Q4 2024 D-Wave Quantum Inc Earnings Call
John Markovich: John Markovich, Alan Baratz, John Markovich, John Markovich, John Markovich, John Markovich,
. . . . . . . . . . . . . [inaudible]
Oh, oh, oh, oh, oh, oh, oh, oh [inaudible]
Speaker Change: Good morning everyone and welcome to D-Wave's Fort Quarter and fiscal year 2024 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to Kevin Hunt of Investor Relations, please go ahead.
Thank you and good morning.
Speaker Change: With me today are Dr. Alan Baratz, Chief Executive Officer, and John Markovich, our Chief Financial Officer.
Speaker Change: 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 a company's most recent periodic SEC report.
Speaker Change: During today's call, the management will provide certain information that will constitute non-GAAP financial and operational measures under SEC rules, such as non-GAAP's gross profit, non-GAAP operating expenses, just to EBITDA and bookings. Reconciliation 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.dwavequantum.com. I'll now hand over the call to Alan.
Alan Baratz: Thanks, Kevin. Good morning, everyone, and thank you for joining us today.
Alan Baratz: It's a remarkable time to be leading one of the world's pre-eminent quantum computing companies, and it is incredible how much has happened since we spoke to you last quarter [inaudible]
Alan Baratz: D wave were seeing firsthand the value that quantum is providing today for hundreds of companies I'm not talking about 15 or 30 years from now I'm talking about today.
Alan Baratz: We recently laid out a framework to help people formulate an informed position on quantum.
Alan Baratz: We call it quantum realized and it's very simple.
Alan Baratz: First because the quantum company have technology that can solve complex problems better or faster than classical computing alone.
Alan Baratz: What are the quantum systems highly perform it reliable and available and third does the quantum company has proven commercial customer successes in proof of concept and in production application deployment.
Speaker Change: These are the criteria that customers need to see to realize real value today, and we believe that there was only one company that can meet all of those criteria right now and that is D wave quantum.
Speaker Change: It's a very exciting time for D wave our business momentum continues and we have never been in a stronger position as a company.
Speaker Change: We're making tremendous progress with our technical development milestones and scientific achievements. Most recently evidenced by Yesterdays peer reviewed publication in science of our demonstration of quantum supremacy on a real world problem.
Speaker Change: We're the only quantum company that can claim it has outperformed classical on a useful problem of relevance to business and science today.
Speaker Change: You can also see the momentum in our business results as we closed the first sale of an advantage system to the Eulich Supercomputing Center, which led to a record quarterly bookings of $18 3 million in the fourth quarter of 'twenty 'twenty four.
Speaker Change: The momentum is also reflected on our balance sheet.
Speaker Change: Where are we now have over $300 million in cash on hand.
Speaker Change: Which we believe is enough to get us to sustained profitability. As previously stated we expect to be the first pure play quantum company to reach profitability and with less cash invested than any of our competitors.
Speaker Change: We truly are a market leader we were the first to launch commercial quantum systems. The first staff quantum applications running in production for commercial customers and now the first to achieve a demonstration of quantum supremacy on a real world problem.
Speaker Change: D wave is quantum realized.
Speaker Change: Let me now walk you through some key business highlights starting with technical achievements.
Speaker Change: We are proud to be the first in the world to demonstrate quantum supremacy on a useful real world problem.
Speaker Change: This groundbreaking work was achieved using our 1200 qubit advantage to prototype annealing quantum computer.
Speaker Change: And it was published in a peer reviewed paper in science on March 12.
Speaker Change: Unlike other attempts this cheap this achievement is the world's first and only demonstration of quantum computational supremacy on a useful problem and with relevance to customer problems today in materials science.
Speaker Change: D waves quantum computer performed the complex simulation in minutes and with a level of accuracy that would take nearly 1 million years using one of the world's most powerful supercomputers.
In addition, it would require more than the world's annual electricity consumption to solve this problem using the supercomputer, which is built with graphics processing unit or GPU clusters.
Speaker Change: It's a truly remarkable achievement.
Speaker Change: We encourage you to check out the paper today on science Dot Org.
Speaker Change: Development of our sixth generation annealing quantum computer advantaged too is rapidly progressing and we recently announced the calibration of a third 4400 qubit advantaged to processor.
Compared with the current advantage system the advantage to processor delivers significant performance gains with doubled cubit coherence time, which drives faster time to solution.
Speaker Change: A 40% increase in energy scale for higher quality solutions and.
Speaker Change: And increased cubic connectivity from 15 weight to 'twenty way, enabling solutions to larger and more complex problems.
Speaker Change: Next let me turn to our commercial momentum in February we announced the first sale of a D wave advantage annealing quantum computing system to the Eulich Supercomputing Center in Germany.
Speaker Change: The system has already been installed at you like and we expect it will be connected to the Jupiter supercomputer, Europe's first and only extra scale high performance computer.
Speaker Change: By owning the system you look has full control over all aspects of this system, which will enable them to work on breakthroughs in AI and quantum optimization applications.
Speaker Change: I should also note that this is not an in kind transaction or a research grant.
Speaker Change: It is a sale of a commercial grade quantum computer you'll like prepaid for the system in the fourth quarter and this is a highly profitable sale for D wave.
We have received substantial interest from other potential customers about purchasing an advantage system as they recognize the significant benefits of owning a system outright.
Speaker Change: It enables them to tightly integrate with existing classical and high performance computing systems, leveraging tune system parameters and take advantage of new system innovations such as advanced analog digital features as they are developed.
Speaker Change: We see system sales as an important component in our go to market strategy moving forward.
Speaker Change: That said, it's important to note that we expect to focus on the quantum computer as a service model with the vast majority of our commercial customers who are most interested in running business applications.
Speaker Change: We continue to work with customers on developing a variety of quantum and hybrid quantum applications, including drug discovery with Japan tobacco.
Speaker Change: Insurance portfolio optimization with later, the technology and data factory of Unocal, a leading Italian insurance company and optimization of police vehicle deployment with North Wales police.
Speaker Change: In addition, we recently announced the commercial hybrid quantum application built with our partner stack that stimulates and optimizes movements of autonomous agriculture vehicles.
Speaker Change: We believe that this could have important benefits to farmers as they adopt autonomous agricultural machines in order to scale and increase the output of their fields with quantum computing, providing the analysis speed and accuracy to help maximize production and minimize costs.
Speaker Change: We're also seeing increased interest from the broader industry and hearing about D wave and our technologies near term value at major events and conferences just yesterday I was at the annual South by Southwest Conference sharing the momentous news of our quantum supremacy result, and discussing how organizations are realizing tangible benefits from our quantum computing systems.
Speaker Change: I talked about how our quantum computers are now providing faster more accurate and less expensive solution than classical computers for evolutionary applications, such as optimizing mobile networks, creating more efficient workforce schedules and streamlining automotive manufacturing.
Speaker Change: Next week I will be at Nvidia GTC quantum day.
Speaker Change: I will have the opportunity to educate people on the benefits of Aneel and quantum computing.
Speaker Change: <unk> differentiated market position and how we're solving customers' computationally complex problems right now at scale, while others remained stuck in research and development.
Speaker Change: On the heels of GTC quantum day I invite you all to join US on March 31 D ways annual Kubitz user conference in Scottsdale, Arizona. We are really excited about the lineup of company executives customers and industry thought leaders that will address the ways that D wave products are delivering value to customers now.
You will hear from speakers, including Charles pain, or Fox business is making money with Charles Payne.
D C. Davidson technologies, Eulich, Japan, tobacco, NTT Docomo quantum research Sciences S. A S Pusan National University, and the University of Southern California, among others. We expect this event will be a powerful demonstration of quantum realized.
Speaker Change: Turning now to a couple of updates on our go to market growth strategy, We recently announced our quantum uplift program offering incentives to organizations that have been disappointed with the results they've seen from competitors Quanta systems.
We hear a lot of dissatisfaction when talking to potential customers about the lack of reliability and uptime, they experienced with competitor systems and more importantly, those systems inability to solve practical real world problems.
For those customers, we believe that the ways, we can help them start to realize the benefits of quantum and hybrid quantum now.
Speaker Change: To accelerate adoption of our annealing quantum computing technology, we announced the leap quantum Launchpad program. A three month trial that provides access to the waste systems are leap realtime quantum cloud service and our team of quantum experts for project support we believe that this program can expand the universe of organizations using quantum.
Speaker Change: To solve their complex problems today.
Speaker Change: We also continue to build out our management and leadership bench in November of 2024, we announced the appointment of Sharon Holt to our board of Directors Sharon has significant experience in the technology sector as an executive Investor and Board member.
Speaker Change: She has worked in semiconductors embedded technologies and intellectual property and has quickly become a very valuable addition to our board.
Speaker Change: Finally, let me close with some quick comments on our financials.
Speaker Change: As I noted the signing of the <unk> deal drove $18 3 million in bookings for Q4 of 2024, and that's a 502% increase over the fourth quarter of 2023.
Speaker Change: I also noted that we were paid for that deal during the fourth quarter, which brought in a substantial amount of cash. We also completed two separate ATM programs in the fourth quarter that brought in a total of $175 million in gross proceeds in 2024, which resulted in a record cash position of 178.
Speaker Change: At year end.
Speaker Change: In January of this year, we raised an additional $150 million in gross proceeds from another ATM program, which led us to a current cash balance in excess of $300 million.
Speaker Change: I will reiterate that we believe that this is sufficient capital to get D wave to profitability and we continue to believe we will reach that milestone faster than any other independent quantum company and with far less total investment.
Speaker Change: And last in a few minutes you will hear from John that we expect our fiscal year 2025, Q1 revenue to exceed $10 million.
Speaker Change: With that I'll hand, it over to John to provide a review of fourth quarter and fiscal year 2024 results John.
John Markovich: Thank you Alan and thank you to everyone, taking the time to participate in today's call and.
John Markovich: In my review of the fiscal 'twenty, four and fourth quarter results I'll be providing non-GAAP operating metrics, including bookings as well as non-GAAP financial metrics, which include non-GAAP gross profit.
John Markovich: non-GAAP gross margins adjusted net loss and adjusted EBITDA loss as we believe these metrics improve investors' ability to evaluate our underlying operating performance. These measures are defined in the tables at the bottom of today's earnings press release with the non-GAAP financial metrics for the most part adjusting for <unk>.
John Markovich: Noncash and nonrecurring expenses revenue for fiscal 'twenty, four was $8 $8 million essentially flat with fiscal 'twenty three revenue of $8 8 million.
John Markovich: As.
John Markovich: Alan highlighted previously bookings for fiscal 'twenty four were a record $23 9 million, which is an increase of 128% or $13 $4 million from the fiscal 2023 bookings of $10 5 million.
John Markovich: With respect to customers, we continue to broaden and diversify our customer base across commercial government and research customers and comparing fiscal 2024 with fiscal 2023 D wave had a total of 135 customers in fiscal 2024 compared with a total of.
John Markovich: 133 customers in fiscal 2023 that includes 59 research in.
John Markovich: Institutional and government customers in 2024.
John Markovich: Compared with 55 in fiscal 2023, and <unk> 76 commercial customers in fiscal 2024 compared to 78 in fiscal 2023 with the commercial customers, including 28, Forbes Global 2000 customers in fiscal 'twenty four compared with 27 in fiscal 'twenty three.
John Markovich: With such customers constituting 37% of the total number of commercial customers in 2024.
John Markovich: GAAP gross profit for fiscal 'twenty, four was $5 $6 million, an increase of $1 million or 20% in fiscal 2023, GAAP gross profit of $4 6 million with the improvement due primarily to an increase in higher margin <unk> revenue and a decrease in stock based compensation expense.
John Markovich: And the cost of sales non-GAAP gross profit for fiscal 2024 was $6 4 million, an increase of $300000 or 5% from fiscal 2023, non-GAAP gross profit of $6 1 million.
John Markovich: GAAP gross margin for fiscal 2024 was 63%.
John Markovich: An increase of 10, 2% from fiscal 'twenty, three GAAP gross margins of 52, 8%.
John Markovich: non-GAAP gross margin for fiscal 2024 was 72, 8% an increase of 3% from the fiscal 2023 non-GAAP gross margin of 69, 8%.
John Markovich: Again, the difference between GAAP and non-GAAP gross profit and gross margin is limited to noncash stock based compensation.
Appreciate it and number two the amortization expenses that are excluded from the non-GAAP gross profit and gross margin measures.
John Markovich: Net loss for fiscal 2024 was $143 $9 million or <unk> 75 per share compared with the fiscal 2023 net loss of $82 7 million or <unk> 60 per share.
John Markovich: The increase was due primarily to a $68 $3 million non cash non operating charge related to the remeasurement of the company's warrant liability.
John Markovich: Which materially increase as a result of the significant increase in the value of the companys warrants with correlated with the price appreciation of <unk> common stock.
Excluding this remeasurement charge the net loss for fiscal 2024 was $75 $6 million or <unk> 39 per share a decrease of $7 3 million or <unk> 21 per share from the fiscal 2023 net loss of $83 million or <unk> 60 per share.
John Markovich: Adjusted EBITDA loss for fiscal 'twenty, 'twenty, four was $56 million, an increase of $1.7 million or 3% from the adjusted EBITDA loss of $54 3 million in fiscal 2023 with the increase due primarily to higher operating expenses driven by our increased investment in our go to <unk>.
John Markovich: Research and development organizations.
John Markovich: With respect to the fourth quarter operating results revenue in the fourth quarter of fiscal 2024 totaled $2 $3 million, a decrease of approximately $600000 or 21% from the fourth quarter of fiscal 2023 revenue $2 9 million.
Bookings for the fourth quarter were a record $18 $3 million, an increase of $15 3 million or over 500% when compared to the fiscal 2023 fourth quarter bookings of $3 million.
John Markovich: GAAP gross profit for fiscal 'twenty for fourth quarter was $1.5 million.
John Markovich: <unk> of approximately $500000 or 25% from the fiscal 2023 fourth quarter gross profit of $2 million with the decrease due primarily to lower professional services revenue that was partly offset by higher acute care revenue non-GAAP gross profit for the fourth quarter was $1 7 million.
John Markovich: A decrease of approximately $600000 or 28% from the fiscal 2023 fourth quarter non-GAAP gross profit of $2 $3 million.
John Markovich: GAAP gross margin for the fiscal 2020 for fourth quarter was 63, 8%.
John Markovich: Increase of three 9% from the fiscal 2023 fourth quarter GAAP gross margin of 67, 7%.
John Markovich: non-GAAP gross margin for the fourth quarter with 73% a decrease of seven 2% from the fiscal 2023 fourth quarter non-GAAP gross margin net loss for the fourth quarter was $86 $1 million or <unk> 37 per share compared with a net loss of 16 million or <unk> 10 per share in the.
John Markovich: The fourth quarter of fiscal 2023.
John Markovich: The increase was primarily due to the aforementioned $68 $3 million noncash nonoperating warrant liability remeasurement charge.
John Markovich: Excluding this charge the fourth quarter net loss was $17 $8 million or <unk> <unk> per share an increase of $1 $5 million and a decrease of three cents per share from the fiscal 2023 fourth quarter net loss of $16 $4 million or <unk> 10 per share.
John Markovich: Adjusted EBITDA loss for the fourth quarter was $15 3 million.
John Markovich: The increase of $4 4 million or 41% for the fiscal 2023 fourth quarter adjusted EBITDA loss of $10 9 million with the increase due primarily to lower revenue and higher operating expenses were principally related to the company's increased investment in our go to market and research to develop.
John Markovich: And then organizations.
John Markovich: Now I will address the balance sheet and liquidity.
John Markovich: As of December 31, U S consolidated cash balance totaled $178 million and as of today.
John Markovich: <unk> $300 million.
Speaker Change: As Alan highlighted earlier during the fourth quarter, we raised $161 $3 million of equity through our ATM programs and our equity line of credit you ought program and during the current quarter, we raised an additional $146 $2 million.
Speaker Change: Under an at the market program for total of net proceeds of $307 million since the beginning of the fourth quarter.
Speaker Change: $295.4 million or 96% of this 300 to $7 5 million was raised over the course of 'twenty three trading days under the ATM program at an average price per share of $4.30 that was eight cents per share higher than the corresponding volume weighted.
Speaker Change: The average price of $4 22 per share over the same 23 trading days.
Speaker Change: In addition, D wave paid off the remaining balance of our $50 million secured term loan with P. S. P. I V units this investments during the fourth quarter.
Speaker Change: At the end of December the D wave had $37 $8 million remaining in issuance capacity under the Iraq with Lincoln Park Capital Fund with the investment commitment running through October of this year, our ability to utilize the lock is subject to a number of conditions, including having a sufficient number of registered shares in.
The stock price being above $1 a share.
Speaker Change: With respect to guidance, we're expecting fiscal 2025 first quarter revenue to exceed $10 million with a significant portion of the first quarter revenue, including revenue recognized from the sale of an advantage annealing quantum computer.
Speaker Change: To conclude as we've previously stated we believe the D wave has the opportunity to be the first independent publicly held quantum computing company to achieve sustained profitability.
Speaker Change: <unk> achieved this milestone with substantially less cumulative funding than required by other independent public withheld quantum computing companies.
Speaker Change: With that we will now proceed to questions.
Speaker Change: Thank you and ladies and gentleman, who will now begin the question and answer session.
Speaker Change: Ask a question you May press star followed by the number one on your telephone keypad did withdraw. Your question you May press star followed by the non breakeven and just a reminder to ensure we can hear from as many of you as possible. We would ask for a limited one question and one follow up per person. If you have additional questions. Please reenter the queue and we will take them. This time.
Speaker Change: It allows one moment please for your first question.
Speaker Change: And our first question comes from the line of Craig Ellis with B Riley Securities. Please go ahead.
layer: Hi, Yeah, it's layer on for Craig.
Speaker Change: Congratulations on yesterday's announcement had a great quarter.
layer: And I kind of wanted to dig into that a little bit more.
Speaker Change: As kind of advantage to kind of build out that frontier of what's capable.
Speaker Change: There's lots of them in there like do you think that sort of forwarding and engagement that you already have with your existing commercial customers.
Speaker Change: So.
Thank you for for joining in for the question absolutely. So the interesting thing about advantaged two versus advantage is that when we started down the path of trying to demonstrate quantum supremacy, we began with our 5000 qubit advair.
Speaker Change: <unk> system.
Speaker Change: And we actually were not able to get the result.
Speaker Change: However, when we finished calibrating a 1200 qubit advantaged to process or so a quarter is a number of cubits much smaller system. We were able to get the result. The reason is why it has fewer kubitz. It's more highly connected it has twice as long and coherence time.
Speaker Change: And it has a significantly higher energy scale.
This means we can actually solve bigger problems faster and with higher precision results. So arguably at 1200 cubits advantaged two is significantly more powerful than advantage at 5000 cubits.
Speaker Change: Now finished calibrating our third.
Speaker Change: Advantaged to system, and we plan to roll that out commercially basically to make that just generally available over the course of this year hopefully sooner rather than later and we do believe that the increased power will allow not only new customers, but our current.
Speaker Change: Customers to see improved performance on their applications. So yes, this absolutely will make an impact.
Speaker Change: Awesome that's great.
Speaker Change: That's kind of shifting gears onto that system sale, if you like.
Speaker Change: Congratulations on getting a system sell through and expanding the business in that way.
Speaker Change: I kind of wanted to ask you know is this something that you kind of cut it can expect to continue.
Speaker Change: Across 25, with perhaps more of a systems doesn't pipelines in and what the potential revenues there look like.
Speaker Change: Then kind of adding on to that what are kind of some of these margin mechanics that might go on with the test themselves those will be balanced against you guys.
Speaker Change: Okay that actually sounded like three follow up questions.
Speaker Change: Let me, let me, let me try to respond.
Speaker Change: So first of all.
Speaker Change: The supremacy work had a lot to do with that system sale to <unk> as well as to the increased interest. We are now seeing for system sales remember, we posted as that paper.
Speaker Change: Demonstrating quantum supremacy on the archive the preprint server about a year ago and then it took a year to go through the peer review process. So while we were able to talk about it to customers. We couldn't talk about it to the press and that was what we were able to do finally yesterday.
Speaker Change: However, we've been able to talk about this too are a variety of different Reese.
Speaker Change: Researchers at Supercomputing centers and National labs around the world.
Speaker Change: And as I said, it's that result that has generated an enormous amount of interest in owning a system connecting it to high performance classical computers and using that to explore a variety of new work.
Speaker Change: Those in important areas like AI. So in addition to the sale to <unk>. We now have discussions underway with three other institutions right I'm not going to tell you that we expect to see three more system sales anytime soon but we do have discussions underway with three other institutions around the world.
Speaker Change: I actually and absolutely do believe that system sales will become an important component of our sales bookings and revenue model going forward. However.
Not to the exclusion of quantum of compute as a service because many of our commercial customers are really just interested in running their business applications.
For those customers.
Speaker Change: Quantum compute as a service is in fact, the better model and that will continue and we expect continued to grow while on the research institution and University and sorry governmental lab front, we expect to transition more to system sales.
Speaker Change: And.
Speaker Change: Other than that no we can't give you any guidance.
Speaker Change: Guidance on.
Speaker Change: What we expect system sales to look like going forward or bookings or revenue, we expect to achieve from that but John may want to spend just a minute on margins.
John Markovich: Sure you can expect that the margins on our system sales will exceed our consolidated non-GAAP gross margins, which last year were 72.8%.
Speaker Change: Okay.
Speaker Change: Alright. Thank you and your next question comes from the line of Richard Shannon with Craig Hallum. Please go ahead.
Speaker Change: Oh, great Alan and John Thanks for taking my questions.
Speaker Change: I guess I wanted to follow up on the on the paper as well and hearing your response to the last question you. All also modify it but I'd love to get a sense of the degree to which this paper.
Speaker Change: Both as you published an archive a year ago, and now published pulp fully and publicly yesterday has changed the opinion of both the academic community that I think has had some resistance to annealing and its capabilities and you've also talked about kind of the headwind of calling them adoption just from big suppliers like IBM.
Speaker Change: Said, the quantum is not ready there seems to be a pretty strong statement. So I guess I'd love to get your sense, both from what you're hearing from <unk>.
Speaker Change: Commercial entities and maybe some of the thought leaders on the quantum computing community.
Speaker Change: How much this is changing their opinions.
Speaker Change: So so first of all with respect to the academic community.
Speaker Change: Keep in mind that quite a few academic institutions actually partnered with US on this result, we worked with 11 institutions around the world.
And.
Speaker Change: A number of the people from those institutions are actually co authors on the paper and yes. This has been a significant achievement.
Speaker Change: Achievement.
Speaker Change: Relative to not just the.
Speaker Change: The impact on the.
Speaker Change: Quantum industry and the commercial market, but also on the academic community now that having been said.
Yeah.
Speaker Change: Uh huh.
Speaker Change: Not everybody is willing to readily.
Speaker Change: Except reality and so you know we still have.
Speaker Change: Some folks in the academic community that are they go down kicking and screaming if you like in fact.
Speaker Change: Yesterday, there were two papers that were put up on the archive preprint server that essentially said Oh, we can do this classically.
Speaker Change: Which of course.
Speaker Change: Is a gross overstatement, if not absurd and yeah, we actually are.
Speaker Change: Put up our own paper on the preprint server that pointed out exactly what they did and there were some good work embedded in that.
Speaker Change: How far away from being able to perform the computations that we performed on our quantum computer they actually work.
Speaker Change: And so you know.
Speaker Change: This result that we published yesterday.
Speaker Change: Is a huge step forward for the quantum of industry in that it truly is the first time that anybody has been able to demonstrate the ability to solve a problem on a quantum computer that cannot be solved classically. This is what everybody in the quantum industry has been aspiring to and working toward.
Speaker Change: Since the inception, and we've now achieved it and that's a very significant and important milestone for <unk> as I said the industry are.
Speaker Change: And the market place alike, and where we're quite proud and yes. It is having an impact on the.
Speaker Change: The commercial side of our business as I said, it's opening up.
Speaker Change: Some very important opportunities to work more closely with research institutions and government research labs.
Speaker Change: And as you know government has been a bit more challenging for us than commercial.
Speaker Change: The dialogue is absolutely changing at a rapid pace and it generates.
Even more interest from commercial businesses as you know.
Speaker Change: It starts to kind of now.
Now the way that rhetoric around you know annealing versus gate, it's just about quantum computing and the ability to solve important problems that classical struggles with.
Speaker Change: Yeah.
Speaker Change: Wonderful and we will look forward to hear more about that acuity and a couple of weeks.
Speaker Change: My follow on question is and I'll resist the temptation to do a three parter and probably make it more of a two parter here, but I'm looking at a couple of numbers here.
Speaker Change: Bookings were $18 million in the quarter and Youre talking about guidance in the first quarter of above $10 million and if we just kind of look at the run rates of revenues last year might've people might assume theres going to be roughly $8 million or a little bit more recognized from the from the eulich contract here, which had 18 million in bookings here. So maybe you can help us understand either.
Speaker Change: Is it do we should we expect the sales in the first quarter to be meaningfully above $10 million or Alternatively, what was the other contribution for the strong bookings in the fourth quarter.
Speaker Change: John do you want to answer that question.
Speaker Change: Sure. So obviously the the systems are booking a was a very significant portion of the fourth quarter bookings.
Speaker Change: And the guidance, we provided with respect to revenue for the first quarter as we've outlined.
Speaker Change: A very substantial portion of that will be related to the installation and the acceptance of the system.
Speaker Change: But we've not provided any additional details.
Speaker Change: The fourth quarter bookings above and beyond.
Speaker Change: What we announced earlier, which was the $18 3 million.
Speaker Change: And we haven't provided any additional breakdown on the first quarter revenue other than we expect the revenue to exceed $10 million.
Speaker Change: Thank you. Your next question comes from the line of Quinn Bolton with Needham and company. Please go ahead.
Quinn Bolton: Hey, guys.
Speaker Change: Congratulations on multiple fronts.
Speaker Change: Cash and Thats quantum supremacy I guess I wanted to follow up there on Richard's question understanding you don't want to provide too much additional question on detail on the $18 $3 million in bookings.
Speaker Change: If revenue is only in the 10 ish million range. It might imply then you saw a substantial increase in <unk> bookings.
Speaker Change: And I'm just wondering if you can comment.
Speaker Change: Excluding this system bookings.
Speaker Change: Could you describe the trends youre seeing on the acute care side of the business.
Speaker Change: Was there a meaningful increase in bookings related to <unk>.
Speaker Change: Non system sales in the fourth quarter, and then I've got a follow up.
Speaker Change: The <unk> bookings in the fourth quarter, wherein we're incrementally are greater than they were in the third quarter.
Speaker Change: Okay, perfect and then.
Maybe just sort of a follow up on the system sale is this when that system is accepted by <unk>.
Speaker Change: You if you recognize the revenue for the hardware sale is there an ongoing maintenance or support contract where some of the fourth quarter bookings may be recognized over time.
In that sort of maintenance or support.
Speaker Change: Almost kicks in a recurring revenue stream for some period of quarters or years.
Speaker Change: So the other elements.
Speaker Change: Go ahead Sir.
Speaker Change: Every other hour revenue elements of that booking.
Speaker Change: One is that the contract includes an upgrade option for advantage too.
Speaker Change: Also includes ongoing support and maintenance.
Speaker Change: As well as some degree of access to leap or.
Speaker Change: Yes.
Speaker Change: Again, the bulk of the the booking will manifest itself in the system sale, but there are some components that will go beyond the first quarter.
Speaker Change: Got it okay.
Alan Baratz: And then the last question just for Alan on advantaged to congratulations on the third 400 qubit processor calibration.
Alan Baratz: Love to bring advantage to the market are you now sort of anticipating bringing that to market at the 4400 qubit level or are there still plans to move to 7000 cubits with that system over time I'm, just trying to think through.
Alan Baratz: Kind of the go to market an advantage too as we look forward.
Alan Baratz: Yeah. So we are going to bring the 4400 qubit system to market.
Alan Baratz: And in fact.
Alan Baratz: The <unk>.
Alan Baratz: Reason why we're now at three calibrated advantage two systems, but.
Alan Baratz: Having yet if you like put it in leap as a as another processors, we did with the 1200 cubic prototype is because when.
Alan Baratz: When we do bring a processor to market versus making it available as a prototype part of what we need to do is make sure that we have the ability to get all the leap systems upgraded as well as whatever customer systems might be out there I think our <unk> system.
Alan Baratz: So we just need to make sure we have enough calibrated process areas to support the full rollout of the product.
Alan Baratz: And so that's what we're working towards right now and we expect that it will become generally available later this year as.
Speaker Change: As far as moving to a larger.
Alan Baratz: Advantaged to system.
Alan Baratz: What we are.
Alan Baratz: Working toward right now is a slightly different approach to scaling.
Alan Baratz: Up until now.
Alan Baratz: Our approach to scaling has always been more cubits on the chip.
Alan Baratz: And we've got more headroom.
Alan Baratz: To grow the system size beyond where we are today, whether it's 4400 gigabits on a chip or 5000 cubits on a chip at.
Alan Baratz: At the same time.
Alan Baratz: No.
Alan Baratz: Yeah, you should never bet against.
Alan Baratz: Distributed.
Alan Baratz: Versus centralized and so we are.
Alan Baratz: We're also moving down the R&D path of multi chip processors.
Alan Baratz: To be able to scale not just buy more kubitz on a chip, but by interconnecting multiple chips and we think that that's actually going to allow us to scale much faster going forward and so we're in.
Alan Baratz: In the process of.
Kind of developing that capability, which we think will likely be how we.
Alan Baratz: The most significant portion of how we scale going forward.
Speaker Change: Thank you and your next question comes from the line of <unk> with Roth Capital. Please go ahead.
Speaker Change: Good morning, Alan and Mike Congratulations on the progress here.
Speaker Change: The.
Speaker Change: The system sale, you had I'm wondering if the future one you'll have.
Speaker Change: Would they generally have a similar upfront versus recurring.
Speaker Change: Percent breakout or might there be different structures to feed.
Speaker Change: Our hardware sales versus the current one I just want understand that revenue model.
Speaker Change: Yeah C J.
<unk>.
Speaker Change: These deals.
Speaker Change: At least on a sample size of one <unk>.
Speaker Change: <unk> tend to be.
Speaker Change: Structured to meet the specific needs of the customer.
Speaker Change: So there are a lot of elements that went into exactly how we structured this deal.
Speaker Change: In the case of Eulich.
Speaker Change: It was important to them that the upgrade to advantage to be included especially since we were so close to the advantage to processor, becoming available that might not always be the case.
Speaker Change: Secondly.
Speaker Change: Hum.
Speaker Change: Uh huh.
Speaker Change: Depending on who we're selling to they might be looking to use the system in different ways are they using it to support commercial applications or are they using it to support research or they're using it to support education research and education and depending on the exact nature.
Speaker Change: Sure of how they plan to use the system that might also.
Speaker Change: Drive how the deal get structured and what the cost components are so I think it's.
Speaker Change: It's not really possible for us to say this is the model I think it will vary by customer.
Speaker Change: Okay.
Speaker Change: Hi, great outlets available and then switching over to the the results yesterday and in the system I understand that the connectivity intense anything without performance can you just remind us in the quantum systems, what the higher power allows the systems to do in terms of performance just remind us that technical aspect.
Speaker Change: Okay, when you say higher power.
Speaker Change: Sure what you mean.
Speaker Change: I believe you said like honest it was a combination of higher power and increased connectivity that allowed you achieve the results that yeah.
Speaker Change: Okay.
Speaker Change: Yes, no sorry, it was three elements it was more connectivity longer coherence times and higher energy scale.
Speaker Change: Sure.
Speaker Change: Yeah, so so more connectivity.
Speaker Change: Laos us to support larger and more complex problems.
Speaker Change: Longer coherence time allows us to get to optimal solutions faster.
Speaker Change: And.
Speaker Change: Higher energy scale allows us to specify the problem parameters with greater precision.
Speaker Change: So this collectively means larger more complex problems solved faster and with greater precision.
Speaker Change: And your next question comes from the line of David Williams with Benchmark. Please go ahead.
David Williams: Hey, good morning, and congratulations on all the.
David Williams: The progress here I guess, maybe first John just thinking about your balance sheet now that you fully capitalized.
Speaker Change: You should have some pretty significant flexibility here, but does this change anything on your go to market strategy and it sounds like you've got some R&D efforts now that we havent really heard about before in terms of the scaling but just wondering are there other areas of the business you can accelerate or does the compensation maybe change how you're thinking about the business.
When you scale up and go forward.
David Williams: David There are elements of the business that we could scale.
Speaker Change: The scale at a faster pace.
Speaker Change: Given that our capital raise or the magnitude of our capital raise has been so recently we're.
Speaker Change: Still the process of evaluating where it may or may not make sense too.
Speaker Change: We increased the rate.
Speaker Change: And nature of the investments.
Speaker Change: Yes, John maybe I'll, just say a tiny bit more than that obviously I talked a few minutes ago about how we're looking at introducing a new capability to scale the size of the process more rapidly through multi chip. In addition to continuing to grow the density.
Quinn Bolton: Q, but it's on a single chip.
Quinn Bolton: A second area is gate model I mean, we've been working on our gate model program for a couple of years now.
Quinn Bolton: And we do think that.
Quinn Bolton: <unk> now represents an opportunity to look at how we might accelerate that program.
Quinn Bolton: And so that is an area of focus for us and as you said go to market.
Quinn Bolton: We will.
Quinn Bolton: Kind of operate this year with significantly more salespeople technical pre sales and professional services than we had last year, which we are hopeful will allow that allow us to grow the business faster.
Quinn Bolton: Okay.
Quinn Bolton: Great. Thanks for that and then maybe Alan just kind of thinking about some of the comments that we heard from from.
Speaker Change: Hi, <unk>.
Speaker Change: More recently at CES discounting the usefulness of quantum and then you're going to be there on a panel participating. They clearly you've shown these are incredible results with the quantum supremacy I'm just wondering how you're thinking about maybe the paradigm shift that youre hearing from customers and it sounds like Youre, certainly getting that interest, but what else are you hearing and how do you think this changes.
The industry as we kind of move forward here and think about what you've already accomplished and versus where maybe some of the less optimistic folks are out there in terms of how they're thinking about while thank you yeah.
Speaker Change: So David first of all.
Speaker Change: While this supremacy result is absolutely groundbreaking and critically important for the industry.
Speaker Change: Magnetic materials simulation isn't necessarily something that.
Speaker Change: You know as a kitchen table discussion so not everybody it doesn't resonate with everybody as it as it does with us.
Speaker Change: And we think it's extremely important because magnetic materials are used everywhere, especially in medical devices and we think this represents an opportunity to more rapidly and more cost effectively design, new materials and as a result bring bring to market.
Proved improved AR devices that incorporate sensors based on these materials, but.
Speaker Change: Yeah. There are other application areas for example related to AI.
Speaker Change: Maybe some other areas where.
Speaker Change: A broader portion of the population has a greater interest and so you mentioned and it is.
Speaker Change: GTC conference I am very much looking forward to participating on the panel at GTC and I would tell you that.
Speaker Change: The quantum supremacy resolved.
Speaker Change: Actually has applicability beyond magnetic materials simulation now I'm not going to tell you what that applicability is.
Speaker Change: And then Italia you, it's a broader based with respect to the likely a public interest and I am also going to tell you that you should pay attention to a quantum day on March 20th than what we have to say about it.
Speaker Change: Thank you and once again, if you would like to ask a question simply press star followed by the number one on your telephone keypad.
Your next question comes from the line of harsh Kumar with Piper Sandler. Please go ahead.
Speaker Change: Yeah, Hey, guys. Congratulations on a lot of good things that are going on I don't know I had one one for you and then a follow up.
Speaker Change: I wanted to ask about you like plus Jupiter Asher.
Speaker Change: There's outside institution, that's growing a couple one Chris just demonstrate traditional computing potentially a large supercomputer.
Speaker Change: You've done these kind of projects before what does this mean for validation and what does this mean for opening up the market.
Speaker Change: For other people to be able to solve super complex problems.
Speaker Change: As demonstrated by a by an outside organization in Europe.
Speaker Change: Yeah, so actually harsh we have not previously tightly integrated.
Speaker Change: Our quantum systems with a supercomputer or a high performance computer.
Speaker Change: We do run hybrid algorithms and hybrid solve or is that our customers can have access to where we can use Cpus and gpus together with decline of computer, but but that's at a modest scale that's not.
Speaker Change: Massively parallel systems like <unk>.
Speaker Change: Frontier at Oak Ridge labs, or the Jupiter extra scale system that you like is building out this will actually be the first time that our quantum system is tightly integrated.
Speaker Change: With a supercomputer of that scale and we're very much looking forward to working with you like and in fact, there will be a lot of joint collaborative.
Speaker Change: Research and investigation that goes on on the applications that could be made possible through that integration and we do think that particularly in the areas of AI and AI workflows.
Speaker Change: There could potentially be some very significant opportunity.
Speaker Change: Remember I mean currently AI does require massive amounts of compute and we're really looking forward to understanding what happens when you integrate quantum into those workflows and.
Speaker Change: How and if that might change on the one hand, the time to do model training. The accuracy of the models may be the energy consumption, maybe maybe we can reduce it and so on.
Speaker Change: Alright, but comes out and then another.
Speaker Change: Other one.
Speaker Change: Maybe maybe just.
Speaker Change: Brought in your mind, a little bit. So now you've got two businesses you can sell systems, which there seems to be if you already said there are three interested parties.
Speaker Change: But you also have a business associated with services.
Speaker Change: What is what is Dr. Alan Barrett just wanted to wonder what is what is what are you interested in where are you leaning towards as.
Speaker Change: As D wave looks forward.
Speaker Change: I guess and then I would be curious if John has been put on it to financially.
Speaker Change: Very lucrative obviously, that's the business of selling these computers.
Speaker Change: But just curious if you could shed light on where your interest lies.
Speaker Change: Well look.
Speaker Change: You know.
Speaker Change: I think all my babies are beautiful.
Speaker Change: So uh huh.
Speaker Change: First of all we have an amazing R&D team that continues to knock the park at the ball out of the park and so I'm really looking forward to delivering the advantaged to system I'm looking forward to how we're going to be able to scale that are more rapidly going forward through both.
Speaker Change: Multi chip N.
Speaker Change: Increased density on the chips I am looking forward to gate, because I do think that gate and annealing are quite complementary and can enable collectively important use cases are.
Speaker Change: I'm looking forward to continuing to support our customers in their use of quantum to help solve really hard optimization problems to improve their business operations and I'm, especially interested and the introduction of quantum into AI and machine learning because I do think there's a huge opportunity.
Speaker Change: D. There to speed up training and to reduce energy consumption and I do think that could be very transformative.
Speaker Change: Thank you Alan and I'll get back in line.
Speaker Change: Yeah.
Speaker Change: Thank you and we do have a follow up question coming from the line of harsh Kumar with Piper Sandler. Please go ahead.
Harsh Kumar: Yes so.
Speaker Change: Thanks again for another opportunity to ask a question.
I wanted to ask about it so it's a lot of people on the call. We're trying to basically ask about the mechanism of the system sales and what it would do.
Was curious so.
Speaker Change: I assume that most of the money that you've got for the system sales were recognized in <unk> John.
Speaker Change: And but yet you're talking about a substantial increase in revenues Q1and that's driven by our core business. So I was curious what is driving the core business all of a sudden did something happen or did you lock down a couple of large customers or is there a trickling effect of the system sales.
Speaker Change: I'm going into <unk> as well.
Speaker Change: Sure. So the the systems booking took place in the fourth quarter.
Speaker Change: And we were paid for that system.
Speaker Change: In the fourth quarter.
Speaker Change: And what we've outlined with respect to our first quarter guidance of revenue in excess of $10 million a significant portion of that will be the installation and acceptance of the system.
Speaker Change: Yeah harsh.
You said something that wasn't quite accurate you said that a portion of the system sale was recognized revenue recognized in Q4, that's not the case there was no revenue recognized in Q4 for the system sale.
Speaker Change: It was just the booking so.
Speaker Change: Got it so how many quarters do you think.
Speaker Change: The project I mean, it's a complicated system I've seen your system in Canada, and it's not like a computer where you can just take it so how many quarters do you think the process will take to set it up to get it going and the handholding that you would need to do.
So in other words, how many quarters kind of revenue run for one system sales.
Speaker Change: Accurate. It tells me the first ballpark it.
Speaker Change: The advantage system is already set up and running at you like and they have access to it they are using it today.
We were able so that that was all completed.
Speaker Change: Since we signed the agreement for the system sale in Q4.
Speaker Change: Now what has not yet happened is that that system is not yet been upgraded with the advantage to chip.
John Markovich: As John said, there are couple of components to the revenue recognition big part of it is when we install the system and hand, it over to them that's been done.
John Markovich: That was done this quarter Q1.
John Markovich: Some of the revenue will be recognized when we upgrade that processor to advantage too and then some of that revenue will be recognized through ongoing maintenance over several years into the future.
Speaker Change: Thank you and ladies and gentlemen that concludes our question and answer session I will now hand, the call back to Dr. Alan Barrett for closing remarks.
Speaker Change: Thank you thanks to all of you for taking the time to be here with us today, it's been a.
Speaker Change: It's been an amazing quarter.
Speaker Change: Quarter for the company and the future looks even more amazing.
Speaker Change: We believe that the company is in the strongest position in its history and is leading the quantum computing sector based on product performance technical maturity and commercial adoption.
Speaker Change: Others in the industry continue to make unsubstantiated claims around the performance and adoption of their technology. We continue to capitalize on our first mover advantage to further distance ourselves from the rest of the market, we're a well capitalized company with more than $300 million in cash and sufficient capital to reach profitability, where the only quantum computing.
Speaker Change: Neither has demonstrated our system's ability to outperform classical on a useful problem, which has now been published in an esteemed peer reviewed journal we have the largest quantum computers in the world with 5000, plus kubitz able to solve complex computational problems right. Now we are the first quantum computing company GAAP customers move commercial.
Speaker Change: <unk> into production.
Speaker Change: And we offer customer service level agreements, which means we stand behind the high levels of availability reliability and scalability of our leap cloud service our customers are realizing the value of quantum right now, it's a historic time, Anthony and for quantum computing as a whole. Thanks again for taking the time to join us today.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.