Quantum Computing Q3 2024 Earnings Results & Report

Quantum Computing EPS Results

• Actual EPS: -$0.06
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 4 of last 8 quarters

Quantum Computing Revenue Results

• Actual Revenue: $0.10 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Quantum Computing (NASDAQ:QUBT), Inc. (NASDAQ:QUBT), also known as QCi, develops quantum and photonic computing technologies intended to make quantum-based solutions more accessible to commercial, government and research customers. The company focuses on applications involving optimization, machine learning, cybersecurity, artificial intelligence and other complex computational problems.

QCi’s offerings have included software tools and quantum-computing systems designed for optimization and related workloads, including its Qatalyst software platform and Dirac photonic quantum computing systems. The company has also pursued quantum photonics and integrated photonic-chip technologies, including work involving thin-film lithium niobate. Its products are intended to operate with less specialized infrastructure than some conventional quantum-computing architectures.

The company has expanded its technology portfolio through internal development and acquisitions, including the acquisition of photonic quantum technology company QPhoton in 2022. QCi is headquartered in the United States and markets its solutions to organizations seeking quantum and photonic computing capabilities, although publicly available information provides limited detail about the geographic breakdown of its customer base. Robert Liscouski has served in a leadership role as chairman, while William McGann has served as chief executive officer.

Quantum Computing Q3 2024 Earnings Call Transcript

Key Takeaways

• Quantum Computing Inc. leverages thin film lithium niobate nanophotonics to deliver room-temperature photonic quantum machines with industry-leading SWaPC (size, weight, power, cost).
• The Tempe, Arizona TFLN foundry is in final commissioning, on track to begin production in early 2025, with several offtake agreements and presales already in place.
• QCI extended its CRADA with Los Alamos National Laboratory to further develop the DIRECT3 platform for quantum optimization problems across energy management, molecular dynamics, and quantum chemistry.
• The company secured its fifth NASA contract for spaceborne LiDAR missions, aiming to slash mission costs from $1 billion to $1 million and enhance climate monitoring capabilities.
• Q3 revenue rose to $101k versus $50k a year ago and operating expenses fell 18%, but gross margins dipped to 9% and the net loss was $5.7 million.

Presentation

[Operator]

Ladies and gentlemen, greetings and welcome to the Quantum Computing Inc. Q3 2024 shareholder update call. Following management's remarks, the call lines will be open for questions. If you would like to ask a question, please press star one on your telephone keypad at any time. It is now my pleasure to introduce your host, Rosalyn Christian, with IMS Investor Relations.

[Rosalyn Christian, Head of Investor Relations at IMS Investor Relations]

Thank you, and I want to welcome everyone to the Quantum Computing Inc. shareholder update call. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements based on our current expectations and projections regarding future events, and are subject to change based on various important factors. In light of these risks, uncertainties, and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. On the call today, we have Dr. William McGann, CEO of QCI, and Chris Bremner, CFO. Bill will provide an update on business, followed by a question-and-answer session hosted by both Bill and Chris. With that, I would like to turn the call over to management. Please go ahead, Bill.

[Bill McGann, CEO at Quantum Computing Inc.]

Thank you, Rosalind, and thank you, everyone, for joining our call today. So this is going to be the first of what I hope and expect will be many quarterly investor calls to come as we continue to grow our business and communicate our strategies to the world. And I'm personally really excited to take the opportunity to discuss the strategic progress we've made today with you. Before we get into the specific operational details of those achievements, I wanted to address some of the broader context under which QCI is operating. So to start with, I always start by saying, look, we're a nanophotonics company that leverages novel materials and their associated nonlinear quantum optical properties to design, develop, and deliver innovative hardware solutions for high-performance computing, AI machine learning, and applications in remote sensing.

[Bill McGann, CEO at Quantum Computing Inc.]

We capsulize all that, because that's a lot, by saying we put photons to work, because this singular core technology focus gives us the ability to address multiple revenue streams as those markets begin to emerge, and based on this approach, we believe we're very well positioned to capitalize on what we call our early flexible early mover advantage in emerging markets and rapidly growing ones. The increasing global focus on sustainable energy solutions, coupled to the push for advanced technology innovation in sectors such as automotive, finance, and healthcare, really starts to underscore the timely relevance of our offerings and showcases and the powerful diversity of our core technology, which I'm going to talk to you about today.

[Bill McGann, CEO at Quantum Computing Inc.]

So additionally to that, as you might imagine, there are also political drivers, including governmental support for quantum technology and initiatives aimed at fostering innovation that are really creating quite a favorable environment for us right now. And our goal here is to establish what I call a best-in-class sustainable use case strategy for energy management and automotive applications and for the important financial portfolio optimization. These align very well with the trends of our business and allow us for a focused commitment for us to deliver high-margin revenue streams from our quantum machines and our U.S.-based foundry services, which we're going to talk to you about today. So I want to provide a thumbnail of a couple of these really important areas to focus that we're addressing the critical challenges of energy consumption and AI and powerful quantum machines for solving complex optimization problems.

[Bill McGann, CEO at Quantum Computing Inc.]

Our product development roadmap and growth model will be sustained by leveraging one common core technology to capture multiple revenue streams in these complementary markets, all of which will benefit from the next generation of our photonic high-performance computation. So it ties really well with our roadmap here. The underlying technology element that enables this approach is our model for nanofabrication of QCI photonic chips using thin film lithium niobate, or TFLN. We call it TFLN for short because it's really hard to say thin film lithium niobate three times fast in a sentence. But this TFLN material is the source material that QCI uses for developing its quantum high-performance computing machines. And importantly, TFLN is also becoming recognized as one of the most promising new materials for implementation of extremely low-power consumption devices for the really widely expanding and rapidly growing telecom and data center application.

[Bill McGann, CEO at Quantum Computing Inc.]

I mean, recently at a conference where we attended, one of the head spokespeople for NVIDIA, for example, stood up and said that thin-film lithium niobate is one of the most being looked at for its promise in these applications, so we think, again, it aligns with our strategy very well, so in the near term, we're going to leverage the growing demand for TFLN devices in the market to drive early, significant revenues for foundry services, while we will in parallel keep on developing along the same path of our own quantum computing machine platform.

[Bill McGann, CEO at Quantum Computing Inc.]

So the punchline is really this: we believe it is the best approach for us achieving scalable quantum machines, and the immediate result of this approach will be to leverage the early cash flow that we generate from the foundry services in Arizona and the large growing market that it will command to drive the high-performance quantum machine adoption in the markets where the development is still emerging and a little bit more technology maturing is needed. So ultimately, this approach back and forth, leveraging the technology in the markets, will produce miniaturized photonic integrated circuits. They're called PICs, as a term of art. And our TFLN chips will become the integral part of that scalable photonic quantum machine that will meet the extreme performance demands in these markets, as you all are following. I'm sure you'd know that.

[Bill McGann, CEO at Quantum Computing Inc.]

One really important benefit that's immediately available for our growth in market share is that our systems operate at room temperature, and they are mountable in a rack in an ordinary server room configuration. Our current Dirac-3 machine is already in these configurations, showing great advantages in solving important computational benchmark problems and operating with exceedingly low powers in the range of 25 watts or the equivalent of two LED light bulbs. I mean, it's impressive what these machines can do with such low levels of power. Today, I'm confident to state that the Dirac-3 offers the best size, weight, power, and cost of any high-performance computer in the world today. Size, weight, power, and cost we refer to as SWaP-C.

[Bill McGann, CEO at Quantum Computing Inc.]

This fact enables us to provide these powerful machines at a very low cost, and it makes our accessible, affordable strategy that some of you may have heard us talk about be a reality versus an idea. So now let me highlight a few of the specific operational achievements for Q3 during the Q3. So first, I want to go back and discuss our specific progress with the thin film lithium niobate, or TFLN, foundry in Tempe, Arizona. We are in the final phase of commissioning the facility, and we remain on track to begin the production early in 2025. And we've already begun finalizing offtake agreements and some pre-sales orders with new customers and strategic partners. We've been probably seeing that in some of our recent press releases.

[Bill McGann, CEO at Quantum Computing Inc.]

This foundry is a really significant step in scaling our manufacturing capabilities and expanding our reach into these new markets, as I've described above. And this is a tangible result of our efforts to improve the execution of our sales and marketing strategy. Another really key element this quarter is that we extended our cooperative research and development agreement, or CRADA, with the Los Alamos National Laboratory, LANL. This renewed collaboration allows us to further explore the capabilities of our new Dirac-3 machine for quantum optimization problems. And the extended agreement facilitates the development of advanced quantum solutions across other important sectors, including energy management, molecular dynamics, and even some really fascinating quantum chemistry problems important to the world.

[Bill McGann, CEO at Quantum Computing Inc.]

So additionally, we're really trying to leverage these technology advancements with market opportunity through our presence in the key industry events, including things like Quantum World Congress in 2024 and the Quantum Tech Europe, which we've been giving paper presentations at. And this has been very instrumental in raising our awareness about the capabilities of our Dirac-3 platform. These engagements have really elevated our profile among government and commercial stakeholders and really sparking interest in potential partnerships that we anticipate will continue to further enhance and grow our position. So in parallel, all these efforts working together, we continue to develop that underlying Entropy Quantum Computing solution, our Dirac-3. And it is gaining traction, demonstrated through solving these benchmark problems. And we're working with people like the Los Alamos National Laboratory, as I mentioned, Oak Ridge National Laboratory, and Lawrence Berkeley National Laboratory.

[Bill McGann, CEO at Quantum Computing Inc.]

These studies underscore our platform's efficiency in tackling these challenges. Lastly, and I'll probably stop at that point, I'm happy to announce that in this quarter, we secured our fifth project with NASA. This exciting new contract continues our focus on developing quantum technology for space-borne LiDAR missions, light detection and ranging applications. These are specifically aimed at lowering the cost associated with space-borne LiDAR from billions of dollars per flight to millions of dollars and focused on gathering climate monitoring data and enhancing the data collection capabilities. This contract further really solidifies that partnership that we've had ongoing with NASA, and it reflects our commitment to them and them to us on leveraging our technology for real-world applications.

[Bill McGann, CEO at Quantum Computing Inc.]

So I look forward to questions and answers, but for now, I'm going to pass over to Chris, my CFO, Chris Bremner, for a quick look at our financial performance. Over to you, Chris.

[Chris Boehmler, CFO at Quantum Computing Inc.]

Great. Thank you, Bill. I will now take a few minutes to provide a brief overview of our financial performance for the Q3, 2024. There are really two key themes I want to highlight. One, that our results this quarter reflect our continued focus on cost containment, while two, importantly, continuing to strategically invest in capital improvements and research and development to support our long-term growth objectives, like the foundry TFLN facility that Bill touched on. Specifically, as we look at the financial results, Q3, 2024 revenues totaled approximately $101,000 compared to $50,000 generated in Q3, 2023. The increase in revenues was due to increased contractual sales, primarily from our contract with Johns Hopkins University to deliver an underwater quantum LIDAR prototype. Gross margins have decreased to 9% this quarter compared to 52% in the Q3.

[Chris Boehmler, CFO at Quantum Computing Inc.]

The decrease in gross margins was primarily the result of the Johns Hopkins project, which has lower margins than our NASA LIDAR work due to its cost of revenues being comprised of a significant amount of direct component costs, in addition to direct labor expenses incurred in the customized Johns Hopkins design and build contract. Turning to operating expenses, Q3, 2024 totaled $5.4 million compared to the prior year Q3 operating expenses of $6.6 million. The 18% period-over-period decrease is primarily driven by our cost containment efforts and focus on reducing selling, general, and administrative expenses, specifically management's actions to reduce employee, consultant, and legal costs.

[Chris Boehmler, CFO at Quantum Computing Inc.]

Further, our investment in research and development of $2.2 million in the quarter was in line with the $2.3 million recognized in the Q2, which reflects our focus on innovation and continues to play a key role in driving future growth, particularly within our high-performance computing platforms. The company reported a net loss attributable to common stockholders of $5.7 million, or 6 cents per basic share for the Q3 of 2024, compared to a net loss available to common shareholders of $7.1 million, or 10 cents per basic share for the same period of the previous year. Total assets at September 30, 2024, were $76.8 million, which was up $2.4 million from the $74.4 million reported at December 31, 2023. Cash and cash equivalents at September 30, 2024, increased $1 million from year-end 2023 to approximately $3.1 million.

[Chris Boehmler, CFO at Quantum Computing Inc.]

In the Q3, the company had raised net proceeds of $7 million in the secured convertible debt financing. Further, I'm also very pleased to report that subsequent to the end of the Q3, we've been able to raise in excess of $4.5 million through our ATM facility at the market facility. These capital raises demonstrate our commitment to balancing our cost of capital while ensuring we have the necessary resources to execute our strategic plan. Total liabilities at September 30, 2024, were $10.9 million, an increase of approximately $5.3 million compared to year-end 2023, driven primarily by the convertible debt financing I mentioned previously. As of September 30, 2024, the company had stockholders' equity totaling $60.4 million. Looking ahead, our strategy centers on driving revenue and ultimately achieving intermediate-term cash flow from our Arizona TFLN foundry facility.

[Chris Boehmler, CFO at Quantum Computing Inc.]

We believe that over time, the TFLN facility can serve as a source of stable, non-dilutive cash flow while market demand for quantum computing catches up to our quantum computing manufacturing capabilities. I will now turn it back over to Bill for some closing remarks.

[Bill McGann, CEO at Quantum Computing Inc.]

Thanks very much, Chris. And thank you all again for joining us today. And in closing, look, our operational advancements this quarter really underscore our dedication to delivering accessible, affordable, and scalable quantum solutions through our hardware. I'm very confident in our team's ability to execute on our strategic vision and continued focus and passion to really make this company grow. And I look forward to the many opportunities that lie ahead with all of us. And now I'd like to turn the call over to Q&A to the operator. Thank you.

[Operator]

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Once again, that's Star 1 if you wish to ask a question at this time. One moment, please, while we pull for questions. Once again, that's Star 1 if you wish to ask a question on today's call. The first question today is coming from Ed Woo from Ascendiant Capital. Ed, your line is live.

[Ed Woo, Director of Research and Senior Analyst in the Equity Research at Ascendiant Capital]

Yeah. Congratulations on the progress. My question is, in terms of getting more of these contract grant revenues, do you anticipate getting a lot more over the next year?

[Chris Boehmler, CFO at Quantum Computing Inc.]

Thank you for that. Yes. In fact, some of the additional strategic initiatives we've taken on in the past six months have been to bolster our R&D proposal writing capability. So we have a dedicated proposal contract writer for us, another PhD physicist who's very capable and successful at submitting grants and contracts for whether it's SBIR or other government agencies. And we have a very active program with a very robust opportunity pipeline. So yes, you will definitely expect to see more external funding. But having done this for many years, it's a double-edged sword. And I always like to focus the external funding initiatives we put our effort into to make sure that they align with our roadmap, as opposed to just funding for the sake of funding, right? But we have a very good process for doing that, and we're very sensitive about that.

[Chris Boehmler, CFO at Quantum Computing Inc.]

So you'll see more focus on our remote sensing applications. And we're working really hard with some of the new recently announced notice of offering of funding from some of the national laboratories and government agencies for quantum frontiers and new innovative technologies. So we're right in the thick of that as we speak. Thank you for that question.

[Ed Woo, Director of Research and Senior Analyst in the Equity Research at Ascendiant Capital]

Great. And my last question is, have you guys given a timeline for when your foundry and company will be operational?

[Chris Boehmler, CFO at Quantum Computing Inc.]

Yeah, we do have one. We will be, as I said in the comments, we will complete the construction phase of the fab the end of this year, and we're going to then commission it starting in January, and we'll be open for business in the first quarter. In fact, we will be announcing sort of a grand opening and inviting select people for that event and be inviting any of our shareholders if they'd like to come and visit us. Very exciting.

[Ed Woo, Director of Research and Senior Analyst in the Equity Research at Ascendiant Capital]

Great. Well, thank you for answering my question. I wish you good luck. Thank you.

[Chris Boehmler, CFO at Quantum Computing Inc.]

My pleasure.

[Operator]

Thank you. And once again, it will be Star 1 if there were any other questions at this time. And there were no other questions from the lines at this time. I would now like to hand the call back to Bill McGann for closing remarks.

[Bill McGann, CEO at Quantum Computing Inc.]

Thank you, and thank you all for taking the time to join our call today. There's a lot going on. We're a very focused and passionate team, and we really look forward to doing this on a more regular basis with all of our investors, and please check out the content on our website. We really have done a complete makeover there, and it gives you a lot of information about what we do at various levels, from high-level to very detailed mission and the science that we're doing behind our underlying Entropy Quantum Computing, so I invite you all to please talk to us, to our website, and check us out, and we look forward to hearing from you again more in the future. Thank you.

[Operator]

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Participants

Executives

• Bill McGann, CEO
• Chris Boehmler, CFO

Analysts

• Rosalyn Christian, Head of Investor Relations at IMS Investor Relations
• Ed Woo, Director of Research and Senior Analyst in the Equity Research at Ascendiant Capital