What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-14 · 102 added, 175 removed, 142 unchanged (66% of the section changed)

14 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 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 quantum computers, 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.

We have incurred significant operating losses since our inception.

Our net losses were $29.9 million for the nine months ended September 30, 2022.

As of September 30, 2022, we had an accumulated deficit of $175.7 million.

We expect to continue to incur significant 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.

The Merger Agreement and Public Company Costs

On March 7, 2021, Legacy IonQ, dMY and Ion Trap Acquisition Inc.

(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.

Commensurate with the business combination, dMY changed its name to IonQ, Inc.

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

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

While the legal acquirer in the Merger Agreement is dMY, for financial accounting and reporting purposes under accounting principles generally accepted in the United States of America (“U.S.

GAAP”), Legacy IonQ is the accounting acquirer and the merger is accounted for as a “reverse recapitalization” (i.e., a capital transaction involving the issuance of stock by dMY for the stock of Legacy IonQ).

A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the Company represent the continuation of the financial statements of Legacy IonQ in many respects.

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

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 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.

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, Amazon Web Services’ (“AWS”) 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 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 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 $27.3 million and $4.2 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, we had an accumulated deficit of $221.6 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.

Business and Technical Highlights

In September, the United States Air Force Research Lab (AFRL) announced a multi-part, $13.4 million contract with IonQ.

We will supply cloud access to compute on our cutting-edge trapped ion systems and certain hardware components to further research in quantum networking.

We increased the computational power of our Aria system by approximately 4x, now reaching #AQ 25, up from #AQ 23.

Aria was already believed to be the most powerful quantum computer known, and has now achieved our #AQ technical milestone for 2022.

Aria is available to the public via cloud access on Microsoft’s Azure Quantum Cloud.

We announced a project with the Oak Ridge National Laboratory, part of the U.S.

Department of Energy, to research benchmark circuits for the discovery of new quantum chemistry applications.

We announced a new partnership with Dell Technologies to offer joint customers a world-class hybrid computing solution, allowing for the seamless transitioning of workloads between the world’s leading quantum and classical computing hardware systems.

We announced a next generation custom chip called the multilayered glass trap (MGT), which utilizes multiple layers to route wires across the chip to enable higher qubit count per chip.

We will be participating at the Super Compute 2022 (SC22), a multi-day event in Dallas, Texas, on November 13-18, where we and Dell Technologies will demonstrate our new Dell Quantum Computing Solution.

Impact of COVID-19 and Other Trends 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.

Additionally, the recent trends towards rising inflation may also materially adversely affect our business and corresponding financial position and cash flows.

We signed a contract with the United Emirates Quantum Research Center - Technology Innovation Institute to explore how quantum computing can give the nation a competitive edge.

In collaboration with Fidelity Center for Applied Technology, or FCAT, we were proud to announce new work in the field of Quantum Monte Carlo.

This newest accomplishment focuses on speeding up Monte Carlo simulations, a widely-used statistical analysis method in finance, science, and engineering.

We launched a partnership with BearingPoint, a global management and technology consulting firm, to bolster their growing quantum team in Europe.

We achieved 29 #AQ on IonQ Forte, our latest world-class quantum system, reaching our most significant 2023 technical goal seven months ahead of our technical roadmap.

This is a 16x increase in computational power, measured by useful computational space for running algorithms, compared to IonQ Aria with 25 #AQ.

We completed construction of IonQ Aria 2, a second Aria-class quantum computer.

This new machine will join IonQ Aria 1 on the public cloud this quarter.

We published research results on modeling human cognition using quantum hardware in the peer-reviewed scientific journal, Entropy .

This is the first output of work we initiated a year ago on quantum artificial intelligence, or quantum AI.

We hired Pat Tang as Vice President of Research and Development.

Pat brings over 23 years of technology experience, most recently as Vice President of Engineering at Amazon’s Lab126.

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 continue to rise) on our operating costs, including our labor, due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, 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 near future (especially if inflation rates continue to rise) on our operating costs, including our labor, due to supply chain constraints, consequences associated with bank failures and the Russia-Ukraine war, and employee availability and wage increases, which may result in additional stress on our working capital resources.

The Merger Agreement

On March 7, 2021, Legacy IonQ, dMY and Ion Trap Acquisition Inc.

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

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

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

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

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 consulting services related to co-developing algorithms on our quantum computing systems.

We derive revenue from providing access to 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.

The Company has determined that contracts which 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.

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 our in-service quantum computing systems to ensure proper calibration as well as costs incurred for maintaining the cloud on which the QCaaS resides beginning in the period that QCaaS revenue generating activities began.

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

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

9 unchanged sentences

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.

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.

1 unchanged sentence

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 are recognized over their estimated lives.

Nonoperating Costs and Expenses

3 unchanged sentences

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

Offering costs associated with warrants

Offering costs associated with warrants consist of transaction costs that have been allocated to the public and private warrants and were expensed upon consummation of the Business Combination on September 30, 2021, based on the relative fair value of the equity issued and the liability-classified warrants.

Other income (expense), net

1 unchanged sentence

Results of Operations

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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Interest income, net

Offering costs associated with warrants

Other income (expense), net

3 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

3 unchanged sentences

General and administrative

Comparison of the Three Months Ended September 30, 2022 and 2021

Three Months Ended September 30,

(in thousands)

Revenue increased by $2.5 million, or 1,086%, to $2.8 million for the three months ended September 30, 2022, from $0.2 million for the three months ended September 30, 2021.

The increase was primarily driven by new revenue contracts under which we provided services during the three months ended September 30, 2022, as well as an increase in revenue from services provided under our contract with UMD.

Cost of revenue

Three Months Ended September 30,

(in thousands)

Cost of revenue (excluding depreciation and amortization)

Cost of revenue increased by $0.5 million, or 213%, to $0.7 million for the three months ended September 30, 2022, from $0.2 million for the three months ended September 30, 2021.

The increase was driven by the increase in costs to service new contracts for the three months ended September 30, 2022.

Research and development

Three Months Ended September 30,

(in thousands)

Research and development

Research and development expenses increased by $7.1 million, or 115%, to $13.3 million for the three months ended September 30, 2022, from $6.2 million for the three months ended September 30, 2021.

The increase was primarily driven by a $6.0 million increase in payroll-related expenses, including stock-based compensation of $3.8 million, as a result of increased headcount, and a $1.1 million increase in professional service costs to support research and development initiatives.

Sales and marketing

Three Months Ended September 30,

(in thousands)

Sales and marketing

Sales and marketing expenses increased by $0.7 million, or 53%, to $2.0 million for the three months ended September 30, 2022, from $1.3 million for the three months ended September 30, 2021.

The increase was primarily due to an increase of $0.7 million of payroll-related expenses, including an increase in stock-based compensation of $0.3 million, as a result of increased headcount.

General and administrative

Three Months Ended September 30,

(in thousands)

General and administrative

General and administrative expenses increased by $7.7 million, or 312%, to $10.1 million for the three months ended September 30, 2022, from $2.5 million for the three months ended September 30, 2021.

The increase was primarily driven by an increase of $5.1 million in payroll-related expenses, including an increase in stock-based compensation of $3.7 million, as a result of increased headcount, and an increase of $1.2 million in director and officer insurance costs.

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

Depreciation and amortization

Three Months Ended September 30,

(in thousands)

Depreciation and amortization

Depreciation and amortization expenses increased by $0.9 million, or 157%, to $1.5 million for the three months ended September 30, 2022, from $0.6 million for the three months ended September 30, 2021.

The increase was primarily driven by an increase of $0.2 million due to amortization of capitalized internally developed software and an increase of $0.5 million in depreciation expense associated with capitalized quantum computing system costs.

Change in fair value of warrant liabilities

Three Months Ended September 30,

(in thousands)

Change in fair value of warrant liabilities

NM—Not Meaningful

The change in fair value of warrant liabilities increased $1.2 million to $1.2 million for the three months ended September 30, 2022, from zero for the three months ended September 30, 2021, as a result of mark-to-market income adjustments recorded for the public warrants assumed as part of the Business Combination.

Interest income, net

Three Months Ended September 30,

(in thousands)

Interest income, net

NM—Not Meaningful

Interest income, net increased by $2.1 million to $2.1 million for the three months ended September 30, 2022, from zero for the three months ended September 30, 2021.

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

Offering costs associated with warrants

Three Months Ended September 30,

(in thousands)

Offering costs associated with warrants

Offering costs associated with warrants decreased by $4.3 million, or 100%, to zero for the three months ended September 30, 2022, from $4.3 million for the three months ended September 30, 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.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended

(in thousands)

Revenue increased by $6.9 million, or 1,524%, to $7.3 million for the nine months ended September 30, 2022, from $0.5 million for the nine months ended September 30, 2021.

The increase was primarily driven by new revenue contracts under which we provided services during the nine months ended September 30, 2022, as well as an increase in revenue from services provided under our contract with UMD.

Revenue increased by $2.3 million, or 119%, to $4.3 million for the three months ended March 31, 2023, from $2.0 million for the three months ended March 31, 2022.

The increase was primarily driven by new revenue contracts under which we provided services during the three months ended March 31, 2023.

Cost of revenue

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Cost of revenue (excluding depreciation and amortization)

Cost of revenue increased by $1.3 million, or 175%, to $2.0 million for the nine months ended September 30, 2022, from $0.7 million for the nine months ended September 30, 2021.

The increase was driven by the increase in costs to service new contracts for the nine months ended September 30, 2022.

Cost of revenue increased by $0.5 million, or 82%, to $1.0 million for the three months ended March 31, 2023, from $0.6 million for the three months ended March 31, 2022.

The increase was driven primarily by the increase in labor costs to service contracts for the three months ended March 31, 2023.

Research and development

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Research and development

Research and development expense increased by $15.0 million, or 98%, to $30.3 million for the nine months ended September 30, 2022 from $15.3 million for the nine months ended September 30, 2021.

The increase was primarily driven by a $10.8 million increase in payroll-related expenses, including an increase in stock-based compensation of $6.6 million, as a result of increased headcount, a $2.4 million increase in materials, supplies and equipment costs, and a $1.4 million increase in professional service costs to support research and development initiatives.

Research and development expense increased by $8.9 million, or 121%, to $16.2 million for the three months ended March 31, 2023, from $7.3 million for the three months ended March 31, 2022.

The increase was primarily driven by a $7.7 million increase in payroll-related expenses, including an increase in stock-based compensation of $3.6 million, as a result of increased headcount and a $0.6 million increase in professional service costs to support research and development initiatives.

Sales and marketing

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Sales and marketing

Sales and marketing expense increased by $3.6 million, or 150%, to $6.0 million for the nine months ended September 30, 2022, from $2.4 million for the nine months ended September 30, 2021.

The increase was primarily due to an increase of $2.8 million of payroll-related expenses, including an increase in stock-based compensation of $0.9 million, as a result of increased headcount, and increased costs to promote our services and other marketing initiatives of approximately $0.8 million.

Sales and marketing expense increased by $0.8 million, or 43%, to $2.7 million for the three months ended March 31, 2023, from $1.9 million for the three months ended March 31, 2022.

The increase was primarily due to an increase of $0.6 million of payroll-related expenses as a result of increased headcount, and increased costs to promote our services and other marketing initiatives of approximately $0.2 million.

General and administrative

Nine Months Ended September 30,

Three Months Ended

(in thousands)

General and administrative

General and administrative expenses increased by $18.6 million, or 223%, to $26.9 million for the nine months ended September 30, 2022, from $8.3 million for the nine months ended September 30, 2021.

The increase was primarily driven by an increase of $11.1 million in payroll-related expenses, including an increase in stock-based compensation of $8.6 million, as a result of increased headcount, and an increase of $3.7 million in director and officer insurance costs.

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

General and administrative expenses increased by $1.4 million, or 15%, to $10.6 million for the three months ended March 31, 2023, from $9.2 million for the three months ended March 31, 2022.

The increase was primarily driven by an increase of $2.3 million in payroll-related expenses, including an increase in stock-based compensation of $1.3 million, due to increased headcount, offset by a decrease of $2.2 million in one-time stock-based compensation costs incurred in the three months ended March 31, 2022.

The remaining increase is primarily due to an increase of $1.2 million in professional services fees as we scale our business as a public company.

Depreciation and amortization

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Depreciation and amortization

Depreciation and amortization expenses increased by $2.7 million, or 175%, to $4.2 million for the nine months ended September 30, 2022, from $1.5 million for the nine months ended September 30, 2021.

Depreciation and amortization expenses increased by $0.5 million, or 41%, to $1.8 million for the three months ended March 31, 2023, from $1.3 million for the three months ended March 31, 2022.

The increase was primarily driven by an increase of $0.2 million due to amortization of capitalized internally developed software and an increase of $0.1 million in depreciation expense associated with capitalized quantum computing system costs.

Change in fair value of warrant liabilities

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Change in fair value of warrant liabilities

NM—Not Meaningful

The change in fair value of warrant liabilities increased $28.4 million to $28.4 million for the nine months ended September 30, 2022, from zero for the nine months ended September 30, 2021, as a result of mark-to-market income adjustments recorded for the public warrants assumed as part of the Business Combination.

The change in fair value of warrant liabilities decreased by $17.1 million, or 127%, to a loss of $3.6 million for the three months ended March 31, 2023, from a gain of $13.4 million for the three months ended March 31, 2022.

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

Interest income, net

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Interest income, net

NM—Not Meaningful

Interest income, net increased by $3.9 million to $3.9 million for the nine months ended September 30, 2022, from zero for the nine months ended September 30, 2021.

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

Offering costs associated with warrants

Three Months Ended September 30,

(in thousands)

Offering costs associated with warrants

Offering costs associated with warrants decreased by $4.3 million, or 100%, to zero for the nine months ended September 30, 2022, from $4.3 million for the nine months ended September 30, 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.

Interest income, net increased by $3.6 million, or 596%, to $4.2 million for the three months ended March 31, 2023, from $0.6 million for the three months ended March 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.

Liquidity and Capital Resources

As of September 30, 2022, we had cash, cash equivalents and available-for-sale securities of $555.8 million.

We believe that our cash, cash equivalents and investments as of September 30, 2022, will be sufficient to meet our working capital and capital expenditure needs for the next 12 months.

As of March 31, 2023, we had cash, cash equivalents and available-for-sale securities of $525.5 million.

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

We believe that our cash, cash equivalents and investments as of March 31, 2023, will be sufficient to meet our working capital and capital expenditure needs for the next 12 months.

We believe we will meet longer term expected future cash requirements and obligations through a combination of cash flows from operating activities and available funds from our cash, cash equivalents and investment balances.

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 September 30, 2022, we had an accumulated deficit of $175.7 million.

During the nine months ended September 30, 2022, we incurred net losses of $29.9 million.

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

We have incurred significant losses since our inception and as of March 31, 2023, we had an accumulated deficit of $221.6 million.

During the three months ended March 31, 2023, we incurred net losses of $27.3 million.

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

Future Funding Requirements

2 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.

Upon the closing of the Business Combination, we received approximately $636.0 million of gross proceeds.

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 in our condensed 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.

2 unchanged sentences

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.

3 unchanged sentences

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 the year ending December 31, 2022, are expected to consist primarily of capital expenditures for corporate facilities.

Our material cash requirements as of September 30, 2022 include operating lease commitments, including the lease of our headquarters in College Park, Maryland.

As of September 30, 2022, we have total operating lease obligations of $6.5 million, with $0.7 million payable within 12 months.

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 March 31, 2023, include operating lease commitments, including the lease of our headquarters in College Park, Maryland and our manufacturing and office space in Bothell, Washington.

As of March 31, 2023, we have total operating lease obligations of $15.9 million, with $0.9 million payable within 12 months.

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

Nine Months Ended September 30,

Three Months Ended

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

2 unchanged sentences

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 the nine months ended September 30, 2022, was $29.8 million, primarily resulting from a net loss of $29.9 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.

Net cash used in operating activities during the three months ended March 31, 2023, was $13.8 million, resulting primarily from a net loss of $27.3 million, adjusted for non-cash activity, primarily related to the loss recorded as a result of mark-to-market activity for our public warrants, 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 nine months ended September 30, 2021, was $21.9 million, primarily resulting from a net loss of $32.1 million, adjusted for non-cash activity, primarily related to stock-based compensation, offering costs associated with warrants, costs associated with research and development arrangements and other working capital activities.

Net cash used in operating activities during the three months ended March 31, 2022, was $8.3 million, resulting primarily from a net loss of $4.2 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 nine months ended September 30, 2022, was $314.2 million, primarily resulting from purchases of available-for-sale investments of $488.9 million, additions of $8.4 million to property and equipment related to the development of our quantum computing systems, offset by cash received from sales and maturities of available-for-sale investments of $185.2 million.

Net cash used in investing activities during the nine months ended September 30, 2021, was $6.9 million, primarily resulting from additions of $5.3 million to property and equipment related to the development of our quantum computing systems, $1.2 million of capitalized internal software development costs, and $0.4 million of intangible assets acquisition costs.

Net cash provided by investing activities during the three months ended March 31, 2023, was $21.3 million, primarily resulting from cash received from sales and maturities of available-for-sale investments of $88.1 million, offset by purchases of available-for-sale securities of $64.4 million and additions of $1.2 million to property and equipment primarily related to the development of our quantum computing systems.

Net cash used in investing activities during the three months ended March 31, 2022, was $304.1 million, primarily resulting from purchases of available-for-sale securities of $311.2 million, additions of $2.7 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 $10.4 million.

Cash flows from financing activities

Net cash provided by financing activities during the nine months ended September 30, 2022, was $2.2 million, primarily resulting from proceeds from stock options exercised and tax withholding receipts related to restricted stock units.

Net cash provided by financing activities during the nine months ended September 30, 2021, was $579.9 million primarily resulting from proceeds received from the Business Combination and the PIPE investment, as well as cash received from stock options exercised.

Net cash provided by financing activities during the three months ended March 31, 2023, was less than $0.1 million, primarily resulting from proceeds from stock options exercised.

Net cash provided by financing activities during the three months ended March 31, 2022, was $0.1 million primarily resulting from proceeds from stock options exercised.

Critical Accounting Estimates

7 unchanged sentences

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.

Within our Annual Report, we have disclosed our critical accounting estimates that we believe to have the greatest potential impact on our consolidated financial statements.

Within our Annual Report on Form 10-K, we have disclosed 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.

1 unchanged sentence

See Note 2, Summary of Significant Accounting Policies, in the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Emerging Growth Company and Smaller Reporting Company Status

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.

1 unchanged sentence

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 (i) December 31, 2025, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) 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 (iv) 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.

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 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.

Quantitative and Qualitative Disclosures About Market Risk

3 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis