Quantum Computing Inc

NASDAQ:QUBT

Q3-2025 Earnings Call

[Operator]

Ladies and gentlemen, greetings, and welcome to the Quantum Computing Inc. Third Quarter 2025 Shareholder Update Call. [Operator Instructions]

It is now my pleasure to introduce your host, Roslyn Christian with IMS Investor Relations.

[Rosalyn Christian, executive]

Thank you, and I want to welcome everyone to the Quantum Computing Inc. Third Quarter 2025 Shareholder Update Call.

Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements based on our current expectations and projections regarding future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission.

On the call today, we have Dr. Yuping Huang, Interim CEO and Chairman; and Chris Roberts, CFO. The team will provide an update on the business, followed by a question-and-answer session.

With that, I would like to turn the call over to management. Please go ahead, Yuping.

[Yuping Huang, executive]

Thank you, everyone, for joining us today to hear about QSI's progress in the third quarter of 2025. The past few months have been pivotal for our company. We ended the quarter with a strengthened balance sheet, a growing portfolio of commercial relationships and a clear disciplined strategy for selling our technology.

To date, in 2025, we have reached over $1.5 billion in capital. And we now have the resources to execute thoughtfully on our long-term vision, putting Quantum technology into the hands of people.

In the third quarter, we raised $500 million. And subsequent to the quarter, we reached another $750 million. This raises put us in a very strong position to drive our road map forward and make strategic investments in engineering, manufacturing and sales.

As many of you know, QSI's mission has always been centered around building Quantum systems that are practical, scalable and accessible. We're not just developing Quantum technologies for laboratories, we are working to Quantum useful for a broader community of industries and innovators with the ultimate goal of having our technology as ingredient in society as cell phones.

This is what sets QSI apart. While many Quantum players remain focused on theoretical advances or systems that require complex chorogenic environment our integrated photonic approach enables room temperature operation, compactor form factors and energy-efficient performance. These advantages not only reduce the cost and the complexity of deployment but also make it possible to scale Quantum solutions to world range of real-world settings for aerospace and the defense to telecommunications, finance and data security.

As the technology matures, we believe the key differentiator will not be who can build the most powerful point of prototype in isolation, but who can scale Quantum reliably and affordably. The challenge ahead is one-off engineering and manufacturing execution, and that's where QSI's focus lies today.

Our long-term goal is to move from prototype and small batch manufacturing towards volume production. And we see that transition take shape by the end of this decade. Together, our current 3-year road map is focused on refining our processes, scaling small batch production and expanding our team and facility to position QSI for industry scale output.

In other words, the technology is there. Our Quantum machines and photonic chips have been validated across multiple use cases. The next step is to scale the engineering and the manufacturing behind them. And we now have the team, resources, facility and plan to make that happen.

Let me take a moment to highlight some of the key updates from the third quarter. First, on the commercial front, we continue to see growing adoption of our Quantum and photonic solutions across research, enterprise and government sectors.

During the quarter, we recorded revenue from our ongoing NASA LIDAR initiative, which uses our direct 3 Quanta optimization machine to remove solar noise from space-based LiDAR data. This project represents a significant technical achievement and underscores the real-world value of QSI's Quantum Computing technology for scientific and environmental applications. as well as our initiatives to drive strong relationships within government programs.

We also saw meaningful momentum in our commercial engagements. Following the sale of our reservoir computing device early this year to a global automotive manufacturer. In the third quarter, we completed a transaction with a major U.S. financial institute, making another important milestone in validating our Quantum AI and security platforms in real work settings.

Our foundry operations in Tempe, Arizona also continue to progress. As we have shared previously, this facility, also known as one is a small-scale manufacturing site designed to qualified processes and support early customer programs in photonic chips. This is an important first step in our broader manufacturer strategy.

Since launch, our team has been refining the production line, expanding our operations stuff and building relationships with early customers across research, government and commercial sectors. This engagement help us fine-tune both process quality and device yield. Importantly, we are already in the early stage of planning for Fab 2, which we expect to begin developing over the next 3 years.

Step 2 will be designed to support higher volume manufacturing and serve as a cornerstone for scaling production to meet growing demand in telecommunications, sensing and Quantum information systems.

As we advance this manufacturing strategy, our hiring efforts are ramping accordingly. Over the past quarter, we have added key technical and operations staff to strengthen our execution capabilities, and we expect that trend to continue as we prepare for higher production volumes.

We have also continued to broaden awareness of QSI's capabilities within the Quanta and photonic communities. Over the past several months, we have the active participants at multiple industry events and conferences presenting our work and engaging both public and private sector partners. Those events include IEEE, International Conference on Quantum Computing and Engineering, the MYC Quantum Computing the Dutch Photonics event, the 51st European Conference on Optical Communications, Quantum Tech Europe and the Quanta Innovation and the Readiness Firm.

We also recently joined the Quanta Economic Development Consortium and the Consumer Technology Association QSI with expanding network of technology leaders and innovators. These memberships enhanced our visibility and influence in shaping the future of Quantum computing, cyber photonics and AI solutions across the consumer technology landscape.

In September, we deepened our thought leadership presence in the photonics and AI communities through a webnar hosted optical titled Photonic Machine Learning for Time Series Programs. The session highlighted how our Immucor reservoir computing platform and the next-generation photonic architecture address memory and power consumption, both in modern AI workloads and underscored our [indiscernible] foundry capability for high performance photonic systems. This engagement further expands our creditability in both academic and industrial circles, and underscores QSI's increasing visibility as a practical quantum and photonic innovator.

We have also been pleased with the increasing level of inbound interest from prospective customers and collaborators across academia and industry. The conversations we are having today reflect the momentum building behind integrated photonics and quantum-ready devices where QSI has a clear first-mover advantage.

QSI's approach positions us uniquely for the next phase of industry evolution. While the broader quantum computing sector continue to grapple with scalability and stability challenges, our integrated photonics platform operates at room temperature with significantly lower size, weight and power and cost requirements, the so called SWaP-C advantages. These advantages become increasingly relevant as global energy constraints and the computation of demand of artificial intelligence push existing infrastructure to its limit.

We believe that energy-efficient room temperature Quantum devices represent a critical piece for the next generation of computing, and QSI is positioned to deliver such solutions at scale.

Over the next 3 years, our road map priority is small-scale, high-value manufacturing as we refine processes, demonstrate performance across customer applications and establish supply chain and design partnerships. In parallel, we will be developing the foundation for Fab 2, which will enable volume manufacturing and allow us to bring Quantum-enabled devices into wider user across multiple sectors.

The Quantum era is unfolded faster than most predicted. And our team is determined to ensure QSI remains at the center of transformation delivery technologies that make quantum practical, scalable and accessible to the world.

With that, I will now turn the call over to our Chief Financial Officer, Chris Roberts.

[Christopher Roberts, executive]

Thank you, Yuping. And now let's review the financial results from the quarter. Revenue during our third quarter totaled approximately $384,000 compared to $101,000 in the same period last year. The increase in revenue was primarily due to increases in the number of size and level of effort on research and development services contracts and custom hardware contracts. We also started to recognize some revenue for cloud-based access to the Direct 3 Quantum optimization system during the third quarter.

Looking ahead, the company continues to build a healthy pipeline of sales and partnership opportunities, which we expect will support future growth as customer adoption of our products and technologies continues to increase.

Our gross margin for the third quarter increased to 33% compared to 9% in the third quarter of 2024. However, it's important to keep in mind that with a small number of active contracts, some of which involve custom design work, gross margin is likely to be variable from one period to the next.

As Yuping mentioned earlier, we have been active in the capital markets and substantially strengthened our balance sheet during the third quarter, closing on a $500 million equity financing in September 2025. As a result, we ended the third quarter with cash and cash equivalents of $352 million and investments of $460 million on our balance sheet at the end of the quarter. After the end of the third quarter, we also closed on an additional $750 million financing in October.

As a result of the recent financings, we now have substantial resources to implement our TFLN fabrication and Quantum machine development initiatives. In addition to organic growth plans, a key element of our long-term strategy is to evaluate acquisition opportunities that could help us accelerate our vision of putting Quantum technology in the hands of people.

Operating expenses for the third quarter totaled $10.5 million compared to $5.4 million in the same quarter last year. The increase in operating expenses is the result of substantial growth in personnel for research and development, engineering, manufacturing, sales and marketing and administration as we position the company for long-term growth.

We are scaling our organization across the board to support this expansion plan, including all functional areas of the company. As a result, SG&A expense is expected to grow in the near term as we invest in the necessary resources to advance our technology and execution capabilities.

The company reported net income of $2.4 million for the third quarter or approximately $0.01 per share compared to a net loss of $5.7 million in the third quarter of 2024. The increase in net income this quarter was primarily due to a gain of $9.2 million from the mark-to-market of a derivative liability plus interest income of $3.5 million. For the 9 months ended September 30, 2025, the company reported a net loss of $17.1 million or $0.12 per share compared to a net loss of $17.3 million or $0.19 per share in the first 9 months of 2024.

As of September 30, 2025, total assets stood at $898 million, up from $154 million at year-end 2024. Since the end of 2024, cash and cash equivalents have increased by $273 million to $352 million, and total investments have increased by $460 million. Total liabilities at the end of the third quarter were $20 million, which is a decrease of approximately $26 million compared to year-end 2024. Now this decrease in liability is driven primarily by a $25.8 million decrease in the derivative liability related to the Q Photon merger warrants. Stockholders' equity rose to $878 million at the end of the third quarter, which also shows our strengthened financial position.

And now it's my pleasure to turn the meeting back over to Yuping.

[Yuping Huang, executive]

Thank you, Chris. As we move into the final months of 2025, I wanted to take a moment to thank our employees, partners and shareholders for their continued support. The technological and the strategic progress we have made this year positions QSI for what I believe will be a defining period ahead. Our technology is maturing rapidly, and our focus remains on scaling our engineering and manufacturing capabilities, advancing customer programs and continue to strengthen our relationships across government, industry and academia. With a solid balance sheet, a growing and a clear road map, we are well positioned to drive this next phase of growth.

Thank you for joining us today and for your continued confidence in our mission. With that, we will now open the call for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Your first question is coming from Max Michaelis from Lake Street Capital.

[Maxwell Michaelis, analyst]

A few here kind of set around a couple of different topics. First one is going to be I noticed the press release about Poet Technologies. I was wondering if you could give maybe a little bit more detail on outside of just what was said in the press release and maybe you think about sort of the long-term opportunity with them and then maybe some other partnerships you have in the pipeline similar to that Poet Technologies?

[Yuping Huang, executive]

Okay. Sure. Thanks, Max. So on that front, we have actually been very actively talking with multiple parties on using our [indiscernible] technology for the next-generation high-speed transceiver technology. So as you probably know, the industry is recognizing samples as the next generation platform for much higher speed Internet. So this collaboration with Poet is one of the equipment that we have discussed and has come to flourish. And we look forward to work with them and also with others to explore same for the telecom and datacom applications at abroad?

[Maxwell Michaelis, analyst]

Okay. And my next one is just sort of around that top 5 U.S. banks you guys secured or purchase order you guys secured in the quarter around quantum security solutions. Can you give some other sort of use cases you guys are having discussions with, with other large opportunities, I guess, or other large firms outside of just security solutions?

[Yuping Huang, executive]

Yes. In fact, we have been talking with other firms, including the potential of putting our technology on photonic integrated chips. And so that -- so we can really shrink the size of our current Quantum Communication Systems our Quantum part chips and our Quantum number generators to inch square chip so that -- so there are many sectors, including the wireless or Internet providers, so they can easily adopt. So we have been in discussion also with some potential partners to see if we can apply our Quantum Communication technology to the aerospace platform, so that can solve the issue of the long-term Quantum Internet challenge.

[Maxwell Michaelis, analyst]

Okay. And then, Chris, I think you mentioned organic opportunities around M&A and sort of how valuations and multiples trended in that space as well as maybe adding on sort of the end markets or technologies you guys plan on going after when it comes to M&A?

[Christopher Roberts, executive]

Well, the M&A market continues to be volatile and the valuations depend in good part about how the stock market is going. And right now, it's very unsold. We are looking actively for acquisition candidates and evaluating them as they come up, nothing formal we can announce at this time, but we are working very hard in that direction. As I mentioned before, we're looking at M&A as a way of doing 2 things. One is to acquire customers and revenue and product lines that can be move forward and migrated forward with our technologies. And we're also looking to fill in some key aspects of our own technology road map so we can accelerate our commercialization. Does that help your answer your question? Or do you have a different point in mind?

[Maxwell Michaelis, analyst]

No, that's great.

[Christopher Roberts, executive]

Sure thing, Max.

[Yuping Huang, executive]

Let me just add to you things said about the Poet project. it's a perfect example of why we built Fab 1 because we have the only fabrication facility in the U.S. I can work with thin film lithium niovate. And this gives us the ability to do this type of advanced prototyping of product concepts that we can then -- if we're successful, move forward into Fab 2 and produce in collaboration with firm like Poet for a larger market. This is a real validation of the idea behind the investment in Fab 1.

[Operator]

Your next question is coming from Troy Jensen from Cantor Fitzgerald.

[Troy Jensen, analyst]

Maybe a couple of quick ones for Chris. First, can give you us what is the remaining CapEx for Fab 1 roughly?

[Christopher Roberts, executive]

Fab 1 is -- Good question. Fab 1 is pretty much built out or it is built out. But we're always looking at new equipment, but Yuping you might be a better one to answer on that. I don't have anything now is lined up near term.

[Yuping Huang, executive]

Yes. Yes. So right now, it's Fab 1 is fully operational, and we actually are making chips to deliver the 10-plus foundry service orders that we have received so far. But we do have plan to install a very high speed measurement equipment in the foundry, so that -- so we can quickly test the property of high-speed electro-optical modulations on the chip. So there, we are looking at a CapEx -- additional CapEx of about $2 million to add this very high-speed testing equipment.

[Troy Jensen, analyst]

All right. That seems pretty modest. With respect to Fab 2, building that out with you guys, obviously, hopefully producing your own picks, but is the idea to outsource capacity to other people that need thin-film lithium at capabilities?

[Yuping Huang, executive]

Yes. Yes. So we are scoping Fab 2 both support our own quantum machine manufacturer so -- and as well as to serve the increase in demand on thin-film chips as the industry is becoming more and more interested due to the many nice property of this interesting material for different applications beyond Quantum. So Troy, so our goal there is that so we hope that we can quickly establish Fab 2 that can make hundreds to -- like hundreds of millions of chips per year. So that will both support our own needs for our Quantum machines and also substantially sending from others on the thinking manufacturing.

[Troy Jensen, analyst]

Okay. How about a quick one for Chris. Could you let us know what the share count will be exiting '26?

[Christopher Roberts, executive]

Well, at the moment, we have 224 million shares outstanding and 250 million shares authorized. We're not expecting to do another financing. So it will probably end up with another couple of million shares potentially if options are exercised, but it would not be a large number, because...

[Troy Jensen, analyst]

The offering that just happened. I mean if you include the offering that happened here in Q4...

[Christopher Roberts, executive]

Including the $750 million offering that was included in October, we have 224 million shares outstanding. There are several million outstanding warrants and stock options, which I have no way of predicting when they may be exercised, but that gives you a sense of the range of possible outcomes at the '26.

[Troy Jensen, analyst]

Great. So for a share count that we should be modeling, it should be the 224 million number for Q4?

[Christopher Roberts, executive]

224 million for Q4, yes, that's probably best number I can provide, but at the end of '26, that's a little harder because it really depends on market conditions and...

[Troy Jensen, analyst]

Yes. That's good. How If I could toss in one more for you, here. I guess I'd love to like hear stats on your QPU with respect to Q count or Fidelity or maybe it's too early to talk about that now and maybe correct me if I'm wrong, but is the near-term opportunity more in the sensing and other applications that you guys are targeting right now versus kind of QPU type sales?

[Yuping Huang, executive]

Sure. I can talk about both. So -- on the QPU front, so in fact, we have the upgrading our current direct system where some of our external users, they actually start to find some real nice advantage our classical computers. So we have some pretty exciting results there. And in the meanwhile, so we are actually making very good progress in building the next version of that, so which based on the same architecture and build for the organization. But so there -- so we increased the speed by orders of magnitude.

So we are making pretty good progress here for our Quanta optimization machine. And in the meanwhile, as I reported last time that, so we do have the road map of going to gate-based machines. And so we have done a lot of theoretic work and the proof of concept in the lab. But so we just got started to -- on the hardware development because the gate machine requires very high-quality chips. And as you know that we just finished the construction of Fab 1 in March and over the summer. So we give the recipe and the set up the processes and so there -- so the fund has just started. And with that, we will quickly get to the hardware of the gate-based machine.

So on the Quantum sensor part, so yes, as we reported, so we did sell one for our Quantum photonic meter and so people are using it for different applications. And we also sold a Quantum Communication System to a U.S. bank as we reported, and we have also made some sales on the AI front and we continue to engage the community on thin-film and we have recorded more sales on foundry services.

[Operator]

Your next question is coming from John McPeake from Rosenblatt Securities.

[Unknown Analyst]

Congratulations, Dr. Yuping and Chris on the momentum in the business and the bank deal. We certainly -- there's been some new implementations of algorithm that suggests that pretty soon, we're going to be able to crack RSA 2048. I guess when I say soon, we're talking about years at least kind of over the career of a CISO at a large company, so they can't just ignore it. And I'm just wondering if that might be increasing the pipeline of potential security deals, particularly in the financial sector.

[Yuping Huang, executive]

Yes, definitely. So John, so one thing that we all have to keep in mind that -- so if somebody somewhere has a very powerful Quantum computer to correct our passwords, so he or she will not make a public announcement on that, right? So we have to really to deal with the cyber threat. So we really have to think ahead and act fast and the plan ahead. So, so far, as I know, so the only truly secure cyber solution against the attack of the Quantum computer would be using Quantum itself to secure our Internet.

So at QCI, we actually -- our engineers like we are leveraging over 10 years of NDD work in Quantum Communication, Quantum encryption, Quantum authentication. And now, so we are pushing our engineering effort to to put our technology in practical footprint. So in fact -- so our -- we have designed our technology that, so it is fully compatible with the existing fiber-based telecom infrastructure.

So in order to use our technology, so you can just buy some end units from us and hook onto the fiber portal in your garage and you will be able to enjoy Quantum-secured Internet and so you don't need to worry about if somebody has already a powerful Quantum computer or not. So yes, John, so in short to your question, I think at this time, it is really, really time for us to start to adopt a Quantum-secured Internet solutions.

[Unknown Analyst]

So on the other side of the business on the optimization, I guess, the Direct 3 is just starting to have revenues recognized this past quarter, what's that -- how is that market trending right now? Is there more awareness of these solutions for optimization?

[Yuping Huang, executive]

Yes. Yes. And so I would like to put it in this way. So Quantum Computing is a pretty disruptive technology. And just like how other disruptive technologies are commercialized, we must address 3 hurdles before we can see wide adoption and very meaningful revenue. So the first is that the customers really needed to know and understand at some levels, the technology itself. The second is that so that we needed to see a clear path to be able to integrate and adopt the technology with their existing systems and solutions. The third is that we, as the technology providers, we must lower the entry level so that people can quickly get to the technology, so that include -- so we make the device very compatible. We have very easy user interface. And so the price tag is reasonable.

And for the first one, so we are ramping up our marketing communication, including pushing out more educational material on website, the publishing open access journals so that people can find the material to know and to understand our technology.

For the second, so we are actually building and expanding our applications team to explore and help with potential customers to adopt our technology. Now for the third, we are actually in the phase of transitioning our sales from a technology innovation company to volume production so that we can reduce the unit cost of our Quantum Computing products. So those are the 3 measures that we are taking -- we are undertaking now in order to quickly get our technology into the hands of people.

[Operator]

[Operator Instructions] Your next question is coming from Ed Woo from [indiscernible] Capital.

[Unknown Analyst]

Yes. Congratulations on all the progress. I was just curious about international opportunity. It seems like most of your focus now is in the U.S. Do you have plans to focus on international opportunities?

[Yuping Huang, executive]

Yes. Yes. In fact, so quantum is also very hot outside U.S. And so we have been very active in talking to looking for opportunities either partnering or providing our products and services to international institute, for example. So we actually sold our Immucor system, which is a AI device at edge, and we sold our wiper meter to [indiscernible] in Europe, and we actually -- we are working with a distributor in South Korea to explore the market there. And so our direct 3, we actually have users from Singapore.

[Operator]

That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead.

[Yuping Huang, executive]

Thank you, everyone, for joining and participating in today's call. I encourage you to follow us on our social media channels, including LinkedIn, where we regularly post updates and insights into our business and technology. Should you have any questions, please do not hesitate to reach out to our Investor Relations. Have a great rest of your day. Thank you, everybody.