D-Wave Quantum Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. D-Wave sells cloud access to its quantum computing systems through Leap QCaaS and provides professional services supporting customer applications.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1.707 million | $1.371 million | $3.290 million | $3.083 million |
| Gross profit | $0.705 million | $0.751 million | $1.126 million | $1.848 million |
| Gross margin | 41.3% | 54.8% | 34.2% | 59.9% |
| Operating loss | $20.907 million | $12.403 million | $45.597 million | $23.357 million |
| Net loss | $25.898 million | $13.349 million | $50.506 million | $25.266 million |
| Net loss per share | $0.20 | $0.11 | $0.40 | $0.20 |
- Q2 revenue rose 25% year over year, primarily on higher professional services revenue. QCaaS revenue was $1.032 million, down from $1.176 million; professional services revenue increased to $0.655 million from $0.156 million.
- For the first half, revenue rose 7%. Professional services growth partly offset lower QCaaS revenue, which management attributed to customer non-renewals partly replaced by new contracts.
- Operating expenses were $21.612 million in Q2, up from $13.154 million. For the first half, they were $46.723 million, up from $25.205 million. Increases reflected research and development, public-company costs, and go-to-market investment; stock-based compensation was $11.477 million in the first half versus $1.600 million.
- Cash used in operations was $29.044 million in the first half, compared with $21.499 million. Investing cash use was $0.079 million; financing provided $29.657 million. Cash increased by $0.449 million to $7.514 million.
- At June 30, cash was $7.514 million and working capital was negative $20.8 million. Total assets were $24.909 million, total liabilities $52.802 million, and stockholders’ deficit $27.893 million. Loans payable totaled approximately $24.4 million; the $15.7 million Term Loan carrying value was classified as current because the company had missed a revenue covenant and the loan could be callable.
Material changes, outlook, and risks
- Losses widened materially versus the comparable periods, while gross margin fell as cost of revenue increased faster than revenue. Q2 other expense included $2.150 million from warrant fair-value changes, $1.393 million in Term Loan issuance costs, and $0.345 million from the loan’s fair-value change.
- Management expects continuing operating losses and negative operating cash flows as it invests in research and development, commercial operations, and go-to-market programs. No specific revenue or earnings guidance is provided.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for one year from the financial statements’ issuance. It expects additional financing will be required; failure to obtain it could force delays, reductions, or discontinuation of operations.
- The $50 million Term Loan is secured by a first-priority interest in substantially all assets, bears 10% cash or 11% payment-in-kind interest at the company’s option, and includes financial covenants. The lender waived the missed Q2 minimum-revenue covenant. A further $20 million tranche was subject to conditions, including a $25 million non-dilutive financing and lender approval of specified materials.
- After quarter-end, D-Wave received the second $15 million loan tranche and raised $34.2 million through Lincoln Park share sales from July 24 to August 7. Those proceeds improved liquidity after June 30 but involved issuing 16,590,877 shares. Lincoln Park sales are subject to contractual and market-price limitations, including a $1.00 floor price.
- Management reported a material weakness in internal control over financial reporting related to staffing and review of the financial-statement close process; disclosure controls were deemed ineffective. Remediation is ongoing. PwC declined to stand for re-election, and the company was seeking a replacement auditor for the Q3 review; failure to retain one in time could threaten timely filing and NYSE listing.
- Customer concentration is notable: two customers each accounted for at least 10% of Q2 revenue. The filing reports no material pending litigation. Management cites macroeconomic conditions, including inflation, higher interest rates, and market volatility, as risks to customer investment and access to capital.
Important facts for investors to verify
- Current cash runway and actual cash burn following the post-quarter loan draw and equity issuance; the filing still identifies substantial doubt about going concern.
- Whether the remaining Term Loan tranche conditions are met, whether covenant waivers continue, and the effects of secured debt, interest, and repayment premiums.
- Future QCaaS renewals, professional-services conversion into recurring usage, customer concentration, and revenue performance against loan covenants.
- Share issuance and dilution from Lincoln Park financing, equity compensation, exchangeable shares, and warrants.
- Progress in remediating the material weakness and retaining an independent auditor in time for subsequent SEC filings.