What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-30 compared with 2022-03-28 · 100 added, 159 removed, 176 unchanged (60% of the section changed)

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

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

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.

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.

We sell access to a quantum computer with 20 qubits, and we are in the process of researching and developing technologies for quantum computers with increasing computational capabilities.

We currently make access to our quantum computers available via three major cloud platforms, Amazon Web Services’ (“AWS”) Amazon Braket, Microsoft’s Azure Quantum, and Google’s Cloud Marketplace, and to select customers via our own cloud service.

We are still in the early stages of generating revenue with our 20-qubit

quantum computer.

We have incurred significant operating losses since our inception.

Our net losses were $106.2 million for the year ended December 31, 2021.

Today, we 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.

We currently make access to our quantum computers available via three major cloud platforms, AWS’s Amazon Braket, Microsoft’s Azure Quantum and Google’s Cloud Marketplace, and also to select customers via our own cloud service.

This cloud-based approach enables the broad availability of QCaaS.

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

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

We are still in the early stages of commercial growth.

Since our inception we have incurred significant operating losses.

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 $48.5 million and $106.2 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $194.3 million.

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

The Merger Agreement and Public Company Costs

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(the “Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”).

Pursuant to the Merger Agreement, at the closing, the

Merger Sub was merged with and into Legacy IonQ, with Legacy IonQ continuing as the surviving corporation following the merger, being a wholly owned subsidiary of dMY and the separate corporate existence of the Merger Sub ceased.

Pursuant to the Merger Agreement, at the closing, the Merger Sub was merged with and into Legacy IonQ, with Legacy IonQ continuing as the surviving corporation following the merger, being a wholly owned subsidiary of dMY and the separate corporate existence of the Merger Sub ceased (the “Business Combination”).

Commensurate with the Business Combination, dMY changed its name to IonQ, Inc.

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Under this method of accounting, dMY is treated as the “acquired” company for financial reporting purposes.

Upon the closing of the merger and the concurrent private placement of 34,500,000 shares of common stock (the “PIPE”), the most significant change in our financial position and results of operations was an increase in cash (as compared to our balance sheet as of December 31, 2020) of approximately $363 million, which included $345 million in gross proceeds from the PIPE.

Total direct and incremental transaction costs of dMY and Legacy IonQ were approximately $52 million, substantially all of which were offset to additional-paid-in-capital

as costs related to the reverse recapitalization.

As a result of the merger, Legacy IonQ is the successor to an SEC registrant and is listed on the New York Stock Exchange (“NYSE”), which will require IonQ to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

As a result of the Business Combination, Legacy IonQ is the successor to an SEC registrant and is listed on the NYSE, which will require IonQ to continue to hire additional personnel as it continues to implement procedures and processes to address public company regulatory requirements and customary practices.

As a public company, we have incurred and expect to continue to incur, expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.

Impact of COVID-19

on Our Business

In March 2020, the COVID-19

outbreak was declared a pandemic by the World Health Organization.

There are many uncertainties regarding the ongoing pandemic, and we are closely monitoring its impact on all aspects of our business, including how it impacts our employees, suppliers, vendors, and business partners.

The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, stay-at-home

or shelter-in-place

orders, and business shutdowns.

These measures may adversely impact our employees and operations and the operations of suppliers and business partners.

In addition, various aspects of our business cannot be conducted remotely.

These measures by government authorities may continue to remain in place for a significant period of time and could adversely affect our development plans, sales and marketing activities, and business operations.

The evolution of the virus is unpredictable at this point and any resurgence may slow down our ability to develop our quantum computing program.

The ongoing COVID-19

pandemic could limit the ability of suppliers and business partners to perform, including third-party suppliers’ ability to provide components and materials.

We may also experience an increase in the cost of raw materials.

The full impact of the COVID-19

pandemic continues to evolve.

As such, the full magnitude of the pandemic’s effect on our financial condition, liquidity and future results of operations is uncertain.

Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry, and workforce.

Impact of the Macroeconomic Climate on Our Business

The recent trends towards rising inflation may also 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.

Rising interest and inflation rates also 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.

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 continue to rise) on our operating costs, including our labor, due to supply chain constraints, consequences associated with COVID-19 and the Russia-Ukraine war, 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 providing access to quantum computing as a service (“QCaaS”) and professional services related to co-developing

algorithms on our

quantum computing systems.

We derive revenue from providing access to quantum-computing-as-a-service (“QCaaS”), consulting services related to co-developing algorithms on our quantum computing systems, and from contracts associated with the design, development, and construction of specialized quantum computing systems together with related services.

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 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.

The transaction price for our contracts generally includes a variable fee based on usage of our quantum computing systems and may include a fixed fee for a minimum volume of usage to be made available over a defined period of access.

The transaction price generally includes a variable fee based on usage of our quantum computing systems and may include a fixed fee for a minimum volume of usage to be made available over a defined period of access.

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

For contracts with a fixed transaction price, the fixed fee is recognized as QCaaS subscription-based revenues on a straight-line basis over the access period.

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 with revenue recognized based on the efforts incurred to date relative to the total expected effort.

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

Such contracts may also include access to our QCaaS.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied.

When there are multiple performance obligations in a contract, we allocate the transaction price to each performance obligation based on its standalone selling price when available.

We determine standalone selling price based on the observable price of a product or service when we sell the products or services separately in similar circumstances and to similar customers.

When the standalone selling price is not known, due to it being either highly variable or uncertain, we allocate the transaction price using the residual approach.

For contracts with a fixed transaction price, the fixed fee is recognized on a straight-line basis over the access period or associated measure of progress for our consulting services contracts.

For contracts without fixed fees, variable usage fees are billed and recognized during the period of such usage.

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

Performance obligations are satisfied over-time if the customer receives the benefits as we perform the work, if the customer controls the asset as it is being produced (continuous transfer of control), or if the product being produced for the customer has no alternative use and we have a contractual right to payment for performance to date.

Revenue is recognized on performance obligations satisfied over time based on the efforts incurred to date relative to the total expected effort.

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 the cloud on which the QCaaS resides beginning in the period that QCaaS revenue generating activities began.

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.

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

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Sales and marketing

Sales and marketing and marketing expenses consist of personnel-related expenses, including salaries, 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, 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.

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.

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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 also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, information technology, travel expenses and certain non-income

taxes, insurance, and other administrative expenses.

compliance with the rules and regulations of the SEC, NYSE, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

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.

Depreciation and amortization

Depreciation and amortization expense results from depreciation and amortization of our property and equipment and intangible assets that is recognized over their estimated lives.

Depreciation and amortization expense results from depreciation and amortization of our property and equipment, including our quantum computing systems, and intangible assets that is recognized over their estimated lives.

Nonoperating Costs and Expenses

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities consists of mark-to-market

fair value adjustments recorded associated with the public and private placement warrants assumed as part of the business combination.

The change in fair value of warrant liabilities consists of mark-to-market fair value adjustments recorded associated with the public and private placement warrants assumed as part of the Business Combination.

Interest income, net

Interest income, net consists of income earned on our money market funds and other available-for-sale investments.

Offering costs associated with warrants

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Other income (expense), net

Other income (expense), net consists of income earned on our money market funds and other available for sale investments offset by certain other expenses.

Other income (expense), net consists of realized losses on our available-for-sale investments and certain other expenses.

Results of Operations

The following table sets forth our statements of operations for the periods indicated:

Year Ended December 31,

(in thousands)

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Change in fair value of warrant liabilities

Interest income, net

Offering costs associated with warrants

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General and administrative

Comparison of the Year Ended December 31, 2021 and 2020

Comparison of the Years Ended December 31, 2022 and 2021

(in thousands)

Revenue increased by $2.1 million, or 100%, to $2.1 million for the year ended December 31, 2021 from zero for the year ended December 31, 2020.

The increase was primarily driven by four revenue contracts under which we provided services during the year ended December 31, 2021.

While we generated revenue in 2020, we executed an arrangement with a customer for the issuance of a warrant to purchase shares of Legacy IonQ Series B-1

convertible redeemable preferred stock.

The warrant was evaluated and considered to represent consideration provided to a customer and as such, the recognition of the warrant expense is recorded as a reduction in revenue as revenue is earned under the contract.

The increase in revenue in 2021 was also partially due to the contract asset related to the warrant being fully amortized during the year.

See Note 11—Warrant Transaction Agreement to our consolidated financial statements for additional information.

Revenue increased by $9.0 million, or 430%, to $11.1 million for the year ended December 31, 2022, from $2.1 million for the year ended December 31, 2021.

The increase was primarily driven by new revenue contracts under which we provided services during the year ended December 31, 2022, an increase in revenue from our cloud service providers and an increase in revenue from services provided under our contract with UMD, as well as other existing contracts.

Cost of revenue

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Cost of revenue increased by $1.9 million, or 183%, to $2.9 million for the year ended December 31, 2022, from $1.0 million for the year ended December 31, 2021.

The increase was driven by the increase in costs to service active contracts for the year ended December 31, 2021.

The increase was driven primarily by the increase in costs to service contracts for the year ended December 31, 2022, including an increase in labor costs to service consulting arrangements.

Research and development

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Research and development expense increased by $23.8 million, or 117%, to $44.0 million for the year ended December 31, 2022, from $20.2 million for the year ended December 31, 2021.

The increase was primarily driven

by a $4.9 million increase in payroll-related

expenses, including stock-based compensation of $2.1 million, as a result of increased headcount, a $1.3 million increase due to amortization of the Duke and UMD research and development arrangements, a $1.3 million increase in materials, supplies and equipment costs, and a $2.6 million increase in miscellaneous other research and development expenses.

The increase was primarily driven by an $18.1 million increase in payroll-related expenses, including stock-based compensation of $10.6 million, as a result of increased headcount, a $2.6 million increase in materials, supplies and equipment costs, and a $2.3 million increase in professional service costs to support research and development initiatives.

Sales and marketing

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Sales and marketing expense increased by $5.2 million, or 159%, to $8.4 million for the year ended December 31, 2022, from $3.2 million for the year ended December 31, 2021.

The increase was primarily due to increased costs to promote service offerings and other marketing initiatives of approximately $2.0 million and an increase of $0.8 million of payroll-related expenses as a result of increased headcount.

The increase was primarily due to an increase of $3.7 million of payroll-related expenses, including an increase in stock-based compensation of $1.2 million, as a result of increased headcount, and increased costs to promote our services and other marketing initiatives of approximately $1.5 million.

General and administrative

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General and administrative expenses increased by $22.2 million, or 162%, to $36.0 million for the year ended December 31, 2022, from $13.7 million for the year ended December 31, 2021.

The increase was primarily driven by an increase of $6.3 million in payroll-related expenses, including an increase in stock-based compensation of $4.3 million, due to increased headcount to support the growth of our business, an increase of $1.2 million in legal fees, an increase of $1.1 million in directors and officers insurance costs as a result of becoming a public company, an increase of $0.8 million in auditing and accounting fees, and an increase of $0.7 million in rent and utilities costs due to expansion of headquarters office space in the fourth quarter of 2020.

The increase was primarily driven by an increase of $14.9 million in payroll-related expenses, including an increase in stock-based compensation of $11.0 million, due to increased headcount, and an increase of $3.4 million in director and

officer liability insurance costs.

The remaining increase is primarily due to additional transition costs incurred to operate as a public company and other general and administrative activities as a result of hiring additional personnel.

Depreciation and amortization

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Depreciation and amortization expenses increased by $3.1 million, or 120%, to $5.6 million for the year ended December 31, 2022, from $2.5 million for the year ended December 31, 2021.

The increase was primarily driven by an increase of $0.5 million due to amortization of capitalized internally developed software, an increase of $0.6 million in depreciation expense associated with capitalized quantum computing system costs and capitalized research and development equipment.

The increase was primarily driven by an increase of $0.7 million due to amortization of capitalized internally developed software and an increase of $1.3 million in depreciation expense associated with capitalized quantum computing system costs, as well as an increase of $1.0 million in depreciation expenses associated with other property and equipment.

Change in fair value of warrant liabilities

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Change in fair value of warrant liabilities

The change in fair value of warrant liabilities increased $63.3 million as a result of mark-to-market

expense adjustments recorded for the public and private placement warrants assumed as part of the business combination.

The change in fair value of warrant liabilities increased by $93.5 million, or 148%, to a gain of $30.1 million for the year ended December 31, 2022, from a loss of $63.3 million for the year ended December 31, 2021.

The increase was primarily due to mark-to-market income adjustments recorded for the public and private warrants assumed as part of the Business Combination.

Interest income, net

(in thousands)

Interest income, net

NM-Not meaningful

Interest income, net increased by $7.0 million to $7.1 million for the year ended December 31, 2022, from $0.1 million for the year ended December 31, 2021.

The increase was primarily driven by interest income earned on our cash equivalents and available-for-sale investments from the investment of the proceeds from the Business Combination.

Offering costs associated with warrants

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Offering costs associated with warrants

Offering costs associated with warrants decreased by $4.3 million, or 100%, to zero for the year ended December 31, 2022, from $4.3 million for the year ended December 31, 2021.

In connection with the Business Combination, $4.3 million of transaction costs were allocated and expensed related to the liability-classified public and private warrants.

Other income (expense), net

Other income (expense), net decreased by $0.2 million, or 70%, for the year ended December 31, 2021, from $0.3 million for the year ended December 31, 2020.

The decrease was due to a $0.2 million decrease in short-term dividend income.

Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents of $399 million and available-for-sale securities of $203.5 million, with $123.4 million classified as short-term investments and $80.1 million classified as long-term investments.

As of December 31, 2022, we had cash, cash equivalents and available-for-sale securities of $537.8 million.

Excluded from our available liquidity is $2.0 million of restricted cash, which is recorded in other noncurrent assets in our consolidated balance sheets.

We believe that our cash, cash equivalents and investments as of December 31, 2022, will be sufficient to meet our working capital and capital expenditure needs for the next 12 months.

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However, this determination is based upon internal projections and is subject to changes in market and business conditions.

We have incurred losses since our inception and as of December 31, 2021, we had an accumulated deficit of $145.8 million.

We have incurred significant losses since our inception and as of December 31, 2022, we had an accumulated deficit of $194.3 million.

During the year ended December 31, 2022, we incurred net losses of $48.5 million.

We expect to incur additional losses and higher operating expenses for the foreseeable future.

We expect to incur significant losses and higher operating expenses for the foreseeable future.

Future Funding Requirements

We expect our principal sources of liquidity will continue to be our cash and investments and any additional capital we may obtain through additional equity or debt financings.

We expect our principal sources of liquidity will continue to be our cash, cash equivalents and investments and any additional capital we may obtain through additional equity or debt financings.

Our future capital requirements will depend on many factors, including investments in growth and technology.

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The proceeds are invested in money market funds, commercial paper, corporate and municipal notes and bonds, and other U.S.

government and agency securities as disclosed in Note 3—Cash Equivalents and Investments in our consolidated financial statements.

The investments will be used to fund the strategic operations of the Company.

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

government and agency securities as disclosed in Note 4 in our consolidated financial statements.

We expect to use these investments to fund our strategic operations.

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

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 sales of our QCaaS, if ever, we expect to finance our cash 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 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.

Rising 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.

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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, including our continued investment in our quantum computers, cash requirements for fiscal 2022 are expected to consist primarily of capital expenditures for corporate facilities.

The following table summarizes current and long-term material cash requirements as of December 31, 2021, which we expect to fund primarily with cash and cash equivalents ( in millions

Material Cash Requirements

Operating lease obligations (1)

Amounts include direct lease obligations, excluding any taxes, insurance and other related expenses.

Other than operating expenses and our continued investment in our quantum computers, cash requirements for fiscal year 2023 are expected to consist primarily of capital expenditures for corporate facilities.

Our material cash requirements as of December 31, 2022, include operating lease commitments, including the lease of our headquarters in College Park, Maryland and manufacturing and office space in Bothell, Washington.

As of December 31, 2022, we have total operating lease obligations of $16.1 million, with $0.7 million payable within 12 months.

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

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Our cash flows from operating activities are significantly affected by the growth of our business, primarily related to research and development, sales and marketing, and general and administrative activities.

operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Net cash used in operating activities during year ended December 31, 2021 was $26.5 million, resulting primarily from a net loss of $106.2 million, adjusted for non-cash

charges of $63.3 million in mark-to-market

fair value adjustments associated with our warrant liabilities, $7.7 million in stock-based compensation, $4.3 million in offering costs associated with warrants, $2.5 million in depreciation and amortization, and $1.3 million in costs associated with research and development arrangements.

The increase in net cash used in operations from the prior year was primarily related to noncash expenses as well as our increased research and development activities and hiring of personnel to support the growth of our business and being a public company.

Net cash used in operating activities during the year ended December 31, 2020 was $12.0 million, resulting primarily from a net loss of $15.4 million, adjusted for non-cash

charges of $1.4 million in depreciation and amortization and $1.2 million in stock-based compensation.

The increase in net cash used in operations from the prior year was primarily related to our increased research and development activities and hiring of personnel.

Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Net cash used in operating activities during 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, 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, 2021, was $26.5 million, resulting primarily from a net loss of $106.2 million, adjusted for non-cash activity, primarily related to the loss recorded as a result of mark-to-market activity for our public and private warrants, stock-based compensation and offering costs associated with warrants, as well as other working capital activities.

Cash flows from investing activities

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, additions of $9.3 million to property and equipment primarily related to the development of our quantum computing systems, offset by cash received from sales and maturities of available-for-sale investments of $310.0 million.

Net cash used in investing activities during the year ended December 31, 2021, was $213.8 million, primarily resulting from purchases of available-for-sale securities of $203.8 million, additions of $7.8 million to property and equipment primarily related to the development of our quantum computing systems, $1.6 million of capitalized internal software development costs, and $0.6 million of intangible asset acquisition costs.

Net cash used in investing activities during the year ended December 31, 2020 was $11.7 million primarily resulting from additions of $10.0 million to property and equipment primarily related to the development of our quantum computing systems, $1.1 million of capitalized internal software development costs, and $0.5 million of intangible assets acquisition costs.

Cash flows from financing activities

Net cash provided by financing activities during the year ended December 31, 2022, was $1.1 million, primarily resulting from proceeds from stock options exercised.

Net cash provided by financing activities during the year ended December 31, 2021, was $603.2 million primarily reflecting proceeds received from the Business Combination, including the PIPE investment, as well as cash received from the exercise of warrants and exercise of stock options.

Net cash provided by financing activities during the year ended December 31, 2020 was $0.3 million primarily reflecting proceeds from stock options exercised.

Critical Accounting Estimates

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Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions.

We have listed below our critical accounting estimates that we believe to have the greatest potential impact on our

consolidated financial statements.

We have listed below our critical accounting estimates that we believe to have the greatest potential impact on our consolidated financial statements.

Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results.

Revenue recognition

We derive revenue from our QCaaS arrangements as well as from professional services related to co-developing

and running algorithms on our quantum computing systems.

We have applied judgement in determining 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.

For arrangements with multiple performance obligations, judgement is used to determine whether multiple services in the contract should be accounted for separately or as a group.

Judgement is also applied when determining 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.

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

We have applied judgment in determining 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.

For arrangements with multiple performance obligations, judgment is used to determine whether multiple services in the contract should be accounted for separately or as a group.

Judgment is also applied when determining the relative standalone selling price of each performance obligation, including determining when to apply the residual method, as this is used to allocate the transaction price to each performance obligation within the contract.

We determine standalone selling price based on the observable price of a product or service when we sell the products or services separately in similar circumstances and to similar customers.

When the standalone selling price is not known, due to it being either highly variable or uncertain, we allocate the transaction price using the residual approach.

In addition, we apply judgment in evaluating any consideration payable to the customer and whether it is in exchange for distinct goods or services or should be reflected as a reduction of revenue.

For arrangements where we enter into multiple contracts with a single counterparty at or near the same time, we use judgement in determining whether the contracts should be combined and whether we should account for them as a single contract.

For arrangements where we enter into multiple contracts with a single counterparty at or near the same time, we use judgment in determining whether the contracts should be combined and whether we should account for them as a single contract.

We account for them as a single contract when one or more of the following criteria are met:

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Costs to maintain quantum computing systems are expensed as incurred.

Judgement is used to determine when hardware and labor costs incurred for our quantum computing systems should be capitalized as a result of our assessment of whether the system will provide a probable future economic benefit and whether or not the costs represent activities necessary to build the systems, maintain the systems or to perform certain research and development functions.

Judgement is also used to determine when the systems are placed into service and the estimated useful life of the associated systems.

Judgment is used to determine when hardware and labor costs incurred for our quantum computing systems should be capitalized as a result of our assessment of whether the system will provide a probable future economic benefit and whether or not the costs represent activities necessary to build the systems, maintain the systems or to perform certain research and development functions.

Judgment is also used to determine when the systems are placed into service and the estimated useful life of the associated systems.

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

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Capitalized internally developed software

Capitalized internally developed software, which is included in intangible assets, net, on the consolidated balance sheet, consists of costs to purchase and develop internal-use

software, which we use to provide services to our customers.

Judgement is used to determine when costs to develop internal-use

software for a specific project should be capitalized and whether or not the costs represent activities necessary to enhance the functionality of the software or maintain the performance of the software, and whether it is considered probable that the software will be used to perform the function intended.

Judgement is also used to determine when the software is available for use as well as the estimated useful life of the software.

Capitalized internally developed software, which is included in intangible assets, net, on the consolidated balance sheet, consists of costs to purchase and develop internal-use software, which we use to provide services to our customers.

Judgment is used to determine when costs to develop internal-use software for a specific project should be capitalized and whether or not the costs represent activities necessary to enhance the functionality of the software or maintain the performance of the software, and whether it is considered probable that the software will be used to perform the function intended.

Judgment is also used to determine when the software is available for use as well as the estimated useful life of the software.

The assumptions used to capitalize internally developed software costs consider when the preliminary project stage is completed, whether the software will perform the function intended, and whether the development activities enhance the functionality of the software or maintain the performance of the software.

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As of December 31, 2022, we did not have an impairment of any long-lived assets.

In determining whether a potential impairment exists, judgement is used in determining the level at which the assessment is made.

In determining whether a potential impairment exists, judgment is used in determining the level at which the assessment is made.

We have determined that the company consists of one entity-wide asset group for purposes of assessing whether a triggering event has occurred that would indicate the long-lived asset group’s carrying value is not recoverable.

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Changes in these estimates can have a significant impact on the assessment of fair value, which could result in material impairment losses.

Warrant liabilities

Our private placement warrant liabilities are financial instruments that were initially recorded at fair value on the issuance date and were re-valued

upon exercise or at each reporting date.

All private placement warrants were exercised as of December 31, 2021.

Estimates were used to determine the fair value of the private placement warrants, specifically, when assumed as part of the business combination and then again upon exercise during the year.

The fair value of the private placement warrants was determined using the Black-Scholes valuation model.

Inherent in the valuation were assumptions related to expected stock-price volatility, expected term, risk- free interest rate and dividend yield.

We estimated the volatility of the private placement warrants based on implied volatility from our publicly traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the private placement warrants.

The risk-free interest rate was based on the U.S.

Treasury zero-coupon

yield curve on the measurement date for a maturity similar to the expected remaining life of the private placement warrants.

The expected life of the private placement warrants was assumed to be equivalent to their remaining contractual term.

The dividend rate was based on the historical rate, which we anticipated remaining at zero.

The assumed expected stock-price volatility, expected term, risk-free interest rate, and dividend yield have a significant impact on the amounts recorded as mark-to-market

adjustments for the private placement warrants.

We believe the estimates applied were based on reasonable assumptions, but which were inherently uncertain.

As a result, actual results may differ from the assumptions and judgments used to determine the fair value of the private placement warrants.

Equity valuations and Stock-based compensation

Prior to the business combination, the fair value of our equity instruments and the associated stock-based compensation charges for stock options granted was determined based upon information available at the time of grant.

Given the absence of a public trading market for our capital stock at the time of grant for awards granted prior to the business combination, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation

, our management exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our equity instruments at each grant date.

As there was no public market for Legacy IonQ’s equity prior to the business combination, valuations of equity instruments required the application of significant estimates, assumptions, and judgments.

These valuations impact various amounts reported in our consolidated financial statements, including the amounts recorded for stock-based compensation.

The following factors impact the significant estimates, assumptions and judgments that drive the determination of the fair values of the Legacy IonQ preferred and common stock that comprised Legacy IonQ’s capital structure prior to the business combination:

contemporaneous valuations performed at periodic intervals by independent, third-party specialists;

our actual operating and financial performance;

our current business conditions and projections;

our progress on research and development efforts;

our stage of development;

the prices, preferences, and privileges of shares of Legacy IonQ convertible preferred stock relative to shares of common stock;

likelihood of achieving a liquidity event for the underlying equity instruments, such as a business combination, given prevailing market conditions;

lack of marketability of Legacy IonQ common stock;

macroeconomic conditions.

We use the Black-Scholes option-pricing model to determine the estimated fair value for stock options.

No stock options have been granted subsequent to the business combination.

The Black-Scholes option-pricing model requires the use of subjective assumptions, which determine the fair value of our stock options, including the fair value of our common stock, the option’s expected term, the price volatility of the underlying common stock, risk-free interest rates, and the expected dividend yield of the common stock.

The assumptions used to determine the fair value of the stock options represent management’s best estimates.

These estimates involve inherent uncertainties and the application of management’s judgment.

If any assumptions used in the Black-Scholes option-pricing model change significantly, stock option compensation expense for future awards may differ materially compared with the expense for awards granted previously.

We believe the estimates applied to be based on reasonable assumptions, but which are inherently uncertain.

Emerging Growth Company Status and Smaller Reporting Company Status

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging

growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

During the extended transition period, it may be difficult or impossible to compare our financial results with the financial results of another public company that complies with public company effective dates for accounting standard updates because of the potential differences in accounting standards used.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2025, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates

or (d) the date on which we have issued more than $1.0 billion in non-convertible

debt securities during the previous three years.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2025, (b) the last date of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-year period.

We are also a smaller reporting company as defined in the Exchange Act.

We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

common stock held by nonaffiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting

common stock held by non-affiliates

is less than $700.0 million measured on the last business day of our second fiscal quarter.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

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