Antoine Legault

Antoine Legault of Wedbush Securities asked about the magnitude of the opportunity presented by the Pentagon's projected budget increase for fiscal 2027, particularly how D-Wave's new U.S. Government Solutions Business Unit is positioned to benefit from increased allocation to quantum technologies.

Answer

CEO Alan Baratz clarified that D-Wave is not primarily pursuing R&D research grants but is focused on helping the government solve complex computational problems today. He noted that the demonstration of a missile defense simulation with Davidson Technologies and Anduril at Qubits generated significant interest in leveraging D-Wave's systems within the U.S. government, indicating strong momentum and opportunity for the newly formed government business unit.

Antoine Legault inquired about the magnitude of the opportunity presented by the Pentagon's increased budget for quantum technologies in fiscal 2027, and how D-Wave's newly launched U.S. Government Solutions Business Unit stands to benefit.

Answer

CEO Alan Baratz clarified that D-Wave is not primarily pursuing R&D grants but is focused on helping the government solve complex computational problems today. He noted that the Davidson and Anduril missile defense simulation demonstration generated significant interest, and with the new government business unit, D-Wave feels well-positioned to capitalize on these opportunities.

Antoine Legault asked about the expected annual refresh order pace of 60,000-70,000 machines in the banking segment, clarifying if these are simple refreshes or upgrades to recyclers. He also sought guidance on Q4 gross margin expectations for both segments and on a consolidated basis, considering last year's sequential dip.

Answer

CEO Octavio Marquez confirmed that the 60,000+ annual machine placements are new installations, not upgrades of old machines, emphasizing the cost-effectiveness and superior functionality of the DN series. He also stated that Q4 total gross margins are expected to maintain a similar run rate to Q3, with banking margins projected around 26.5% and retail in the mid-25s, indicating sequential and year-over-year improvement.

Antoine Legault inquired about the Q4 gross margin outlook, considering last year's sequential dip due to geographic mix in the ATM business, and sought segment-specific and consolidated expectations.

Answer

CEO Octavio Marquez indicated that Q4 gross margins are expected to maintain a similar run rate to Q3 overall. He projected banking gross margins to be around 26.5% (up from 24% last year) and retail gross margins to be around mid-25% (up from 24% last year), anticipating sequential and year-over-year improvement for retail.

Antoine Legault asked about the margin profile for ATMs in the Indian market, sought confirmation on the expected lift in retail gross margins in the second half, and inquired about the reasons for the reduced financial impact from tariffs.

Answer

President & CEO Octavio Marquez stated that purpose-built ATMs for India command margins similar to the rest of the APAC region and that growing the installed base there creates a strong service annuity. He confirmed expectations for sequential revenue and margin growth in retail in Q3 and Q4. On tariffs, Marquez highlighted mitigation efforts like localizing manufacturing to Ohio. EVP & CFO Thomas Timko added that the net tariff impact was reduced to a range of $5 to $10 million due to these successful mitigation strategies.

Antoine Legault of Wedbush Securities asked about the margin profile of new ATMs in the Indian market, the broader opportunity in India, and sought confirmation on the expected second-half gross margin lift in the Retail segment. He also inquired about the financial impact of tariffs and the company's mitigation efforts.

Answer

President & CEO Octavio Marquez stated that the purpose-built ATMs for India command margins similar to the rest of the APAC region and help grow the installed base for future service revenue. He confirmed that retail margins and revenue are expected to grow sequentially in Q3 and Q4. EVP & CFO Thomas Timko added that the estimated tariff impact is now down to a $5-10 million range from an initial $20 million estimate, thanks to mitigation efforts like localizing manufacturing in Ohio.

Antoine Legault from Wedbush Securities asked if the upcoming Windows end-of-life in October was driving any new customer demand or a refresh cycle.

Answer

President & CEO Tim Oliver clarified that the current hardware demand is not driven by a forced Windows upgrade. Instead, he attributed the strength to three factors: a normal 5-7 year hardware refresh cycle lapping the 2019 peak, Atleos winning a greater share of new bids, and an upgrade cycle toward more capable and expensive devices like recyclers.

Antoine Legault questioned whether the upcoming Windows end-of-life in October is driving new customer demand or impacting the current ATM refresh cycle.

Answer

CEO Tim Oliver clarified that the current hardware demand is not driven by a forced Windows upgrade, unlike the 2019 migration. Instead, he attributed the strength to three factors: a normal 5-7 year hardware refresh cycle, market share gains, and an upgrade cycle toward more capable and expensive devices like recyclers, which offer new transaction types.