D-Wave Quantum Inc.

Greetings and welcome to the D-Wave Third Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, November 9th, 2023. I would now like to turn the conference over to Kevin Hunt, Investor Relations. Please go ahead.

Thank you and good morning. With me today are Dr. Alan Barrett, our Chief Executive Officer, and John Markovich, our Chief Financial Officer. Before we begin, I would 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 and operational measures under SEC rules, such as non-GAAP gross profit, non-GAAP operating expenses, adjusted EBITDA, and bookings. Reconciliations to GAAP financial 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 I'll now hand over the call to Alan.

Thanks, Kevin. Good morning, everyone. And thank you all for joining us today. This is a pivotal moment in quantum computing. What started as an academic endeavor to explore the potential for quantum technology to solve our world's toughest computational problems is now moving full steam ahead into enterprise scale adoption and deployment. The significance of this transformative shift cannot be overstated. We've moved out of early adopter quantum experimentation and into production use of quantum technologies to fuel daily business operations. And only one company can truly claim it has made this pivot, and that's D-Wave Quantum. Our quantum systems, software solutions, and services put us substantially further ahead than any other quantum computing company. When others talk about the commercialization of quantum, They're speaking in aspirational terms about a future state. Or they're referring to shipping a system likely to a government or educational institution, which is then used for research in the hope of developing commercial applications years from now. At D-Wave, we were doing that a decade ago. And we had a similar revenue ramp at that time from selling a few systems. But that wasn't sustainable. Continued growth requires the ability to solve important problems that deliver commercial value. When D-Wave talks about the commercialization of quantum, we're showing concrete evidence of actual production applications being built and now deployed by companies around the world. We have the first mover advantage because we chose a different quantum technology focus, annealing quantum computing. And no one else is offering this to the market right now. Industry analyst firm IDC has noted, and I'm quoting from them, as the only quantum hardware developer in the quantum annealing market, D-Wave is in a unique position of being able to provide enterprises with a quantum computing infrastructure as a service, QCaaS, offering that is designed to address the needs of enterprises interested in becoming quantum ready . When we look back at the moment when quantum crossed the chasm, and started delivering enterprise value and utility, the world will point to D-Wave. It's my pleasure to share with you today D-Wave's third quarter results, which very clearly show positive momentum across every facet of our business. So let's get into the specifics. D-Wave's commercial traction is evident in our third quarter results. We achieved $2.9 million in bookings, representing a 53% increase over last year's third quarter bookings. Q3 represents the sixth consecutive quarter of year-over-year growth in bookings. When comparing the most recent trailing four quarters with the immediately preceding four quarters, the average deal size per booking increased by 172% for commercial customers and 178% for all customers. From a revenue perspective, Revenue from commercial customers, meaning those organizations outside of government and academic institutions, continues to drive the company's growth. On a trailing 12-month basis, commercial revenue was up 62% when comparing the most recent trailing 12 months to the prior trailing 12 months. In fact, commercial revenue represented 70% of total revenue over the last 12 months, a 20% increase over the prior 12-month period. Very importantly, applications are beginning to move into production. Our applications represent quantum solutions to real-world business problems that companies are now starting to deploy in daily operations. D-Wave has built 26 successful proofs of concept with several moving into production deployment, including Pattison Food Group for e-commerce delivery driver scheduling and now in-store resource scheduling. We expect the number of customers in production to increase significantly over the next couple of quarters with customers in financial services, construction engineering, IT services, and advertising, all expected to move into production with D-Wave built quantum and quantum hybrid applications. This means these businesses will need constant and consistent interaction with D-Wave's quantum computing system, ranging from every few minutes or seconds to weekly in order to run their operations. Unlike building proofs of concept, in production applications represent recurring QCaaS, quantum compute as a service revenue for us, expected over multiple years. It's also important to note that these applications are all backed by D-Way's remarkable professional services team, which is fueling a good portion of our revenue as customers swiftly move along the quantum journey from problem identification to proof of concept development to production application deployment. Let me now share highlights of what some of our customers are accomplishing with the help of D-Wave technology. We're thrilled to share that Paterson Food Group, Canada's largest Western-based provider of food and health products, is moving multiple quantum hybrid applications into production. The first, an e-commerce driver delivery scheduling application, is now in production to create schedules that serve over 100 stores. The application has trimmed what was once an 80-hour task to just 15 hours each week, an 80% time savings. In addition, the company will soon bring another quantum hybrid application into production, one that optimizes in-store resource scheduling in stores across Canada. Satispay is the leading Italian fintech unicorn focused on revolutionizing mobile payments, Together, we built a quantum hybrid application that optimizes customer rewards initiatives. Using D-Wave's constrained quadratic model hybrid solver, the application showed an improvement of 50% in customer rewards programs for the same amount of budget, a testament to the potential business value. Status State plans to transition the quantum hybrid application into production with internal teams expected to use it weekly. Davidson, a technology services company that provides innovative engineering, technical, and management solutions for the Department of Defense, aerospace, and commercial customers, has been working with D-RAVE on several quantum hybrid applications to advance national defense efforts. Most recently, we built a radar scheduling application that efficiently manages the time-limited resources of a phased array radar system. enabling scheduling of communication with moving objects. We observed enhanced resource utilization in all our test cases. On average, we achieved a 15% increase in utilization across all problem scenarios and time limits, with the highest improvement reaching an impressive 42%. Momentum Worldwide is a global experiential agency, part of the Interpublic Group, IPG. and Momentum's clients include many of the world's most famous brands. A recurring task for the agency is to create routes for promotional tours. Currently, creating these tours take significant work hours and domain expertise to ensure that all client requirements and federal regulations are considered. For this project, D-Wave developed a hybrid quantum classical solution utilizing D-Wave's LEAP platform to automate the creation of these tours with optimal routes, reducing momentum's operational costs for producing and running these tours. The prototype DOA provided was able to solve the given problem in less than an hour and is well designed to allow for an easy transition to full production quality application. Vinci Energies. We've been working with our European partner, Quantum Basel and Vinci Energies, an accelerator of environmental and digital transition, on a pilot project to better design the layout of an HVAC system for a new building, considering discrete duct sizes and joint costs. Vinci Energies has been developing an automated solution for what had been a largely manual process. Built to supplement that automated solution, Our quantum hybrid application showed better qualitative and quantitative results across all evaluation metrics. Overall, we've been able to identify a lower cost and more aesthetically pleasing solution for HVAC system placement. To further capitalize on this transformative phase in quantum's commercialization, we've reimagined and restructured our go-to-market efforts focusing on a more targeted verticalization approach directed primarily at manufacturing and logistics companies initially. These are customers on the forefront of massive digitization efforts as they incorporate cutting-edge technologies designed to optimize the supply chain and identify new processes that fuel operational efficiencies and cost savings. As part of this new go-to-market strategy, we're also doubling down on key use cases with the broadest near-term applicability, including vehicle routing, crew scheduling, manufacturing job-shop scheduling, and resource allocation. New use cases and verticals will be added as they become mature, which we expect will include risk management, machine learning, defense, and aerospace, and process and flow. To broaden our reach, and potential customer footprint with these key verticals and use cases, we're increasing our focus on partners and resellers, especially systems integrators and ISVs. We currently sell through a group of strategic partners, including Deloitte, Uptown Basel, NEC, Unisys, and Cervantes, and are in active conversations with many others to scale our go-to-market efforts. Recent product enhancements support this growing channel partner ecosystem, making it even easier for them to manage multiple customer engagements with us. New administration features in our Leap Quantum Cloud service now give our partners the ability to manage their own organization and associated projects in our Leap real-time Quantum Cloud service. We're seeing progress and momentum beyond commercial applications as well. We've been actively meeting with members of the United States Congress and other policy stakeholders to help ensure the reauthorization of the U.S. National Quantum Initiative before year-end. We support legislation that explicitly includes all quantum technologies, annealing, gate model, and hybrid. This, along with expanded focus on supporting near-term application development and workforce upskilling, will ensure the U.S. quantum programs are properly focused. Our product development efforts also reflect this hyper focus on the commercialization of quantum. with software and hardware innovations that will improve the size, scale, and quality of real world business problems we can solve for our customers. Our technical roadmap is focused on delivering product advancements that directly impact customer ROI now and in the future, including greater processing power. We're increasing processor performance to fuel customer success through our next generation Advantage 2 system with improved qubit coherence and connectivity that is expected to address even more complex customer optimization problems. Increased software value. We're advancing our quantum hybrid solver software to improve solution quality for larger, more complex customer problems, and of course, reliability and access. We're laser focused on production readiness and system reliability, continued compliance initiatives, and expanded support for our growing go-to-market efforts. We're proud of the fact that we've delivered five generations of quantum systems, each outperforming the previous generation to more successfully address customers' increasingly complex computational problems. The current Advantage system, which features more than 5,000 qubits and 15-way connectivity, coupled with our quantum hybrid solvers, are capable of unlocking large application problems, including binary and integer variables, linear and quadratic terms, problems with up to 100,000 constraints and 500,000 variables, and equality and inequality constraints. Our current Advantage system is well suited for tackling the identified near-term priority use cases I mentioned earlier, including vehicle routing, crew scheduling, manufacturing job shop scheduling, and resource allocation. Our sixth generation system, Advantage 2, is expected to have more than 7,000 qubits and 20-way connectivity, enabling customers to address even larger problems with increased complexity. Very importantly, we recently calibrated a 1,100-qubit prototype of Advantage 2 that was fabricated in our new lower noise fabrication stack. And early performance benchmarks indicate even higher performance than Advantage on optimization problems, which could be particularly powerful for new use cases such as machine learning. We also recently demonstrated successful quantum error mitigation, an important technique for reducing errors in quantum computation on the upcoming Advantage 2 annealing quantum system prototype, extending the coherent range by nearly an order of magnitude. We're focusing Qubit development efforts on coherence and connectivity. Two important measures of qubit effectiveness and processing power. A testament to our technical leadership, we recently announced notable progress in the development of high coherence qubits, which are qubits capable of doing quantum computations for a longer period of time without errors. We have designed, manufactured, and operated fluxonium qubits that have demonstrated quantum properties that are comparable to the best seen to date in peer-reviewed scientific literature. These results are expected to have a significant impact on our technologies. We also believe we will be the first quantum company to definitively demonstrate quantum supremacy in significant and meaningful problems beyond random number generation. We aim to provide conclusive evidence of our system's capability to outperform classical computation in quantum simulation, and our research efforts are underway. Key to extending the value of our solutions to customers is the ongoing innovations we're making with our software. We've introduced several new software advancements to support customers' needs and to unlock new and expanded use cases. Most recently, we launched new algorithmic updates to our constrained quadratic model hybrid solver that deliver increased performance for existing binary problem classes, which can include offer allocation, portfolio optimization, and satisfiability. Future software developments are expected to improve solution quality for our priority verticals and key use cases in manufacturing and logistics, as well as advanced applications involving AI and machine learning. As evidence of our advancing commercial maturity, much of our technical focus is on ensuring delivery of a secure, reliable, and production-grade quantum tech stack at scale and across geographies. That requires a variety of initiatives, including seamless deployment of new features, progressing in efforts to achieve SOC 2 Type 2 data compliance and expansion of our LEAP platform to new countries and more. Given our customers are entrusting us with supporting production deployments that are starting to directly impact their daily operations, the sophistication of our uptime and reliability efforts must maintain the highest standards. Before I hand it over to John, I wanted to conclude my remarks by sharing an update on our liquidity. We're pleased to report that we have continued to substantially improve the company's cash position, which is $53.3 million at the end of the third quarter, which represents a $45.8 million increase over the second quarter cash position of $7.5 million. This represents the largest quarter end cash position in the company's history. With that, I'll hand it over to John to provide a review of our 2023 third quarter and year-to-date results. John?