Quantum Computing - Earnings Call - Q4 2024

Transcript

Speaker 0

Greetings. Welcome to the Quantum Computing Fourth Quarter 2024 Shareholder Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Rosalyn Christian. You may begin.

Speaker 1

Thank you. I want to welcome everyone to the Quantum Computing Fourth Quarter 2024 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, we 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. William McGann, CEO of QCI, and Chris Bemler, CFO. Bill will provide an update on the business, followed by a question-and-answer session hosted by both Bill and Chris. With that, I would like to turn the call over to management.

Please go ahead, Bill.

Speaker 0

Thank you, Rosalyn, and everyone out there for joining us today. We're extremely excited to share our progress with you after what has been a very, very busy fourth quarter, with a lot of significant operational and financial progress to report to you all. With a transformed balance sheet and critical advancements across both our quantum solutions and foundry services business, we are really well positioned to scale and accelerate the commercialization of our technology in 2025. QCI has been living and breathing quantum for years now, but one change since we last spoke together is that the broader world has definitely started to take notice of the importance of quantum. This is a really exciting momentum in the industry, and especially here at QCI.

For those that are new to our story, QCI is a nanophotonics company, and we leverage the nonlinear quantum optical properties of a material called thin-film lithium niobate to build high-performance computing solutions for real-world applications today. That's a differentiator. Our approach is unique in the quantum industry because our technology is available and useful today. While many of the quantum players continue to work on that ultimate challenge of a large-scale fault tolerance system that may remain years away, our focus is on delivering accessible and affordable solutions for quantum-enhanced solutions today and right now. We will talk about some of those in a moment. One of the differentiators for our core technology is so-called SWAP-C, which is our ability to deliver superior size, weight, power, and cost advantages.

Our Dirac 3 quantum optimization machine operates at room temperature, requires no cryogenic cooling, it fits within a standard data rack in a server room, and consumes less than 100 watts, which is a fraction of the power required by many computing systems. These together are advantages critical as the industries that seek important solutions that seamlessly integrate into existing infrastructure while also simultaneously improving computational efficiency. That is kind of our mission. We are addressing two very primary market needs right now. The first is our Dirac 3 quantum machine is aimed at solving complex optimization problems in transportation, finance, healthcare, fraud detection, and even in improving the optimization of AI algorithms. The second focus has been advancing our photonic chip technology, which we talked about last time. We will talk a little bit more about that today.

Our foundry will provide the building blocks for not only the next generation of our quantum applications, but also for adjacencies in data com and telecom markets. I'll give you a little bit of an update on some of the operational highlights for the fourth quarter of 2024. What we did there is we really continued to make a lot of progress across our key initiatives, validating both the demand for our quantum computing solutions and for our chip foundry services. One of the major highlights was an expansion of our partnership with NASA. Many of you have heard that we've had numerous contracts with them. On October 17, we secured our fifth task order with NASA for developing quantum modeling and removal of solar noise from space-borne LIDAR missions using our Dirac 3 machine.

The goal of this project is to reduce costs associated with climate monitoring missions while significantly improving the data collection capabilities and results. On December 17th, we announced an additional contract with NASA to support an initiative for doing what's so-called phase unwrapping using our Dirac 3 machine optimization solver. These are exciting opportunities that demonstrate how our technology can enhance data accuracy and efficiency in large-scale imaging applications. More importantly, our ongoing work with NASA over the years has always been laying the groundwork for continued collaboration, not only with NASA, but also with other great government agencies and research institutions looking to leverage our quantum solutions for complex computational challenges. We've made a lot of progress in this area.

If we turn a moment now to our quantum photonic chip foundry in Tempe, Arizona, we're in the final stage of commissioning that facility and remain on schedule to begin production in early Q2. The construction is substantially complete as of today, and we are now establishing our process design kits and will be fulfilling customer orders in Q2. Throughout the quarter, we strengthened our industry relationships by signing a couple of memorandums of understanding with Spark Photonics Design and Alcyon Photonics to broaden our collaboration efforts. As part of our 2024 pilot launch, we secured multiple pre-orders through the opening of the fab. Subsequent to the fourth quarter, we announced a total of five purchase orders for our TFLN photonic chips. These milestones reinforce our strategy and the growing industry demand for high-performance, energy-efficient photonic integrated circuits, or PICs.

QCI's position as a leader in the emerging U.S.-based TFLN market, which we feel even more secure about today than we did the last time we spoke. From a sales and market expansion perspective, we've been actively engaged with commercial and government partners in Q4, and we've attended numerous, up to 10 industry trade shows and conferences, making numerous presentations, presenting quantum optimization and our photonic chip solutions to some of the key decision-makers and a long list of potential customers. This focused outreach is really helping us drive better adoption, visibility, and strengthening our customer relationships to expand our presence across the multiple sectors we try to serve. One additional example is that we had the opportunity in November of last year to present at the Quantum Frontiers Conference at Los Alamos National Laboratories.

This was a key moment for us because we got to sit and talk with key thought leaders and on panels to discuss how quantum optimization solutions, particularly associated with our Dirac machine, today are solving real-world problems. While there's been some debate in the industry about the timeline for quantum computing adoption, our model is different and our approach is different. Our photonic quantum machines are already demonstrating tangible value in important government and commercial applications. It was a nice opportunity to be able to talk about some of those with a very small focus group of thought leaders in the industry. Our work with NASA and our expanding foundry services underscore this, proving quantum technologies are not just theoretical concepts, but they are here now and ready to deploy.

Chris is going to talk to you in a moment, if I can get over my cold here, apologize for that, and discuss our financial progress in more detail. Another key highlight of the quarter was bolstering our balance sheet. With a significantly stronger financial position this year versus last, we're really well positioned like never before, really, to scale the operations at QCI and execute and accelerate our commercial strategy to expand the industry adoption of its quantum photonic solutions. As we move into 2025, we're going to remain really focused on driving revenue from that foundry and our quantum machines. We're going to expand our industry partnerships, like I gave you a few examples of, and our customer base. We're going to continue, as always, our R&D innovation to push the boundaries of what is possible in photonic computing.

With that, I'm going to turn over the call now to our CFO, Chris Boehmler, who will walk us through some of the financials. Over to you, Chris.

Speaker 4

Thanks, Bill. Today, I'm going to provide a brief overview of our financial performance for the fourth quarter 2024. Our results in the quarter reflect a significantly strengthened cash position and advancement of our strategic initiatives, key initiatives that will drive long-term growth and build our offerings for foundry services of TFLN photonic chips and quantum solutions that use our machines. Fourth quarter 2024 revenues totaled approximately $62,000 compared to $75,000 in the prior year quarter. Our gross margin improved significantly to 55%, up from 13% in the fourth quarter of 2023. This improvement was largely driven by our focus on reducing our direct cost of goods sold. Operating expenses for the fourth quarter totaled $8.9 million compared to $6.6 million in the same quarter last year.

The year-over-year increase was primarily driven by higher employee-based expenses, including stock-based compensation and increased depreciation in support of bringing our photonics chip foundry online, offset by lower non-recurring legal services expenses. Further, for the full year ended 2024, our cash used in operations decreased by $2.1 million, reflecting management's disciplined strategy to minimize general and administrative expenses. The company reported a net loss attributable to common stockholders of $51.2 million, or $0.47 per basic share, compared to a net loss of $6.8 million in the prior year quarter. The higher net loss this quarter was primarily due to non-cash charges attributable to the mark-to-market of the company's warrant liability as a result of our merger with QPhoton back in June of 2022. As of December 31st, 2024, total assets stood at $153.6 million, up from $74.4 million at year-end 2023.

Cash and cash equivalents notably increased by $76.9 million to $78.9 million at year-end, bolstered by total net proceeds of $92.1 million raised in the fourth quarter through offerings of common stock. Subsequent to the quarter, the company announced an additional private placement of common stock for an additional $100 million of gross proceeds, further strengthening our balance sheet. Total liabilities at year-end were $46.3 million, an increase of approximately $41 million compared to year-end 2023, driven primarily by the previously disclosed non-cash mark-to-market adjustment for the QPhoton warrant liability I mentioned. Stockholders' equity rose to $107.3 million, reflecting our strengthened capital position. Looking ahead, our focus remains on executing our commercialization strategy while prudently managing our financial resources, with our foundry on track to be operational by the end of this month, March 2025, with deliveries of pre-orders early next quarter, Q2 2025.

Coupled with our continued momentum with our go-to-market strategy to deliver quantum machines, we are very well positioned to drive revenue growth and work toward sustainable cash flow. I'll now turn it back over to Bill for closing remarks.

Speaker 0

Thank you, Chris. 2024 has been a year of significant progress for QCI, with key advancements in our quantum machines and photonic chip foundry and strategic partnerships. As we move into 2025, we are well positioned to drive revenue growth and expand the adoption of our quantum technologies. Our strong financial position and continued focus on innovation will enable us to capitalize on the growing demand for scalable quantum solutions. I am excited for what lies ahead as we begin to execute our strategy and continue to put photons to work. With that, we will open it up for questions. Operator, you know, please go ahead with that. Thanks.

Speaker 3

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 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. Once again, please press Star 1 if you have a question or a comment. Our first question is from Ed Wu with Ascendient Capital. Please proceed.

Speaker 2

Yeah, congratulations on all the progress and congratulations on getting this recognition. My question is, you know, the opportunities in international, is most of your focus now domestic business, or are you focused just on worldwide opportunities?

Speaker 0

Yeah, thanks, Ed. It is currently a big focus in the U.S. with some commercial entities. Those entities are global companies. With some of the U.S. government initiatives with our Dirac 3, particularly in the areas of fraud detection and sort of portfolio analysis, payment analysis. We do have, I will say, a couple of orders for our photonic chips that are offshore, both in Europe and in Asia. It is a mix for the commercial products, the Dirac machine in particular. There are, I will say, orders in our pipeline that we have not been able to, you know, capture as an order and deliver as a sale yet that are offshore. Right now, we're pretty much focused on closing orders that are largely domestic for the quantum machines. We've got a decent mix onshore, offshore for the chips.

Speaker 2

That sounds good. Just my last question on the foundry business, congratulations on starting orders in early Q2.

Speaker 0

Thank you.

Speaker 2

Are you going to be operating at a ramped 100% operational efficiency right away, or will it take time to ramp up?

Speaker 0

Of course, there's a startup time, right? Because what you have to do, I'm sure you're aware, is we have to get what's called our PDKs, our process design kits going. And we have that going. We will be delivering chips, proof of concept chips to customers in Q2. Those are most of the orders we secured. I mean, we are a new foundry. Most customers rightly would say, "Hey, you know, build us a handful of these modulator devices or ring resonators or various components." That leads to a scaled-up for a sort of a multi-project wafer platform, which is what we're looking to drive as quickly as possible. Yeah, there's going to be a ramp, as you would expect, commissioning the equipment, you know, getting our PDKs lined up.

We have some partnerships that I mentioned in the call that will be helping us and working with us on some of those things.

Speaker 2

Great. Thank you. I wish you guys congratulations again. Thank you.

Speaker 0

You're welcome. Thank you.

Speaker 3

Okay. We have no further questions in queue. I'd like to turn the floor back to management for closing remarks.

Speaker 0

Okay. Thank you, Operator. Thank you out there, everybody. I see there's about 30 people. Listen, please, I really appreciate the support and taking the time to listen to our story today and the things we've done. We are very much looking forward to keeping you up to date in 2025. I would ask that you really keep in daily contact with us. You can look at our website. We try to keep that very relevant. We worked very hard in 2024 to make that a good reflection of who we are and what we do, not just from a press release perspective, but our knowledge base, you know, the events that we share on our LinkedIn website. We've really tried to, you know, get our message out there and be as transparent as we possibly can with our shareholders and with the world and the market.

I would ask that if you really want to stay in daily touch with us, we'd love to hear from you. Please always feel free to reach out to Rosalyn, our investor relations contact here on the call with us today. Thank you all very much once again. I hope you all have a good rest of the remaining day.

Speaker 3

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