Q3 2024 D-Wave Quantum Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the D Wave Q2, 'twenty 'twenty four earnings conference call.
At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this.
Call your required immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday November 14th 2024, I would now like turn the conference over to Kevin Hunt Investor Relations. Please go ahead.
Thank you and good morning.
With me today are Dr. Dr. Alan Barents, Our Chief Executive Officer, and John Martin <unk>, Our Chief Financial Officer.
Before we begin I would like to remind everyone that this call may contain forward looking statements 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.
GAAP gross margin non-GAAP adjusted operating expenses adjusted EBITDA loss in 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 Www D wave quantum dot com.
I'll hand over the call to Allen.
Allen: Thanks, Kevin and good morning, everyone. It's great to be with you again and thank you all for joining us today.
Allen: It's an exciting time going to find an industry with interest levels, increasing at a rapid rate and I'm pleased to be able to update you on the momentum that we're seeing here at D wave.
Allen: Interest in our technology continues to grow and we believe it is evident that our neely quantum computing is the critical accelerate commercial adoption of quantum technology and let me be clear. It is our 5000 cubic advantage quantum computer the largest and most powerful quantum computer in the world that is driving this adopt.
Allen:
Allen: Moreover, it is showing up in bigger wins like NTT Docomo, Japan's largest wireless carrier with more than 87 million subscribers, where quantum application is slated to move into production.
Allen: I'd like to start todays business update by highlighting some product and technology advancements.
We recently announced that we have completed the calibration of a 4400 4400 cubic advantage to processor, which represents a significant step towards the commercial release of advantage to which is our sixth generation annealing quantum computer.
The 4400 qubit processor provides impressive performance gains over the existing advantaged system, including double coherent sign for faster time to solution.
Allen: A 40% increase in energy scale for higher quality solutions.
Allen: And increased cubic connectivity from 15 to 20 way to enable solutions to larger problems.
Allen: With the substantial performance improvements, we believe that the advantage to we'll be able to solve our customers' increasingly complex computational problems, especially in areas such as optimization.
Allen: And materials science.
Allen: And the industry is taking note of this remarkable performance.
Allen: The west quantitative analysts that I D C. A premier global market intelligence firm recently published a very positive report on advantaged to called D wave setting new standards in quantum computing performance.
Allen: In that piece, she said and I'm quoting from the Pes to date D waves quantum annealing systems are one of the few quantum computing technologies used by organizations to run production use cases to gain business value.
Allen: The range of optimization problems, which can be applied to the annealing quantum computer demonstrates the versatility once thought to be limited only to gate based systems.
Allen: This versatility will help to expand the adoption of quantum computing to a larger number of potential end users across multiple industries. Consequently.
Allen: It may be that the long sought after killer use case for quanta is in fact quantum optimization.
That's the quote from Heather.
Allen: I wanted to add that there's also a large body of evidence that only in Italy.
Allen: Finding computing systems, well actually be able to deliver speed up on quantum optimization problems with Heather is calling the killer use case for quanta.
Allen: As a reminder, we also have an extensive and valuable quantum patent portfolio.
Allen: This includes over 240 U S granted patents with the majority covering both Neely and gate model technologies. For example, we own fundamental IP around on chip control and readout for quantum processors, they support addressing and data pipelining on the quantum <unk>.
So chip.
Allen: This overcomes a fundamental challenge related to controlling large quantum processes without the need for large numbers of complex and costly Io lines.
Allen: We are using this technology in our annealing quantum computers today.
Allen: And it will be required in scale gate model systems of the future.
Allen: We continue to make rapid progress unexplained generated AI architectures that directly use quantum processing unit keeping use samples from quantum distributions to facilitate faster and more energy efficient model training and inference.
Allen: We have completed the initial designs a transformer and diffusion architectures and are moving towards benchmarking the role of the Q P O.
Allen: We are also directly supporting several customers investigating restricted Boltzmann machine architectures, a canonical machine learning approach, Virginia as it generated AI they use samples from the Q P M.
Allen: On the software side of the business, we introduced service level agreements S. L. A is for leap quantum cloud service customers, who are transitioning applications into production.
Allen: We believe the way this is the only quantum computing company, providing formal S. L ace.
Allen: It's a significant move there reflects leads high levels of availability reliability and performance underpinning its ability to support commercial grade applications as customers move into production deployments.
Allen: In fact, our monitoring data shows that the leap service has consistently exceeded 99, 9% availability over the past two years, meaning that the service is highly reliable even during periods of high demand.
Allen: Since the launch of elite service customers have run nearly 2 million jobs across our three production advantage systems without having to schedule work in advance endured lengthy queue times well work around unavailable hardware.
Allen: All of those things seem to be the norm for other quantum cloud services.
Allen: Beyond the introduction of SLA. He also improve the performance of our new non linear hybrid quantum solver capable of supporting optimization problems with up to 2 million variables and constraints for.
Allen: For example on an important customer problem related to Capacitate. It vehicle routing the problem can be solved in one fifth of the time.
Allen: The technology advancements are driving real business solutions.
Allen: This quarter, we announced a major quantum optimization pilot with NTT Docomo in Japan.
Allen: The pilot was held across three geographic regions in Japan, and delivered a 15% reduction in network congestion.
Allen: And did you want to solve a completed the required tasks and 40 seconds compared to the 27 hours required for classical computers methods.
Allen: Upon completion of the pilots NTT Docomo plans to move the annealing quantum computing solution into production across Japan.
Allen: This will be a major in production application running on Z wave technology.
Allen: And as we've seen with other customers after a successful first application.
Allen: NTT Docomo is now exploring additional opportunities to play a kneeling across other business units.
Allen: We believe that we are the only quantum computing company in the world that has quantum applications being used in commercial production deployments.
Allen: I'd also like to highlight a new AI related collaboration with Japan tobacco, where we are building a proof of concept that leverages, both quantum computing and AI in the drug discovery process.
Allen: The company is seeking to create a new process for discovering first in class pharmaceutical small compounds and our annealing solutions show great promise.
Allen: This past quarter. We also worked with customers on a variety of other hybrid quantum applications, including optimization of manufacturing lines.
Allen: Financial portfolio optimization optimization of delivery truck routes and scheduling optum.
Allen: Optimization of agricultural resources and operations and many others.
Allen: On the government side of the business.
I'm delighted to say that D wave has been deemed award a bull on.
Allen: In the U S Department of Defense is trade winds buying platform, which is designed to accelerate the procurement and adoption of emerging technologies.
Allen: The designation means that D waves annealing quantum computing products and services are now available on the marketplace alongside other offerings like AI ml data and analytics capabilities.
Allen: We also saw a continued interest from national security and civilian agencies around near term quantum applications highlighted by a U S Department of defense RF I asking for near term application identification.
As well as increased discussions relating to optimization of emergency response transportation and other public sector services in the U S and abroad.
Allen: This increased activity showcases governments interest and better understanding how annealing quantum computing can play a pivotal role in solving public sector problems to date.
Allen: Broadening our reach in September we announced the partnership with stack, a leading technology consultant in the Middle East, where we will jointly help customers develop and deploy hybrid quantum applications designed to address enterprise optimization and AI problems.
Allen: We announced this partnership is the first ever Kubitz UAE, a half day version of our U S. Based event, where we showcased a variety of use cases utilizing quantum.
Allen: And by the way our next annual Kubitz user conference will take place at the end of March in Scottsdale, Arizona, where we will once again showcased the latest D wave quantum technology innovations alongside remarkable stories of customer success spanning quantum optimization quantum AI and quantitative research.
Allen: We invite you all to attend and registration is now open.
Allen: In September we also announced that D wave has joined the Chicago quantum exchange as a corporate partner.
Speaker Change: As the only commercial part of the company, we sure see QE mission of developing practical optimization use cases.
Speaker Change: We aren't just building cutting edge technology of D wave, we're building a company for the long term.
September we announced that Sophie Ames has joined D wave as Chief Human Resources Officer, where she will lead our human capital innovation strategy essential to supporting our go to market growth objectives.
Speaker Change: He brings over 25 years of experience in a variety of public and private international technology and services companies.
Speaker Change: And in October we announced the appointment of two tech industry veterans to our board of directors, John Dilullo CEO of deep watch brings over 30 years of experience at leading technology firms and Rohit Guy CEO of RSA also brings a wealth of experience from both technology start ups and large.
Speaker Change: Enterprises across software services and security.
Speaker Change: These are all leaders with an aggressive growth mindset and experience commercializing new technologies.
Speaker Change: Finally, I will close with a quick comment on our financials.
Speaker Change: Subsequent to the end of the quarter, we completely paid off our $50 million secured term loan with PSP and we had nearly $30 million in cash with that I will hand, the call over to John to provide a review of our third quarter and first nine months of 2024 results John.
John Dilullo: Thank you Alan and thank you to everyone, taking the time to participate in today's call.
John Dilullo: In my review of the third quarter and nine months results are we providing non-GAAP operating metrics that include bookings as well as non-GAAP financial metrics that include non-GAAP gross profit non-GAAP gross margins and adjusted EBITDA loss as we believe these metrics improve investors' ability to evaluate are under.
John Dilullo: <unk> performance. These measures are defined in the tables at the bottom of today's third quarter earnings press release with the non-GAAP financial metrics for the most part.
John Dilullo: Adjusting for noncash and nonrecurring expenses.
John Dilullo: Revenue in the third quarter of fiscal 2024 totaled $1 $9 million, a decrease of approximately $700000 or 27% from the third quarter of fiscal 'twenty three revenue of $2 6 million.
John Dilullo: <unk> revenue for the third quarter with $1.6 million, an increase of $500000 or 41% from the fiscal 'twenty three third quarter, two cash revenue of $1 1 billion with the increase principally due to an average revenue per customer higher average revenue per customer.
John Dilullo: Or do you always skew pass subscription services.
John Dilullo: As a result of the timing of closing new professional services agreements professional services revenue for the third quarter was $300000, a decrease of $1 million or 80% from the fiscal 'twenty three third quarter professional services revenue of $1 3 million.
John Dilullo: Also the third quarter professional service revenue declined on a year over year basis for the third quarter professional services bookings were quite strong representing the second highest quarterly bookings quarter over the last three years.
John Dilullo: We expect the fourth quarter revenue to improve over the third quarter revenue.
John Dilullo: Bookings for the third quarter totaled $2 $3 million.
John Dilullo: <unk> of $600000 or 22% when compared to the third quarter of 2023 bookings of $2 9 million.
John Dilullo: We expect the fourth quarter bookings to improve over the third quarter bookings.
John Dilullo: With respect to the up leveling of our go to market organization that we highlighted in our last earnings call. We've made significant progress over the last several months. During this period, we have filled 11 positions across the United States, Germany, Switzerland, and the U K, including four quota carrying positions.
John Dilullo: As several positions focused on the manufacturing logistics and services verticals, we expect to substantially complete the up leveling of the organization by the middle part of next quarter.
John Dilullo: With respect to customers, we continue to broaden and diversify our customer base across commercial government and research customers.
John Dilullo: Comparing the most recent four quarters with the immediately preceding four quarters, you wave had a total of 132 customers compared to a total of 125 customers.
John Dilullo: 76, commercial customers compared with 75 commercial customers with the commercial customers, including 27, Forbes Global 2000 customers compared with 26 in the prior period.
John Dilullo: Our Forbes global 2000 customers constitutes 36% of the total number of our commercial customers.
John Dilullo: Forbes Global 2000 customers include numerous internationally based companies, including Mastercard Ford Auto saw Vinci energies any see them, so bridgestone and cash holdings.
In comparing the most recent four quarters with the immediately preceding four quarters revenue from government customers increased by $800000 or 66% revenue from research customers increased by $600000 or 47%.
John Dilullo: Revenue from commercial customers decreased slightly by $200000 or 4% with a commercial revenue as a percentage of total revenue.
John Dilullo: Declining from 70% to 59% primarily due to the company's increased focus on government and research customers.
John Dilullo: With respect to gross profit the GAAP gross profit for the third quarter was $1 million, a decrease of $500000 or 32% from the fiscal 2023 third quarter gross profit of $1.5 million with the decrease due primarily to lower professional services revenue that was partially offset by.
John Dilullo: Higher acute cash revenue.
With respect to the non-GAAP gross profit for the third quarter totaled $1 $3 million, a decrease of $600000 or <unk>, 35% from the fiscal 2023 third quarter non-GAAP gross profit of $1 $9 million.
The difference between GAAP and non-GAAP gross profit is limited to noncash stock based compensation and depreciation and amortization expenses that are excluded from the non-GAAP gross profit.
John Dilullo: With respect to margins the GAAP gross margin for the third quarter was 55 eight.
John Dilullo: 8% a decrease of three 9% from the fiscal 2023 third quarter GAAP gross margin of 59, 7% the.
John Dilullo: non-GAAP gross margin for the third quarter was 67, 2% a decrease of eight 4% from the fiscal 2023 through third quarter non-GAAP gross margin of 75, 6% again the difference between the GAAP and the non-GAAP gross margin numbers, it's limited to stock based compensation and depreciation.
John Dilullo: <unk> and amortization expenses.
John Dilullo: Net loss for the third quarter was $22 $7 million or 11 cents per share.
John Dilullo: Paired with a net loss of $16 1 million or <unk> 12 per share in the fiscal 2023 third quarter.
John Dilullo: The adjusted EBITDA loss for the third quarter was $13 $8 million, an increase of $2 2 million or 19% compared with the adjusted EBITDA loss of $11 6 million in the fiscal 2023 third quarter.
The increase was primarily due to lower revenue and higher operating expenses that were principally related to the company's increased investment in its go to market organization.
John Dilullo: I will now address D waves operating performance for the first three quarters of fiscal 'twenty four.
John Dilullo: Revenue for the nine months ended September 32024 was $6 $5 million, an increase of $600000 or 11% revenue of $5 9 million for the nine months ended September 32023.
John Dilullo: The <unk> revenue for the nine months ended in September was $5 $1 million, an increase of $1 $8 million or 52%.
John Dilullo: <unk> revenue $3 $3 million for the nine months ended September 30 of 2023 with the increase principally due to higher average revenue per customer.
John Dilullo: As a result of the timing.
John Dilullo: As a result of the timing of closing new professional services engagements professional services revenue for the nine months ended September 30 was $1 3 million a decrease of about $900000 or 42% from professional services revenue of $2 $2 million for the nine months ended September 32.
John Dilullo: 2023.
John Dilullo: Bookings for the nine months ended September were $5 6 million, a decrease of $1 $8 million or 24% from bookings of $7 $4 million for the nine months ended September 32023, with the decrease entirely due to one customer terminating its operations.
John Dilullo: Yeah.
John Dilullo: With respect to the GAAP gross profit.
John Dilullo: Total $4 $1 million for the first nine months, an increase of $1 4 million or 54% from $2 $7 million and GAAP gross profit for the nine months ended September 32023, with the increase due primarily to the growth in revenue and lower stock based compensation expenses and cost.
John Dilullo: The sales.
John Dilullo: The non-GAAP gross profit for the first nine months was $4 $7 million, an increase of $900000 or 25% from the non-GAAP gross profit of $3 $8 million for the nine months ended September 32023.
John Dilullo: GAAP gross margin for the first nine months was 62, 7% an increase of 17, 3% for the 45, 4% GAAP gross margin in the prior nine months with the increase due primarily to an increase in revenue and decrease in stock based compensation costs and increased operating.
Efficiencies non.
non-GAAP gross margin for the first nine months was 72, 7% an increase of eight 1% from the 64, 6% non-GAAP gross margin for the <unk>.
Nine months ended September 32023.
John Dilullo: Net loss for the first nine months was $57 $8 million or <unk> 32 per share compared with a net loss of $66 7 million or 51% 51 per share in the fiscal 2023 nine months period.
John Dilullo: Adjusted EBITDA loss for the first nine months was $40 6 million a decrease of $2 $8 million were 6% from the adjusted EBITDA loss of 43.4 million for the nine months ended September 32023, with the decrease due primarily to higher gross profit and lower.
General and administrative operating expenses.
John Dilullo: Now I will now I will address the balance sheet and liquidity.
John Dilullo: As of September 30th D waves consolidated cash balance totaled $29 $3 million and as Alan highlighted previously subsequent to the end of the quarter. We paid off the remaining balance of the P. S. P $50 million secured term loan.
John Dilullo: With respect to our capital raising capacity.
John Dilullo: On April 12 of this year.
John Dilullo: We filed a $175 million shelf registration statement on form S. Three that went effective in may and we carved out a $100 million of that for an at the market program.
John Dilullo: As of the end of September we had $79 $1 million of issuance capacity under the ATM program.
John Dilullo: With respect to our equity line of credit with Lincoln Park capital as of the end of the quarter, we still had almost $50 million or $49 $9 million remaining and available issuance capacity.
John Dilullo: We are reiterating our fiscal 2024, adjusted EBITDA loss guidance of less than $54 $3 million to.
John Dilullo: To conclude as we have previously stated we believe the D wave has the opportunity to be the first independent publicly held quantum computing company to achieve sustained profitability and to achieve this milestone with substantially less funding than required by other independent publicly held quantum.
John Dilullo: <unk> companies.
John Dilullo: With that we will now proceed to questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone you'll hear promptly your hand has been raised.
Speaker Change: Should you wish to decline from the polling process. Please press star followed by the U S.
Speaker Change: If you are using a speakerphone please lift the handset before pressing on us as.
Speaker Change: We request that our callers limit their questions to one main question and one follow up.
Speaker Change: Your first question comes from Quinn Bolton with Needham Your line is now open.
Speaker Change: Okay.
Speaker Change: Hey, guys. Congratulations on the continued progress with customers.
Speaker Change: I guess I wanted to start with that last quarter, you did talk about the NTT docomo.
Speaker Change: When in the pilot it looks like they're now looking to move that into production across all of that.
Speaker Change: It sounds like in Japan can you give us some sense of what's the timing when.
When they will start to move that application in to production and I think in the past you've talked about production applications could generate somewhere between say half a million dollars and $1 million of acute cash revenue a year or is that the right range to be thinking about for this this contractor should we be thinking about a different range.
Yes, so claim.
Speaker Change: First of all.
Speaker Change: You are correct that as the applications transition from proof of concept trials into production they generate significantly more revenue in particular <unk> revenue for the company and we in fact have indicated that as applications move into production.
And they tend to generate in the order of high hundreds of thousands or more per year recurring <unk> revenue.
Speaker Change: So there's nothing that's changed relative to the model and our expectations on the magnitude of revenue as applications move into production with.
With respect to the timing for NTT Docomo.
Speaker Change: Yes, they've completed the trial work across three regions and in Japan and are now putting in place the plans to move this throughout the entire country, but they have not yet disclosed or made public the plans and the timeline for that rollout.
Speaker Change: Understood. Thank you gentlemen.
Speaker Change: Interesting to see I think it's the first time you guys starting to break out revenue for U S government, which was up I know you guys have.
Speaker Change: Sort of qualitatively spoken about increasing opportunities on the government front. So maybe just expand on what youre seeing on the government side of the business. It looks like you have some momentum there and then perhaps any thoughts on when we might see a reauthorization of the national one of many initiatives.
Speaker Change: And if we get that.
Speaker Change: What looks to be pretty significant increased funding levels. How would you think that could affect your business. Thanks.
Speaker Change: So let.
Speaker Change: Let me take the National Quantum initiative first.
As you may recall, but maybe not the Nty was actually originally passed under Trump.
Speaker Change: And it was supposed to be renewed.
Speaker Change: A year ago at the five year, Mark and it has not been renewed.
Speaker Change: We are hopeful that with Trump back in office.
Speaker Change: Ill focus on completing the work that he began around the national point of initiatives will help to push Congress to get that reauthorized.
Speaker Change: Once that is reauthorize that will open up additional government funding for a variety of different quantum programs that we believe will benefit not just us, but all players in the quantum industry.
Speaker Change: With respect to our.
Speaker Change: Kind of a progress with not just the U S government, but governments around the world in the U S being deemed award a bull on the trade wins program is actually a very significant deal.
Speaker Change: It's not an easy process.
Speaker Change: To be deemed awarded bolt, but once you are then in fact the government agencies.
Speaker Change: The agencies can buy from you without needing to go through the long complex processes that have traditionally been required to sell into DSD and as.
Speaker Change: The government is becoming more interested in near term quantum applications.
Speaker Change: In part as a result of the language that was in the National Defense Authorization Act got passed about a year ago, calling out near term quantum applications. We in fact are.
Speaker Change: <unk> seen interest.
If not early deals actually being done.
With respect to near term quantum applications and being awarded on the trade winds platform will make it even easier for those agencies to be able to to buy from us as they focus on trying to incorporate quantum.
Speaker Change: Into those application areas. So we think thats a very significant.
Speaker Change: Advanced for US and of course, we are continuing to see much more outreach and interest from the U S government.
Speaker Change: Including having a seat at the table on a variety of different initiatives that the government.
Speaker Change: Is either in the process ever undertaking relative to not only better understanding but kind of formulating strategies and plans for the future.
Speaker Change: One important one was this RFID for near term applications that <unk> put out a couple of months ago.
Speaker Change: We put in a number of different.
Speaker Change: Options for how quantum and D wave in particular might be able to deliver on that and many of those we've put in with partners actually so not just D wave alone and then just one quick comment it's not just the U S.
Speaker Change: <unk> seen increasing interest in governments around the world and potentially.
Speaker Change: Even expecting to see some large opportunities materialize first outside of the U S.
Speaker Change: Excellent. Thank you. Thank you Allen.
Speaker Change: Your next question comes from David Williams with Benchmark. Your line is now open.
Speaker Change: Hey, good morning, Thanks for taking my questions and Alan Thanks for all the color. There I think you answered most of my questions in that response, there, but I guess one of the things I did want to ask about is on the on the research that we saw that came out of China about the encryption being broken there I know that there is.
Speaker Change: The headline was misleading in terms of what they actually accomplished but it sounds like at a bit of a double edge sword. There. Obviously shows quantum can do real things, but also coming from an adversary potentially so can you just kind of talk through that.
Speaker Change: What that means and how you how you view that that overall in terms of the debt.
Speaker Change: That development. Thank you.
Speaker Change: So first of all.
Speaker Change: I'm actually not sure.
Speaker Change: Dave that it's a double edged sword.
In the sense that we've had a number of discussions with our and our inquiries from.
Speaker Change: Various elements of the U S government.
Speaker Change: And.
Speaker Change: Honestly, there hasn't really been much negativism expressed around this piece of work.
Speaker Change: So first of all what I will say is that with very interesting work.
So they developed a an interesting approach to be able to factor a large numbers on our annealing quantum computer.
Speaker Change: However, still not large enough to break.
Speaker Change: Current cryptographic systems so.
Speaker Change: The state of the art for RSA today has 2000 numbers.
Speaker Change: And with the technology. They developed they were able to grow it from 17 beds, one seven which is what we have demonstrated previously up to a whopping 22 bits. So yeah. Okay. It's good solid research work.
Speaker Change: It's an interesting improvement on what had been done previously but growth from 17 bps to 22 bits is still nowhere near 2000 beds. So well good research good technology.
Speaker Change: Interesting to know that.
Yeah, the only quantum system today that you get.
Speaker Change: Factor anything other than a trivial number like 15 is our annealing quantum computer, but still we're not at the point, where we have to worry about breaking RSA or.
Speaker Change: Public key cryptography, that's in use today.
The fact that it was done by our research areas at a university in China.
Speaker Change: I would much rather the work had been done by researchers in the U S. R.
Speaker Change: Or maybe.
Speaker Change: Europe or other western countries.
Speaker Change: But yes it was research.
Speaker Change: And.
In the past we've tried not to restrict research on the system that having been said I will say, we do not sell access to our systems in China, we do not sell access to our systems to Chinese companies because of the U S government and Canadian government sensitivities there.
Speaker Change: But because we do allow for self sign up on our lead.
Speaker Change: Quantum cloud services because of the fact that you know vpns, Ken kind of spoof, where youre coming from yes, it's possible that.
Speaker Change: Individuals that are.
Speaker Change: Our country is that yes, we generally don't sell two might be able to get access.
Speaker Change: That having been said give it.
Speaker Change: The work that had been done here, we are in the process of taking steps to tighten the access to the client system for self service sign up.
Okay fantastic. Thanks for all that color, they've certainly very helpful and I wanted to follow up maybe to <unk> question about the <unk> and I think before you've spoken to some specific language that is included here for annealing, where you felt like there could be a real significant opportunity for you.
Speaker Change: And of course, given just the magnitude of the increase do you still feel fairly comfortable there that you could get some.
Speaker Change: Some decent sized wins or potential there.
Speaker Change: How do you think about that for next year once we get that authorization and what it could mean in terms of revenue where potential contracts for you. All thank you yeah. So so first of all David there are two separate bills here. One is the National Defense authorization Act that was signed into law.
Speaker Change: Signed by buying in December of last year, so almost a year ago, and that's where the annealing and near term application language was.
Speaker Change: And that has already generated interest from D O D.
Speaker Change: And Neely and near term client them as Ive already discussed the National Quantum initiative Act is a different.
Speaker Change: And that's really the Premier one term research funding mechanism for the U S government.
Speaker Change: And that's the bill that needed reauthorization.
Speaker Change: At the end of last year and it was not reauthorized by Congress and that's what we're hopeful that with Trump backend office that will get done given that.
Speaker Change: Got started while he was in office. The last time that we will open up a different pool of general R&D funding for quantum technologies.
Speaker Change: Okay.
Speaker Change: Thanks, so much.
Your next question comes from Richard Shannon with Craig Hallum. Your line is now open.
Richard Shannon: Well, thanks, guys for taking my question.
Richard Shannon: Follow up on the topic of NTT Docomo, obviously, a high profile international.
Richard Shannon: Company here in <unk> and <unk>.
Richard Shannon: We'll have to see them go into production here, even thought the timeframe at least that you can give to us today, but maybe I don't know if you can just talk about the experience you've had in working with them.
Speaker Change: Maybe talk about the sales cycles here and how would that can help inform and improve the go forward as you as you go to market with other customers. Please.
Richard Shannon: Yes.
Speaker Change: So NTT Docomo was actually a very interesting.
Speaker Change: The situation in the sense that.
Speaker Change: They require very little help from us.
Speaker Change: They basically began by accessing the system through self sign up.
Speaker Change: They did some early investigation.
Speaker Change: Then they purchased some small amounts of time to complete.
Speaker Change: The development of the application.
Speaker Change: We did some benchmarking we provided some help along the way and then they moved it into trial.
Speaker Change: So in some sense. This is the ideal scenario for us where we.
Speaker Change: We didn't actually have to put much effort at all from a professional services.
Speaker Change: Perspective into the effort and they had a great experience.
Speaker Change: They got excellent results and they've decided to move it into production.
Speaker Change: Not all of our customers have that level of technical.
Speaker Change: Knowledge and ability to drive the process themselves and that's why we still view professional services is the on ramp to quantum computers are serviced and I could talk about how we're seeing those timeframes materialized, but with respect to NTT docomo.
Speaker Change: I think it was maybe 689 months from start to where we are now.
Speaker Change: Okay, Great that's helpful perspective there.
Speaker Change: Maybe just follow up on the topic of of government spending here in a couple of question before here one of your responses was.
Speaker Change: Might be.
Speaker Change: Earlier outcomes from countries outside the United States, maybe give us a sense of where you expect that to be and to what degree. This is <unk>.
Speaker Change: More research level type of of of revenues or funding versus something that there'd be more production worthy.
Speaker Change: Yeah. So.
Speaker Change: My comments about likely to see more sooner from governments outside of the U S refers primarily to Europe. So that's where we are seeing the most activity right now.
Speaker Change: And it's large.
Speaker Change: Larger numbers related to research smaller numbers related to near term applications.
Speaker Change: So I think there's still a view that find them isn't quite yet ready for prime time that is a.
Speaker Change: Kind of misunderstanding that we've had to work hard to overcome and still need to work hard to overcome it and as we start to be able to talk about some government deployments of near term applications I think it will become clearer and as a result easier.
Speaker Change: Yes, the short answer to your question is Europe is where we're seeing the most activity and larger numbers in the area of research.
Speaker Change: Okay.
It's helpful. Thanks, that's all for me.
Speaker Change: Your next question comes from Craig Ellis with B Riley Securities. Your line is now.
Yeah. Thanks for taking the question and Alan and try and congratulations on the advantage to progress and all that's happening with expanding customer counts.
Speaker Change: Alan I wanted to start on the first point there.
Speaker Change: You noted advantaged twos mini.
Speaker Change: Benefits versus current systems and the.
Speaker Change: Favorable pull some consultancy commentary the question is.
Speaker Change: What's that doing for inbound customer interest from those that would want to engage with that system in and when would we expect that system.
Speaker Change: Really commercialized and impact things like booking and revenues, but that we're all monitoring.
Speaker Change: So.
Speaker Change: First of all.
Speaker Change: We need to take you back.
Speaker Change: Six months or so to when we talked about the earlier 1200 qubit version of advantage to <unk>.
Speaker Change: And when.
Speaker Change: What we said at that point in time with that.
Speaker Change: Just put a paper on the archive related to quantum supremacy and that that work was actually done on the 1200 cubic advantaged to system that we had tried to get the result on the advantage system on the 5000 cubic advantaged system, but we werent able to get the result that we ultimately.
Speaker Change: Got it.
On that system, we needed the 12 under Cupid advantage to system because of the increased coherence, primarily but also the increased energy scale and the increased connectivity and so I think I made a comment at that point in time that arguably even at 1200 Q beds that system is more powerful than our five.
Hasnt cubit advantaged system. So what we've been able to do now is calibrate our 4400 cubic version of that system showing that we're preserving the same benefits increased coherence increased energy scale increase connectivity.
Speaker Change: But in a process that's.
Speaker Change: Three to four times as large as what we got the supremacy result time, which means.
Even more powerful.
Speaker Change: Now the reason why I said all of this is because it's the combination of going from 12 ended a 4400 and the fact that we've been able to talk to customers about the supremacy work that is enabled by this class.
Speaker Change: A processor.
Speaker Change: Has generated the excitement.
Speaker Change: And a lot of that excitement right now frankly is in the area of materials, because that's the basis for the supremacy work materials simulation and research.
Speaker Change: From an optimization perspective, while the advantage to system also provides significant benefits.
Speaker Change: We really needed to get to the 4400 cube version to be able to get to the size.
Speaker Change: Rob lungs that were solving and the commercial optimization arena. So we're you know we're just now at the point, where we will be able to start seeing some benefit from that but keep in mind that system is not yet in leap, it's not yet in the cloud service, we benchmark that we calibrate that we benchmarked it.
Speaker Change: We now know that it has the same.
Speaker Change: Strong performance characteristics is that smaller 12 vendor Cupid version. So now we'll expect to see that being able to deliver value in the in the optimization arena.
Speaker Change: And it would go into leap in the.
Speaker Change: The coming quarter or two Alan or when does the parental leave.
Speaker Change:
Speaker Change: We haven't said when it will actually go into leap, but sooner rather than later.
Speaker Change: Okay, a second question and thanks for all that color.
Speaker Change: On the go to market up leveling can you expand further on the productivity that you're seeing with initial labs and some of the chico's for that's taken place.
And.
And any color on the Geos, where future ads will be made and how does that impact the way you think about booking.
Speaker Change: Bookings momentum and customer counts, which as noted were quite favorable in the quarter as you look out over 2025. Thank you.
Speaker Change: Yeah. So.
Speaker Change: First of all.
Speaker Change: It's early days.
Speaker Change: As John commented.
Speaker Change: It was 11 ads, but over.
Over a quarter. So these people need to come up to speed to become productive and we still have more to do to finish building out the go to market team that we expect to be completed by middle of Q1. So.
Speaker Change: We're at the point now where the.
Speaker Change: The go to market team has grown substantially.
Many of the people are new and going through the learning curve. So we haven't yet seen the benefit of those people, becoming productive and yeah. We would hope that we would be seeing that starting next quarter in Q1.
Speaker Change: And Oh, we are putting people.
Not just in North America, but also in Europe, because you know as I commented a few minutes ago, Oh relative to government, we're actually seeing more and nearer term interest in Europe than we are in the U S and commercially.
Speaker Change: That's actually true as well.
Speaker Change: A lot of the opportunity commercially is also.
Speaker Change: Starting our nearer term in Europe. So that's kind of why we're building out there as well, but but early days, we need to get these people fully productive and we would hope to start seeing the results as we move into Q1.
Speaker Change: Very helpful. Thanks, Alan.
Speaker Change: Your next question comes from Tsuji Desilva with Roth Capital. Your line is now open.
Tsuji Desilva: Hi, Alan Hi, John Congrats on the progress here I only talked about the AI.
Tsuji Desilva: Service instances.
Gen AI assist benefits keep you samples can you elaborate on how that works and are you seeing perhaps you know a lot of Hyperscale is you're putting an AI instances with Nvidia AMD are you seeing any bundling cross selling happening or is that kind of happening by the customer.
Speaker Change: So there are two areas.
Tsuji Desilva: Hum.
Tsuji Desilva: Related to Gen AI model training, where we have work going on today.
Tsuji Desilva: One is theres an approach.
Tsuji Desilva: To model training.
Tsuji Desilva: That is based on what's known as restricted Boltzmann machines.
Tsuji Desilva: And this approach is actually.
Tsuji Desilva: An excellent approach, but <unk>.
Tsuji Desilva: Computationally.
Tsuji Desilva: Generates an even heavier load than the way models are being trained today and so it typically hasnt been used as extensively.
Tsuji Desilva: However.
Tsuji Desilva: Our systems.
Tsuji Desilva: Much like their native optimization engines.
Tsuji Desilva: In terms of native restricted ultimate machines, and so we've got a number of customers today that are looking at can we do better model training by going back to restricted Boltzmann machines and using the annealing technology to low.
Lower the computational cost in the energy cost associated with doing that.
Tsuji Desilva: But early early early stages of that.
Tsuji Desilva: Then there are the kind of more modern architectural approaches to model training.
Tsuji Desilva: What are called <unk>.
Tsuji Desilva: Transformer models or diffusion models.
Tsuji Desilva: And there's some work that's been done actually by Nvidia and a paper they published around how to improve model training using using transformer and diffusion architectures by essentially inserting.
Tsuji Desilva: In the middle of the training process.
Tsuji Desilva: Sampling from a smaller discrete late in space without getting into exactly what that means smaller is ideal for us because it means we can fit it natively in the quantum computer we don't need hybrid and discrete is important for us because.
We're natively discrete not continuous on our variables and so we believe that actually by using the quantum processor at that point in transformer and the fusion model training will be able to on the one hand generate much better models, but on the other hand.
Tsuji Desilva: And that's a very costly part of the training process and that's where we think we're also going to be able to get a reduction in time cost and energy required to train, but in that arena were not yet working with customers.
Tsuji Desilva: We built.
Tsuji Desilva: The models are.
Tsuji Desilva: We are now working to benchmark, how the Q P U the quantum processor does.
Tsuji Desilva: When inserted into that process and the model training.
Speaker Change: Okay and.
Speaker Change: And then in terms of the Hyperscale or is putting in AI instances for.
Speaker Change: For customers using Nvidia AMD, so forth are you seeing customers.
Speaker Change: We know how to use your service with theirs together as any bundling effort or is that customer.
Speaker Change: Customer driven.
Speaker Change: Well the answer to that question is not yet.
Speaker Change: Currently, it's all and customer driven.
Speaker Change: Versus kind of driven by the providers of the infrastructure to do the training.
Speaker Change: My view is that as we are able to definitively demonstrate the value of the quantum processor, whether it's with restricted Boltzmann machines are transformers diffusion model that that will start to change and diaper scales will become interested because they'll have to be competitive.
Speaker Change: Okay, great. Thanks al.
Your next question comes from Robert Kwan.
Speaker Change: With Piper Sandler Your line is now open.
Speaker Change: Hi, guys. Thank you for taking the question. This is Robert on for harsh.
Speaker Change: Wanted to touch a little bit on some of the comments on annealing.
Speaker Change: Aid and particularly around the Tam opportunities there.
Do you see essentially some solutions that previously could have been thought of as gate model opportunities potentially address by the annealing solution.
Speaker Change: Oh, I'm, sorry could you repeat the first part of the question I missed the context.
Speaker Change: Yes.
Speaker Change: The total Tam opportunity there.
Speaker Change: Okay. So so look we've.
Speaker Change:
Speaker Change: We tried to point out a couple of times that.
Speaker Change: The Tam for Quanta.
Speaker Change: Covers a number of different problem areas.
Speaker Change: Including <unk>.
Speaker Change: <unk> optimization.
Speaker Change: Including linear algebra for machine learning factor is Asia for crypto differentiate equations for quantum chemistry.
Covered a number of different.
Speaker Change: Problem types and technology areas.
Speaker Change: One significant area is in fact optimization and in fact.
Speaker Change: Many.
Speaker Change: If not most of the important hard problems that businesses need to solve our optimization problems and I think Heather west in her quote kind of.
I said the same thing when she said that optimization could be the killer app for quanta.
Speaker Change: Now it really is.
Speaker Change: Very well suited to solving optimization problems I think I made this comment a minute ago in some sense, it's a native optimization engine.
More over there is a growing body of evidence the gate model systems are going to struggle to be able to deliver speed up on optimization problems and there is kind of a theory and mass beer.
Why is that the case.
Speaker Change: There are a number of papers published a couple of years ago.
Speaker Change: On this topic there has been more recent benchmarking done.
Speaker Change: I mean, if you go to the QE D C, where they did some benchmarking on optimization comparing.
Speaker Change: D wave annealing system to Ibm's gate system, and I am accused gate system, you can look at the results there.
Speaker Change: Yeah, and those problems D wave was able to solve the problem and up to 320 <unk>.
Speaker Change: Variables with 98% accuracy in fractions of a second, whereas IBM and I in Q could go up to about 10 variables.
Speaker Change: <unk> with <unk>.
Speaker Change: 75% to 80% accuracy and taking anywhere from 100 to 10000 times more time.
Speaker Change: To solve the problems.
Speaker Change: So.
Speaker Change: We think that.
Speaker Change: In fact that optimization portion of the Tan.
Speaker Change: Is really.
Speaker Change: A portion of the Tam that will require annealing quantum computing.
Speaker Change: Very helpful. Thank you just a quick follow up more on some of the near term dynamics going on.
Speaker Change: We've heard that potentially some government and of your budget tightening could be happening and was just wondering if that has any impact on the near term.
Speaker Change: The next quarter or so.
Speaker Change: Just going into 2025, thanks, yeah, so for us no.
Speaker Change: But you you should ask that question of Ah I N Q, and we're getting and other gate model providers, who up until now had been the beneficiaries of a lot of U S. Government funding in fact, most of their revenue comes from U S government funding.
Speaker Change: I suspect that if there is any tightening of the budget that will.
Speaker Change: Impact them far more than it will impact us because you know.
Speaker Change: Until recently, we have not that hasn't been our model. Our model has been commercial we're now starting to move into government. So that's something we need to keep an eye on and be very careful of going forward, but currently no. It's not an issue for us.
Speaker Change: Fair enough thanks, guys.
Speaker Change: There are no further questions at this time I will now turn the call over to Doctor Barrett for closing remarks.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Again thank.
Speaker Change: Thank you all for taking the time to join us today as.
Speaker Change: As I stated at the beginning of the call interesting quantum technology is rapidly increasing and we believe that our neely quantum computing serves as an important catalyst for commercial adoption of quanta.
Speaker Change: D wave is very well positioned given our continued technical advancements.
Highly reliable and performing quantum cloud service progress with quantum AI solutions and remarkable work with customers on developing applications for production deployment.
Speaker Change: We continue to lead the industry in ushering in this next transformative ways of computing and we're looking forward to talking to you again during our next call. Thank you all.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating in ethane. Please disconnect your lines.
Speaker Change: Yes.
Speaker Change: Yeah.
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Speaker Change: Okay.
Speaker Change: [music].