Quantum Computing - Earnings Call - Q1 2025

Transcript

Operator (participant)

Ladies and gentlemen, greetings and welcome to the Quantum Computing Inc first quarter 2025 Shareholder Update Call. At this time, all participants are in a listen-only mode. Following management's remarks, the call will be open for questions. Please note this conference is being recorded. It is now my pleasure to introduce your host, Rosalyn Christian, with IMS Investor Relations.

Rosalyn Christian (Account Manager)

Thank you, and I want to welcome everyone to the Quantum Computing Inc first 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 Boehmler, 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.

Yuping Huang (Interim CEO and Chairman)

Thank you, everyone, for joining us today to hear about QCi's progress in the first quarter. This is my first Shareholder Update Call as Interim CEO of QCi. As the Chairman and on behalf of the entire Board, I would like to express our sincere appreciation to Dr. Bill McGann for his leadership and dedicated service. We wish him well for his retirement and are deeply grateful for the significant progress he made in positioning QCi for success. Thanks to his vision and effort, the company stands on a strong foundation to continue advancing our strategic goals and capitalizing on the opportunities ahead. As I step into the role of Interim CEO, I look forward to working closely with our talented team, partners, and shareholders to build on this momentum and continue putting photons to work.

At the same time, the Board has initiated an active search for QCi's next CEO, someone who can help us capture the substantial opportunities we see ahead in the market. For those who are newer to our story, let me start with a brief overview of who we are and what drives us. Quantum Computing Inc is an integrated photonics and quantum optics technology company. Our mission is to deliver accessible, affordable quantum machines and photonic solutions that solve real-world problems today, not decades from now. By leveraging the unique properties of thin-film lithium niobate and advanced photonic engineering, we are building systems that operate at room temperature, consume low power, and seamlessly integrate into existing infrastructures. Our vision is to make high-performance quantum solutions practical, scalable, and impactful across industries, from scientific research to industrial applications. We believe QCi stands apart by focusing on two key areas.

The first is our quantum machines, which solve complex optimization, machine learning, and sensing problems in fields like biomedical research, transportation, and finance. The second is our thin film lithium niobate photonic chip foundry, which provides critical building blocks for next-generation telecommunications, AI, and quantum applications. For a summary of our progress this quarter, first, let's start with the progress we've made at our quantum photonic chip foundry in Tempe, Arizona. In the first quarter of 2025, we completed construction of the facility, which is a significant milestone for our company. At the foundry, we have moved into the next phase of testing tools, finalizing certifications, and we are beginning to ramp up customer deliveries, some of which we fulfilled using a shared-use facility in the past. This is a specialty Fab purposely built to manufacture high-performance thin-film lithium niobate photonic integrated circuits.

While this is a smaller, highly focused facility compared to large semiconductor fabs, it represents the first phase of what we see as a multi-phase strategy to address significant and growing market demand, particularly in data communications and telecommunications. We expect to see modest initial revenue from the Fab this year, and as we scale and bring more customers online, we anticipate revenue growth starting to accelerate in 2026. In the first quarter, we secured our fifth purchase order for foundry services from a leading Canadian research institute, which shows early validation of the global demand we are seeing for these capacities. We are working closely with our pre-order customers to finalize designs and start fabrication, and we are excited about what's ahead. For our quantum machine business, in the first quarter of 2025, we announced a great collaboration with the Sanders Tri-Institutional Therapeutics Discovery Institute.

This is a joint effort between Memorial Sloan Kettering, Rockefeller University, and Weill Cornell Medicine. Through this partnership, they are leveraging cloud-based access to our Dirac-3 Quantum Optimization Machine to support advanced research in computational chemistry and biomolecular modeling. This is exactly the kind of real-world application we envisioned when we built Dirac-3, and it demonstrates that QCi systems are making an impact today, not five or 10 years down the road. Since the end of the quarter, we have kept the momentum going. We recently announced that we secured a new subcontract through Analytical Mechanics Associates to support NASA's Langley Research Center. We will be applying our Dirac-3 Quantum Machine to help remove sunlight noise from space-based LiDAR data, a challenge that has historically limited NASA's ability to conduct reliable daytime Earth observations.

This project builds on our prior collaborations with NASA and underscores the trust we have built as a technology partner. Subsequent to the quarter, we also booked two exciting new customer orders. First, we sold a Quantum Photonic Vibrometer to Delft University of Technology in the Netherlands to support cutting-edge research in non-destructive testing and structural health monitoring. Shortly after that, we announced the sale of a EmuCore reservoir computing device to a major automotive manufacturer for R&D use. Both of these wins demonstrate how we are broadening adoption of our quantum solutions across both academic and industrial markets. On the marketing front, we attended some key trade shows where we connected with prospective customers and partners. Those interactions are expanding our relationships and building awareness of our solutions. During the quarter, we also strengthened our Board with the addition of Eric Schwartz.

Eric brings more than 20 years of experience in financing, M&A, and corporate strategy. He has guided companies through the exact types of commercialization and manufacturer scale-up efforts we are working on now. His expertise will be a great asset as we move forward. With that, I will turn the call over to our CFO, Chris Boehmler, to walk through our financials.

Chris Boehmler (CFO)

Thank you so much, Yuping. I will provide a brief overview of our financial performance for the first quarter of 2025. First quarter 2025 revenues totaled approximately $39,000 compared to $27,000 in the prior year quarter. Our gross margin decreased to 33% from 41% in the first quarter of 2024, something that remains variable at our current revenue level. With our continued strengthened capital position, which was fueled by three separate financings during the three months ended in January 2025, we are strategically investing in key growth areas to advance both our quantum machine program and our TFLN chip foundry initiatives. Operating expenses for the first quarter totaled $8.3 million compared to $6.3 million in the same quarter last year. Employee-based expenses were the main driver of the year-over-year increase.

The company reported net income attributable to common stockholders of approximately $17 million or $0.13 per basic share compared to a net loss of $6.4 million in the prior year quarter. The increase in net income this quarter was primarily due to a $26 million non-cash gain on the mark-to-market valuation of the company's warrant-related derivative liability as a result of our merger with QPhoton in June of 2022. As of March 31, 2025, total assets stood at approximately $242.5 million, up from $153.6 million at year-end 2024. Cash and cash equivalents increased by $87.5 million to $166.4 million at quarter-end, bolstered by total net proceeds of approximately $93.6 million raised in the first quarter through offerings of our common stock.

Total liabilities at year-end were $21.7 million, a decrease of approximately $25 million compared to year-end 2024, driven primarily by the previously disclosed non-cash mark-to-market adjustment for the aforementioned QPhoton warrant liability. Stockholders' equity rose to $220.8 million, reflecting our strengthened capital position. I'll now turn it back to Yuping for some closing remarks.

Yuping Huang (Interim CEO and Chairman)

Thank you, Chris. As you have heard throughout the call, QCi has entered 2025 with strong momentum both operationally and financially. We are advancing real-world applications of our quantum and photonic technologies, building valuable partnerships across government, research, and industry, and laying the groundwork for our long-term sustainable growth. With the completion of our Tempe chip foundry, a growing pipeline of customer activity, and a strengthened balance sheet, we are well-positioned to continue delivering on our mission. Thank you for your continued support and interest in our progress. With that, we will now open the call for the question operator. Please go ahead.

Operator (participant)

Certainly. At this time, we will be conducting a question-and-answer session. 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. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Ed Woo with Ascendiant Capital.

Ed Woo (Director of Research and Senior Analyst)

Yeah, congratulations on all the progress. My question is, you know, congratulations on the, you know, opening of the Tempe foundry. My question is, is there any expectations of any capacity constraints going in the near-term, and have you thought about potentially opening up another one, either in the U.S. or internationally?

Yuping Huang (Interim CEO and Chairman)

Thanks for the question, Ed. To your first question, the answer is yes, but I wanted to emphasize that QCi is developing and commercializing disruptive technologies. I believe that we will change the world, but not all by ourselves. We needed to build an ecosystem that is open, inclusive, and mutually beneficial. At this stage, we're still discovering our customers, explaining our technology to them, and letting them validate our products. It all takes time, but once people start to see the power of our products, I believe that many will jump onto them, at which time I expect to see a very fast increase in the revenue. Another note that I would like to make is that, as many of you know, we had a pretty tough last year financially.

We decided to cut costs and put our valuable resources to build our foundry and support our production. This is why we were able to complete the foundry, the Fab one on time, and why we have now multiple product offerings. Now, at a much stronger financial position, we will boost our sales and business development team to quickly expand our customer bases and to get ready for fast growth in the revenue. This is actually one main reason that we made the leadership promotions as we announced last week. Now, to your second question, Ed, yes. In fact, right after the grand opening, we had a two-day joint workshop between the team and the Board, and we really spent a lot of time talking about the next step, including Fab 2.

I think we have some very exciting development ahead of us, and I could not wait to see how the team will bring lots of those wonderful technology and manufacturing capability home.

Ed Woo (Director of Research and Senior Analyst)

Great. Thanks for answering my questions, and I wish you guys good luck. Thank you.

Yuping Huang (Interim CEO and Chairman)

Thanks so much, Ed.

Operator (participant)

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

Yuping Huang (Interim CEO and Chairman)

Thank you. I would like to thank everyone again 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 technology. I believe that you can find some pictures about our facility, about Fab there. I encourage you to check those media channels. Should you have any questions, please do not hesitate to reach out to our Investor Relations. I wish you all a great rest of your day. Thank you so much.

Operator (participant)

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