D-Wave Quantum Q1 2025 Earnings Report

D-Wave Quantum EPS Results

• Actual EPS: -$0.02
• Consensus EPS: -$0.05
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

D-Wave Quantum Revenue Results

• Actual Revenue: $15.00 million
• Expected Revenue: $10.50 million
• Beat/Miss: Beat by +$4.50 million
• YoY Revenue Growth: N/A

D-Wave Quantum Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:00AM ET

D-Wave Quantum (NYSE:QBTS) develops and delivers quantum computing systems, software, and services worldwide. The company offers Advantage, a fifth-generation quantum computer; Ocean, a suite of open-source python tools; and Leap, a cloud-based service that provides real-time access to a live quantum computer, as well as access to Advantage, hybrid solvers, the Ocean software development kit, live code, demos, learning resources, and a vibrant developer community. It also provides D-Wave Launch, a quantum professional service that guides enterprises from problem discovery through production implementation. The company's quantum solutions are used in logistics, financial services, drug discovery, materials sciences, scheduling, fault detection, mobility, and supply chain management. It serves financial services, manufacturing/logistics, mobility, and life sciences/pharmaceuticals industries. D-Wave Quantum Inc. was founded in 1999 and is headquartered in Burnaby, Canada.

D-Wave Quantum Q1 2025 Earnings Call Transcript

Key Takeaways

• Record Q1 revenue of $15 million (+509% YoY) and $304 million cash position, marking the lowest quarterly loss since IPO and solidifying the path to sustained profitability.
• Demonstrated quantum supremacy with a 1,200-qubit Advantage2 system by simulating a complex magnetic material problem in minutes—versus nearly a million years on a leading exascale supercomputer.
• Advanced the Advantage2 roadmap with calibration of 4,400+-qubit processors (doubling coherence time, +40% energy scale, +33% connectivity), fast-anneal capability, and error mitigation, targeting general availability by end of Q2.
• Expanded software offerings with hybrid quantum solvers handling up to 2 million variables (integer and continuous) and released an open-source AI toolkit in Ocean SDK to integrate quantum Boltzmann machines with PyTorch.
• Secured commercial traction—Ford’s production use cut vehicle scheduling time 6×, Japan Tobacco’s drug-discovery proof-of-concept delivered superior molecular candidates, and LEAP trials and Qubits ’25 attracted record attendance and partnership interest.

Presentation

[Operator]

Good morning, everyone, and welcome to D Wave's First Quarter of Fiscal Year twenty twenty five Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the floor over to Kevin Hunt of Investor Relations. Please go ahead.

[Kevin Hunt, Head of Investor Relations. at D-Wave Quantum]

Thank you, and good morning. With me today are Doctor. Alan Barris, our Chief Executive Officer and John Hakavich, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward looking statements that should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non GAAP financial and operational measures under SEC rules, such as non GAAP gross profit, non GAAP gross margin, adjusted EBITDA and bookings.

[Kevin Hunt, Head of Investor Relations. at D-Wave Quantum]

Reconciliations to GAAP financial measures and certain additional information are also included in today's earnings release, which is available in the Investor Relations section of our company website at www.dwayofconfident.com. I will now hand over the call to Alan.

[Alan Baratz, CEO at D-Wave Quantum]

Good morning, everyone, and thank you for joining us today. I'm really excited to share our results for the first quarter of fiscal twenty twenty five. '20 '20 '5 is shaping up as one of the most significant years in D Wave's history, especially when you consider our technical achievements, our product development milestones, our go to market momentum and our financial position. Highlights of the first quarter include record quarterly revenue driven by the completion of the first Advantage system sale, additional customer applications moving into production, publication of our Quantum Supremacy results in science, and ongoing achievements against our aggressive product road map. The health of our business remains strong.

[Alan Baratz, CEO at D-Wave Quantum]

In terms of some specifics on the financials, our Q1 revenue came in at a record $15,000,000 and we closed the quarter with a record $3.00 $4,000,000 in cash, giving us a very solid cash position that we believe is sufficient for us to reach profitability. Let me now walk you through some key business highlights, starting with technical achievements. On our last call, we proudly shared that we are the first company in the world to demonstrate quantum supremacy on a useful real world problem. As discussed, D Wave's twelve hundred qubit prototype advantage two quantum computer performed a complex magnetic material simulation in minutes and with a level of accuracy that would take nearly one million years to complete using one of the world's most powerful supercomputers. That supercomputer being the frontier, massively parallel, GPU based exascale supercomputer at the Oak Ridge National Laboratory.

[Alan Baratz, CEO at D-Wave Quantum]

In addition, it will require more than the world's annual electricity consumption to solve this problem using that supercomputer. We don't believe any other researchers or companies have come close to achieving this demonstration. This work should be celebrated as a significant milestone for the quantum industry and a clear demonstration of quantum outperforming classical computing. Building on that demonstration, we recently published a new research paper titled blockchain with proof of quantum work that used quantum computation to generate and validate blockchain hashes. We believe this research, which leverage techniques from our quantum supremacy demonstration, indicates that using quantum computation for hashing and proof of work could potentially require a fraction of the electricity used by classical resources alone and reduce electricity cost by up to a factor of 1,000.

[Alan Baratz, CEO at D-Wave Quantum]

By adding Quantum to traditional blockchain computation, the new architecture could enhance blockchain security and efficiency. Also, as part of this research, D Wave scientists deployed the blockchain architecture across four of its cloud based annealing quantum computers in Canada and The United States, performing distributed quantum computing for the first time. This is a very exciting area with potential for broad usage. In fact, we've already been contacted by several blockchain focused organizations interested in potential partnerships, and we are open to discussions with any other interested party. With respect to product development progress, our advantage to a Neelink Quantum computer, our sixth generation system, has achieved important milestones on the path to general availability, which is expected by the end of this quarter.

[Alan Baratz, CEO at D-Wave Quantum]

These milestones include, first, calibration of 4,400 plus cubic processor chips. We have completed calibration and benchmarking of several 4,400 plus cubic advantage to quantum processors. The advantage to QPUs have demonstrated impressive performance gains over the existing advantage system, including double coherence time for faster time to solution, a 40% increase in energy scale for higher quality solutions, and increased cubic connectivity from 15 to 20 ways to enable solutions for larger problems. With these substantial performance enhancements, we believe that Advantage two will be able to solve our customers' increasingly complex computational problems, especially in areas such as optimization, AI, and material science. The second milestone is fast anneal.

[Alan Baratz, CEO at D-Wave Quantum]

This feature offers extended control for notably faster annealing times than previously available, which greatly reduces the impact of external disturbances such as thermal fluctuations in noise that can hinder quantum calculations. The fastenial feature paves the way for customers to reproduce and build on Z Wave's landmark quantum supremacy results using full scale coherent and healing quantum computing available on the advantage two system. And the third milestone is error mitigation. We demonstrated successful quantum error mitigation in this 1,200 qubit advantage two annealing quantum computing prototype. The technique reduces errors in quantum simulations, producing results consistent with the quantum system's maintaining a quantum state coherence for an order of magnitude longer than an unmitigated system.

[Alan Baratz, CEO at D-Wave Quantum]

This technique is expected to drive performance advancements in the forthcoming full advantage two system and future processes. Once we announce GA, the system will become part of the lead quantum cloud service for use by all of our quantum computer to service customers. In addition, just a couple weeks ago, we shared that the physical assembly of a D Wave Advantage two annealing quantum system is complete at Davidson Technologies headquarters in Huntsville, Alabama. Installation is now nearing completion, the drive system undergoes calibration and readiness testing. We expect that the advantage to system will enable Davidson to explore and develop real world quantum applications, particularly in optimization for some of the US government's most complex problems, and then ultimately deploy those applications in a secure environment.

[Alan Baratz, CEO at D-Wave Quantum]

Turning to software, we recently introduced new hybrid quantum solver capabilities and additional use cases designed to drive users of our quantum optimization offering. Our hybrid solvers, which are capable of handling problems with up to 2,000,000 variables, now support both integer and continuous variables, which opens up the range of use cases that can be addressed with this technology. Recent enhancements to the nonlinear hybrid quantum solver include the ability to support continuous variables with linear interactions, thus enabling new kinds of use cases such as budget allocation and resource distribution. We've also expanded our collection of optimization use cases, which now includes offer allocation, portfolio optimization, and maintenance repair operations optimization to apply hybrid quantum technology to a growing set of customer problems. We also launched an open source toolkit designed to accelerate quantum AI and machine learning innovation.

[Alan Baratz, CEO at D-Wave Quantum]

Available in D Wave's Ocean Software Development Kit, the package enables develop developers to seamlessly integrate D Wave's quantum computers with PyTorch, a production grade ML framework widely used to build and train deep learning models. The tool kit includes a neural network module for using a quantum computer to build and train an AI system known as a restricted Boltzmann machine or an RBM. Used to learn patterns and connections from data, RBMs are an AI tool used for tasks such as making predictions, recommendations, and identifying trends or anomalous. Looking ahead, we're making progress on all aspects of our previously communicated product road map, which is designed to unlock new customer production application use cases in the advantage two and forthcoming advantage three quantum computers and beyond. It focuses on rapid innovation and scaling, including increased connectivity and coherence, next generation digital addressing, and multi chip processor fabric to accelerate the path to reaching 100,000 qubits.

[Alan Baratz, CEO at D-Wave Quantum]

We're also developing techniques in analog digital quantum computing to advance quantum optimization, quantum AI, and quantum research by adding digital controls to annealing quantum computing processes. Lastly, we're continuing efforts to build scalable error corrected gate model processes, including leveraging our proprietary cryogenic control capabilities that will likely be required in all superconducting gate model quantum computers. Now I'll turn into commercial progress. And the key metric for assessing a quantum computing vendor's maturity is whether its technology is used in production to fuel daily operations for customers. We're excited to have recently announced that Ford Autothon has developed a hybrid quantum application in production, streamlining manufacturing processes for its Ford Transit line of vehicles.

[Alan Baratz, CEO at D-Wave Quantum]

Using D Wave technology, Ford AutoSign reduced the scheduling time of 1,000 vehicles from thirty minutes to less than five minutes, a six times improvement. Ford AutoSigned plans to activate Quantum Scheduling in additional body shop and extend to other processes, including paint shop, assembly lines, and buffer zones. Ford AutoSign joins NTT Dokomo and Patterson Food Group, customers that are also using systems currently running production applications. We expect additional customer applications to enter production deployments over the course of 2025. In another powerful customer use case example, we announced the successful completion of a proof of concept with the pharmaceutical division of Japan Tobacco, which used the advantage quantum computer with artificial intelligence in the drug discovery process.

[Alan Baratz, CEO at D-Wave Quantum]

This new approach resulted in molecular structures that are better candidates for subsequent drug development than structures created by purely classical methods. Japan Tobacco expects that this could lead to improvements in both the quality and speed of drug development. Customer success stories like these and others were on full display at Qubix twenty twenty five, our annual user conference, which took place on March 31 and April 1 and saw record attendance. In person attendance was up 23% year over year and virtual attendees up nearly 100 year over year. A number of D Wave customers presented use cases based on D Wave technology, including Davidson Technologies, Japan Tobacco, the Ulex Supercomputing Center, NTT Dokomo, Husain National University, Quantum Research Sciences, SAS, the University of Southern California, and more.

[Alan Baratz, CEO at D-Wave Quantum]

We're also seeing strong interest in the LEAP Quantum Launchpad program, which is a three month trial that provides access to D Wave's quantum computing systems, our lead real time quantum cloud service, and our team of quantum experts for project support. Market demand has been strong with the first customer intending to convert from free trial to paid engagement in less than two months. We continue to believe that this program will expand the universe of organizations using Quantum to solve their complex problems today. So to summarize, we are executing against our technology road maps and our go to market plans, and this is beginning to show up in our financial results. We are seeing growing interest in g wave quantum computing solutions as evidenced by a myriad of factors, including increased website traffic, which is up 153% from October of twenty twenty four to March of twenty twenty five, as well as media coverage with strong news stories mentioning Z Wave up 803% from February to March of twenty twenty five.

[Alan Baratz, CEO at D-Wave Quantum]

It is evident to us that the D Wave message is resonating. Customers are eager to start exploring and adopting the technology, and the world is beginning to recognize the leadership role we're playing in ushering in the area of quantum computing. We could not be more excited about the future of D Wave. With that, I'll hand it over to John to provide a review of our first quarter fiscal twenty twenty five results.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Thank you, Alan, and thank you to everyone taking the time to participate in today's call.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

In my review of the fiscal twenty twenty five first quarter results, I will be providing non GAAP operating metrics, including bookings as well as non GAAP financial metrics that include non GAAP gross profit, non GAAP gross margins and adjusted EBITDA loss, as we believe these metrics improve investors' ability to evaluate our underlying operating performance. These measures are defined in the tables at the bottom of today's earnings press release with the non GAAP financial metrics for the most part adjusting for noncash and nonrecurring expenses. With respect to revenue, revenue in the first quarter of fiscal twenty twenty five totaled a record $15,000,000 which represented an increase of $12,500,000 or 509% from the first quarter of fiscal twenty twenty four revenue of $2,500,000 with the magnitude of the increase highly influenced by the sale of an ADDvantage two, a Neelin quantum computing system to the Ulex supercomputer center. They constituted approximately $12,600,000 of the quarterly revenue with QCAP and professional services comprising the balance. Bookings for the first quarter were $1,600,000 a decrease of $2,900,000 or 64% when compared to the fiscal twenty twenty four first quarter bookings of $4,500,000 with professional services bookings comprising more than 50% of the first quarter bookings.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

With respect to our customers, we continue to broaden and diversify our customer base across commercial, research and government organizations. In comparing the most recent trailing four quarters with the immediately preceding trailing four quarters, D Wave had a total of 133 customers compared to a total of 128 customers. With the 133 customers, including 69 commercial customers, 25 or 36% of which are Forbes Global two thousand customers where we are seeing some significant pickup in sales pipeline activity, 52 research customers and 12 government customers. With respect to gross profit, our GAAP gross profit for the fiscal 'twenty five first quarter was a record $13,900,000 an increase of $12,200,000 or 736% from the fiscal twenty twenty four first quarter GAAP gross profit of $1,700,000 Non GAAP gross profit for the first quarter was a record $14,000,000 an increase of $12,200,000 or 644% from the fiscal twenty twenty four first quarter non GAAP gross profit of $1,900,000 with the magnitude of the year over year increase in both GAAP and non GAAP gross profit due primarily to the higher margin Advantage two system sale. With respect to gross margins, the GAAP gross margin for the first quarter was 92.5, an increase of 25.2% from the fiscal twenty twenty four first quarter GAAP gross margin of 67.3%.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

The non GAAP gross margin for the first quarter was 93.6%, an increase of 17% from the fiscal twenty twenty four first quarter non GAAP gross margin of 76.6%. The net loss for the first quarter of fiscal twenty twenty five was $5,400,000 or $02 per share compared with a net loss of $17,300,000 or $0.11 per share in the first quarter of fiscal twenty twenty four, with a lower net loss driven primarily by the $12,200,000 increase in gross profit that was heavily influenced by the sale of the advantage to annealing quantum computing system. This represents the company's lowest quarterly loss since becoming a public company in August of twenty twenty two. Adjusted EBITDA loss for the first quarter was $6,100,000 a decrease of $6,800,000 or 53% from the fiscal twenty twenty four first quarter adjusted EBITDA loss of $12,900,000 with the decrease due primarily to the year over year increase in revenue and the associated gross profit, partially offset by higher operating expenses that are related to the increased investment in our go to market and research Now I'll transition to the balance sheet and liquidity. As of March 31, DUA's consolidated cash position totaled a record $304,300,000.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

And as previously reported, we paid off our secured term loan in the fourth quarter of last year. During the fiscal twenty twenty five first quarter, D Wave raised 146,200,000.0 in equity through its third at the market common stock issuance program. And as of the end of the quarter, we had $37,800,000 in available issuance capacity under the equity line of credit with Lincoln Park Capital Fund with the investment commitment running through October of this year. DUA's ability to utilize DUA is subject to a number of conditions, including having a sufficient number of registered shares and the stock price being above a dollar a share. In addition, we exited the first quarter with a record $207,400,000 in shareholders' equity.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

To conclude, as we have previously stated, we believe that D Wave has the opportunity to be the first independent publicly held quantum computing company to achieve sustained profitability and to achieve this milestone with substantially less funding than required by any other independent publicly held quantum computing company. With that, we will now open the call for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. We ask that you limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

[Operator]

You may press star two if you would like to remove your question from the queue. Our first question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Yes. First of all, strong congratulations on a number of fronts. Very strong quarter, your quantum supremacy and then also calibration at a product level calibration of your 4,500 Vantage system. I had a question couple of questions, actually, but I'll take it to you when you're back in line. Alan, maybe you could talk about Davidson Technology.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

This sounds to me like another system sale that you've been working on. Maybe you could clarify if possible for us if this is another one of the three that you have been referring to previously. And then sounds like the system is being calibrated or assembled right now. Maybe you could give us an update on where you are, when you think it might happen, and then I've got a follow-up.

[Alan Baratz, CEO at D-Wave Quantum]

Okay.

[Alan Baratz, CEO at D-Wave Quantum]

Sure, Harshin, and thanks for the positive comments upfront. So first of all, Davidson is not one of the other handful of potential system sale opportunities that I commented on during our last earnings call. But I also did say that system sales tend to take time. And so while we have a handful that we are working on and, you know, some maybe sooner than others, These are long lead sales opportunities. So it will take us some time to get there.

[Alan Baratz, CEO at D-Wave Quantum]

But we're encouraged by the level of interest based on, in part, the supremacy resolve and the demonstration of capabilities that the system has when you're able to control more of the operating parameters than possible through the Quantum Cloud service. And so having your own system makes sense if if that's the direction that you would like to move in. As well as the fact that, you know, we were able to announce that we had completed our first system sale, and so we're we're open for business with that type of business model. With respect to the partnership with Davidson, this really is focused on working together with Davidson to help identify, develop, and ultimately deploy applications to support the US government and specifically defense and security hard optimization applications. With the goal being that, you know, initially, the system would be a part of the lease environment while the r and d work is being done in a non classified fashion, but that ultimately, the system would end up in a secured facility to be able to run secure applications.

[Alan Baratz, CEO at D-Wave Quantum]

And so that's the nature of the partnership with Davidson.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Can I ask a follow-up on that before I jump to the training? So so the system seems to be based out of Alabama. So can you talk about so this seems seems like a tendential offshoot set up a business arrangement outside of the sale. How did how did the economics work?

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Is it like regular economics? Like, it's just another one of your systems that happens to be on-site for another customer?

[Alan Baratz, CEO at D-Wave Quantum]

So, Harsh, we we have not disclosed any of the details associated with the economics associated with that partnership. So, you know, that's just something that you're gonna have to wait for. Sorry.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Yeah. I I respect that. That's fine. I had a I had a totally different question. So the more I work on quantum computing, the more I realize that error correction and cryogenic control are two big issues in the industry.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

You guys seem to be ahead of others in that. And I know it's it's gonna be a mouthful of an answer because it's two two big technologies, and I'm asking you to discuss. But maybe if you could just summarize for us how you stack up in error correction and cryogenic control versus the rest of your peers in Quantum.

[Alan Baratz, CEO at D-Wave Quantum]

So so first of all, we are world leaders in control. In fact, we are the only company in the world that has cryogenic control operational today.

[Alan Baratz, CEO at D-Wave Quantum]

And frankly, as I commented previously, at least every superconducting gate model quantum company is going to need this technology. They for the most part, they haven't even started working on it yet, and we have it operational today. The reason why we have it operational today is because we needed it for our annealing quantum computing. That's why we are able to control 5,000 cubits with just a couple of hundred IO lines, and why we believe we'll be able to control even a hundred thousand cubits with just a couple of hundred IO lines. So everybody in the supercomputing quantum computing space will ultimately need this capability in order to be able to scale their processes.

[Alan Baratz, CEO at D-Wave Quantum]

And we're we're the only company in the world that has it today. And we've got a significant patent portfolio basically built around that capability. With respect to error correction, I think we've mentioned this before, but a nearly quantum computers do not need the same type or level of error correction that's required by gate model quantum computers. And so, you know, while we develop some error mitigation technologies that are very useful for annealing quantum computing, we have not built the kind of error correction that is required for gate models. Now under our gate model program, we are working on that today.

[Alan Baratz, CEO at D-Wave Quantum]

But we unlike pricing and control where we have it in hand, almost commercial grade, we don't yet have that for date model system. We don't yet have error correction for date model systems.

[Operator]

Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

[Craig Ellis, Director of Research at B Riley Financial]

Yes. Thanks for taking the question, and congratulations, guys, on the technical and financial accomplishments in the quarter. Alan, I wanted to start with you with the first question. You mentioned that there were numerous blockchain application partnerships that were inbound and it sounds like initially engaged. Can you just provide more color on the opportunity that you see in that area?

[Alan Baratz, CEO at D-Wave Quantum]

Yeah. So so, Craig, we are not blockchain experts. And as a result, while we've developed an architecture and prototype it and have it operational today that we think could be of real value to the blockchain industry, you know, we're not going to pursue that ourselves. We would pursue that only in partnership with some organization that for which that really is their focus and their business. And so as a result, we were encouraged when a number of companies and and investors, frankly, who have expertise and are interested in the space approached us to talk about actual applications and opportunities to leverage this technology.

[Alan Baratz, CEO at D-Wave Quantum]

And and so we are working through that to make a determination around what would be the best way, if at all, to commercialize this. The only thing I I will say though is for blockchain as well as you know, we've talked about AI as well, we're working on how the quantum computers can basically enhance AI and machine learning, both model training and interest inference. What's what's interesting to us and really compelling about both the blockchain and AI opportunity is we actually think they drive the system sale model of our business more than the quantum computer as a service model of our business. And so while quantum optimization and supporting customers that have applications that they need to run-in support of their day to day business operations really continues to be a QCAD a quantum computer service oriented business. We think blockchain and AI will kind of enhance the system sales component of the model.

[Alan Baratz, CEO at D-Wave Quantum]

But I have to caution you, it's early days.

[Craig Ellis, Director of Research at B Riley Financial]

Certainly. And and the continuous compute nature of of blockchain and AI make it understandable why there might be more of a system sale interest there. John, I'll I'll switch to you for the second question, and it's really a clarification and then a follow-up. The clarification, on the 93.6% gross margin, super high level, is that a proxy for how the model could work when we have a full system sale in the quarter?

[Craig Ellis, Director of Research at B Riley Financial]

Or were there some onetime items that might have benefited that? And then you did mention that there's been an uptick in pipeline activity. If you could just elaborate on that, that would be great. Thank you.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Sure.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Generally, it is a proxy, Craig, but as we've previously outlined, you know, we have a database of one system sale being this one. So each deal is going to have unique elements to it. But as it relates to the actual sale of the systems component of these types of arrangements, the gross margin will clearly be higher than what our average consolidated gross margin is as we just demonstrated in the first quarter. Now having said that, there could be some variability relative to, you know, what we saw here in the first quarter. But generally, they'll be higher than the QCAS margins that are typically in the 70 to 80% range.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Your second question has to do with pipeline?

[Craig Ellis, Director of Research at B Riley Financial]

Yes, John.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Yes. So we're seeing a very, very healthy sales pipeline. And what is most interesting about it is we now have a a fair number of larger organizations, including a number of Ford's Global 2,000 companies.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

That's the that's the positive element of what's happening in the pipeline. But associated with that, these deals typically take longer because you're dealing with larger organizations that have, in many cases, complex procurement processes. I will also point out with respect to our customer count numbers that I provided earlier that over the last two sequential quarters, we've seen an increase in the average revenue per commercial customer as well as the average revenue per government customer. So although the customer count has not increased dramatically, Underlying that is growth in the average revenue per commercial account and government account over the last two sequential quarters.

[Operator]

Our next question comes from the line of Quinn Bolton with Needham and Company.

[Quinn Bolton, Senior Analyst at Needham & Company]

Let me also offer my congratulations on both financial and technical milestones in the quarter. But I wasn't sure if it's for John or Alan, but just a clarification on the system sale. I think last quarter when you discussed this sale, you mentioned that there's an option for an upgrade to the Advantage two processor. In today's script, you're saying that you have installed an Advantage two system. And so I'm wondering, did the system sale price you recognized, does that include the upgrade option?

[Quinn Bolton, Senior Analyst at Needham & Company]

Or is that upgrade option for the QQ still available to be deployed sometime later this year or next?

[Alan Baratz, CEO at D-Wave Quantum]

So sorry, Quinn. I think I I think you confused two different things here. The ULIC system installation that has been handed over to ULIC is an advantage system with the option to upgrade to advantage two. The Davidson system is an advantage two system installed from the outset.

[Alan Baratz, CEO at D-Wave Quantum]

And so, yes, the upgrade of the system at ULIC is still to be done.

[Quinn Bolton, Senior Analyst at Needham & Company]

Okay. Maybe I misheard that. I thought in the script you'd you'd refer to the ULIC system as advantage to, so my apologies. But that that option is still available for later this year.

[Quinn Bolton, Senior Analyst at Needham & Company]

Alan, the second question I had is you you talked about NTT Dokomo, Patterson and Fort Adesan moving to production. Can you just discuss the pipeline of additional customers moving applications? How are you feeling about converting additional customers or more applications that the three I mentioned into production over the course of the year? Thank you.

[Alan Baratz, CEO at D-Wave Quantum]

Yeah.

[Alan Baratz, CEO at D-Wave Quantum]

So I can't give you any specifics. You know, we've talked in the past about what's involved in progressing a customer from proof of concept through the benchmarking through to, you know, kinda the work that needs to be done on their internal infrastructure environment in order to move the application into production all on the path to moving into production. And and that does take some time. That having been said, maybe the best way to think about this is to think about all the entities, we got a company or partners or institutions that showed up at Cuban and were on stage in one way or another, either giving a presentation or as a part of the keynote, in panel discussions, what have you. These are all companies that we are working with.

[Alan Baratz, CEO at D-Wave Quantum]

And, you you know, that can give you a sense of, you know, the pipeline might look like on the path to production.

[Operator]

Thank you. Our next question comes from the line of Suji Desilva with ROTH Capital Partners.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Congrats on all the progress here. I think, John and Alan, you talked about the increasing revenue per customer. Can you talk about the shape that's taking anecdotally? Are you seeing maybe one application going to two? Or is it more that you're seeing one application getting the customer bought into the approach and then kind of looking to spread across multiple applications?

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

What what are you seeing more anecdotally?

[Alan Baratz, CEO at D-Wave Quantum]

John, do you wanna take that?

[John Markovich, Chief Financial Officer at D-Wave Quantum]

Sure. I I mean, typically, as soon as you were we're starting with one application. And, you know, depending on how that goes, and there's the opportunity for multiple opportunities or multiple applications.

[John Markovich, Chief Financial Officer at D-Wave Quantum]

But, typically, we start with a focus on successfully executing one initial application even though there's interest or maybe interest in multiple applications. The objective is to get the first application, you know, into production as as quickly as possible.

[Alan Baratz, CEO at D-Wave Quantum]

So I think the only thing I might add to that is that, you know, part of the reason why we're seeing this growth is that, as John commented, we're starting to now engage with larger companies who are interested in having us help them to build out the proof of concept versus just kind of buy a small amount of quantum computer service and and and do a do it yourself kind of effort. And that, of course, drives larger deals for us.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

I'll tell him. Thanks for that color. And then I think you mentioned, John, with the funding level you have now that you're funded to to to profitability. Can you give us some help here on what your thoughts are and what a revenue run rate might be when you reach profitability? And within that, what the mix at that point might be on an annual basis, maybe advantage systems versus service revenue?

[Alan Baratz, CEO at D-Wave Quantum]

Quick answer, Suji, is we've not quantified what that revenue run rate is as it relates to achieving profitability nor have we provided any timing. What we have outlined, and we did this in a January press release, based upon the closing of the most recent ATM that we have sufficient liquidity to get us to that point in time of sustained profitability and positive cash flow.

[Operator]

Thank you. Our next question comes from the line of Tyler Anderson with Craig Hallum. Please proceed with your question.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Good morning, gentlemen. Congratulations, and thank you for taking my question. And, specifically, congratulations on the error mitigation. I was just wondering if this is available as a library for customers who purchase systems, and if you could quote the coherence time difference between the 1.2 k and the 4.4 k processor that you're seeing?

[Alan Baratz, CEO at D-Wave Quantum]

Okay.

[Alan Baratz, CEO at D-Wave Quantum]

So first of all, the coherence times on the one point two and four point four are the same. So these are both advantage two processors where the chips were fabricated using essentially the same fabrication process and the same material. The only difference is the number of qubits on the chip. And so, you know, we tried the coherence time is the materials and the fab process and and basically the reduction in noise through that fab process. So since these these chips are using the same process, the same material, they essentially have the same coherence time with one being 1,200 cubic on the chip and the other being 4,400 cubic on the chip.

[Alan Baratz, CEO at D-Wave Quantum]

With respect to error mitigation, the error mitigation essentially gives us the effect of a 10 x increase in coherent time for certain types of problems over the base coherent time. So we said that advantage two has two times the coherence time over advantage. And with error mitigation, we get another 10 x on advantage two. So that would put advantage to 20 x over advantage or, you know, 10 x advantage to error mitigated versus advantage to not error mitigated. But in my comment, I said for material stimulation problems.

[Alan Baratz, CEO at D-Wave Quantum]

So the error mitigation technique works for certain classes of problems. It's particularly good for simulation problems.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Okay. Great. Thank you.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

That's that's good color. And could you discuss whether the David installation has been garnering system sale attention from clients or the government? Because it seemed like your installation stole some thunder from other events in the area, and they haven't changed their date. And then how much of that system sales in q two as a as a percent? Or any color on that?

[Alan Baratz, CEO at D-Wave Quantum]

Okay. So, again, we haven't disclosed any of the terms of the Davidson relationship. So I I can't go into any detail there. What I will say is that we have an enormous amount of interest in systems from governments and supercomputing centers around the world, but frankly, less so in The United States. You know, we've talked about this before, but there is a strong gate model bias in the US government.

[Alan Baratz, CEO at D-Wave Quantum]

That is something that we are working hard to address. And, you know, we we're making incremental progress, but we are not there yet. We believe it's a huge mistake on the part of the US government because, frankly, other governments around the world are looking at quantum computing to help solve important hard problems today, recognizing that annealing can do that while a gate model can. And The US, you know, in my view, admittedly, somewhat biased, is falling way behind on this and really needs to get that sorted out. So so, you know, I I would not say that we're seeing a lot of interest from the US government in system sales at this point in time.

[Operator]

And our next question comes from the line of Harish Kumar, a follow-up question. Please proceed with your question.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

So I think, Helen, you might have just answered my question. I was going to ask you about the the change in the US government, what you're seeing, but I think you just answered that one. So I'll I'll let that be. You did talk about blockchain hashing and that you will need a partner, like a strong partner that you will work with. That's the only way it seems like you want to go to market on that.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

So I was curious if you might share what kind of characteristics would you look for in a partner for something like that. Would it be like a crypto exchange? Or I I I don't even know that much about blockchain. Maybe you could just educate us a little bit on what kind of partner you will need.

[Alan Baratz, CEO at D-Wave Quantum]

Sure.

[Alan Baratz, CEO at D-Wave Quantum]

So let let me just make a further comment on the US government since you you started there. Look. The Trump administration is still relatively new. Not even all his appointments have been installed yet, including in areas that are technology related. And so we are hopeful that with the change in administration, there will be an increased interest in and focus on quantum computing and in looking at all forms of quantum computing as well as looking at near term applications versus long term research.

[Alan Baratz, CEO at D-Wave Quantum]

And, you know, we're starting to see a little bit of turnover, you know, in in some of the key positions that, frankly, have been part part of the challenge that we've been facing. So we're hopeful. But, you know, we're not there yet. And so, you know, we just need to see how this will play out over the next several months. And, of course, we continue to be very focused on helping to educate and engage with the US government because, frankly, we wanna be helpful, and we think we can be helpful.

[Alan Baratz, CEO at D-Wave Quantum]

And, you know, we we'd like to get that level of engagement and support. With respect to blockchain, so it's it's not it's not only about cryptocurrency, Harsh. It's about protecting assets, protecting important information. You know, Elon Musk just talked about putting the US government ledger on a blockchain. You know, the the important elements of blockchain are that, a, it's it's very secure, and, b, it's immutable.

[Alan Baratz, CEO at D-Wave Quantum]

I mean, you you know, you can't you can't change it. Right? So it's a great way to kind of enshrine important information in a way that can't be modified or subverted in in in some way. And so, you know, you could put post records in blockchain, for example. You could put financial ledgers in a blockchain.

[Alan Baratz, CEO at D-Wave Quantum]

These are all interesting and useful applications. And so, you know, the type of partner, we're we're kind of open minded on it, but, you know, it could go the route of application oriented, or it could go to the room of kind of generic service, and we're still trying to work through that.

[Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Very helpful, Alan. Thank you.

[Operator]

Thank you. Our next question is another follow-up question from the line of Tyler Anderson. Please proceed with your question.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Thanks for taking my follow-up, guys. For your gate on a mailing or your gate alone system, can the gate model be toggled through software, or does this require hardware tweaks? And if it's hardware, does this take a long time and can non research customers do this themselves? And does it require, like, new gusting controls within the dilution fridge?

[Alan Baratz, CEO at D-Wave Quantum]

Okay.

[Alan Baratz, CEO at D-Wave Quantum]

I'm I'm not sure I understand your question, but let me make some comments. And then if I have not have not addressed this, feel free to kind of refine the question. So our annealing quantum computer and our gate model development work are two separate quantum computing systems. They are very different architectures. There's a lot of technology underlying technology that can be leveraged from the annealing quantum system into the gate model quantum system, but they are different architectures.

[Alan Baratz, CEO at D-Wave Quantum]

They are different hardware systems. So it's not the case that you can take our annealing quantum computer and somehow toggle it to run at the gate model system. That is not the case. As I said, two different architectures, two different hardware systems, but synergy between them in the sense that important technologies that we develop for annealing like cryogenic control can be applied in development of the gate model system. Second thing I'll say is our annealing quantum computers are very far advanced today.

[Alan Baratz, CEO at D-Wave Quantum]

Advantage two will be our sixth generation annealing quantum computer, and they are commercial systems today. In fact, they're the only quantum computers in the world that are truly commercial today supporting customer business applications in production. Our big model system is still in the early r and d phase. Now the only other thing I'll say is I did talk about digital analog controls in our annealing quantum computer, and that may be where your question came from. So one of the things that we have been able to demonstrate is the ability to take our annealing quantum computer and perform some digital operations on it.

[Alan Baratz, CEO at D-Wave Quantum]

Do not think of this as, you know, all the gate model operate controls and operations. That's not the case. But some of them, like being able to directly excite a qubit or being able to take the state of one qubit and move it to another qubit. These are some gate model controls that when applied to an annealing quantum computer can actually deliver interesting capabilities for optimization applications. And so and so what we're working on is applying some digital controls, read that as some some of the gate model controls to the annealing fabric to improve some of the capabilities of the annealing quantum system, but separate from that, building a full gate model quantum computer.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Okay. So just to to re frame quickly, I got one more follow-up. So can somebody swap out the QPU with the existing control hardware that they have that they bought a previous system, or do they need to buy a full new system? Or swap out the control from the one they have.

[Alan Baratz, CEO at D-Wave Quantum]

If if what you want to do is to upgrade from one a Neolink quantum computer to another, for from advantage to an advantage two, that's essentially a chip change and some minor IO modifications, but not a whole new system.

[Alan Baratz, CEO at D-Wave Quantum]

If what you wanna do is go from an advantage annealing quantum computer to, you know, say, a a d wave gate model quantum computer at some point in the future, you would not need a new solution refrigerator, but you would need to change out both the chip and pretty much all of the IO and control.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Okay. And then for your advantage to the the 4,000 qubit one, is this accessible to certain customers? And are you generating revenues on that, or are you still waiting to release this broadly?

[Alan Baratz, CEO at D-Wave Quantum]

Okay.

[Alan Baratz, CEO at D-Wave Quantum]

So we have the 1,200 qubit prototype advantage to end our lead quantum cloud service that any customer can use today. Our 4,400 cubic full scale advantage to quantum computer, we will make generally available before the end of this quarter, before the end of q two. At that point, it will be a part of our Quantum Cloud service for any customers to make use of it, as well as kinda being the primary processor that we would use in any remote installations.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Awesome. Thank you.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

I appreciate you taking my question.

[Operator]

Thank you. Our next question is another follow-up question from the line of Craig Ellis. Please proceed with your question.

[Craig Ellis, Director of Research at B Riley Financial]

Thanks for taking the follow-up. Alan, at Qubits twenty five, you presented a long term technology road map that included scaling up to, I believe it was 20 ks and 100 ks Qubit systems. Can you just elaborate a little bit on the reaction you got from customers and partners at the event and since the event on that road map?

[Alan Baratz, CEO at D-Wave Quantum]

Yeah. I I mean, as you'd expected, excitement.

[Alan Baratz, CEO at D-Wave Quantum]

I mean, the the the truth of the matter is and I think I think I've talked about this before. You know, obviously, with more qubits and more connectivity, we are able to solve larger and more complex problems on the quantum computer. Now today, the way we solve larger and more complex problems that can be solved natively on the quantum computers by using our hybrid solver, and it's a very powerful technology. But the more of the problem that we can solve natively on the quantum computer, the greater the advantage over practical. And so while we have, you know, many customers that today through the hybrid solvers are seeing improvements over their classical solutions, and as a result, they're seeing a good ROI, and that's why you've got three customers with applications in production and and more that are on the path to production.

[Alan Baratz, CEO at D-Wave Quantum]

You know, if we were able to solve more or all of the problems on the quantum computer, the improvement would be significantly larger, right, and then even stronger ROI. So the excitement is around the ability to, on the one hand, enable additional use cases that aren't yet possible. And on the other hand, see increased benefit over classical for things that where benefit is already today being seen.

[Craig Ellis, Director of Research at B Riley Financial]

That's helpful. Thank you.

[Operator]

Thank you. This concludes our question and answer session. I'd like to turn the floor back over to doctor Farris for closing comments.

[Alan Baratz, CEO at D-Wave Quantum]

Okay. So thank you all again for taking the time to be here with us today. Frankly, we see only tailwinds as we continue to place the trail of quantum computing innovation and adoption. I've never been more confident in our business, our technology, our commercial opportunities, and our truly remarkable team. So thanks again for taking the time to join us today.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Participants

Executives

• Kevin Hunt, Head of Investor Relations.
• Alan Baratz, CEO
• John Markovich, Chief Financial Officer

Analysts

• Harsh Kumar, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Craig Ellis, Director of Research at B Riley Financial
• Quinn Bolton, Senior Analyst at Needham & Company
• Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC