Quantum Computing Inc.

Ladies and gentlemen, greetings and welcome to the Quantum Computing Inc. 3rd Quarter 2024 Shareholder Update Call. Following management's remarks, the call lines will be open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at any time. It is now my pleasure to introduce your host, Rosalind Christian, with IMS Investor Relations.

Thank you. And I want to welcome everyone to the Quantum Computing Inc 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. William McGann, CEO of QCI, and Chris Bemler, CFO. Bill will provide an update on 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.

Thank you, Rosalind, and thank you, everyone, for joining our call today. So this is going to be the first of what I hope and expect will be many quarterly investor calls to come as we continue to grow our business and communicate our strategies to the world. And I'm personally really excited to take the opportunity to discuss the strategic progress we've made today with you. Before we get into the specific operational details of those achievements, I wanted to address some of the broader context under which QCI is operating. So to start with, you know, I always start by saying, look, we're a nanophotonics company that leverages novel materials and their associated nonlinear quantum optical properties to design, develop, and deliver innovative hardware solutions for high-performance computing, AI machine learning, and applications in remote sensing. We capsulize all that, because that's a lot, by saying we put photons to work, because this singular core technology focus gives us the ability to address multiple revenue streams as those markets begin to emerge. And based on this approach, we believe we're very well positioned to capitalize on what we call our early flexible, early mover advantage in emerging markets and rapidly growing ones. the increasing global focus on sustainable energy solutions, coupled to the push for advanced technology innovation in sectors such as automotive, finance, and healthcare, really starts to underscore the timely relevance of our offerings and showcases and the powerful diversity of our core technology, which I'm going to talk to you about today. So, additional to that, as you might imagine, there are also political drivers, including governmental support for quantum technology and initiatives aimed at fostering innovation across that are really creating quite a favorable environment for us right now. And our goal here is to establish what I call a best-in-class sustainable use case strategy for energy management and automotive applications and for the important portfolio, financial portfolio optimization. These align very well with the trends of our business and allow us for a focused commitment for us to deliver high-margin revenue streams from our quantum machines and our US-based foundry services, which we're gonna talk to you about today. So I want to provide a thumbnail of a couple of these really important areas to focus that we're addressing the critical challenges of energy consumption in AI and powerful quantum machines for solving complex optimization problems. Our product development roadmap and growth model will be sustained by leveraging one common core technology to capture multiple revenue streams in these complementary markets, all of which will benefit from the next generation of our photonic high-performance computation. So it ties really well with our roadmap here. The underlying technology element that enables this approach is our model for nanofabrication of QCI photonic chips using thin-film lithium niobate, or TFLN. We call it TFLN for short because it's really hard to say thin-film lithium niobate three times fast in a sentence. But this Tiflin material is the source material that QCI uses for developing its quantum high-performance computing machines. And importantly, Tiflin is also becoming recognized as one of the most promising new materials for implementation of extremely low-power consumption devices for the really widely expanding and rapidly growing telecom and data center applications. I mean, recently at a conference where we attended, one of the head spokespeople for NVIDIA, for example, stood up and said that thin lithium niobate is one of the most being looked at for its promise in these applications. So we think, again, it aligns with our strategy very well. So in the near term, we're going to leverage the growing demand for Tiflin devices in the market to drive early significant revenues for foundry services, while we will in parallel keep on developing along the same path of our own quantum computing machine platform. So the punchline is really this. We believe it is best approach for us achieving scalable quantum machines, and the immediate result of this approach will be to leverage the early cash flow that we generate from the foundry services in Arizona and the large growing market that it will command to drive the high-performance quantum machine adoption in the markets where the development is still emerging and a little bit more technology maturing is needed. So ultimately, this approach back and forth Leveraging the technology in the markets will produce miniaturized photonic integrated circuits. They're called PICs is a term of art. And our TFLN chips will become the integral part of that scalable photonic quantum machine that will meet the extreme performance demands in these markets, as you all are following. I'm sure you know that. One really important benefit that's immediately available for our growth in market share is that our systems operate at room temperature and they are mountable in a rack in an ordinary server room configuration. Our current Dirac 3 machine is already in these configurations showing great advantages in solving important computational benchmark problems and operating with exceedingly low powers in the range of 25 watts or the equivalent of two LED light bulbs. I mean, it's impressive what these machines can do with such low levels of power. Today, I'm confident to state that the Dirac 3 offers the best size, weight, power, and cost of any high-performance computer in the world today. size, weight, power, and cost we refer to as Swamp C. This fact enables us to provide these powerful machines at a very low cost, and it makes our accessible, affordable strategy that some of you may have heard us talk about be a reality versus an idea. So now let me highlight a few of the specific operational achievements for Q3 during the third quarter. So first I want to go back and discuss our specific progress with the thin-film lithium-naobate or Tiflin foundry in Tempe, Arizona. We are in the final phase of commissioning the facility, and we remain on track to begin the production early in 2025. And we've already begun finalizing offtake agreements and some pre-sales orders with new customers and strategic partners. You've probably seen that in some of our recent press releases. This foundry is a really significant step in scaling our manufacturing capabilities and expanding our reach into these new markets, as I've described above. And this is a tangible result of our efforts to improve the execution of our sales and marketing strategy. Another really key element this quarter is that we extended our Cooperative Research and Development Agreement, or CRADA, with the Los Alamos National Laboratory, LANL. This renewed collaboration allows us to further explore the capabilities of our new Direct3 machine for quantum optimization problems. And the extended agreement facilitates the development of advanced quantum solutions across other important sectors, including energy management, molecular dynamics, and even some really fascinating quantum chemistry problems important to the world. So additionally, You know, we're really trying to leverage these technology advancements with market opportunity through our presence in the key industry events, including things like Quantum World Congress in 24 and the Quantum Tech Europe, which we've been giving paper presentations at. And this has been very instrumental in raising our awareness about the capabilities of our Dirac-3 platform. These engagements have really elevated our profile among government and commercial stakeholders and really sparking interest in potential partnerships that we anticipate will continue to further enhance and grow our position. So, in parallel, all these efforts working together, we continue to develop that underlying entropy quantum computing solution, our Direct3. And it is gaining traction demonstrated through solving these benchmark problems. And we're working with people like the Los Alamos National Labs, as I mentioned, Oak Ridge National Labs, and Berkeley National Labs, Lawrence Berkeley. And these studies underscore our platform's efficiency in tackling these challenges. So lastly, and I'll probably stop at that point, is I'm happy to announce that the subsequent, in this quarter, we secured our fifth project with NASA. And this exciting new contract continues our focus on developing quantum technology for space-borne LIDAR missions, light detection and ranging applications. And these are specifically aimed at lowering the cost associated with space-borne LIDAR from billions of dollars per flight to millions of dollars and focused on gathering climate monitoring data and enhancing the data collection capabilities. This contract further, you know, really solidifies that partnership that we've had ongoing with NASA, and it reflects our commitment to them and them to us on leveraging our technology for real-world applications. So, I look forward to questions and answers, but for now, I'm going to pass over to Chris, my CFO, Chris Bemler, for a quick look at our financial performance. Over to you, Chris.

Great. Thank you, Bill. I will now take a few minutes to provide a brief overview of our financial performance for the third quarter 2024. There are really two key themes I want to highlight. One, that our results this quarter reflect our continued focus on cost containment, while two, importantly, continuing to strategically invest in capital improvements and research and development to support our long-term growth objectives, like the boundary Tiflin facility that Bill touched on. Specifically, as we look at the financial results, third quarter 2024 revenues totaled approximately 101,000 compared to 50,000 generated in the third quarter 2023. The increase in revenues was due to increased contractual sales, primarily from our contract with Johns Hopkins University to deliver an underwater quantum LIDAR prototype. Gross margins, however, decreased to 9% this quarter compared to 52% In the 2023 quarter, the decrease in gross margins was primarily the result of the Johns Hopkins project, which has lower margins than our NASA LIDAR work due to its cost of revenues being comprised of a significant amount of direct component costs in addition to direct labor expenses incurred in the customized Johns Hopkins design and build contract. Turning to operating expenses, Third quarter 2024 totaled $5.4 million compared to the prior year third quarter operating expenses of $6.6 million. The 18% period over period decrease is primarily driven by our cost containment efforts and focus on reducing selling, general and administrative expenses, specifically management's actions to reduce employee consultant and legal costs. Further, our investment in research and development of $2.2 million in the quarter was in line with the $2.3 million recognized in the 2023 quarter, which reflects our focus on innovation and continues to play a key role in driving future growth, particularly within our high-performance computing platforms. The company reported a net loss attributable to the common stockholders of $5.7 million or 6 cents per basic share for the third quarter of 2024 compared to a net loss available to common shareholders of 7.1 million or 10 cents per basic share for the same period of the previous year. Total assets at September 30, 2024 were 76.8 million, which was up 2.4 million from the $74.4 million reported at December 31, 2023. Cash and cash equivalents at September 30, 2024 increased $1 million from year-end 2023 to approximately $3.1 million. In the third quarter, the company had raised net proceeds of $7 million in the secured convertible debt financing. Further, I'm also very pleased to report that subsequent to the end of the third quarter, we've been able to raise in excess of $4.5 million through our ATM facility at the market facility. These capital raises demonstrate our commitment to balancing our cost of capital while ensuring we have the necessary resources to execute our strategic plan. Total liabilities at September 30th, 2024 were 10.9 million, an increase of approximately 5.3 million compared to year-end 2023, driven primarily by the convertible debt financing I mentioned previously. As of September 30th, 2024, the company had stockholders' equity totaling 60.4 million. Looking ahead, our strategy centers on driving revenue and ultimately achieving intermediate-term cash flow from our Arizona Tifflin Foundry facility. We believe that over time, the Tifflin facility can serve as a source of stable, non-dilutive cash flow while market demand for quantum computing catches up to our quantum computing manufacturing capabilities. I will now turn it back over to Bill for some closing remarks.

Thanks very much, Chris. And thank you all again for joining us today. And in closing, look, our operational advancements this quarter really underscore our dedication to delivering accessible, affordable, and scalable quantum solutions through our hardware. I'm very confident in our team's ability to execute on our strategic vision and continued focus and passion to really make this company grow. And I look forward to the many opportunities that lie ahead with all of us. And now I'd like to turn the call over to Q&A to the operator. Thank you.

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 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. Once again, that's star one if you wish to ask a question at this time. One moment, please, while we pull for questions. Once again, that's star one if you wish to ask a question on today's call. The first question today is coming from Ed Wu from Ascendian Capital. Ed, your line is live.

Yeah, congratulations on the progress. My question is, You know, in terms of getting mortgage contract grant revenue, do you anticipate getting a lot more over the next year?

Thank you for that. Yes. In fact, some of the additional strategic initiatives we've taken on in the past six months have been to bolster our R&D proposal writing capability. So we have a dedicated team a proposal contract writer for us, another PhD physicist who's very capable and successful at submitting grants and contracts for whether it's SBIR or other government agencies. And we have a very active program with a very robust opportunity pipeline. So, yes, you will definitely expect to see more external funding. But, you know, having done this for many years, it's a double-edged sword. And I always like to focus the external funding initiatives we put our effort into to make sure that they align with our roadmap, as opposed to just funding for the sake of funding, right? But we have a very good process for doing that, and we're very sensitive about that. So, you'll see more focus on our remote sensing applications. And we're working really hard with some of the new recently announced notice of offering of funding from some of the national laboratories and government agencies for quantum frontiers and new innovative technologies. So we're right in the thick of that as we speak. Thank you for that question.

Great. My last question. Have you guys given a timeline for when your foundry and Tempe will be operational?

Yeah, we do have one. We will be As I said in the comments, we will complete the construction phase of the FAB at the end of this year, and we're going to then commission it starting in January. And we'll be open for business in the first quarter. In fact, we will be announcing sort of a grand opening and inviting select people for that event and be inviting any of our shareholders if they'd like to come and visit us. Very exciting. Thank you.

Great. Well, thank you for answering my question. I wish you good luck. Thank you. My pleasure.

Thank you. And once again, it will be star one if there were any other questions at this time. And there were no other questions from the lines at this time. I would now like to hand the call back to Bill McGann for closing remarks. Thank you.

And thank you all for taking the time to join our call today. There's a lot going on. We're a very focused and passionate team, and we really look forward to doing this on a more regular basis with all of our investors. And please check out the content on our website. We really have done a complete makeover there. It gives you a lot of information about what we do at various levels, from high level to very detailed, you know, mission and the science that we're doing behind our underlying entropy quantum computing. So, I invite you all to please talk to us through our website and check us out, and we look forward to hearing from you again more in the future.

Thank you. Thank you. This does conclude today's conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.