D-Wave Quantum Q2 2025 Earnings Report

D-Wave Quantum EPS Results

• Actual EPS: -$0.08
• Consensus EPS: -$0.05
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: N/A

D-Wave Quantum Revenue Results

• Actual Revenue: $3.10 million
• Expected Revenue: $2.55 million
• Beat/Miss: Beat by +$549.00 thousand
• YoY Revenue Growth: +40.90%

D-Wave Quantum Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 8:00AM ET

D-Wave Quantum (NYSE:QBTS) develops and delivers quantum computing systems, software, and services worldwide. The company offers Advantage, a fifth-generation quantum computer; Ocean, a suite of open-source python tools; and Leap, a cloud-based service that provides real-time access to a live quantum computer, as well as access to Advantage, hybrid solvers, the Ocean software development kit, live code, demos, learning resources, and a vibrant developer community. It also provides D-Wave Launch, a quantum professional service that guides enterprises from problem discovery through production implementation. The company's quantum solutions are used in logistics, financial services, drug discovery, materials sciences, scheduling, fault detection, mobility, and supply chain management. It serves financial services, manufacturing/logistics, mobility, and life sciences/pharmaceuticals industries. D-Wave Quantum Inc. was founded in 1999 and is headquartered in Burnaby, Canada.

D-Wave Quantum Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: D-Wave announced the general availability of its Advantage Two quantum computer, boasting double coherence time, a 40% increase in energy scale, and enhanced cubic connectivity to tackle larger optimization, material simulation, and AI problems.
• Positive Sentiment: The company launched a strategic advanced cryogenic packaging initiative with NASA’s Jet Propulsion Laboratory to develop superconducting interconnects for multi-chip systems on the path to a 100,000-qubit annealing processor.
• Positive Sentiment: D-Wave released an open-source Quantum AI toolkit integrating its quantum computers with PyTorch and demonstrated a quantum-enabled image generation workflow, facilitating hybrid quantum-classical machine learning applications.
• Positive Sentiment: Second-quarter revenue grew 42% year-over-year to $3.1 million and bookings jumped 92% to $1.3 million, reflecting accelerating commercial momentum and an expanding pipeline of large enterprise engagements.
• Negative Sentiment: The net loss widened to $167.3 million in Q2, driven by $142 million in noncash warrant remeasurements, and the adjusted EBITDA loss increased 44% to $20 million as operating expenses rose to support growth initiatives.

Presentation

[Operator]

Good morning, everyone, and welcome to BREVE's Second Quarter of Fiscal Year twenty twenty five Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to the Bebeth Maffei of Investor Relations. Please go ahead.

[Executive]

Thank you, and good morning. With me today are doctor Alan Barritz, our chief executive officer, and John Markovich, our chief financial officer. Before we begin, I would like to remind everyone that this call may contain forward looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports. During today's call, management will provide certain information that will constitute non GAAP financial measures under SEC rules, such as non GAAP gross profit, non GAAP gross margin, and adjusted EBITDA loss, and operating metrics such as book release. Reconciliations to GAAP financial measures and certain additional information are also included in today's earnings release, which is available on the Investor Relations section of our company's website at www.dwavequantum.com. I will now hand the call over to Alan.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Good morning, everyone, and thank you for joining us today. I'm once again really excited to share our results for the 2025. Building on the company's remarkable first quarter results, we continue to see accelerating momentum across the business. Let me now walk you through some key highlights, starting with technical achievements.

[Alan Baratz, CEO & Director at D-Wave Quantum]

In May 2025, we announced the general availability of D Wave's advantage two quantum computer, our most advanced and performance system. The advantage two system is a powerful and energy efficient annealing quantum computer capable of solving computationally complex problems beyond the reach of classical computers. A smaller prototype of this system was used to demonstrate our quantum supremacy result on a real world material simulation problem, a first for the industry. Featuring D Wave's most advanced quantum processor to date, the advantage two system is commercial grade and built to address real world use cases in areas such as optimization, material simulation, and artificial intelligence. As previously shared, the advantage to quantum processes have demonstrated impressive performance gains over the previous advantage system, including double coherent time for faster time to solution, a 40% increase in energy scale for higher quality solutions, and increased cubic connectivity from 15 to 20 ways to enable solutions for larger problems.

[Alan Baratz, CEO & Director at D-Wave Quantum]

It's a significant engineering achievement that highlights our progress in scaling quantum technology to meet demand for growing computational processing power while maintaining energy efficiency. We're helping customers realize value from quantum computing right now, and the advantage two system is an important proof point. We recently announced a new strategic development initiative focused on advanced cryogenic packaging. Designed to advance and scale both gate model and annealing quantum processor development, The initiative builds on Z Wave's technology leadership in cryogenic packaging and will expand our multichip packaging capabilities, equipment and processes. By bolstering Z Wave's manufacturing efforts with state of the art technology, the company aims to accelerate its development efforts in support of its aggressive product roadmap on the path to 100,000 cubits.

[Alan Baratz, CEO & Director at D-Wave Quantum]

As part of this initiative, D Wave is leveraging deep expertise and processes at the NASA Jet Propulsion Laboratory, JPL. Harnessing JPL's superconducting bump on process, we have demonstrated end to end superconducting interconnect between shifts, work that we expect will serve as an important foundation for scaling both our annealing and our gate model systems. We are continuing important development work that brings together quantum and AI to explore the synergies and benefits of these complementary technologies. Our aim is to help organizations accelerate the use of annealing quantum computers in a growing set of AI applications. To that end, we recently introduced a collection of developer tools to advance quantum AI and machine learning innovation.

[Alan Baratz, CEO & Director at D-Wave Quantum]

First, we launched an open source quantum AI toolkit that provides direct integration Z quantum computers and PyTorch, a production grade machine learning framework widely used to build and train deep learning models. Second, we launched a new demonstration that illustrates how developers can use Z Wave's Quantum AI toolkit to generate simple images, reflecting what we believe is a pivotal step in the development of Quantum AI capabilities. These tools are making it easier for customers like Japan Tobacco and Triumph to build hybrid quantum classical machine learning applications. Customers are increasingly coming to us to explore how to integrate quantum into AI workflows, and we expect that this will remain a priority development area for us. Last quarter, we discussed the purchase of an advantage two system by the Hewlett Supercomputing Center, an important milestone in our burgeoning on premises business.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Demand for purchasing a system has been high, and we've been in discussions with numerous organizations around the world interested in buying a D Wave quantum computer. Recently, we announced a strategic relationship with Yonsei University and Incheon Metropolitan City to accelerate the exploration, adoption, and usage of quantum computing in South Korea. Under the terms of the memorandum of understanding, the three organizations are working together to advance research and talent development for quantum computing, to provide access to D Wave's quantum computing systems and services, and to collaborate on the development of use cases in biotechnology, material science, and other areas. In addition, the MOU supports our efforts toward the acquisition of a D Wave Advantage two system on-site at the Yansai University International Campus in Fongo, Yansugu, Incheon. Before turning to commercial updates, I wanted to take a moment to remind everyone of the differences between annealing and gait model as there still appears to be continued misinformation that we believe is confusing the market.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Annealing and gate model are different types of quantum computing approaches that solve different types of problems. According to peer reviewed research, gate model quantum computers will not offer advantages for all problem types. Multiple research results have shown that a nearly quantum computer outperform and are expected to continue to outperform gate model on optimization problems. So gate models cannot universally solve all problems better than classical. It is also important to understand that annealing is not a niche solution.

[Alan Baratz, CEO & Director at D-Wave Quantum]

We believe that annealing quantum computing is well suited to a broad set of problems, including AI machine learning, quantum simulation, and business optimization, which is ubiquitous in today's modern enterprise. Business optimization problems encompass things like workforce scheduling, production scheduling, resource allocation, vehicle routing, and so on. Together, these represent extensive use cases with far reaching potential. To characterize the annealing quantum computing as niche is misleading and ill informed. Both annealing and gate model quantum computers can solve a broad range of problems, and each has its limitations with problems they cannot efficiently solve.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Annealing quantum computing is very good at solving optimization problems, which cannot be efficiently solved by gate model. Gate model quantum computers, once commercialized, are expected to be very good at quantum chemistry and three d fluid dynamics, which cannot be efficiently solved by any of them. And both systems both systems can tackle linear algebra and factorization, meaning problems related to AI, machine learning, and cryptography. We believe that organizations will need both annealing and gate model systems in order to address their full problem sets. This is why D Wave is building both types of quantum computers for our customers.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Now I'll turn into commercial updates. In terms of D Wave's customer portfolio, we signed a number of new and renewing customer engagements for both commercial and research applications, including EON, a European multinational electric utility company GE Vernova, a global energy company the National Quantum Computing Center, NQCC, The UK's national lab for quantum computing Nikon Corporation, a multinational corporation specializing in optics and precision technologies NTT Data Corp, a multinational IT services and consulting company NTT DOCOMO, Japan's leading mobile operator SHOT Corporation, a multinational electronics company and the University of Oxford. We've also been working with a Fortune 500 aerospace and defense company. And in q two, we completed a prioritization of 12 different use cases applicable to their business operations that the customer found challenging to solve using classical optimization techniques. Quantum optimization, powered by a nearly quantum computing can deliver value in terms of better and faster solutions.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Based on the results of our initial exploratory work with this customer, we've now started building the proof of concept for the first of the use cases with a road map to extend to all of them and market them to additional aerospace companies. In addition, we recently built a quantum hybrid proof of technology with North Wales police to optimize the deployment of patrol vehicles. The proof of technology solution was tested against historical data and exceeded the customer's expectations, meeting target response time for more than 90% of incidents and using just ten seconds of solve time. We're encouraged by these initial results and see them as important proof points of Quantum Hyper's potential for law enforcement related use cases. We're also seeing growing interest in the lead quantum LaunchPad program, which is a three month trial that provides access to the way quantum computing systems, our lead real time fund cloud service, and our team of quantum experts for project support.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Since its introduction in January 2025, the Launchpad program has received more than 1,300 applications spanning business, government, and academic institutions. The program is serving as an important vehicle to attract and fast track customers into proof of concept development and ultimately application deployments. So to summarize, we are continuing to make steady progress across our business. First, delivering on technical milestones, including the release of our sixth generation quantum computing and advanced and advancing quantum AI development. Second, executing against our go to market strategy, including increased discussion for on premises systems with a variety of interested parties.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And third, working closely with customers to develop hybrid quantum applications that are addressing critical organizational problems. With the strongest cash position in our company's history, we believe that we are very well positioned to explore M and A activity that will propel our business even further and faster while delivering value to customers and shareholders alike. With that, I'll hand it over to John to provide a review of our second quarter fiscal year twenty twenty five results. John? Thank you, Alan, and thank

[John Markovich, CFO at D-Wave Quantum]

you to everyone taking the time to participate in today's call. In my review of the second quarter and first half results, I will be providing non GAAP operating metrics, including bookings as well as non GAAP financial metrics, including non GAAP gross profit, non GAAP gross margins and adjusted EBIT loss, because we believe these measures improve investors' ability to evaluate our underlying operating performance. These measures are defined in the tables at the bottom of today's second quarter earnings press release with the non GAAP financial measures, for the most part adjusting for noncash and nonrecurring expenses. Revenue for the 2025 totaled $3,100,000 an increase of about $900,000 or 42 percent from the 2024 revenue of $2,200,000 The second quarter revenue includes $1,000,000 in revenue associated with the ADDvantage two quantum processing unit upgrade for the annealing system that was installed at the UX supercomputing center in the first quarter of this year. Revenue from the Advantage two upgrade is recognized using the percentage of completion method, reflecting the timing of installation services that are closely integrated with the QPU or quantum processing unit hardware.

[John Markovich, CFO at D-Wave Quantum]

We expect that this upgrade will be substantially complete by the end of this year. Bookings for the second quarter totaled $1,300,000 an increase of approximately $600,000 or 92% from the 2024 bookings of $700,000 As we have previously mentioned, we are encouraged by an expanding sales pipeline that includes a growing number of large enterprises and well known logos with a market increase in the size of the average transaction size when compared to a year ago. Many of these companies are focused on having us build them proof of concepts versus just buying a small amount of QCAS or quantum computer as a service that translates to incrementally more complex transaction structures. This, in combination with the challenges associated with dealing with substantially larger organizations with multistep and sometimes very rigid procurement processes and documentation requirements, has resulted in deals taking longer to get closed than what we had originally anticipated. Over the last four quarters, we had over 100 revenue generating customers that includes customers in the commercial government and research sectors and nearly 2,000 Forbes Global 2,000 companies.

[John Markovich, CFO at D-Wave Quantum]

GAAP gross profit for the second quarter was $2,000,000 an increase of approximately $600,000 or 42% from the 2024 GAAP gross profit of approximately $1,400,000 with the increase due primarily to the growth in revenue. Non GAAP gross profit for the second quarter was $2,200,000 an increase of approximately $600,000 or 39% from the 2024 non GAAP gross profit of approximately $1,600,000 The difference between GAAP and non GAAP gross profit and gross margin is limited to noncash stock based compensation and depreciation expenses that are excluded from the non GAAP gross profit and gross margin. GAAP gross margin for the second quarter was 63.8%, representing a slight improvement from the 2024 GAAP gross margin of 63.6%. Non GAAP gross margin for the second quarter was 71.8%, a slight decrease of 1.3% from the 2024 non GAAP gross margin of 73.1%. Net loss for the second quarter was $167,300,000 or $0.55 per share, an increase of $149,500,000 or $0.45 per share from the 2024 net loss of $17,800,000 or $0.10 a share.

[John Markovich, CFO at D-Wave Quantum]

The increase in the net loss was primarily due to $142,000,000 in noncash, nonoperating charges related to the remeasurement of the company's warrant liability as well as realized losses stemming from actual warrant exercises. In extracting the impact of the noncash, nonoperating warrant remeasurement and related charges from the GAAP net loss, the adjusted net loss for the second quarter was $25,300,000 or $08 per share, an increase of $5,300,000 and a decrease of $04 per share from the fiscal twenty twenty four second quarter adjusted net loss of $20,000,000 or $0.12 per share. Adjusted EBITDA loss for the second quarter was $20,000,000 an increase of $6,100,000 or 44% from the 2024 adjusted EBITDA loss of $13,900,000 with the increase due primarily to higher operating expenses that is reflective of our investments to support our future growth opportunity, partly offset by higher gross profit. I'll now address the performance for the first half of the year. UA's revenue for the six months ended June 30 was $18,100,000 an increase of $13,500,000 or 289% from revenue of $4,600,000 in the six months ended 06/30/2024.

[John Markovich, CFO at D-Wave Quantum]

Bookings for the 2025 were $2,900,000 a decrease of approximately $400,000 or 13% from bookings of $3,300,000 in the 2024. GAAP gross profit for the first six months of fiscal 'twenty five was $15,900,000 an increase of 12,900,000.0 or 420% from GAAP gross profit of $3,000,000 for the first six months of fiscal twenty twenty four, with the increase due primarily to the high margin system sale during the six months ended in June. Non GAAP gross profit for the first six months of fiscal 'twenty five was $16,300,000 an increase of $12,800,000 or 367% from the year earlier six months non GAAP gross profit of $3,500,000 GAAP gross margin for the '5 was 87.6%, an increase of 22% from the 65.6% GAAP gross margin in the 2024 with the increase due, again, primarily to the high margin system sale during the first six months for the six months ended in June. Non GAAP gross margin for the '25 was 89.9%, an increase of 14.9% from 75% in the six months ended 06/30/2024. Net loss for the six months ended 06/30/2025 was $172,800,000 or $0.59 per share compared with a net loss of $35,100,000 or $0.02 1¢ per share for the six months ended 06/30/2024.

[John Markovich, CFO at D-Wave Quantum]

In adjusting the impact of the noncash, nonoperating warrant remeasurement and related charges from the GAAP net loss, the adjusted net loss for the six months ended June 30 was $34,600,000 or $0.12 per share, essentially flat when compared to the adjusted net loss of $34,600,000 or $0.21 per share for the six months ended 06/30/2024. Adjusted EBITDA loss for the '5 was $26,100,000 a decrease of approximately $700,000 or 3% from the adjusted EBITDA loss of $26,800,000 in the 2024, with the improvement due primarily to higher gross profit, partially offset by increased operating expenses. Moving on to the balance sheet and liquidity. As of June 30, DOA's consolidated cash position totaled a record $819,300,000, representing over a 1900% increase from the fiscal twenty twenty four second quarter consolidated cash balance of $40,900,000 and a nearly 170% increase from the immediately prior fiscal twenty twenty five first quarter consolidated cash balance of $304,300,000 During the 2025, we raised over $500,000,000 in equity, including $400,000,000 in gross proceeds from our fourth at the market equity program, nine ninety nine point three million dollars in net proceeds from the exercise of warrants and 37,800,000 in net proceeds from our equity line of credit with Lincoln Park Capital Fund that fulfilled the $150,000,000 commitment that was originally secured in June 2022.

[John Markovich, CFO at D-Wave Quantum]

Subsequent to the end of the quarter, we received an additional $15,000,000 from the exercise of warrants. Lastly, during the quarter, we fully recovered a $1,000,000 investment plus accrued interest that we made in Zepata AI in February 2024 through a convertible note instrument that we wrote off later that year when Zepata became insolvent. As a result of the magnitude of capital that we have recently raised, in addition to pursuing strategic acquisitions, we are accelerating a number of our key investment initiatives. In the area of research and development, we are investing in superconducting bump bond process as highlighted in Wednesday's last Wednesday's press release and as Alan mentioned earlier. This process will support our multi chip processor program on our path towards a 100,000 cubic annealing system.

[John Markovich, CFO at D-Wave Quantum]

This process will also support scalable cryogenic control of fluxonium based gate model technology. We will also be upgrading our superconducting printed circuit board advanced packaging manufacturing operation and increasing the number and frequency of our wafer fabrication runs to support building advantage three prototypes as well as continuous improvements to cubic coherence times for both our kneeling and gate model architectures. In addition, we will be investing in a number of quantum AI research and development programs. In the area of sales and marketing, we will be expanding the size and geographical footprint of our professional services organization to support growing demand for quantum optimization customer engagements across both commercial and government sectors, including US defense. And lastly, in the area of g and a, we will be making further investments in our cybersecurity personnel and infrastructure.

[John Markovich, CFO at D-Wave Quantum]

For the balance of this year, we expect these incremental investments will result in a quarterly non GAAP OpEx that is approximately 15% higher than our second quarter actual non GAAP OpEx. To conclude, as we have previously stated, we believe that D Wave has the opportunity to be the first independent publicly held quantum computing company to achieve sustained profitability and achieve this milestone with substantially less funding than required by any other independent publicly held quantum computing company. Given that we are now fortunate enough to have 10 security analysts covering D Wave, we will, in the essence of time, ask each analyst to commence the q and a session with one question, and then we will go back through the queue for additional follow on questions. With that, we will now open up the call for questions.

[Operator]

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, press the star followed by number two.

[Operator]

If you are using a speaker phone, please lift the handset before pressing any key. Please note that each person is limited to one question and are welcome to join the queue again. One moment, please, for our first question. Our first question comes from Craig Ellis of B. Riley Securities.

[Craig Ellis, Director - Research at B Riley Financial]

Congratulations on the results in the quarter and technical progress, guys. I I wanted to start by following up on the point the company had made about M and A and and understand the types of M and A that the company believes would make sense either items that are more technical in nature, maybe helping to accelerate the gate model side of the business or or things that might be more go to market oriented. And then what size of them may makes sense for the company? And finally, related to that, what are we looking at in terms of timing as we pursue that growth angle? Thank you.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Hi, Greg. Thanks for the question. So we have not disclosed our strategy and plans for m and a other than to say that, you know, with $800,000,000 in the bank, it has now become a strategic priority for the company. That having been said, over the course of the last several months, we have been spending a fair amount of time developing a strategy and a plan. And, you know, it falls into a number of key areas, including some of those that you mentioned.

[Alan Baratz, CEO & Director at D-Wave Quantum]

But, you know, think about it as really accelerating our r and d and product development activities in a number of key areas, you know, which could be, you know, everything from gate model to quantum AI.

[Craig Ellis, Director - Research at B Riley Financial]

And anything on timing there, Alan, whether we're looking at something that could be 2025 versus 2026?

[Alan Baratz, CEO & Director at D-Wave Quantum]

Oh, it it it's hard for me to predict, but what I would say is that, you know, our goal would be to, you know, start being able to announce acquisitions this year. However, you know, it takes two to tango, and so we'll just have to see how that plays out.

[Craig Ellis, Director - Research at B Riley Financial]

Good luck with the dance. I'll get back in the queue.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Thank you.

[Operator]

Our next question comes from David Williams of Benchmark. Please go ahead.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Hey. Good morning, everyone, and congrats on the continued progress here. So maybe maybe if you could speak to the the cryogenic news and the of that towards your road map and and what you think it will bring ultimately as you as you get that ramp then into the road map. Thank you.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Yep. David, thank you. This is really important to us. So we've talked in the past about, you know, how we have significant intellectual property and a real lead in cryogenic control. And by that, I mean, the ability to, you know, control qubits and control our systems on chip rather than needing to do all the control from room temperature.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And now as we are looking to leverage that into the gate model program as well as expanding our annealing processes to much larger numbers of cubits. As we said, a 100,000 cubits. We really need to be moving to a multichip solution. And, you know, when we start interconnecting chips together in the refrigerator, we need to make sure that that interconnect is also superconducting and that we can preserve the quantum properties, you know, like entanglements across those interconnects. And so, you know, this is key to both scaling our annealing systems as well as developing our gate model systems.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And frankly, we made progress in this area much faster than we actually expected it to. The NASA Jet Propulsion Laboratory had some capabilities that we thought looked interesting. We thought it would take a while to get to the point where we could actually kind of evolve that into what we needed, but it actually moved a lot faster than we thought. And so now we're really starting to build a production capability around that technology to more rapidly drive the multi chip annealing processes as well as the gate model system.

[Operator]

Thank you. Our next question comes from Troy Jensen of Cantor Fitzgerald. Please go ahead.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

Hey, gentlemen. I also want to offer my congrats on all the technical milestones here. Maybe, you know, for you, Alan, I'd just love to hear more about Advantage two and, I guess, a few things kind of all coupled together would be, you know, his South Korea deployment, is that gonna be advantage two or number systems you expect to install by end of next year and maybe some of the technical improvements in the platform?

[Alan Baratz, CEO & Director at D-Wave Quantum]

Okay. Sure. So first of all, advantage two is a really important system for us in the sense that it was the first system on which we were able to demonstrate true quantum supremacy, specifically the ability to solve a useful real world problem on a quantum computer that cannot be solved classically, full stop. It is what everybody in the quantum industry aspires to, and and we were the first to achieve it, and we achieved it on the advantage two system. I will tell you, we tried to get this result on our earlier advantage system, and we were not able to.

[Alan Baratz, CEO & Director at D-Wave Quantum]

It took the increased capability of advantage two to be able to perform that computation. And specifically, it required the additional interconnect to more efficiently map the problem into the quantum processor. And it also took the longer coherence time and the increased energy scale to get the solutions faster and more accurately. So this is a significant advance over advantage, and we're really excited about it. And, you know, it it it's also, I think, driving that increased customer interest that John talked about relative to much larger companies with much larger opportunities that are now engaged with us in a kind of sales cycle process.

[Alan Baratz, CEO & Director at D-Wave Quantum]

As far as the number of systems, this falls into two categories. One is our fun cloud service, and we have four production systems in our fun cloud service today. We don't really need more than that in the cloud service for, you know, relatively near term revenue growth. We likely will add a couple more systems, you know, you know, down the road, but but four is sufficient for now. And, obviously, all four of those will be upgraded to advantage two.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Currently, one of them has been upgraded. Ultimately, all of them will be upgraded. And then and then there's the on premise systems. And, obviously, ULIC is one of those, and we are already in the process of doing that upgrade, as John pointed out. And then as we sell more on premises systems, those will be advantage to processors.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And, you know, we said that we've got a really good pipeline for sales of systems. We've got a second one that we're closing in on, which is the South Korea. We've got another one that's now starting to kind of emerge as a relatively near term opportunity and then a pipeline of others. But in the past, I have said, you know, in the near term, think more like one a year than multiple a year. You know, you know, I still say that, although, like, you know, starting to feel like maybe it could be a little bit more.

[Alan Baratz, CEO & Director at D-Wave Quantum]

But but, you know, the number is still, you know, kind of relatively small in the near term. So that having been said, you know, if you add up everything that I said, we're talking maybe six or seven advantage two systems.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

Perfect. Thanks for the detailed answer, and good luck on for it, guys.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Thank you.

[Operator]

Our next question comes from Richard Shannon of Craig Hallum. Please go ahead.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Hi. This is Tyler Anderson on for Richard Shannon. Thanks for taking my question, guys. So could you elaborate on the developer tools that you released? And and noting that the problem that you demoed is a classical ML problem, can users leverage higher pixel images for this?

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

And then also for the sake of timing question, you mentioned control right after your bump bonding. Do you have or or plan to have integrated control onto your triplets such that there isn't an external control mechanism?

[Alan Baratz, CEO & Director at D-Wave Quantum]

So, Tyler, I will answer your first question to be fair to everybody else because we did say only one question, and then you can go ahead and get back into the queue. With respect to what we announced as far as the AI developer toolkit, which I believe is what you're referring to, essentially, what we have done is we have introduced the ability to use PyTorch, which is an open source Python based machine learning platform that's frankly a fairly wide use for training large language models. And we've introduced into that the ability to use a technology that we actually developed within D Wave, which is called a discrete variational auto encoder.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Now I'm not gonna get into the technical details of what I mean by that other than to say, what this does is allows you to take a dataset and map it into a latent space, which is really what machine learning is all about. Essentially, map it into a a machine learning model that can then be used to recreate the data and other things that look like that dataset. But what's unique about this is that we're mapping it into a discrete latent space, not a continuous latent space. Machine learning today typically operates on continuous data, but we're we're now mapping it into a discrete latency, seeing excellent results with the discrete discrete latency. But what's so important about that is that our quantum processes natively work with discrete data, not with continuous data.

[Alan Baratz, CEO & Director at D-Wave Quantum]

So what this does is it actually opens up the opportunity for the annealing quantum computer to be the vehicle for creating that discrete latent space for doing the learning, which we ultimately think could deliver better models faster and with lower energy consumption. But that having been said, I also wanna point out that this is just the next step on our journey in the area of quantum AI. And there are a number of other things we are working on today in the lab that takes us significantly further than what we've announced so far that we're we're very excited about as well.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Thank you. Appreciate the answer. I'll get back in with you.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Thanks.

[Operator]

Our next question comes from Suji Desilva of Roth Capital. Please go ahead.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Hi, Alan. Hi, John. I appreciate all the color thus far on Quantum AI. Can you talk, Alan, about the next milestones or activities to watch indicating D Wave's progress here? In the area of Quantum AI?

[Alan Baratz, CEO & Director at D-Wave Quantum]

Correct. I think I think the short answer to the question is no because we we, you know, we haven't yet announced anything beyond what we announced a few days ago. But just to kind of say a little bit follow-up a bit more on what I said a minute ago, you know, there are a number of modern approaches to AI and machine learning model training and inference. Variational auto encoder is one approach, but there are other important things like transformation model sorry, transformer models and diffusion models. And we're working with those as well.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And we expect that over time, we would be able to deliver a platform that could leverage our quantum systems in support of all of those approaches.

[Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Thanks, all.

[Operator]

Our next question comes from Hash Kumar of Piper Sandler. Please go ahead.

[Harsh Kumar, MD & Senior Research Analyst at Piper Sandler Companies]

Yeah. Hey, guys. Congratulations on a lot of progress at Vantage two and and other things that you're doing. I want Alan, I wanted to ask you about the toolkit information you provided in your press release. Is it possible that you could have libraries kinda like how NVIDIA does offer to its customers sort of hot finish models that they can the customers can then take and sort of finish up and and customize?

[Harsh Kumar, MD & Senior Research Analyst at Piper Sandler Companies]

Is that sort of the idea, or is that even possible with the tool kit for demos reference that you mentioned in your press release and commentary?

[Alan Baratz, CEO & Director at D-Wave Quantum]

So it's absolutely possible. And in fact, you know, the demo is one simple example of that. However, currently, we are working with customers and leveraging their data in the application areas that are important to them. You know, for example, Japan Tobacco and Triumph, the two that that I mentioned a bit earlier, rather than trying to build these out ourselves.

[Alan Baratz, CEO & Director at D-Wave Quantum]

The extent to which, a, we take any of that and pull it back into our platform will depend a little bit on the customers and the extent to which, you know, we've negotiated the ability to be able to do that. And then whether we choose to start pursuing, you know, any application or application templates ourselves is is not something that we've we've certainly not announced it. We've not talked about it. I think that would require us to bring domain expertise in key problem areas into the company. It's something we're thinking about.

[Alan Baratz, CEO & Director at D-Wave Quantum]

But, honestly, at this point, I I I wouldn't I wouldn't say we're gonna do it. I would just say we're thinking about it.

[Harsh Kumar, MD & Senior Research Analyst at Piper Sandler Companies]

Understood. Thank you, Alan.

[Operator]

Our next question comes from Kingsley Crane of Canaccord Genuity. Please go ahead.

[Kingsley Crane, MD - Equity Research at Canaccord Genuity - Global Capital Markets]

Hi. Thanks for taking the question. So quantum annealing really has significant potential with both corporates and nation states or agencies. I'm curious how the tenor in the US government has shifted specifically with respect to quantum annealing in the past couple of quarters, and then just any thoughts on DARPA's quantum benchmarking initiatives and if there's an opportunity for annealing within that framework.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Oh my. You you you you really know how to push my buttons. Okay. Let's let's start with QBI. The the DARPA QBI program is totally focused on gate model, and I think that is a huge mistake on the part of DARPA and the US government.

[Alan Baratz, CEO & Director at D-Wave Quantum]

I think that by focusing on gate model, they are totally missing the fact that annealing is the most capable approach to quantum for many of the important problems that the government needs to address, whether it's in the area of defense for things like, you know, missile defense or, you know, troop resupply or in the area of transportation, for example, things like port logistics or, you know, we've done work in the area of wildfire fighting. I mean, the truth of the matter is annealing represents, I think, not only the best, but the only quantum approach that can address many of the government's hard computational problems. This is back to the fact that many of these are optimization problems, which require annealing quantum. Gate model cannot address them. And by excluding annealing from the QBI program, I think DARPA has made a huge mistake.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And I would encourage them to, you know, maybe not add annealing to the QBI program, but maybe create a second quantum program for non date model approaches to ensure that the US government is kind of focused on all the approaches to quantum computing, not just one approach to quantum computing. Now with respect to progress more broadly in the US government, you know, I think the answer is yes, but slow. So we are making inroads into different application areas because we uniquely can do that since we have a system that is capable of delivering value today, not five or ten years from now, but it's slow going.

[Kingsley Crane, MD - Equity Research at Canaccord Genuity - Global Capital Markets]

Well said. Appreciate the comments, Hengkang.

[Operator]

Thank you. Our next question is coming from Ruben Roy of Stifel. Please go ahead.

[Ruben Roy, MD - Equity Research at Stifel Financial Corp]

Yes. Thank you. And, Alan, I don't mean to push your buttons here, but I'm gonna ask this question anyway. So and and I guess it's in the context of the M and A commentary that you made and and also, you know, some of the comments that John made with respect to having conversations with larger customers and, you know, sort of getting feedback, I I I guess, from them. So with all of that in mind, I guess the the simple question is, has your philosophy on the timing of when D Wave might think about bringing a gate model to market changed?

[Ruben Roy, MD - Equity Research at Stifel Financial Corp]

Has that accelerated for any reason or no? And if no, kind of are customer conversations you know, sort of driving you to think that, you know, that the time frame that you guys were thinking about previously is is probably the right time frame? Thank you.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Yeah. I mean, that's that's not pushing my buttons at all. That's just a great but well, no. They're all good questions and they're all good conversations to have, but, you know, I I'm not annoyed about gate model and annoyed about doctor. So relative to our gate model program, look, we still believe that a, you will never never see a commercially viable gate model quantum computer before we have error correction.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And then we still need to scale to solve useful real world problems. And as a result, we're still many years out because, you know, no matter what you hear, you know, in the from the industry, there are still very hard problems that need to be solved around error correction. It's not just a matter of engineering. And then there are still very hard problems that need to be solved in scaling. It's not just a matter of engineering.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And so we do think that it's still a a number of years before we will see a scale of air traffic to game on the system that is commercially viable. So, you know, for us though, the focus is on removing the risk. In other words, providing clearer line of sight to being able to deliver that by a, driving the r and d efforts needed and or possibly bringing in house really great things that are going on out there in the industry. And so it's it's less I think about accelerating the time frame and more about kind of being much more concrete on exactly what the road map is that will get us there.

[Ruben Roy, MD - Equity Research at Stifel Financial Corp]

I appreciate the detail. Thanks, Alan.

[Operator]

Our next question is coming from Kevin Gargan of First and Black Securities. Please go ahead.

[Kevin Garrigan, Senior Research Analyst at Rosenblatt Securities]

Yeah. Hey, Alan, John. Thanks for taking my question. I'm gonna switch gears a little bit. And you mentioned you signed renewing customer engagement.

[Kevin Garrigan, Senior Research Analyst at Rosenblatt Securities]

Can you give us a sense of of what your retention rate is? And the customers that you renew, have they typically already had another application in mind that they want to use your Quantum annealer for? Or does the team show them, you know, how else they can benefit from Quantum and that gets the renewed engagement?

[Alan Baratz, CEO & Director at D-Wave Quantum]

Yeah. John, you wanna talk about the retention rate, and then I can provide color on kinda how we grow with our customers?

[John Markovich, CFO at D-Wave Quantum]

Sure. On average, our retention rate going going back over approximately, like, a four quarter period is in excess of of 90%.

[Alan Baratz, CEO & Director at D-Wave Quantum]

So we do have a very high retention rate. But, you know, we've a little bit about this in the past. You need to keep in mind that we have two different types quantum computers to service customers. There are customers that we call do it yourself where they come in and buy some access, the developer feed, and start kind of exploring, doing research, trying to develop applications on their own. And these customers tend to just continue to renew quarter after quarter or year after year, but, you know, haven't been, you know, kinda growing or converting from experimentation to actual production applications.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And so, you know, one of the things we are focused on is, you know, how to help them move faster into production. But but not all of them are even kind of at the stage where it it makes sense to do that. I mean, some of them are research organizations, which should never convert to production applications, and some of them are smaller organizations that really are just experimenting. So rather, it's kind of really understanding who those do it yourself customers are and focusing on trying to engage them with, you know, kind of help to move forward. And in some sense, the Quantum Launchpad program was put in place in parts specifically to do that, to move those customers off of just doing yourself into the Launchpad program where, you know, it comes with some support from our professional services team.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Then the other class of customers is the customers that have engaged us through a professional services engagement. And, you know, those are the the class of customers that, as John said, it's much larger customers that are engaging us now with much larger projects. For example, that aerospace company, I mean, a Fortune 500 company, we engaged us on 12 different applications from the outset. And we did the evaluation and are now working on the first of those applications with a plan to move through all of them and then take it to other aerospace companies. So, you know, our our our approach now really is to work with these larger companies to really kind of find a flagship customer in each industry or vertical area, work with them the way we did with this customer.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And then as we're helping them progress through the applications, take that out to other customers in the same industry and so on.

[Kevin Garrigan, Senior Research Analyst at Rosenblatt Securities]

Okay. Got it. Okay.

[Kevin Garrigan, Senior Research Analyst at Rosenblatt Securities]

That makes sense. I appreciate the color, and I'll I'll hop back in the queue.

[Operator]

Thank you. Our next question is coming from Craig Ellis of B. Riley Securities. Please go ahead.

[Craig Ellis, Director - Research at B Riley Financial]

Yeah. Thanks for taking the follow-up question, Kate. I wanted to follow-up on my first question, but take it in a different direction. So clearly, there's a lot of business model flexibility you now have with a much higher cash balance. And one of the things you can do is is organically invest a greater amount in r and d and marketing.

[Craig Ellis, Director - Research at B Riley Financial]

What I'd like your help on is understanding how you're evaluating current intensity versus higher levels and and what we should expect is you evaluate where you can go with internal investment to accelerate your path to further commerciality, especially with this growing portion of Fortune 500 global 2,000 customers in your pipeline? Thank you.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Yeah. It's a great first of all, we had in the past said that we are investing in go to market. We made a significant for us investment in the sales portion of go to market sales and technical account management as we over doubled the size of that team, you know, in, you know, the first half of this year.

[Alan Baratz, CEO & Director at D-Wave Quantum]

And now as John said, we're focused on building out the professional services team in support of that. But, you know, we're also taking it a step at a time. So, you know, we've made an investment and the pipeline looks good. We're making progress. It's taking a little bit longer to get these deals closed than we had expected because of the size of the customer and the complexity of the processes involved.

[Alan Baratz, CEO & Director at D-Wave Quantum]

But but we're making good forward progress, and we wanna see that we're getting a return on that go to market investment. And then once that's been validated, we'll continue to grow there. On the r and d side, we also are starting to make some additional investments in r and d. We talked about the advanced cryogenic packaging work. We've talked a little bit about quantum AI.

[Alan Baratz, CEO & Director at D-Wave Quantum]

These are areas where we are starting to make some incremental investments. And beyond cryogenic packaging and its impact on both an alien gate, there'll be incremental investments on the gate model side as well as we continue to kinda work through all the technical elements and r and d elements of that program. And John kinda gave you a metric to think about with respect to, you know, an an increase in spend throughout the remainder of this year.

[Craig Ellis, Director - Research at B Riley Financial]

Got it. Thank you very much, Harlan.

[Operator]

Thank you. We also have a follow-up question from Craig Shannon from Richard Shannon of Craig Hallum. Please go ahead.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Hi, guys. Thank you for taking my follow-up. So I had noticed that Triumph had mentioned using Advantage two in their upcoming research. Are you in talks with them for a sale of the QPU? And is this someone who you have recently been talking to or you have mentioned that you had been talking to about sales?

[Alan Baratz, CEO & Director at D-Wave Quantum]

So try Tram is actually working with our system today, and they have seen really good results leveraging our system to do basically generative AI around, you know, part a particle acceleration problem that they're dealing with. And we we've talked about them in the past. We've talked about the work that they're doing. I mentioned them a little earlier. So so they are a customer.

[Alan Baratz, CEO & Director at D-Wave Quantum]

They are working with our system. They are working with our system in the area of generative AI. They have seen some really good results with that, and they're and we're continuing to grow that relationship with them. As far as the system sale, I I haven't really talked about who is in the pipeline and who we're engaged with, you know, other than, you know, we have now begun talking about Yonsei University in South Korea.

[Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC]

Okay. Thanks. Appreciate the color. Congrats.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Thank you. Okay. Did we go ahead.

[Operator]

Yes. Thank you. As a reminder, if you wish to ask a question, please press 1. There are no further questions at this time. I would now like to turn the call back over to Alan Boratz for his closing remarks. Please go ahead.

[Alan Baratz, CEO & Director at D-Wave Quantum]

Thank you, operator. So as I think you all know, at Z Wave, our mission is to help customers realize the value of quantum computing right now. Our second quarter results show continued progress in service of that mission across R and D, go to market, customer application development and more. Everything we build is designed to provide lasting value for our customers and shareholders and the future looks very bright. So thank you all for taking the time to join us today.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Alan Baratz, CEO & Director
• John Markovich, CFO

Analysts

• Executive
• Craig Ellis, Director - Research at B Riley Financial
• David Williams, Equity Research Analyst at The Benchmark Company LLC
• Troy Jensen, Managing Director at Cantor Fitzgerald
• Tyler Anderson, Equity Research Associate at Craig-Hallum Capital Group LLC
• Suji Desilva, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Harsh Kumar, MD & Senior Research Analyst at Piper Sandler Companies
• Kingsley Crane, MD - Equity Research at Canaccord Genuity - Global Capital Markets
• Ruben Roy, MD - Equity Research at Stifel Financial Corp
• Kevin Garrigan, Senior Research Analyst at Rosenblatt Securities