Xanadu Quantum Technologies Limited (XNDU) Earnings Call Transcript & Summary

Good day, and welcome to Xanadu Quantum Technologies First Quarter 2026 Earnings Conference Call. My name is Drew, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Brett Harris, Vice President of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Xanadu's inaugural quarterly earnings conference call. Joining me on the call today are Dr. Christian Weedbrook, Founder and Chief Executive Officer; as well as Michael Trzupek, Chief Financial Officer. Further, this call is being webcast live and will be made available for a period of time on Xanadu's website. This call contains time-sensitive information that is accurate only as of the date of this live webcast of this call, May 14, 2026. During this call, we may make forward-looking statements based on current expectations. These statements are based off management's current beliefs and expectations as of today and are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Xanadu disclaims any obligation to update any of these statements. Now I'd like to turn the call over to Dr. Christian Weedbrook, Founder and CEO of Xanadu. Christian?

Thank you, Brett, and good afternoon, everyone. I'm Christian Weedbrook, Founder and CEO of Xanadu. I started this company in 2016 with a white paper and a conviction that photonics was the right path to building a scalable quantum computer. After a decade of research, peer-reviewed breakthroughs and now a public listing on NASDAQ and the Toronto Stock Exchange, I'm more convinced of that than ever. For those newer to our story, Xanadu is a Canadian quantum computing company with a single driving mission to build quantum computers that are useful and available to people everywhere. We are a full stack quantum computing company, meaning we develop both the photonic hardware and the software needed to run it. We believe our approach, which uses photons or light particles, gives us a distinct and durable path to building a large-scale quantum computer and a quantum data center that can solve some of the world's most complex and pressing challenges. I want to take a moment to acknowledge what this call represents, not just a financial reporting milestone, but a public commitment to transparency, to accountability and to delivering on our technological road map for building scalable full-tolerant quantum computers. I'll spend a few minutes on Q1 highlights and the state of the business before handing it over to Michael for a deeper look at the financials. On March 27, 2026, Xanadu became a listed -- publicly listed company on both NASDAQ and the Toronto Stock Exchange under the ticker symbol XNDU, following the completion of our business combination agreement with Crane Harbor Acquisition Corp. Our public listing was more than a capital event. It was a signal to the scientific and investment communities that photonic quantum computing has moved beyond the experimental R&D stage into one of scaling, where progress depends less on theoretical physics and more on practical engineering. The go-public transaction generated $302 million in gross proceeds, which combined with approximately $285 million of anticipated Canadian and Ontario government funding currently under negotiation, accelerate Xanadu's path to building a quantum data center by 2029, 2030. We hosted our inaugural Analyst Day on March 4 in New York City, where we showcased technical progress, road map updates and a deeper view of our commercialization strategy. For those who joined us, thank you. For those who weren't able to attend, the materials are available on our Investor Relations website. Before going deeper into our first quarter highlights, I'd like to give a broader overview of our technology for those new to Xanadu, its differentiators and our progress to date. Every decision we make is made with one goal in mind, to build quantum computers that are useful and available to people everywhere. Let me step back and frame our strategy. At Xanadu, we believe photonics is one of the most credible path for scaling quantum computing, and we will see 5 main reasons why. First, our system architecture is modular and network, allowing us to scale systems through interconnects, much like modern data centers do today. Second, we leverage existing semiconductor and photonic supply chains rather than building a bespoke manufacturing ecosystem from scratch. Third is room temperature computation. Every approach needs some form of cooling, whether it's cryogenics or laser cooling. At Xanadu, we need cooling only to initialize or turn on our quantum computer. And after that, the qubits, gates and measurements are all performed at room temperature. Fourth, photonics enables real-time and flexible error correction. This gives Xanadu greater freedom to implement advanced error correction schemes that are difficult to realize in other architectures. In particular, our error correction supports lower overhead approaches to reduce the resources required for fault-tolerant quantum computing. Finally, photonics offers a fundamental advantage in gate speed with operations occurring at frequencies of 100 megahertz. This is anywhere from 10x to 1,000x faster than other modalities. Ultimately, 2 primary barriers stand between the industry and a quantum data center, improving the performance of quantum computing modules to reach fault tolerance and connecting those modules through scalable network systems. The good news is we've already put the networking challenge behind us. Our Aurora system is demonstrated in nature, is the world's first modular, scalable and network photonic quantum computer, featuring 12 logical qubits across 35 photonic chips and 13 kilometers of fiber optics, computing at room temperature with real-time error correction decoding. With the networking problem solved, our central focus is on improving the performance of our photonic chips by reducing loss through engineering improvements, and we continue to make real progress. In 2025, we reduced optical loss by 60% year-over-year. This was a step function improvement, and we're continuing to drive progress. We are targeting a qubit factory by 2026, 2027; fault tolerant operations by 2028; a quantum data center in 2029, 2030; and scaling toward up to 500 logical qubits between 2029 and 2030, while advancing our manufacturing capabilities to match. We don't stop at the hardware level. As we've seen in companies like NVIDIA, hardware alone doesn't build transformational companies. It's a software ecosystem on top of that, that unlocks the full utility of hardware and keeps customers coming back. That's why we developed PennyLane, an open-source quantum software platform to be the second major plank of our company strategy and a long-term competitive advantage. PennyLane is how developers, researchers and enterprises access and explore quantum computing today and prepare for the fault tolerant hardware of tomorrow. So much so that we have 150 university partners across the world, including University of Toronto, John Hopkins University and the University of Maryland. Our 3-year partnership through UMD's National Quantum Lab is focused on workforce development and commercialization across the Mid-Atlantic. We are training the next generation of quantum scientists and engineers to program our platform. These developers who learn quantum computing on PennyLane today become the customers, partners and colleagues of tomorrow. PennyLane is one of the most widely used quantum software platforms. The adoption growth we are seeing over 35,000 active users and 200,000 monthly downloads as of the Analyst Day tells us that the quantum developer community is expanding rapidly, and Xanadu is at the center of it. While it's free today, enterprise engagements like our research initiative with Lockheed Martin to advance the foundations of quantum machine learning opens a path for monetization down the road. On the Canadian side, in March, we announced negotiations for up to CAD 390 million from the governments of Canada and Ontario to launch Project OPTIMISM and establish advanced semiconductor and photonic manufacturing infrastructure supporting Canada's quantum supply chain. These discussions are ongoing, and we look forward to updating investors as they progress. In the quarter, we announced significant new partnerships with AMD, Lockheed Martin, TELUS and Fidelity Center for Applied Technology, advancing commercialization across defense, finance and telecommunication. These build on our 2025 partnerships with Mitsubishi Chemical, Rolls-Royce, Riverlane, Corning and Applied Materials. This ecosystem is intentional. Quantum will not succeed in isolation. Close collaboration with end users is how we turn algorithms into real-world applications and ensure we are building practical, commercially useful systems. For example, with AMD, we're advancing hybrid quantum classical computing for aerospace and engineering simulations using GPUs to run 20-qubit, 35 million gate quantum computational fluid dynamic simulations and accelerating workflows by 25x versus CPUs. While our client and research partnerships are critical to driving useful applications and demand, our large-scale hardware manufacturing partnerships such as AMD, Corning and EV Group are a key structural advantage. These partners bring deep hardware engineering expertise and enable rapid iteration at scale by leveraging proven high-volume manufacturing processes and existing production lines. This allows us to accelerate development cycles, reduce execution risk and deploy capital more efficiently, ultimately enabling us to invest more into chip production while lowering cost per iteration. This combination of photonics-based hardware innovation and a user-friendly software platform creates the foundation of our strategy to drive near-term utility while maintaining a credible path towards fault-tolerant quantum advantage. Our mission is to build quantum computers that are useful and available to people everywhere, and that mission guides every investment we make. Now let me pass it on to Michael to discuss our key financial highlights.

Thanks, Christian. Before I walk through our quarterly performance, I want to highlight that I joined the company to help scale a disciplined financial and operating framework that supports our long-term road map through 2030 and beyond. While our first priority over the next few years is on progress against the road map Christian laid out and achieving up to 500 logical qubits in 2029 and 2030, we are also laying the foundation for revenue-generating opportunities through a multi-pronged structure, which includes subscription-based cloud access or Quantum Computing as a Service, QCaaS, a SaaS-type revenue model for enterprise-grade PennyLane, on-premise system sales, IP licensing of our photonic subsystems and the potential monetization of strategic partnerships. Turning to our financial position. We ended the quarter with $272 million of cash. Our go-public transaction generated $302 million in gross proceeds, which combined with approximately $285 million of anticipated Canadian government funding, meaningfully accelerates our path toward building a quantum data center by 2029, 2030. This capital base provides us with the flexibility to execute against both our technical and commercial priorities. It's also important to note that the financing support from the Canadian government will not appear as cash on our balance sheet upfront. Instead, those funds are expected to be received over time as qualifying investments as R&D activities occur. In addition, we're planning to put a $300 million synthetic ATM facility in place, which would give us the flexibility to raise capital over time as opportunities present themselves. After evaluating a range of financing alternatives, we believe this structure provides what we expect to be the most cost-effective and least dilutive path to funding the business over the long term. To be clear on this, the synthetic ATM shares will be a primary issuance and all proceeds will flow directly to the Xanadu balance sheet, increasing our cash reserves. Our approach will be disciplined and opportunistic and any capital raise would be used to support the continued development and scaling of our quantum computing platform and technology road map. Importantly, access to capital allows us to innovate faster. We are accelerating commercial chip runs with our foundry partners, increasing iteration speed and improving device performance on a shorter cycle. In parallel, we are scaling our engineering organization with a deliberate shift towards hiring more systems, software and hardware engineers alongside our world-class physics team to support the transition from research to product implementation. Now let's move to our financials. Revenue increased to $2.8 million from $700,000 in the prior year quarter, primarily driven by revenue recognized from our DARPA QBI Stage B participation. We also recognized approximately $5 million of grant income related to the Canadian Quantum Champions Program and other operating income. We believe the support from both DARPA and the Canadian government is a strong validation of our research, technology road map and the commercial and operational potential of our platform. R&D expense increased to approximately $17 million from $10 million in the prior year quarter, reflecting continued investments in engineering talent, increased wafer iterations made in partnership with our foundry partners and expanded process development activities. G&A expense was approximately $10 million during the quarter, including roughly $5.5 million of nonrecurring costs associated with our recent SPAC transaction and public listing on the NASDAQ and Toronto Stock Exchange. Adjusted EBITDA loss was $13.9 million compared to a loss of $10.6 million in the prior year's quarter. We expect spending to increase in subsequent quarters as we continue to add engineering talent and accelerate our investment in R&D through wafer and chip production. I want to quickly clarify our share count as of March 31, 2026. We ended the quarter with 298 million shares outstanding. 255 million are Class A shares and 43 million Class B shares. Of the issued shares, over 250 million are held by legacy Xanadu shareholders and remain subject to the 180-day lockup provisions established in connection with our SPAC transaction. These shares will not be freely tradable until September of this year. With a strong capital position, growing support from both government and commercial partners and a disciplined approach to scaling the business, we believe we are well positioned to execute against our technical road map and long-term commercialization strategy. Our focus remains on accelerating innovation, expanding our engineering capabilities and advancing towards large-scale fault-tolerant quantum computing while thoughtfully managing capital deployment and maintaining financial flexibility. We're excited about the progress we're making and the opportunities ahead. And with that, operator, we'd now like to open the call up for questions.

[Operator Instructions] The first question comes from Nehal Chokshi with Northland Capital Markets.

Congrats on your first earnings call. It's exciting. PennyLane, runs through me here. But -- so 35,000 monthly users, how does that compare to a year ago? And also, can you clarify who do you view as PennyLane's closest competitor? Where do they stand in terms of monthly users as well?

We can get back to you on the specific how does it compare. We can say broadly, though, that it has been increasing since -- averaged over a 7-, 8-year period for sure. That ties in nicely, I guess, with your second part. The 2 top ones according to surveys and just working with partners and folks is really PennyLane and Qiskit, that's IBMs software offering. What we do like about PennyLane, though, is it actually is one of the most widely -- if not most widely used agnostic platforms anywhere in the world. So it works on, as you know, many different hardware providers, not just the photonic-based approach. But they're the top 2 ones. I would also throw in NVIDIA. They're late to the game, but doing some great work as well. But PennyLane and Qiskit for sure up there.

Just to be clear, is Qiskit a hardware-agnostic platform as well?

That's a good question. So I would phrase that as it's predominantly on superconducting qubits. It's IBM is one, as you know, and it's really about promoting and getting as many people using superconducting qubits. But there are some other platforms where it is offered on. To our knowledge, nowhere as widely as agnostic as what PennyLane is.

Then on the hardware side, can you give us any visibility into the linearity on the reduction of the optical loss from, I think, was now 23 dB to target around 1 dB or so over, I think, a 3- to 4-year time frame here?

Yes, it looks linear, but it is something that over time, you often work very, very hard to get where we are now with incremental improvements. So you can see since -- I think it was since 2021, 2022, up to 200x reduction in one path. You're not going to see 200x reduction from where we are now because we're getting very close to this line, which is normalized to 1. That's when you hit threshold and you need to go a little bit below that to be, as the name suggests, below threshold. That's where you can start solving important customer problems. The way we -- and one of the big reasons why we raised and went public is the fact that we can do more and more chip runs. And these chip runs are really one of the keys to reducing loss. And often, it's kind of quasi linear. If you extract it out, it looks that way, but chip runs can take anywhere from 2 to 5 months. And so once we get those back, we test and measure the wafers. We understand what improvements we need to make beyond that, and we do update our chip design, send them back off to different foundries. So a lot of it is through chip runs. Other aspects where we'll see improvements and have seen in the past are fiber to chip coupling as well, reducing those losses, how you input and extract light off the chips are very important. We're very confident to achieve -- for us getting below that line, hitting that line and going below it. And it only makes it more certain having raised quite a bit of money by going public.

The next question comes from Kingsley Crane with Canaccord.

I would echo my congrats on a successful first earnings call. On the NVIDIA Ising announcement, certainly validates the quantum sector. It helped lift the quantum sector. I think the underlying tools are more modality-agnostic, but photonics, more of an architectural advantage and clock speed, different error correction mechanism than superconductor neutral item. So I would just love to get your thoughts on that announcement in general. And then just like from a fundamental standpoint, how you think photonics could or could not benefit from what the work NVIDIA is doing here?

Yes, that's a really great question. So one of the things that we've said we'll do to the best of our ability from day 1, and this kind of answer will give you that flavor is really give you an idea of what's real and what's not out there. It's great to see NVIDIA in this space. They've been working hard for a couple of years now on a variety of things. Ultimately, their goal is they told us to sell more GPUs, which makes complete sense. So companies in the quantum space want to use the GPUs for simulations of algorithms. They're also for benchmarking. They also want to use it for error correction and fault tolerance. Now there seem to be the stocks, including Xanadu went -- people kind of look for patents and say that a lot of the stocks went up because of that NVIDIA announcement. We don't want to look at a gift horse in the mouth, and so it was great to see that. But the substance behind it, I don't think, to be fully honest, really warranted those stocks going up the way they did. I think it was more of the fact that NVIDIA actually is doing more in this field is a great part. The actual -- what they offered from a Xanadu point of view wasn't as interesting for us, even though it was touted as being agnostic. And the reason is -- it's a good reason, is those tools they released, we've had them internally now for 5 or 6 years for our photonic system. So that was one aspect. The other aspect, which is a really, really important point here, a lot of the GPUs -- when you build a large-scale quantum computer, you're going to have a lot of quantum stuff, but you're also going to have a lot of classical compute. The other approaches compared to our photonic -- Xanadu's photonic-based approach are significantly slower. And so because they're slower, they can actually use NVIDIA's GPUs for the error correction part. We cannot use NVIDIA's GPUs for our error correction because we're too fast, which is a really amazing thing. So our clock rates are faster than definitely ion trap and neutral atoms up to, I think, 10,000x faster. So to look at that, think of a problem that those guys can solve. They solve it in a year, fantastic, because it would have taken millions of years. But then we can solve the same problem in roughly 8 hours. And I think over time, that's going to be our real killer -- one of our killer benefits of using photonics. So what that means is the GPUs are too slow because we're very fast. So we have to resort to FPGAs. And you would have seen, I think, just before we went public, one of the great announcements over the last few months for us with AMD. And so working with them because FPGAs are far faster for this particular task. So that's why -- that's how what we do relates to NVIDIA's announcement.

That's helpful to spell some of those misconceptions. And on the financial side, and this is both for Christian and Michael, but you talked about not chasing nonrecurring engineering revenue and services that could divert talent. You've been pretty successful with the professional services in the past couple of quarters. So just would be helpful for investors like where is that line as enterprise interest builds? Like how do you balance accepting versus declining those kinds of engagements? And then just a reminder on linearity or what we could expect for that line the rest of the year.

That's a really good question. And Michael and I kind of phrase it, we're after partnerships, not customers for the most part. Now some of those partnerships will inevitably and do become customers. And what we do, we think long term here at Xanadu. So the long-term view is 2029, 2030. Let's picture where they are already. We have our large-scale quantum computer that we're calling a quantum data center. It has hundreds, up to 500 logical qubits. It's doing everything that you'd want this computer to do. So you picture that, it's accessed over the cloud, and we'll have a subset, a small key group of customers at that point that we're using, drug discovery, pharmaceuticals and so forth. So then you work backwards and say, well, how do we get to that point? And we get to that point by being focused on hardware milestones. We get to that point by being selective in our partnerships. And we've announced a few partnerships over the last few months. I mentioned AMD. Lockheed Martin is a really great one as well. And so these are partners that hopefully will take with us over the next few years until we hit 2029, 2030 and potentially be some of the first customers of this. So we really look at partners rather than customers. And having said that, Lockheed Martin is a paid partnership. So we do get the best of both worlds there. But I really think that by us thinking long term in terms of revenue, the eye on the prize is key. The pie is far, far orders of magnitude bigger when you have a large-scale quantum computer rather than selling a quantum computer for a few million dollars where GPUs can really simulate the same answer and ultimate takes -- as you mentioned, takes our best talent off the prize. So that's kind of how we see it.

The next question comes from Todd Copeland with CIBC.

Christian, I wanted to ask about DARPA Stage B. Could you just give us an update on how that's going and when we might expect the decisions for Stage C?

So no real new updates. As you know, this is a year-long Phase B. Now it could be sooner, it could be later, depending on what DARPA wants and how any of us deliver that. What I can say is we'll know more towards the end of the year. Our year is up around November. As mentioned, it could be earlier, it could be later. They have as other companies have come on site on Xanadu. And so far, it's -- we have a great rapport and collaboration with DARPA. So that's as much as what we can say and honestly, as much as what we know. The team still has a few more months' worth of work and deliverables.

Yes. When that outcome happens, how significant of a validation is it?

That's a really good question because Rigetti is doing some great stuff. And from my knowledge, they didn't get in or didn't get in straight away. It doesn't mean they won't get in later on. I don't know how much of an effect they had on them. So that was kind of one data point. I would say, though, that it's hard to tell. You kind of think maybe you may be punished by not getting in or maybe you're rewarded by getting in, but it's so early to tell. I would say that it's great that we're in and we made it to Phase B and Phase C, the carrot has always been $300 million. So I honestly don't know, and I don't think many people know what the answer will be. It's really hard to tell the market for quantum companies, how things are reacting. But I would say, based on $300 million, it would be great to get in. It's not like we don't want to get in, and we're doing our best to get in. So we'll see. It's probably a quick nice segue to sort of remind everyone perhaps on the call that we are in final negotiations of -- independent of that $300 million final negotiations of CAD 390 million. So that's looking good. No extra updates there, still final negotiations. And then also, we do have the Canadian QBI called the Canadian Quantum Champions Program, which the government has said they want to match what's going on in the $300 million-plus QBI program. So to our knowledge, best knowledge, that's still going ahead. So we have many opportunities independent of what happens in how we or others proceed to Phase C.

And then if I could just ask on the OpEx. I guess the run rate ex the nonrecurring items is, what, around $21 million. What should that grow at as we go through 2026?

Yes. So as we talked about, we intend later this summer to provide guidance on this and other engineering metrics. We're not prepared to do that today. But I'll go back to what I've shared with you in the past, which is, obviously, as we raised this money, it was to accelerate our engineering growth and our wafer starts. So you can anticipate that it's going to grow over the year, and we'll be able to provide more specifics later this summer.