Quantum Computing - Earnings Call - Q2 2025

Transcript

Speaker 2

Ladies and gentlemen, greetings and welcome to the Quantum Computing Inc. second quarter 2025 shareholder update call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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, Rosalind Christian, with IMS Investor Relations.

Speaker 1

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.

Speaker 4

Thank you, everyone, for joining us today to hear about QSET'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're seeing growing validation of our technologies through customer orders across both our quantum systems and our photonic chip foundry. We continue to deepen our engagement with government, academic, and industry partners around the world. These early wins reflect the real-world value of our technologies and the unique position QSET holds in the market. At our call, QSET 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 two 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. Second, our Simply Lithonite-based photonic chip foundry delivers essential components for next-generation communication, AI, and quantum applications. These two key areas uniquely position us to serve both the present and future needs of the 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 manufacturing, opening up new commercial opportunities for our foundry. This is a pivotal time for the industry, and QSET's business is scaling to meet the demand. Importantly, QSET stands apart with a quantum architecture that offers significant swap-sea 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 institutes. This system will support their advanced work in non-destructive 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 are a much 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 five US bank, marking the first domestic commercial sale of our quantum cybersecurity solution, underscoring rising demand for quantum-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.

Continuing to be a significant partner to government institutions remains a key goal for us, and we continue to make progress subsequent to this quarter, announcing a Teflon chip contract from the U.S. Department of Commerce 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 foundry in Tempe, Arizona, was completed in March. In May, we celebrated the grand opening with a ribbon-cutting ceremony alongside Mayor Cory Woods and regional industry stakeholders. The facility is now fully operational, fulfilling customer pre-orders and positioned to scale production of thin-film lithonite-based chips for use across 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 Beglia-Bakov to Chief Operating Officer and Puya Diana to Chief Revenue Officer. Each of these individuals brings deep expertise and an exceptional 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 indices at the conclusion of their annual reconstitution in June. This inclusion increases our visibility across institutional investors and reflects growing recognition of QSET'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.

Speaker 0

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's second quarter. Our gross margin for the second quarter increased to 43% from 32% in the second quarter of 2024. 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 2024. 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 derivative liabilities, which comes from our merger with Q-Photon in June of 2022. For the six 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 six months of 2024.

As of June 30, 2025, total assets stood at $426 million, up from $154 million at the year-end of 2024. Cash and equivalents increased by $270 million in the first six months of 2025 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 Q-Photon warrant derivative liabilities. 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.

Speaker 1

Thank you, Chris. In closing, I wanted to thank our team, partners, and shareholders for their continued support as we execute on our vision. We have made 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 QSET 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. Operators, please go ahead.

Speaker 2

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 Troy Jensen with Cantor.

Hey, gentlemen, congrats on all the traction here. Maybe first off for Yuping, I guess I'd be curious, you know, to me, revenues aren't really important. They won't be for several years. To me, it's technical milestones. Could you just kind of lay out what are the two or three most important milestones that we need to see from you guys over the next one to three years?

Speaker 4

Thank you, Troy. Over the next two to three years, in fact, our focus would be to integrate our quantum machines with our nanophotonic chips. That has been our technology roadmap. As you have seen over the past three years, we have really pushed to testing and to demonstrate the quantum machine using discrete optical components. In March of 2025, this year, we have finished our quantum photonic chip foundry. That gives us the platform for us to translate our quantum photonic technology that we have demonstrated with discrete optical components on chip. Over the next two years, we are going to use our nanophotonic chips in our DIRAC-3 quantum optimization machine and use it to enhance the performance of our quantum photonic reservoir system and also to use for our quantum sensing system, in particular, the quantum photonic vibrometer.

With the integration of nanophotonic chips, we can expect to significantly reduce the size, weight, power, and also the cost of our quantum machines. We will also be able to boost the performance. In the meanwhile, our foundry can not only support the further development of our quantum machines, but also offer services to others. In fact, we have received pre-orders and orders for our foundry services. This is going to be a pretty fun ramp-up journey for us over the next two years.

Yep, understood. Good answers. Maybe a follow-up here for Chris. Just curious on OpEx. Obviously, you guys have a much larger balance sheet now. Is there any intention to accelerate spending or do M&A, or just maybe give us some color on what you think second-half R&D and G&A expenses might look like?

Speaker 0

That'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. We are in the process of talking with bankers and looking for opportunities that will enable us to fill out our technology roadmap as well as accelerate revenue development, revenue generation, sorry.

Yeah, understood. All right, guys. We'll keep up the good work.

Thank you.

Speaker 4

Thank you, gentlemen.

Speaker 2

As a reminder, if you would like to ask a question, please press star one. We have reached the end of the question and answer session, and I will now turn the call over to management for closing remarks.

Speaker 1

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.

Speaker 2

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