Xanadu Quantum Technologies Limited Class B Subordinate Voting Shares Q2 Earnings Call Highlights

Key Points

• Q2 revenue rose year over year to CAD 1.5 million from CAD 1.1 million, though it declined sequentially from CAD 2.8 million. DARPA Stage B work was the primary revenue driver, while cash totaled CAD 312.8 million after CAD 67.2 million was raised through a synthetic equity offering.
• Hardware development advanced as Xanadu achieved average photonic chip edge-coupling loss of 0.085 decibels per facet, which management described as potentially industry-leading. The company increased fabrication runs and expects to publish a broader loss-reduction and hardware roadmap by summer’s end.
• Investment and operating losses are accelerating: capital expenditures reached about CAD 6.4 million and are expected to rise in the second half, while adjusted EBITDA loss widened to CAD 21.3 million. Xanadu is expanding U.S. operations, hiring, research and manufacturing capacity, and said it is optimistic about advancing to DARPA Stage C but has not received confirmation.

Xanadu Quantum Technologies Limited Class B Subordinate Voting Shares NASDAQ: XNDU reported second-quarter revenue of CAD 1.5 million, down from CAD 2.8 million in the first quarter but above CAD 1.1 million in the prior-year period, as the company continued to invest in photonic quantum-computing hardware, software and manufacturing capacity.

Revenue in the quarter was primarily driven by work with the U.S. Defense Advanced Research Projects Agency, or DARPA, at Stage B, Chief Financial Officer Michael Trzupek said during the company’s Aug. 5 earnings call.

Xanadu ended the quarter with CAD 312.8 million in cash. During the quarter, the company raised CAD 67.2 million through its synthetic at-the-market equity facility with Yorkville Advisors, selling 5.5 million Class B subordinate voting shares at an average net price of CAD 12.28 per share.

Hardware Progress Focuses on Optical Loss

Founder and Chief Executive Officer Christian Weedbrook said the company reached an average edge-coupling loss of 0.085 decibels per facet in photonic chip packaging. He described optical loss as one of the most important engineering challenges for photonic quantum computing and a critical factor in progressing toward fault-tolerant systems.

Weedbrook attributed the result to Xanadu’s internal photonic chip-packaging facility, collaboration with Corning on customized fiber and fiber-array solutions, and work with DISCO on wafer singulation.

The company also increased fabrication activity across its core material platforms. Fabrication runs involving thin-film lithium niobate rose about 75%, while silicon nitride runs increased about 50%, according to management. Weedbrook said higher tapeout volumes should allow faster chip-design iterations and process improvements.

During the question-and-answer session, Weedbrook said Xanadu is addressing 16 or 17 major sources of loss across its system, including qubit generation, gates, detectors, beam splitters, phase shifters, ring resonators and fiber-to-chip coupling. He said the edge-coupling result was among the major advances, though not the only required improvement.

“We believe [it is] the lowest loss anywhere in the world,” Weedbrook said of the fiber-to-chip coupling performance, while adding that the company plans to publish a more detailed loss-reduction and hardware-milestone roadmap by the end of summer.

On DARPA, Weedbrook said Xanadu was “looking good for Stage C” and was meeting the requirements it needs to meet, while cautioning that the company could not make promises before an outcome is confirmed.

U.S. Expansion and Manufacturing Investment

Xanadu announced an expansion of its U.S. operations in July, centered on its growing Albany, New York presence. Weedbrook said the location provides proximity to quantum-computing and semiconductor research partners as well as established semiconductor and photonics supply chains.

The company’s U.S. workforce has increased more than fivefold since 2023 and is expected to grow significantly again by year-end, he said. Xanadu also expects research and development hiring to accelerate as it expands engineering and manufacturing capabilities.

In response to an analyst question, Weedbrook said public-market visibility and the ability to use equity-based compensation had expanded the company’s talent pool. He added that building a large-scale quantum computer remains a difficult challenge despite the improved hiring environment.

Capital expenditures rose to approximately CAD 6.4 million in the quarter, mainly for specialized equipment used to test, refine and scale chip-manufacturing capabilities. Trzupek said capital spending is expected to increase further in the second half as Xanadu invests in research, development and manufacturing infrastructure.

Software, Partnerships and Financial Results

On the software side, Xanadu said its researchers developed an approach to quantum read-only memory, or QROM, that reduces the Toffoli gate operations required by roughly half. The company said the work is protected by a patent filing and is available in its PennyLane software platform.

Xanadu also released PennyLane version 0.45 and Catalyst version 0.15. Weedbrook said a foundational PennyLane paper has surpassed 2,000 citations. Chief Operating Officer Rafal Janik said PennyLane adoption continues to increase among users, universities and corporate organizations, though the company did not disclose updated 30-day active-user figures.

The company highlighted several partnerships, including a quantum machine-learning and workforce-training initiative with Lockheed Martin, a renewed multiyear collaboration with Rolls-Royce focused on computational fluid dynamics and aerodynamics, and work with Oak Ridge National Laboratory to bring PennyLane and distributed Lightning simulation capabilities to the Frontier exascale supercomputer.

Xanadu also said it is in advanced-stage engagements with several major banks regarding quantum algorithms and financial-services applications.

R&D expense was CAD 19.7 million, up CAD 2.4 million from the first quarter, reflecting increased headcount, stock-based compensation and the scaling of research capabilities. General and administrative expense increased to CAD 11.1 million from CAD 9.8 million sequentially. The company recorded CAD 2.3 million in non-recurring fees related to its SPAC combination and the launch of the synthetic ATM program.

Adjusted EBITDA loss widened to CAD 21.3 million from CAD 13.9 million in the first quarter, driven primarily by higher R&D and G&A expenses and lower grant revenue. Trzupek said Xanadu expects R&D spending growth to accelerate in the third quarter as it adds personnel and increases tapeouts, but did not provide explicit financial guidance.

About Xanadu Quantum Technologies Limited Class B Subordinate Voting Shares (NASDAQ:XNDU)

Xanadu Quantum Technologies Limited is a quantum computing company headquartered in Toronto, Canada, that develops photonics-based quantum hardware and software. The company focuses on building programmable photonic quantum processors that use light rather than superconducting qubits, and it provides cloud-based access to its systems for researchers and commercial users. Xanadu is publicly listed under the ticker XNDU on both Nasdaq and the Toronto Stock Exchange.

Its technology stack combines integrated photonic hardware, control systems, and software designed to support quantum algorithms and applications in areas such as optimization, simulation, and quantum machine learning.

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