor registrant with the SEC, meaning that Legacy IonQ’s financial statements for previous periods have been disclosed in the registrant’s periodic reports filed with the SEC.

Impact of the Macroeconomic Climate on Our Business

The recent trends towards rising inflation may materially adversely affect our business and corresponding financial position and cash flows.

Inflationary factors, interest rates and overhead costs may adversely affect our operating results.

1 unchanged sentence

economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or continue to rise) on our operating costs, including our labor, due to supply chain constraints, consequences associated with bank failures, geopolitical tensions in and around Ukraine, Israel and other areas of the world, and employee availability and wage increases, which may result in additional stress on our working capital resources.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the future on our operating costs, including due to supply chain constraints, consequences associated with bank failures, geopolitical tensions in and around Ukraine, Israel and other areas of the world, and employee availability and wage increases, which may result in additional stress on our working capital resources.

Key Components of Results of Operations

We have generated limited revenues since our inception.

We derive revenue from contracts associated with the design, development, construction and sale of specialized quantum computing hardware together with related services, from contracts providing access to QCaaS, and from 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.

We derive revenue from contracts associated with the design, development, construction and sale of specialized quantum computing hardware together with related maintenance and support, from contracts providing access to QCaaS, and from consulting services related to co-developing algorithms on 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.

Certain of our contracts contain multiple performance obligations, most commonly in contracts for the sale of specialized quantum computing hardware together with related maintenance and support.

7 unchanged sentences

In limited situations, for certain contracts executed in prior years, when the standalone selling price was not known, due to it being either highly variable or uncertain, we allocated the transaction price using the residual approach.

Estimates related to standalone selling price have not had a material impact on revenue recognized in recent periods.

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.

1 unchanged sentence

Fixed fee arrangements may also include a variable component whereby customers pay an amount for usage over contractual minimums contained in the contracts.

For performance obligations related to providing QCaaS access, fixed fees are recognized on a straight-line basis over the access period.

Variable usage fees are recognized in the period they occur.

We have determined that contracts that 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.

3 unchanged sentences

Factors considered in these estimates include our historical performance, the availability, productivity and cost of labor, the nature and complexity of work to be performed, the effect of change orders, availability and cost of materials and the effect of any delays in performance.

For performance obligations related to providing QCaaS access, fixed fees are recognized on a straight-line basis over the access period.

We are currently focused on marketing our QCaaS and consulting services and have entered into, and are continuing to enter into, new contracts with customers.

We have also engaged with certain prospects who are interested in purchasing entire quantum computers, either over the cloud or for local access.

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.

Cost of revenue also includes hardware costs for construction of specialized quantum computing hardware.

Cost of revenue primarily consists of expenses related to construction of specialized quantum computing hardware and delivery of our services, including personnel-related expenses, hardware costs, allocated overhead 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.

Personnel-related expenses include salaries, benefits, and stock-based compensation.

1 unchanged sentence

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.

Research and development expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated overhead 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.

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 a 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, commissions, 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.

Sales and marketing expenses consist of personnel-related expenses, including salaries, commissions, benefits and stock-based compensation, costs for direct advertising, marketing and promotional expenditures and allocated overhead 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 consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated overhead 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, 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 the SEC, 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.

We expect our general and administrative expenses to increase for the foreseeable future as we scale our support functions with the growth of our business.

Depreciation and amortization

6 unchanged sentences

Other income (expense), net

Other income (expense), net consists of gains and losses that arise from fluctuations in foreign currency exchange rates, realized losses on our available-for-sale investments, and certain other nonoperating expenses.

Other income (expense), net consists of gains and losses that arise from fluctuations in foreign currency exchange rates and certain other nonoperating expenses.

Income tax benefit (expense)

30 unchanged sentences

Cost of revenue increased by $12.5 million, or 154%, to $20.6 million for the year ended December 31, 2024, from $8.1 million for the year ended December 31, 2023.

The increase was driven primarily by the increase in labor costs to service contracts, as well as the increase in materials costs for arrangements to build specialized quantum computing hardware, for the year ended December 31, 2023.

The increase was driven primarily by an increase in hardware costs used in the construction of specialized quantum computing hardware, as well as an increase in labor costs to service contracts, for the year ended December 31, 2024.

Research and development

2 unchanged sentences

Research and development expense increased by $44.5 million, or 48%, to $136.8 million for the year ended December 31, 2024, from $92.3 million for the year ended December 31, 2023.

The increase was primarily driven by a $44.0 million increase in payroll-related expenses, including an increase in stock-based compensation of $27.1 million, as a result of increased headcount, and a $1.8 million increase in materials, supplies and equipment costs.

The increase was primarily driven by an increase of $33.7 million in payroll-related expenses, including an increase in stock-based compensation of $18.1 million, as a result of increased headcount and new equity grants, and a $5.0 million increase in materials, supplies and equipment costs.

The remaining increase is due to an increase in costs to support research and development initiatives, including a $1.9 million increase in professional service fees and a $2.3 million increase in allocated overhead costs.

Sales and marketing

2 unchanged sentences

Sales and marketing expense increased by $10.1 million, or 55%, to $28.4 million for the year ended December 31, 2024, from $18.3 million for the year ended December 31, 2023.

The increase was primarily due to an increase of $8.7 million of payroll-related expenses, including an increase in stock-based compensation of $5.5 million, as a result of increased headcount, and increased costs to promote our services and other marketing initiatives of approximately $1.2 million.

The increase was primarily driven by an increase of $10.0 million of payroll-related expenses, including an increase in stock-based compensation of $7.0 million, as a result of increased headcount and new equity grants.

General and administrative

2 unchanged sentences

General and administrative expenses increased by $20.3 million, or 40%, to $71.1 million for the year ended December 31, 2024, from $50.7 million for the year ended December 31, 2023.

The increase was primarily driven by an increase of $10.3 million in payroll-related expenses, including an increase in stock-based compensation of $6.5 million, due to increased headcount, offset by a decrease of $2.2 million in one-time stock-based compensation costs incurred in the year ended December 31, 2022.

The remaining increase is primarily due to an increase of $4.9 million in professional services fees as we scale our business as a public company.

The increase was primarily driven by an increase of $21.4 million of payroll-related expenses, including a $10.0 million cash incentive award for the Company's chief executive officer and an increase in stock-based compensation of $9.6 million, offset by decreases of $0.6 million in professional service fees and allocated overhead costs and $0.5 million in director and officer liability insurance costs.

Depreciation and amortization

2 unchanged sentences

Depreciation and amortization expenses increased by $8.3 million, or 80%, to $18.7 million for the year ended December 31, 2024, from $10.4 million for the year ended December 31, 2023.

The increase was primarily driven by an increase of $2.3 million and $0.9 million in depreciation expense associated with capitalized quantum computing system costs and other property and equipment, respectively, and an increase of $1.4 million due to amortization of capitalized internally developed software.

The increase was primarily driven by an increase of $3.1 million and $2.8 million in depreciation expense associated with capitalized quantum computing system costs and other property and equipment, respectively, and an increase of $2.4 million due to amortization of capitalized internal-use software.

Gain (loss) on change in fair value of warrant liabilities

1 unchanged sentence

Gain (loss) on change in fair value of warrant liabilities

The gain (loss) on change in fair value of warrant liabilities decreased by $49.3 million, or 164%, to a loss of $19.2 million for the year ended December 31, 2023, from a gain of $30.1 million for the year ended December 31, 2022.

The change in fair value of warrant liabilities decreased by $97.9 million, or 510%, to a loss of $117.1 million for the year ended December 31, 2024, from a loss of $19.2 million for the year ended December 31, 2023.

The decrease was due to mark-to-market adjustments based on changes in the trading price for our public warrants.

2 unchanged sentences

Interest income, net

Interest income, net increased by $12.2 million, or 172%, to $19.3 million for the year ended December 31, 2023, from $7.1 million for the year ended December 31, 2022.

The increase was primarily driven by interest income earned on our cash equivalents and available-for-sale investments due to higher interest rates.

Interest income, net decreased by $1.1 million, or 6%, to $18.2 million for the year ended December 31, 2024, from $19.3 million for the year ended December 31, 2023.

The decrease was primarily driven by a decrease in the available-for-sale investments balance, offset by higher interest rates.

Liquidity and Capital Resources

11 unchanged sentences

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.

Our primary uses of cash and investments are to fund our operations as we continue to grow our business.

Our primary uses of cash and investments are to fund our operations as we continue to grow our business and our investing activities, including capital expenditures and potential acquisitions.

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 commercializing our quantum computing technology, if ever, we expect to finance our liquidity 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.

Until such time as we can generate significant revenue from commercializing our quantum computing and networking technology, if ever, we expect to finance our liquidity 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.

High interest and inflation rates present a recent challenge impacting the U.S.

economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.

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.

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 and networking 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 and networking 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.”

Other than operating expenses and our continued investment in our quantum computers, cash requirements for fiscal year 2024 are expected to consist primarily of capital expenditures for facilities.

Our material cash requirements as of December 31, 2023, include operating lease commitments, including the lease of our headquarters in College Park, Maryland and our manufacturing, research and development and general office space in Bothell, Washington.

Our material contractual commitments as of December 31, 2024, primarily relate to operating lease commitments.

As of December 31, 2024, we have total operating lease obligations of $21.9 million, with $3.7 million payable within 12 months.

Other than operating lease commitments, cash requirements for fiscal year 2025 are expected to consist primarily of operating expenses and continued investment in our quantum computers.

The following table summarizes our cash flows for the period indicated:

7 unchanged sentences

Net cash used in operating activities during the year ended December 31, 2024, was $105.7 million, resulting primarily from a net loss of $331.6 million, adjusted for non-cash activity, primarily related to stock-based compensation, the loss recorded as a result of mark-to-market activity for our public warrants, depreciation and amortization, and 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 year ended December 31, 2022, was $44.7 million, resulting primarily from a net loss of $48.5 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 stock-based compensation and 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 and increased compensation costs.

Net cash used in operating activities during the year ended December 31, 2023, was $78.8 million, resulting primarily from a net loss of $157.8 million, adjusted for non-cash activity, primarily related to stock-based compensation, the loss recorded as a result of mark-to-market activity for our public warrants, depreciation and amortization, and other working capital activities.

Cash flows from investing activities

Net cash provided by investing activities during the year ended December 31, 2023, was $68.8 million, primarily resulting from maturities of available-for-sale securities of $386.8 million, offset by purchases of available-for-sale investments of $298.4 million, additions of $13.7 million to property and equipment primarily related to the development of our quantum computing systems, and additions of $4.6 million related to capitalized software development costs.

Net cash used in investing activities during the year ended December 31, 2022, was $309.1 million, primarily resulting from purchases of available-for-sale securities of $605.7 million and additions of $9.3 million to property and equipment primarily related to the development of our quantum computing systems, offset by cash received from maturities of available-for-sale investments of $310.0 million.

Net cash provided by investing activities during the year ended December 31, 2024, was $82.7 million, primarily resulting from cash received from maturities of available-for-sale securities of $418.1 million, offset by purchases of available-for-sale securities of $296.3 million, additions of $18.0 million to property and equipment primarily related to leasehold improvements, the development of our quantum computing systems, and other supporting equipment, cash paid of $15.5 million for businesses acquired, and additions of $3.9 million related to capitalized software development costs.

Net cash provided by investing activities during the year ended December 31, 2023, was $68.8 million, primarily resulting from maturities of available-for-sale securities of $386.8 million, offset by purchases of available-for-sale securities of $298.4 million, additions of $13.7 million to property and equipment primarily related to the development of our quantum computing systems, and additions of $4.6 million related to capitalized software development costs.

Cash flows from financing activities

Net cash provided by financing activities during the year ended December 31, 2023, was $1.8 million, primarily resulting from proceeds from stock options exercised.

Net cash provided by financing activities during the year ended December 31, 2024, was $41.7 million, primarily resulting from proceeds from warrants and stock options exercised.

Net cash provided by financing activities during the year ended December 31, 2023, was $1.8 million, primarily resulting from proceeds from stock options exercised.

11 unchanged sentences

Revenue recognition

We derive revenue from contracts associated with the design, development, and construction of specialized quantum computing hardware together with related services, from contracts providing access to QCaaS, and from consulting services related to co-developing algorithms on the quantum computing systems.

For arrangements with multiple performance obligations, judgment is applied to determine the relative standalone selling price of each performance obligation as this is used to allocate the transaction price to each performance obligation within the contract.

4 unchanged sentences

Estimates related to standalone selling price in recent contracts did not have a material impact on revenue recognized.

Contracts with customers are evaluated at the time of execution and may vary in terms.

10 unchanged sentences

We also estimate the useful life of our quantum computing systems, both at the time the assets are placed in service and periodically whenever events or changes in circumstances indicate that the useful life may have changed.

In assessing useful lives, the Company considers, among other factors, the use of the asset, changes in technology, and the competitive environment.

In assessing useful lives, we consider, among other factors, the use of the asset, changes in technology, and the competitive environment.

Changes in these estimates can have a significant impact on the assessment of capitalized costs and depreciation expense, which could result in material changes to reported property and equipment, net.

Emerging Growth Company Status and Smaller Reporting Company Status

Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

As a result of the market value of the Company's common stock held by non-affiliates as of June 30, 2023, exceeding $700.0 million, we became a large accelerated filer under the Exchange Act as of December 31, 2023, and no longer qualify as an emerging growth company.

Therefore, we are required to comply with new or revised accounting standards as of the effective dates applicable to public companies that are not emerging growth companies.

We were also a smaller reporting company as defined in the Exchange Act until June 30, 2023.

However, we may continue to use the scaled disclosures permitted for a smaller reporting company through this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and must begin providing non-scaled larger company disclosure in our first quarterly report in our next fiscal year (i.e., the quarterly report for the three-month period ended March 31, 2024).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis