Quantum Computing Inc. (QUBT) Q2 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, greetings, and welcome to the Quantum Computing Inc. Second Quarter 2025 Shareholder Update Call. [Operator Instructions] Please note this call is being recorded. Following management's remarks, the call line will be open for questions. It is now my pleasure to introduce your host, Rosalyn Christian with IMS Investor Relations.

Thank you, and I want to welcome everyone to the Quantum Computing Inc. Second Quarter 2025 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. Yuping Huang, Interim CEO and Chairman; and Chris Roberts, CFO. The team will provide an update on the business followed by a question-and-answer session. With that, I would like to turn the call over to management. Please go ahead, Yuping.

Thank you, everyone, for joining us today to hear about QCI's progress in the second quarter of 2025. Having reached the halfway point of 2025, I wanted to take a moment to reflect on the progress we have made so far this year. I'm very pleased with how the business is evolving, particularly on the commercial front. We are seeing growing validation of our technologies, through customer orders across both our Quantum systems and our photonic chip foundry, and we continue to deepen our engagement with government, academic and industrial partners around the world. These early wins reflect the real-world value of our technologies and the unique position QCI holds in the market. At our core, QCI is focused on solving hard problems with practical high-performance quantum and photonic technologies. What sets us apart from others in the quantum computing space is that we are not chasing theoretical performance. Instead, we are delivering purpose-built machines and components that customers are deploying today. Our growth strategy is centered on 2 complementary revenue streams. First, our Quantum machines, which tackle complex optimization, machine learning and sensing challenges across areas like biomedical research, transportation and national security. And second, our thin-film lithium niobate photonic chip foundry, which delivers essential components for next-generation communication, AI and quantum applications. These 2 key areas uniquely position us to serve both the present and future needs of quantum economy supporting long-term growth. We are operating in a space that is entering a period of rapid acceleration. The world is increasingly aware of the critical role quantum technologies will play in enabling breakthroughs in areas like climate science, defense, drug discovery and secure communications. In parallel, there is strong momentum around domestic semiconductor and photonic factory, opening up new commercial opportunities for our foundry. This is a period of time for the industry and QCI's business is scaling to meet the demand. Importantly, QCI stands apart with a quantum architecture that offers significant SWaP-C advantages including the ability to operate at room temperature, thanks to our integrated photonic platform at a time when energy consumption has become a major constraint on the growth of AI and digital infrastructure. Our room temperature energy-efficient approach offers a timely and compelling solution to one of the most pressing challenges facing the tech industry today. Now I will walk through some of the key milestones we have achieved this quarter. First, we continue to see encouraging signs of commercial adoption across both our quantum and photonic production lines. During the quarter, we have secured an order for our quantum photonic vibrometer from the Department of Aerospace Structures and Materials at Delft University of Technology in the Netherlands, one of the world's top technical research institute. This system will support their advanced work in nondestructive testing and structural health monitoring. We also shipped our first commercial entangled photon source to a leading research institution in South Korea. This system enables secure quantum communication experiments, our conventional fiber networks and marks a meaningful step in bringing our lab-developed quantum networking technologies into commercial deployment. This quarter, we saw new traction in our Quantum AI portfolio. During the quarter, a major global automotive manufacturer purchased one of our EmuCore reservoir computing systems which will be used to explore edge-based machine learning applications such as time series prediction and image recognition. This is an important proof point for real-world use of our reservoir computing platform. Subsequent to the quarter in July 2025, we announced a new commercial order from a top 5 U.S. bank, marking the first domestic commercial sale of our Quantum Cybersecurity Solution, underscoring rising demand for Quantum's secure data protection. We also advanced our work with strategic government partners. During the quarter, we were awarded a subcontract valued at over $400,000 to support NASA's Langley Research Center. Under this contract, we are applying our Dirac-3 quantum optimization machine to develop a quantum-based technology for removing solar noise from space-based LiDAR data, an issue that has historically limited NASA's ability to collect reliable data atmosphere observations. This builds on our prior work with NASA and highlights the real-world value of our quantum systems for scientific applications. Continue to be a significant partner to government institutions remains a key goal for us, and we continued to make progress subsequent to this quarter, announcing a thin-film chip contract from the U.S. Department of Commerce's National Institute of Standards and Technology last week. Turning to our foundry developing those chips. We announced on our last call that construction of our state-of-the-art quantum photonic chip facility in Tempe, Arizona was completed in March. In May, we celebrated the grand opening with a ribbon cutting ceremony alongside Mayor Corey Woods and regional industrial stakeholders. The facility is now fully operational, fulfilling customer preorders and position to scale production of thin-film lithium niobate chips for use across datacom, telecom, advanced sensing and quantum computing. As we scale the foundry, we expect revenue to slowly grow and are targeting a significant revenue contribution in the next 12 to 18 months as we ramp. We look forward to providing more updates on our foundry strategy later this year. We also made several key leadership appointments during this quarter to support our next phase of execution. I was honored to step into the role of Interim CEO, and we welcome Chris Roberts as our new Chief Financial Officer. In addition, we promoted Milan Begliarbekov to Chief Operating Officer; and Pouya Dianat to Chief Revenue Officer. Each of these individuals bring deep expertise and execution focus to our leadership team, and they are already making meaningful contributions as we scale the business. Finally, we are proud to be added to the Russell 3000 and Russell 2000 indexes at the conclusion of their annual reconstitution in June. This inclusion increases our visibility across institutional investors and reflects growing recognition of QCI's progress and potential in developing commercially relevant quantum and photonic technologies. With that, I will turn the call over to our CFO, Chris Roberts, to walk through our financials.

Thank you, Yuping. It's my pleasure to present the results of our second quarter. Revenue during our second quarter totaled approximately $61,000 compared to $183,000 in the prior year second quarter. Our gross margin for the second quarter increased to 43% from 32% in the second quarter of '24. However, it's important to keep in mind that gross margin continues to be variable at our current revenue level. We substantially strengthened our capital position during the second quarter, closing on a $200 million financing in June. As a result, we ended the second quarter with cash and equivalents of $349 million on our balance sheet. This gives us the resources to make strategic investments in key growth areas to advance both our Quantum machine program and our thin-film lithium niobate chip foundry initiatives. Operating expenses for the second quarter totaled $10.2 million compared to $5.3 million in the same quarter last year. Employee-based expenses were the main driver of the year-over-year increase. The company reported a net loss attributable to common stockholders of $36 million for the second quarter or $0.26 per share compared to a net loss of $5 million in the second quarter of '24. The increase in net loss this quarter was primarily due to a $28 million non-cash loss on the value of our company's warrant-related derivative reliability, which comes from our merger with QPhoton in June of 2022. For the 6 months ended June 30, 2025, the company reported a net loss of $19.5 million or $0.14 per share compared to a loss of $11.6 million or $0.13 per share in the first 6 months of 2024. As of June 30, '25, total assets stood at $426 million, up from $154 million in the year-end 2024. Cash and equivalents increased by $270 million in the first 6 months of '25 to $349 million, bolstered by net proceeds of $188 million raised in the second quarter through an offering of common stock. Total liabilities at the end of the second quarter were $30 million, which is a decrease of approximately $16 million compared to year-end 2024. This decrease is driven primarily by the previously mentioned non-cash mark-to-market adjustment for the QPhoton warrant derivative liability. Finally, stockholders' equity rose to $396 million as of June 30, 2025, again, reflecting our strengthened capital position. Now I will turn the meeting back over to Yuping.

Thank you, Chris. In closing, I wanted to thank our team, partners and shareholders for their continued support as we execute on our mission. We have made a significant progress in the first half of the year, particularly in translating our technology into commercial traction across quantum sensing, AI communications and photonic chip manufacturing. As the broader quantum ecosystem continues to evolve, we believe QCI is well positioned with differentiated technologies and a focused strategy to deliver real-world solutions. I look forward to what we will accomplish in the second half of 2025 and beyond. With that, we will now open the call for questions. Operator. Please go ahead.

[Operator Instructions] Your first question for today is from Troy Jensen with Cantor.

Gentlemen, congrats on all the traction here. Maybe first off for Yuping. I guess I'd be curious, to me revenues aren't really important. They won't be for several years, to me it's technical milestone. So could you just kind of lay out what are the 2 or 3 most important milestones that we need to see from you guys over the next 1 to 3 years?

Thank you, Troy. Over the next 2 to 3 years, in fact, our focus would be to integrate our Quantum machines with our nano-photonic chips. So that has been our technology road map and as you have seen that over the past 3 years, we have really pushed to testing and to demonstrate the Quantum machine using discrete optical components. And then in March of 2025 this year, so we have finished our thin-film lithium niobate foundry and then now that give us another platform that we will for us to translate our quantum photonic technology that we have demonstrated with discrete optical components to on-chip. So over the next 2 years, we are going to use our thin-film lithium niobate nano-photonic chips in our direct machine and use it to enhance the performance of our quantum photonic reservoir system and also to use for our quantum sensing system and in particular, the Quantum Photonic Vibrometer. So with the integration of nano-photonic chips, we can expect to significantly reduce size, weight, power and also the cost of our Quantum machines, and we will also be able to boost the performance. And in the meanwhile, so our foundry can not only support the further development of our Quantum machines but also offer services to others. In fact, so we have received preorders and orders for our foundry services. So this is going to a pretty fun ramp-up journey for us over the next 2 years.

Yes. Understood. Maybe a follow-up here for Chris. Just curious on OpEx. I mean, obviously, you guys have a much larger balance sheet now. And is there any intentions to accelerate spending or do M&A? Or just kind of maybe give us some color on what you think kind of second half R&D and G&A expenses might look like?

Well, it's a good question, Troy. We are certainly hiring additional people. You can see from the results we've announced that our labor costs have grown quite a bit since last year. We're bringing on additional engineers and sales staff and moving to accelerate the development of our technology. We do not have anything to announce relating to acquisitions but as we previously stated, looking at strategic opportunities is part of the plan, and we're in the process of talking with bankers and looking for opportunities that will enable us to fill out our technology road map as well as accelerate revenue development -- revenue generation, sorry.

[Operator Instructions] We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

Thank you, everyone, for joining and participating in today's call. I encourage you to follow us on our social media channels, including LinkedIn, where we regularly post updates and insights into our business and the technology. Should you have any questions, please do not hesitate to reach out to Investor Relations. Have a great rest of your day. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.