Good day, and welcome to the D-Wave Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Kevin Hunt, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, and good morning. With me today are Dr. Alan Baratz, 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 and operational measures under SEC rules, such as non-GAAP gross profit, non-GAAP gross margin, adjusted EBITDA loss, adjusted net loss, adjusted net loss per share and bookings. Reconciliations to GAAP financial measures and certain additional information are also included in today's earnings release, which is available in the Investor Relations section of our company website at www.dwavequantum.com. I will now hand over the call to Alan.

Good morning, everyone, and thank you for joining us today. I'm really pleased to share D-Wave's third quarter 2025 results, which reflect the ongoing momentum we've seen across all key business metrics, including revenue, gross profit, bookings and a healthy cash balance. I will walk you through several of our recent business and technical highlights, starting with our continued commercial traction. The United Nations declared 2025 to be the international year of quantum science and technology, and it is evident that the world is watching the quantum industry in general and D-Wave specifically. Our esteemed leadership team has been invited to speak at events across the globe in order to address the growing interest in our quantum solutions. From Tokyo to Berlin and Taiwan to Miami, businesses, research institutions and governments around the world are eager to learn more about D-Wave, our incredibly powerful yet energy-efficient technology and the impact it is starting to have for customers right now in solving complex computational problems that are outside the reach of classical computers. Just weeks ago, D-Wave announced its participation as a founder of the Q-Alliance, an initiative designed to create a quantum hub in Italy that advances scientific discovery, industrial transformation and digital sovereignty in the country. A core objective of the Q-Alliance is the development of a state-of-the-art quantum computing and research facility in Lombardy, Italy. In support of that effort, D-Wave announced a EUR 10 million contract for a D-Wave Advantage2 annealing quantum computer in the region, ensuring accessibility for Italy scientific community, academia, and industry. In partnership with the Italian government and the Q-Alliance, the agreement includes acquisition of 50% capacity of an Advantage2 system for 5 years with the option to purchase the full system. We expect to deploy the system sometime in 2026. While other…

Thank you, Alan, and thank you to everyone taking the time to participate in today's third quarter earnings call. In my review of the third quarter 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, adjusted net loss, adjusted net loss per share 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 third quarter earnings press release with the non-GAAP financial metrics for the most part, adjusting for noncash and nonrecurring expenses. Revenue in the third quarter of fiscal 2025 totaled $3.7 million, an increase of approximately $1.8 million or 100% from the third quarter of fiscal 2024 revenue of $1.9 million. Third quarter revenue was comprised of $1.8 million in systems revenue associated with the upgrade of the Jülich advantage system to an Advantage2 system. $1.4 million in QCaaS revenue and $500,000 in professional services revenue. Bookings for the third quarter totaled $2.4 million, an increase of approximately $100,000 or 3% when compared to the third quarter of 2024 bookings of $2.3 million and an increase of $1.1 million or 80% compared to the immediately preceding fiscal 2025 second quarter bookings. As Alan previously noted, after the close of the quarter, we signed a EUR 10 million agreement to place a D-Wave Advantage2 system in Europe, which will be reflected in our fourth quarter bookings that to date have totaled over $12 million. This agreement is for 1/2 the capacity of an Advantage2 system over a 5-year period with an option to purchase the entire system at any time at a price that is within the range of our targeted system pricing of $20…

[Operator Instructions] Our first question will come from Harsh Kumar with Piper Sandler.

Alan and John, first of all, congratulations on the Italy Lombardy deal and then also the very substantial 100 customer number that you mentioned on this call and the press release. My question is, I see that you are now finally getting some attention/loved from the U.S. government. This has been something that has not happened in the past. You were getting attention from foreign governments, but not the U.S. government. I saw a deal where you're part of an alliance for national security work. Obviously, I won't ask about what you're doing, but can you talk about the significance here? And is this a shift towards -- some attention towards an easing by the U.S. government?

So Harsh, the key point that I want to make relative to the U.S. government is that our approach is quite different from the other quantum computing companies that are engaged with the U.S. government. We are not looking for R&D funding to aid in the development of our quantum computers. Our annealing quantum computers are at scale today and capable of solving important government problems. And so our work with the U.S. government is all about identifying areas where our systems can actually provide value to the government, whether it's in areas like military logistics or research placement or equipment maintenance. Those are the sorts of things we're focused on. And I think they're starting to become a realization in key areas of the government that our systems are capable of delivering value, and that's what's starting to open up some opportunity for us.

Next question will come from Troy Jensen with Cantor Fitzgerald.

Congrats on all the progress here and the great milestones. A quick question for Alan, and I love the passion here and all the speaking earlier. But can you just give us more details on the gate model product in the superconducting computer you're working on, specifically like the time line of the launch and kind of what the fidelity and qubit count would be?

Yes. So first of all, we are using superconducting for our gate model quantum computer. We are not using the types of qubits that most of the other superconducting gate model companies are pursuing. They are pursuing what are known as transmon qubits or voltage-controlled qubits, we are pursuing fluxonium qubits that are controlled with magnetic flux. We're doing this because our annealing quantum computers use flex-based qubits. And so we've got a lot of experience with them, and we think they have some very significant advantages over the transmon qubits when it comes to scaling. And then, of course, we are the only company that has been able to use cryogenic control with their quantum computers, I talked about this last quarter. That's why, for example, we can control 4,000 qubits in our annealing system with only 200 I/O lines rather than needing 3 to 5 I/O lines per qubit, and we're bringing that into the gate model space. Our first demonstration will be what I discussed a bit earlier in the call, which is that we have now fabricated high-quality fluxonium qubit chips, and we have fabricated cryogenic control chips, and we will be bonding those together through a bump on process to demonstrate scale -- basically cryogenic control of gate model qubits. From there, we will be moving on to developing basically logical qubit structures starting with small surface code, but developed in a scalable fashion and then building up from there. And over the course of the coming year, we expect to have the first of this kind of capability demonstrable. And then that is on the path to scaling the logical qubits and the number of qubits on the chip to -- on the path to a scaled error corrected gate model system. But the time line for a scaled error corrected gate model system is still a number of years out. It's pretty much the same time line as you'll hear from any of other quantum computing companies who are being honest with you, in the 5- to 10-year time frame.

The next question will come from David Williams with Benchmark.

I wanted to ask a little bit on -- and you talked about this earlier, but the Davidson relationship that you have. And I know you've been working on several projects there. But as we kind of think about national security and defense initiatives and things like the Golden Dome, how do you think you can play into that? Just kind of given your heritage there, and you've been working on this for a long time. It seems like you'd have a good opportunity. So just any color around that would be very helpful, I think.

Yes. So look, we are just as interested in Golden Dome as every other quantum computing company, we participate in the various government forums to kind of talk about this, we're doing exploratory work in application areas that could be a benefit, but this really does fall right into the category of solving hard problems today that can deliver value to the U.S. government as opposed to trying to play with research systems, the new research experimentation. Our work with Davidson cuts across a number of different application areas, as I previously mentioned. And very interestingly, the next step in that relationship now that our system is fully calibrated, operational and online at Davidson. The next step is to secure the system. So that we can run classified versions of applications on the system, which would make it what we believe would be the very first quantum computer certified for classified government applications.

Next question will come from Quinn Bolton with Needham & Company.

Congratulations on the momentum. I just wanted to follow up on the Q-Alliance transaction and SQT where they have the option to purchase the system. John or Alan, can you just sort of talk to the extent that they want to make that purchase, how would that work? You've got a EUR 10 million contract for half of the system over a 5-year period, would they get credit for money spent if they converted, say, in year 1 or year 2? Or would it be sort of a full $20 million to $40 million purchase price? And anything that had been recognized on the EUR 10 million contract you would keep and then you would get the full system sale to the extent that they move in that direction?

Yes. Sorry -- I'm sorry, Quinn, but we haven't closed any of the details around how the purchase would occur. The only thing I will say is that you should certainly not assume that $10 million for half the capacity of system means double that or $20 million for the full purchase of the system. There are many benefits that a customer gets when they purchase the system, and we pass title to them, including the ability to do things that -- with the system that can't be done when the system is online and shared. And so as a result, there's a premium on the pricing for the actual purchase of a system. But the relationship with the Q-Alliance and the Italy government is for 50% capacity of the system over the course of the next 5 years, and they do have the option to purchase the full system, which would then put them into a different category where title would actually pass.

Next question will come from Kingsley Crane with Canaccord Genuity.

Just to double-click on that Q-Alliance deal, it sounds like somewhat of an innovative deployment and procurement model. So I believe that 50% of the capacity would then be available to QCaaS customers. Could this just become a blueprint to future deals and establishing points of presence across the world. Just curious your thoughts on that structure.

It absolutely could. And in fact, it's not entirely new for us. We did something like this with the Jülich Supercomputing Center. Initially, they had a system on site, and they had a portion of the capacity of that system, and the rest was available for other QCaaS customers, but then they chose to purchase the system. And so this is a really interesting model for, a, kind of building out presence around the world; and b, taking it one step at a time toward the purchase of the system. Of course, then there are other companies that just outright want to purchase the system, which is the nature of the discussion that we're having, for example, in Korea, and we have actually a few others of those that have now become quite advanced as well.

Your next question will come from Craig Ellis with B. Riley Securities.

Congratulations on progress with large customers and advantage to engagement. The question I wanted to ask goes back to an expectation that was set 3 months ago, which was that the company would increase investment moderately about 15% half-on-half in R&D and sales and marketing as it looks to accelerate technology and its go-to-market capability. Can you just talk about how that's going? What we should expect in the fourth quarter with respect to operational things, increased capability? And what should we expect as we look at the first half of '26, more stable expenses or a further uptick?

John, do you want to talk about the numbers and then I can maybe provide a little color on the use of the funds?

Sure. So as we outlined in the second quarter earnings call, we outlined that our operating expenses for the balance of the year will increase approximately 15% on a sequential basis with the majority of that incremental spend in the R&D area. Craig, with respect to your question in the first half of next year, we're not going to provide any guidance beyond what we have provided for the balance of this year in terms of the growth in the OpEx.

And Craig, just to give a little color on you. So I think that it won't be a surprise to anybody if I say that given the fact that we have significantly more cash now than in the past. And so we do have the ability to start making some modest investments in R&D. One of the key areas that we will be accelerating is our gate model program. We believe that we've got some unique, valuable technology in the gate space that's going to allow us to move in a fairly short footed fashion. And so that is a target for a bit of increased investment. And then from a go-to-market perspective, now that we have the system sales model, we are -- we've got a portion of the team that's now focused on system sales and a portion that's focused on professional services in QCaaS. So we've made a bit of an investment to kind of facilitate both of those go-to-market motions. And then we're starting to see something that is actually pretty exciting. It's still early with respect to exactly when and how this will materialize. But we've talked a lot about proof of concept and the value that we're seeing and the move to production. And we've started to have the first conversations along the lines of, well, hey, this application is looking really good. We want to move it into production, but we've got a few other applications now that we're interested in. Could we do a deal that gives us the ability to support multiple proofs of concept and multiple applications in production. I'm not entirely sure what to call it, but you could think of it as maybe something like an enterprise license that bundles a number of production apps and a number of proofs of concepts to really start accelerating the professional services and QCaaS sales and revenue. That's just getting started. I mean that's happened literally within the last few months where we started getting inquiries about that. But that could be an important inflection point for us on the PS QCaaS business.

Your next question will come from Suji Desilva with ROTH Capital.

Congrats on the progress here. I wanted to ask a question about in the quantum market, there's a lot of discussion of ancillary quantum opportunities, communications, timing, memory, security keys and so forth. I just want to understand qubits position on these? Are you razor-focused on your core opportunity? Are you able to internally develop these, inorganic or maybe the markets are not as mature as people think? Just any thoughts there would be helpful?

We are laser-focused on quantum computing. First of all, our systems for the foreseeable future don't need the quantum interconnect you hear about on quantum networking. The other modalities, the other approaches do. For example, when it comes to interconnecting traps, whether they be neutral atoms or ion traps, you need that kind of interconnect and you're going to need to interconnect the traps to scale. But for our systems, that's not a critical technology. And we don't view sensing a central to what we're doing. We don't view quantum key distribution essential to what we're doing. We are focused on quantum computing.

Your next question will come from Richard Shannon with Craig-Hallum.

This is Tyler on for Richard. So I wanted to double-click on some of the things that your customers are doing. You mentioned SkyWater is using your QPU, is this for magnetic material simulation or for the simulation of quantum devices? And does this help improve the chips that you're getting from them? And then also for the airline company, are they using your technology for scheduling or traveling salesmen? And then if you can have a comment on how often BASF has to run your program, if that is in production, I'd be interested in that.

Okay. I'm not sure whether to call that 1 question or 3 questions. So here's what I will say. In the case of SkyWater, they're a new customer as of this quarter, and it is really all about looking into kind of optimization problems in their operations. And in the case of this very large airline, we have not disclosed the applications that we are working on.

The next question will come from John McPeake with Rosenblat Securities.

It's good to hear things are tracking well. I just have a question on optimization. There's a lot of publicity around quantum, a lot of feverish commentary that you were referring to. And I'm curious relative to trial to conversion to production on the optimization side, new logos. Maybe you could just talk a little bit about what the tone is like there because that's real business.

Yes. I'm not entirely sure what you mean by the tone, but what I can tell you -- and we started to see this maybe a quarter or 2 quarters ago, we are now being engaged by much larger companies interested in addressing larger and more challenging optimization problems. And that's why we can talk about one of the largest airlines, one of the largest chemical companies, one of the largest payment processing companies, that's why I commented that we're now with successful initial proofs of concept starting to get inquiries about, okay, if I wanted to do a deal that bundles in multiple proofs of concept and assuming they're all successful multiple production applications. Could I -- what would a deal like that look like. So I think, as I said before, we're getting close to an inflection point on the professional services and QCaaS business, where we're seeing now better and better results with our customers, due in large part to the fact that we're now on the Advantage2 platform. We now have our really powerful NL hybrid solver. And so the results are in some sense speaking for themselves and allowing us to move forward more aggressively.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Alan Baratz for any closing remarks. Please go ahead.

Okay. Thank you, operator. Momentum is clearly building at D-Wave, and we believe that our first-mover advantage is increasingly evident in our business results and our technical innovation. As Fox Businesses Charles Payne remarked earlier this week, we are the real deal. In the sea of quantum hype, our position is clear. We're helping customers realize the value of quantum today, and I think our 2025 results to date demonstrate that we are making consistent progress toward the service of that mission. So thanks for your time today, and thanks for your support, and I look forward to updating you again in January at Qubits 2026. We'll see you all in Boca Raton. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You now disconnect.