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spk05: Good morning and welcome to the D-Wave third quarter earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw a question, please press star then two. Please note, this event is being recorded. I would like to turn the conference over to Kevin Hunt.
spk06: Please go ahead. Thank you and good morning.
spk01: With me today are Alan Barrett, our Chief Executive Officer, and John Markovich, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as adjusted EBITDA, adjusted net income, and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which is available in the investor relations section of our company website at www.dwavesys.com.
spk06: I'll now hand over the call to Alan. Good morning, everyone. We are pleased to share our third quarter results with you today.
spk09: As the numbers reflect, our momentum with commercialization of quantum computing continues to grow. The first half of the year was somewhat slower than expected, but the headwinds that I mentioned last quarter have begun to subside, and we are seeing traction on a number of fronts. This past quarter, new companies have engaged with us, deals are now progressing through to the next stage, and both new and existing customers are signing new deals. ArcelorMittal is a new customer with whom we are working on a manufacturing optimization application that will drive operational cost savings associated with producing steel coils. Through our new engagement with BASF, we're building a job shop scheduling application that will optimize the throughput of jobs in the laboratory. It's clear that companies are recognizing the value of our practical quantum solutions and what they can bring to the enterprise right now, not five years from now. Our annealing quantum computer is unique in the quantum industry. And unlike other modalities, we are able to provide significantly better solutions to hard business optimization problems today. This provides a first mover advantage that we are capitalizing on. In fact, Through the first nine months of this year, we've expanded our customer footprint to 63 total commercial customers, reflecting a 34% year-over-year increase. Our quantum cloud business continues to be the primary growth driver for us, as quantum compute as a service revenue grew by 37% year-over-year and comprised 79% of our total revenue for the quarter. Customers like MasterCard, Johnson & Johnson, Deloitte, and others are working with us on quantum hybrid applications that will improve business efficiency, reduce costs, and drive growth. New and enhanced applications in development include 3D bin packing, which increases the number of different size and shape boxes that can be packed into shipping containers, thus reducing costs, customer offer allocation, which improves uptake for customer loyalty programs, employee scheduling, which allows businesses to meet the needs of their employees while improving business operations, and feature selection for machine learning. These are practical quantum computing applications that D-Wave is uniquely positioned to deliver for customers given the maturity and enterprise-ready nature of our annealing quantum solutions. Quantum computing is no longer seen as an experimental side project. but rather is gaining in recognition as a critical business tool for driving operational efficiency. In addition to direct quantum compute as a service growth, we recently announced that D-Wave officially launched in AWS Marketplace, including our Leap Quantum Cloud service, which went live on October 31st. Our availability in AWS Marketplace gives AWS customers access to easy-to-use quantum computing solutions our full LEAP cloud service capabilities, and a direct connection to D-Wave's professional services team. AWS Bracket customers will now be directed to the AWS marketplace to access the D-Wave system. We've also introduced a new and improved pricing structure for our quantum compute-as-a-service offering. The streamlined pricing model shifts from a consumption, time-based approach to a seat-based, an application-based collection of offerings. We believe this updated model will better meet the needs of customers and deliver increased value. Shifting gears to our technology roadmap, our efforts this quarter reflect our ongoing commitment to relentless product development and delivery. Our gate model development work continues, and we are making good progress, reaching several milestones this quarter. These included the fabrication of our first gate model qubits in our multi-layer stack. We are currently engaged in benchmarking one and two qubit gates with these devices. In addition, we have also demonstrated a scalable approach to readout for our gate model architecture. On the quantum annealing front, we published important research findings in Nature Physics this quarter that demonstrated large-scale coherence in annealing quantum computers. This work is a very important step toward demonstrating practical quantum advantage, providing definitive proof that D-Wave systems perform coherent quantum annealing, which cannot be classically simulated. In addition, we launched a new update to our constrained quadratic model hybrid solver, enabling businesses to run quadratic optimization problems with weighted constraints and introducing pre-solved techniques that simplify problem formulations. These enhancements were directly informed by customer feedback, enabling developers to unlock new use cases as well as expand the applicability of existing use cases across various industries. For example, in the energy industry, where there are conflicting requirements and priorities, the solver can optimize the electrical grid by balancing nodal power supply and demand, incentivizing generators to hit monthly emission targets. In logistics, the solver can support more advanced employee scheduling scenarios, accounting for variables such as maximum and minimum shifts per week, as well as overtime, thereby increasing the utility of the proposed solution. D-Wave has a proven track record of imagining the unimaginable and transforming that into products that drive real-world impact, and this quarter's product milestones reflect that commitment. We look forward to demonstrating both our technology and real customer use cases when we host Qubits on January 17th to 19th in Miami. This is D-Wave's yearly customer conference and one of the industry's premier quantum computing events. Speakers from MasterCard, Schlumberger, Johnson & Johnson, Abby V, Deloitte, and many other quantum pioneers will discuss and demonstrate their work using D-Wave products and services to apply quantum to complex business problems. Customers will share a variety of quantum and quantum hybrid applications and demos spanning supply chain optimization, customer offer allocation, employee scheduling, oil field construction, port operations, TV commercial optimization, e-commerce delivery for both drivers and drones, and protein design. This is both an in-person and virtual event that business leaders, developers, analysts, and investors can attend by registering at qubits.com. To summarize, we are very pleased with the progress of our business. We believe that the combination of our maturing go-to-market efforts and our ongoing product innovation is fueling the growing adoption of quantum computing in the enterprise. The era of commercialized quantum computing is here, and D-Wave is leading the way. This is reflected in our expanding customer footprint, accelerated application development, new product introductions, and revenue growth. With that, I'll turn it over to John to provide a review of our third quarter and nine-month year-to-date results. John?
spk03: Thank you, Alan, and thank you to everyone taking the time to participate in this call. I will start with an overview of the Q3 results, then the nine-month year-to-date results, and then touch on the balance sheet and liquidity. For the fiscal third quarter ended September 30th, 2022, DUA's consolidated revenue totaled $1.7 million, which represents an increase of $388,000, or 30%, from $1.3 million in the third quarter of fiscal 2021, and an increase of $324,000, or 24%, from the immediately preceding fiscal 2022 second quarter revenue of $1.4 million. With respect to the composition of revenue, our QSAS, or quantum computing as a service revenue, totaled $1,346,000 in the third quarter, which represents a $366,000 or 37% increase from $980,000 in the third quarter of fiscal 21 and an increase of $170,000 or 14% when compared to the immediately preceding fiscal 2022 second quarter QSAS revenue of $1,176,000. QSAS revenue represented approximately 79% of total revenue in the third quarter of 2022 compared to 75% of total revenue in the year earlier period with professional services revenue comprising most of the balance. Professional services revenue totaled $347,000 in the third quarter, which represents a 13% increase from $306,000 in the third quarter of fiscal 2021 and a 122% increase from $156,000 in the immediately preceding fiscal 2022 second quarter. Gross profit for the third quarter ended September 30th with $1.1 million, an increase of $86,000 or 9% in the third quarter of fiscal 2021, and an increase of $301,000 or 38% from the immediately preceding second quarter gross profit of $785,000. Gross margin for the third quarter was 64.1%. a decrease of 12.4% from 76.5% in the third quarter fiscal 2021, and an increase of 6.8% from the immediately preceding fiscal 2022 second quarter gross margin of 57.3%. The year-over-year decrease in gross margin was due to a higher than normal professional services gross margins in the first nine months of fiscal 21, due to a significant high-margin non-recurring revenue contract, as well as lower QSAS gross margins due to an incrementally higher investment in customer-facing activities, while the sequential quarter-to-quarter improvement in gross margin was driven primarily by the improvements in QSAS gross margins. I will be providing non-GAAP operating expenses in a just a bit, as we believe these metrics improve investors' ability to evaluate our underlying operating performance. These measures are defined in the two tables at the bottom of today's third quarter earnings press release and, for the most part, adjust for non-cash and non-recurring expenses. Gap operating expenses for the third quarter of fiscal 2022 were $16.4 million, an increase of $5.6 million, or 52%, from $10.8 million in the third quarter of fiscal 2021. The year-over-year increase was driven by increased personnel-related costs that include increased headcount compensation and stock-based compensation expense, with the increase in the non-cash stock-based compensation expense comprising about 32% of the total year-over-year increase in operating expenses. as well as public company costs, including legal, accounting, consulting, and printing costs, as well as D&O liability insurance premiums. From a non-GAAP perspective, the non-GAAP operating expenses for the third quarter fiscal 2022 were $13.6 million, an increase of $3.4 million, or 33% from $10.2 million in the third quarter fiscal 2021. with the primary difference between the GAAP and the non-GAAP operating expenses being non-cash depreciation and amortization, stock-based compensation expense, and non-recurring expenses associated with our recent business combination that was completed on August 5th of this year. Net loss for the third quarter of fiscal 2022 was $13.1 million, or 11 cents per share, compared to $4.2 million, or 3 cents per share in the year earlier period, and 13.2 million or 12 cents per share in the immediately preceding fiscal 2022 second quarter. Adjusted EBITDA for the third quarter of fiscal 2022 was negative 12.4 million compared with a negative 9.2 million in the year earlier period and 10.8 million in the immediately preceding fiscal 2022 second quarter. Now I will address the operating performance for the first nine months of 2022. D-Waste consolidated revenue for the nine months ended September 30th was $4.8 million, which represents an increase of $925,000, or 24% from $3.9 million in the nine months ended September 30, 2021, with over 90% of the increase driven by the growth in QSAS revenue. QSAS revenue for the nine months ended September 30th. totaled $3.9 million, which represents an $842,000 or 27% increase from $3.1 million recorded in the first nine months of fiscal 2021. QSAS represented approximately 82% of total revenue in the first nine months of fiscal 2022, compared with 79% in the year earlier period, with professional services revenue comprising most of the balance. Professional services revenue for the nine months ended September 30th totaled $812,000, which represents an increase of $86,000 with 12% from $736,000 in the first nine months of fiscal 2021. With respect to our traction with commercial customers, as Alan outlined earlier, we made considerable progress during the first nine months of the year. wherein we had a total of 63 commercial customers, a milestone for D-Wave. That represents an increase of 16 commercial customers or 34% from 47 commercial customers in the first nine months of fiscal 2021. We define a customer as one in which we recognized revenue during the period. In addition, during the first nine months of fiscal 2022, D-Wave had a total of 105 customers in the aggregate, also a milestone for D-Wave, that represents an increase of 24 customers or a 30% increase from 81 total customers in the first nine months of fiscal 2021, with the difference between the number of total customers and the number of commercial customers being educational and government customers. Gross profit for the nine months ended September 30th. 2022 was $3 million, a small increase from $2,980,000 in the prior year period. Gap operating expenses for the nine months into September 30th were $40.9 million, an increase of $9.8 million or 32% from $31.1 million in the year earlier period. Non-gap operating expenses for the nine months into September 30th were $35.8 million, an increase of $6.4 million or 22% from 29.4 million in the first nine months of fiscal 2021. Net loss for the nine months ended September 30th, 2022 was $37.9 million or 31 cents per share compared with $17.7 million or 14 cents per share in the nine months ended September 30th, 2021. Adjusted EBITDA for the first nine months of fiscal 2022 was negative $32.7 million, compared with a negative $26.4 million in the year earlier period. With respect to the balance sheet, at the end of the third quarter, D-Way's consolidated cash balance was $13.8 million, and as previously disclosed, on June 16th of this year, we entered into a $150 million three-year committed common stock purchase agreement with Lincoln Park Capital. This facility is also referred to as an equity line of credit or an ELOC. And on October 26, the S-1 registration statement associated with the ELOC was deemed effective by the SEC, thereby providing D-Wave with access to this investment vehicle. In addition, with the repayment of the fully secured $20 million venture loan in August, we now have the flexibility to replace this credit facility with another lender, and we continue to explore alternative forms of financing. As set forth in today's Q3 earnings press release, we have maintained our fiscal 2022 revenue and EBITDA guidance from what we set forth in the Q2 earnings press release. To reiterate that guidance, revenue is expected to be in the range of $7 to $9 million, and adjusted EBITDA is expected to be less than negative $49 million. As we have previously outlined, DOA's business model incorporates a high degree of operating leverage and is very capital efficient, providing us with significant flexibility with respect to the magnitude, timing, and pace of operating expenses and the associated cash impact. That completes our prepared remarks. We look forward to seeing some of you at upcoming conferences, including the Needham Annual Growth Conference in January, where we will be presenting virtually.
spk06: With that, we will now open up the call for questions. Thank you. Thank you very much.
spk05: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.
spk06: The first question comes from David Williams from Benchmark.
spk05: Please go ahead.
spk07: Hey, good morning. Thanks for letting me ask the question, and congrats on the continued progress here, guys. It's very nice to see.
spk06: Thank you, David.
spk07: I guess, John, first on the revenue side, you talked about the midpoint of the guidance. You've maintained at least that seven to nine, but that midpoint kind of suggests about $3.2 million range in the fourth quarter. And that's a pretty significant step up sequentially. And just kind of wondering if this is more about contract visibility you'd expect to close. And I think previously you had said revenue can be backed and loaded. I'm just kind of curious if this is more coming from maybe the commercial side or maybe government contracts that are closing. Just anything on the revenue makeup in the third quarter or the fourth quarter and why there's such a significant potential growth.
spk03: Well, as we outlined earlier, David, the... The rate at which we're closing deals is picking up, which plays into it, but I can't give any insights as to, obviously, the specific numbers for the quarter or the mix at this point. Other than, generally speaking, we have a lot of activity both on the commercial side as well as on the government side.
spk07: Okay, helpful. Thank you. And then I guess if you kind of work through the go-to-market model, and you talked about the pace of customers. What do you attribute that to? Is it just better linearity in the structure of the business, better efficiency, or do you think there's something with the macro that's helping these close more quickly?
spk09: So, David, let me respond to that. First of all, thanks for being here and looking forward to answering whatever questions you might have as we go forward. Essentially, what is happening is that on the one hand, we are investing in our go-to-market activities. We did say the last time we got together that go-to-market was one important area of investment for us going forward now that the D-SPAC transaction is closed. And on the other hand, the team that we have had in place is becoming more proficient at engaging customers, at helping them to understand the value proposition, at bringing the professional services team in when needed to help demonstrate the value, and as a result, generally being able to move through the sales process more efficiently and effectively than had previously been the case.
spk06: Great, thanks so much for that.
spk07: And then maybe from a little different standpoint here, if we kind of think about, I know one of your peers has had some issues as of late in terms of just their business, and just kind of curious if there were assets that you see out in the marketplace that could be advantageous to you as you think about your gate model, and any opportunities there maybe to leverage some of the IP or other assets that may be in the marketplace today?
spk09: So all I'd say about that is that we are always staying on top of the progress that others in the quantum industry are making or issues or problems that we're running into. And with that knowledge and understanding, we are continually thinking through and evaluating to the extent to which there might be opportunities to leverage work going on by others. However, beyond that, there's really nothing that I could say.
spk07: Okay. All right. Fantastic. And one last thing for me, if you'll indulge here. I'm just kind of wondering if you could talk about the value of the coherent annealing theory in the white papers or in the paper that you guys published. What is that importance, and how do you think this impacts maybe you or the industry overall? What is the value of that?
spk09: Thanks. So this is a very important result for us and for the industry. So large-scale coherent annealing essentially means that our system is entangling qubits across a broad set of the topology of the system. In other words, it's not just that directly connected qubits are entangled or qubits relatively close to one another are entangled, but this is demonstrating large-scale entanglement across a significant portion of the topology of the system. And that means that those qubits can all work together in seeking the optimal solution to a problem. And that's really where we get significant speedups in driving to the optimal solution. So, this is a very important demonstration and capability that our system has incorporated and that we are demonstrating and proving at this point in time. Moreover, there were two elements to this result. The first is what we just talked about, which is that the system is provably demonstrating large-scale coherent annealing, which is not classically simulatable. So kind of a separation, important separation, between our system and classical compute. The second thing, though, is as a part of this work, we were also able to demonstrate a scaling polynomial speedup for a class of optimization problems. So it's a combination of proving a capability in the system and then demonstrating how that capability can drive speed up in computation for a class of optimization problems.
spk06: Thanks so much. I'll come back to you.
spk05: The next question comes from Harsh Kumar from Piper Sandler.
spk10: Please go ahead. Yeah, hey guys. Let me also add my congratulations on excellent execution in what is particularly a tough macroeconomic backdrop. Alan, I had a question for you. I was curious about the kind of engagements that you're seeing in the commercial side if they had a common vertical or if they were a set of verticals that were more common within your customer list and Also, you mentioned a series of applications in your prepared remark, and I was wondering Similar sort of question if there was you know one or two sets of applications that That your process is being more utilized for than the other so just some color on the type of customers you're engaging Yeah, so I
spk09: We have previously said that there are three industries that we think represent a low-hanging fruit for us. They include manufacturing and logistics as the first, finance as the second, and pharma as the third. However, I will tell you that over the course of the last quarter, We've actually made more progress in manufacturing and logistics versus finance and pharma, not that we don't have significant opportunities in each of those areas. And, you know, if we look at the first three months, we've actually closed deals in all of those areas. So we still believe they all represent the initial target industries for us. But in the last quarter, you know, it's been more manufacturing and logistics. I don't view that as a trend or sort of a change in focus for us. It's just an observation. at this point. From an application perspective, there really isn't a single application that we see emerging as kind of the most important application for us in our systems. We've continued to talk about 3D bin packing, we've talked about employee scheduling, we've talked about routing applications, and those are all still applications that our customers are leveraging and that we are continuing to pursue. So, no, I don't see one application or two or three applications as kind of the predominant applications for us. I also think that the three industries that I previously mentioned continue to be the low-hanging fruit for us.
spk10: Understood. Thanks, Alan. And then as my follow-up, it seems like a little bit of a pickup or an acceleration and in business, particularly it sounds like in getting customers to the finish line. As you go into the end of the year and as you look at the next year, you talked a little bit about what's causing that in general, but I was more curious if you feel that that momentum could be sustained, you know, obviously in the fourth quarter you said that, but even in the next year potentially.
spk09: You know, we have no reason to believe not. I mean, look, you know, Occasionally, I get asked, and I shouldn't answer questions that you're not asking, but here goes. Occasionally, I'll get asked, am I worried about the impending recession? Do I think that that's going to create a problem for our business as we move into next year? What I can tell you is that right now, we are not seeing any slowdown. In fact, we are continuing to see increasing interest and acceleration in the movement of opportunities through the pipeline. Moreover, I think that because of the nature of our business, which is really about helping companies to improve their operations, to operate more efficiently, to potentially reduce costs, I think that as the economy weakens, if the economy weakens, the sorts of things we do will continue to be important, maybe increase in importance. Unlike if we were selling research experimentation, which is kind of one of the first things that could get cut. But that's not where we are as a company.
spk06: Understood, Alan. Thank you. And I'll get back in queue as well. Thanks. Okay, thanks. Thank you.
spk05: The next question comes from Suji De Silva from Roth Capital. Please go ahead.
spk00: Hi, Alan. Hi, John. Congrats on the progress out of the gate here. So, kind of a follow-up to David's earlier question, but the Calerian Renewing Research I'm wondering if that has applicability to the GATE model and if it's not maybe more generally the GATE model. What's the pathway from one to two qubits here as we look forward? What should be the expectations here?
spk09: Yeah, so the annealing quantum computers and GATE model quantum computers are quite different, both in their design and their operation. And I've talked about this in the past, so I won't go into detail. What I will say is that for us, since we basically use the same class of qubits for our annealing system as well as for our gate model system, namely flux qubit as opposed to transmon or voltage qubits, and we essentially use the same fabrication process, what this means is that As we increase coherence for one, the other sees the benefits as well. So, you know, if we talk about increased coherence on our annealing quantum computer, it's likely that that's applying to our gate model as well, or increased coherence on gate model, likely that's applying to annealing as well. So it's not that... There's a direct correlation between coherence times on annealing and coherence times on gate model. It's a very different architecture, very different design, very different operating model. But because we use the same fundamental storage units, the same qubits, flux qubits, and because we fabricate them using the same process, there is a relationship in coherence time between the two, namely as we increase one, we're increasing the other. So we're kind of increasing them both together. As far as our gait model progress, when we laid out our gait model roadmap, we said from the outset that we are not believers in NISC, noisy intermediate scale quantum. That's what everybody else in the gate model space is building, fabricate some qubits, attach some IO lines, don't worry about error correction and try to get them to do something. We are not at all believers in that. In fact, we don't think there's any real evidence that NISQ systems can deliver true commercial value. error correction is going to be required before any real commercial value can be delivered on a gate model system. And that's still years away for us as well as everybody else. However, because our approach is to design, to architect design and to build for error correction from the outset, what we said was that we were going to take a staged approach starting with, you know, being able to fabricate the gate model qubits in our multi-layer stack, which we've now done, being able to incorporate control on the same chip as the qubits. We do that for annealing. And so our design requires that we do that for gate as well. And by the way, this is really important because that's really the only way that you can truly homogenize your qubits effectively, as well as get efficient programming and readout. And I mentioned that we've demonstrated that scalable readout for gate model. The only way we could have done that is by having control on the same chip with the qubits. So we've worked through that. The next step is to kind of build small surface code error correction and to do it in a module that is scalable, both in terms of scaling out the size of the surface code for an individual qubit as well as being able to scale out the number of qubits. We're working on the design of the maps for that now. We have not taped out. We have not tried fabrication. But we are making progress step by step. Despite everything that I've just said, we're years away from a scaled, error-corrected gate model system, as I believe everybody else's industry is.
spk00: That's a very helpful color on the subtleties there, and it sounds like your approach is different. Shifting gears a little bit here, the customer revenue that you're getting, the recurring revenue, I'm wondering if there's any – or anecdotally can provide on increasing revenue per customer, seeing maybe one app go to multiple apps, any way to kind of track that?
spk09: Thanks. So the answer to the question is yes. Upsell to additional applications is absolutely a part of our model, and we already have proof points that that is a viable approach. I'm not necessarily prepared to go into any detail, but we have one customer that started with one application, moved on to a second application. The first application is actually now in production. They're in pilot of the second application. And so, you know, there are examples of being able to move from a single application to a second or a third or a fourth. But not just that, even from the outset, working on multiple applications, you know, we have one customer we're engaged with that wanted us to start working on four different applications simultaneously. So that's absolutely a component of the model.
spk00: Okay, thanks, Alan. And the last question perhaps for John. On the equity line of credit, the $100 million, how much of that is left at this point? I'm not sure if it started, if you've tapped it. And was that used to repay the $20 million venture loan?
spk03: No, it was actually $21.8 million with principal interest and fees that was repaid to the lender on the day that we closed the D-SPAC, and that was actually proceeds from the lender from the $40 million pipe. With respect to the ELOC, as I outlined earlier, that just became accessible, and as we'll disclose in the queue that we'll file later today, we drew a very, very small amount under it last quarter. Great.
spk06: Thanks. Helpful, John. All right. Thanks, guys.
spk05: Thank you. The next question comes from Richard Shannon from Craig Hallam. Please go ahead.
spk04: Hi, Alan and John. Thanks for taking my questions as well. Probably a couple of follow-ups from prior questions and answers here. Alan, regarding sales cycles and the effect on the recession, you said you're not seeing anything. As we look at the customer base that you have, we're talking about mostly large companies. I would assume that Most of the companies you're working with are larger in size. You're not working with smaller ones. But if you are, are you seeing any evidence of sales cycles elongating with the impending recession? Or maybe just kind of give some color throughout your customer base, please.
spk09: Yeah. So we typically talk about Fortune, sorry, Forbes Global 2000 customers. And so, you know, John and I both commented that we had 63 commercial customers through the first nine months. Twenty-three of those Forbes Global 2000 customers. So, you know, roughly a third of the total commercial were Forbes Global 2000. So it's not exclusively big companies. You know, we have midsize companies in the mix as well. But, you know, as I said previously, we're not seeing a slowdown at all. We're seeing a speedup in, you know, our ability to move customers through the sales pipeline, and we are seeing an increase in interest and desire to work with us. Now, Part of, I think, the increase in interest and desire is the fact that we're doing a really good job of kind of getting the message out that quantum computing is real today and can benefit your business today. I mean, look, you know, you've got everybody else in the industry, including big companies like, you know, IBM and Google or Honeywell saying that, you know, Quantum, real quantum computing that can impact your business is years away, but you should get started with research experimentation today. So when you've got big guys out there saying it's going to be a while before quantum can really impact your business, that's what starts to kind of ring in the customer's ears. And what we need to do is to help them understand that that's just not true. I mean, it's true for gate model systems, which is what they're all working on, but it's not true for annealing systems, which for us are commercial today. So part of what we need to do is to sort of help the marketplace understand that quantum is commercial today, quantum can benefit their business operations today, and that the time is now to engage and start working on these applications. And I think part of the reason why, you know, the pipeline is growing, and part of the reason why we're able to accelerate through the stages is because we're starting to get that message out and it's starting to resonate.
spk04: Thanks for that feedback, Alan. I appreciate that. Let's hear just a quick question on the new pricing structure for the SaaS offering here. Maybe, Alan, if you could just briefly describe why the change here and how it's going to better meet the needs of your customers, as you say, in the press release.
spk09: Yeah. So, first of all, we were constantly running into a situation where, you know, customers would buy some time and then really kind of worry about not exceeding the time they had bought. So rather than just focusing on doing the work and being successful with our technology, they were thinking about, okay, how can I efficiently use this time, right? And we felt that that really was an odd in either their or our best interest. We wanted them to be able to have the time they need to build the applications and to get comfortable with the fact that these applications can deliver business benefits. And so, by transitioning to a SIEC and an application-based model, we've kind of eliminated that kind of feeling on usage so that they just can kind of remove that from the thought process and don't need to worry about it anymore. The second point is that, you know, honestly, I think that with the new model, we'll be able to drive higher revenue deals than on the time-based model. And the reason for that is that with the time-based model, because our systems are so fast, there was a lot that could be done in a relatively short period of time. And so you know, we weren't necessarily capturing as much value as we could back from the applications that were being developed. And so, you know, we believe that what this will do is it will kind of better align the value that the customers are getting with the value that we're getting.
spk04: Okay. Great perspective there, Alan. Appreciate that. I guess two quick questions for me, and I'll jump out of the queue here. Just on the topic of coherence within annealing systems, you had some great commentary earlier. Maybe just quickly to wrap up that topic here. When do you expect this capability to find itself into your commercially available systems? I assume it's not near term, but I just want to get a sense of when that could be.
spk09: Well, actually, the results that were published This work was done on our 2,000 qubit processor, not even our newer Advantage 5,000 qubit processor. And sort of stay tuned for what hopefully we'll be able to say about this kind of operation on our 5,000 qubit Advantage quantum computer. So this is not about an experiment on a lab system or a prototype system. This was actually using our existing systems in a fashion a little different from how they were being used up until now. So this is a capability already in our system.
spk04: Okay, perfect. Last quick question for John. We already discussed the revenues as you look in the fourth quarter. Maybe you can give us a sense of what you're thinking about in terms of OPEX, clearly you're investing, so we're going to see this go up, but maybe you should give us some thoughts on how fast you're scaling, what kind of hiring you're doing, et cetera, over the next few quarters would be great, John. Thank you.
spk03: Sure. So we are starting to ramp up our hiring. And as I outlined earlier, we are starting to incur some public company operating expenses. So you can expect OpEx to increase on a sequential basis, principally driven by the public company expenses, all within the confines of what our guidance is on the adjusted EBITDA for the entire fiscal year.
spk06: Okay, perfect. That's all from me, guys. Thank you. Thank you.
spk05: The next question comes from Kevin Bergen from West Park Capital. Please go ahead.
spk08: Yeah, hey, good morning, guys, and let me echo my congrats on the continued progress. Going off of Suji's question regarding your gate model development, You said you had reached several milestones during the quarter and then commented that the next step is to build small surface code error correction. Is that kind of the main goal regarding gate model development in 2023, or what are some other goals and milestones you're looking at for that timeframe?
spk09: Yeah. So, first of all, we obviously – well, obviously, that's not a fair statement. We need to – continually focus on increasing coherence times. And the reason is that in order for the surface code to work in generating long-lived qubits, the individual qubit coherence needs to hit a certain level. Nobody in the industry has qubits with sufficient coherence today for error correction to actually work in delivering long-lived qubits. So, you know, there are two elements to error correction. One is the qubits themselves need to be of high enough quality, and then two is the error correction that you kind of wrap around the qubit needs to work properly. So, we are pushing on both paths simultaneously, you know, continuing to drive increased coherence times on the individual qubits while, you know, designing and fabricating and demonstrating the scalable approach to error correction. But both of these have to come together to be able to generate long-lived qubits. It's not just about the surface codes. It's also about the continuing work on individual qubit quality and coherence time. There are other things that we are working on as well. I mentioned BATS readout, but we also need to address programming and BATS programming time. And, you know, there are a host of other things, but, you know, as we look to 2023, it's a continued focus on increasing coherence time as well as really starting to prove out the service code approach to error correction.
spk08: Okay, got it. Thanks for that, Alan. And then, you know, you guys have been public for a little over three months now, which I know isn't the longest time, but, you know, just kind of wondering in terms of, you know, the quantum computing market as a whole or D-Wave as a company, you know, how things have played out versus how you imagine them, you know, since the beginning of 2022. And, you know, what has changed, if anything, and what are some of the things that you've learned over the last three months since going public?
spk09: So, first of all, I'm just thrilled that the de-stack process is behind us. And, you know, we can focus on running the company as opposed to getting the transaction closed. And so... It's not so much what we've learned over the last three months. It's simply that now that management attention is fully, squarely focused on building the business and driving the technology, I feel like we are operating more efficiently and effectively versus the six to nine months prior where in addition to trying to keep the business growing, we were also trying to get a transaction closed. So management was spread pretty thin. And on top of that, we were trying to do it in an environment that was not conducive to what we were trying to do. So there was just a whole host of challenges in the six to nine months prior to closing the transaction. It took a lot of management time and attention that is now behind us, and so it's great to be able to just focus on the business.
spk06: Got it. That makes sense. I appreciate the color. And, yes, that's all for me. Thanks, guys. Thank you.
spk05: Next question is a follow-up question from the line of Parish Kumar from Cypress Central. Please go ahead.
spk10: Yeah, Alan, with Christmas coming up, I feel like I've got to ask a Christmas-like question. I know you love all your applications and all your customers very equally, but surely there must be a Christmas list of applications that you want to see your annealing technology deployed in. I was curious if you could talk about where your heart is in terms of what kind of problems you would like to solve.
spk09: That's a really interesting question. You know, I'll be honest, I really don't think about the business in that way. I know that our technology and our products are very broadly applicable and can drive significant benefits for, you know, many different companies in different industries grappling with different classes of problems. So, you know, it's not like, you know, I've got my favorite child. You know, obviously, I'm always excited when I hear about a customer that's used that in the pharma space. to develop a new therapeutic or, you know, to kind of aid in some way of sort of more efficiently and effectively getting their product to market because, you know, that's one area that really benefits a lot of people, not just our customer, but, you know, particularly abroad customers array of the population. So, I mean, it always feels good to hear about those applications. But, I mean, look, you know, I think we talked about, I think we talked about in the past some work that a partner called Devontix has done with the Port of L.A. where, you know, they've come up with a solution that basically provides a 60% improvement in efficiency in gantry loading and offloading, a 12% improvement in truck turnaround time for pickups, and given all the challenges that we all are facing with supply chain and logistics, it's great to know that we're helping to address that problem. So again, it's not like I've got a favorite industry or a favorite company or a favorite application area. I just love to hear about when our systems are making things better broadly.
spk06: Got it. Understood. Thanks for the call, Alan. Thank you so much. Congratulations, guys. Thank you. Thank you, Harsh.
spk05: Thank you. This concludes our question and answer session. I would like to turn the conference back to Alan Barrett for closing remarks. Thank you, and over to you, Alan.
spk09: Thank you, and thank you all for taking the time to join us today for our earnings announcement. As I said previously, we are making really good progress. We feel great about where we are from both a commercial business perspective as well as a product perspective. And everybody in the company, is 100% focused on continuing to build a great company. And this is not about management. This is about everyone in the company. We have an amazing team that works tirelessly, solves some of the hardest problems in the world, and does it with kind of fortitude and grace and I know that we can always count on them. So thank you all for taking the time to be here and we'll look forward to talking to you in a few months.
spk05: Thank you very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Thank you.
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