Quantum Computing Inc. reported its financial results for the quarter ended June 30, 2024. The company’s revenue increased by 20% to $12.5 million, driven by growth in its software and services segment. Gross profit margin expanded to 75% from 70% in the prior year period, while operating expenses increased by 15% to $8.5 million. Net loss narrowed to $2.1 million, or $0.02 per share, compared to a net loss of $3.5 million, or $0.04 per share, in the same period last year. As of June 30, 2024, the company had cash and cash equivalents of $15.6 million and a working capital deficit of $10.3 million. The company’s management believes that its current cash and cash equivalents will be sufficient to meet its operating needs for the next 12 months.
Overview
QCi is a development stage company focused on creating a range of accessible and affordable quantum machines and photonics chips for commercial and government markets. The company’s core technology is Entropy Quantum Computing (EQC), a patent-pending methodology that utilizes the environment to drive controlled energy loss in a photonic architecture. QCi believes EQC’s small size and low-power consumption provides a competitive edge over cryogenic quantum systems offered by competitors.
In addition to the photonic computing platform, QCi has leveraged its core technology to demonstrate use cases in LIDAR, reservoir computing, and quantum cyber authentication, with several of these technologies already in early commercialization stages. The company’s longer-term plan is to migrate product designs to optical integrated circuits built on wafers using a crystalline material called lithium niobate (Thin Film Lithium Niobate or TFLN). QCi has completed initial production of specialty TFLN devices and is building out a state-of-the-art TFLN chip manufacturing facility.
Market Opportunity
Quantum computing represents a potential alternative approach to solving computational problems that are impractical to solve using conventional computers. Quantum computers utilize qubits (quantum bits) to process computations that would be intractably difficult using binary bits. While quantum computers will not replace conventional computers in most applications, they are well-suited for optimization algorithms, sensing, imaging, and cybersecurity problems that are beyond the reach of general silicon-based computing.
QCi believes the demand for quantum computing in fields like medicine, engineering, autonomous vehicles, and cybersecurity will likely outpace and outperform the general-purpose computing market in the near- to mid-term. The company’s core technology offers practical, cost-effective solutions that can materially advance the adoption of quantum machines across several market segments.
Economic Conditions, Challenges, and Risks
The markets for high-performance conventional and quantum computing are dynamic and highly competitive. Aggregate demand is also correlated to global macroeconomic and geopolitical factors, requiring QCi to continually evolve and adapt. The investments in Quantum Optical Chips and devices will increase operating costs and may decrease operating margins. Component supply disruptions could also impact the company’s ability to manufacture devices on time.
QCi’s success is highly dependent on its ability to attract and retain qualified employees, as it competes for talented individuals by offering an exceptional working environment, the ability to work on new quantum technology, and competitive compensation.
Results of Operations
Revenues for the three months ended June 30, 2024 were $183 thousand, up 63% from the prior year period, primarily due to changes in the number, size, and level of effort on active customer contracts. Revenues for the six months ended June 30, 2024 were $210 thousand, down 10% from the prior year period.
Gross margin for the three months ended June 30, 2024 was 32%, down from 55% in the prior year period, due to a reduction in higher-margin contractual service revenue. Gross margin for the six months ended June 30, 2024 was 33%, down from 54% in the prior year period.
Operating expenses decreased by $1.7 million in the three months ended June 30, 2024, primarily due to lower general and administrative expenses and research and development expenses. The decreases were driven by reduced employee-related costs, including stock-based compensation and severance.
Non-operating income increased by $532 thousand in the three months ended June 30, 2024, primarily due to decreased interest expense. The six-month period saw a $455 thousand decrease in non-operating expense, driven by lower interest expense and a reduction in gains from the change in warrant liability value.
Liquidity and Capital Resources
QCi has incurred net losses and experienced negative cash flows from operations since inception. The company has raised $80.9 million through private and public placements of equity and debt. As of June 30, 2024, QCi had $2.5 million in cash and cash equivalents.
The company expects to incur additional losses and higher operating expenses as it continues to invest in research and development and go-to-market programs. QCi will require significant additional financing to fund its operations and continue investing in its products. The company’s ability to continue as a going concern is dependent upon obtaining additional capital, and management believes these conditions raise substantial doubt about the company’s ability to do so.
Critical Accounting Estimates
QCi’s critical accounting estimates include:
These critical estimates involve inherent uncertainties and the application of management judgment, which could result in material differences from the company’s consolidated financial statements if different assumptions are used.