D-Wave Quantum Inc. (QBTS) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. D-Wave Quantum Inc. is a commercial quantum computing company providing access to superconducting quantum computer systems via its Leap quantum cloud service (QCaaS) and professional services. The company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Revenue | $2.18 million | $1.71 million | $4.65 million | $3.29 million |
| Gross Profit | $1.39 million | $0.71 million | $3.05 million | $1.13 million |
| Gross Margin | 63.6% | 41.3% | 65.5% | 34.2% |
| Net Loss | $(17.78) million | $(26.19) million | $(35.09) million | $(50.60) million |
| Operating Cash Flow | N/A | N/A | $(26.59) million | $(29.04) million |
| Cash & Equivalents | $40.86 million (as of June 30, 2024) | |||
| Working Capital | $3.97 million (as of June 30, 2024) | |||
| Total Debt (Loans Payable) | $64.12 million (Current: $32.67M; Non-Current: $31.45M) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 28% QoQ and 41% YTD, driven primarily by a $0.7 million increase in QCaaS revenue due to higher average revenue per customer.
- Expense Reduction: Operating expenses decreased 6% QoQ and 16% YTD. R&D and G&A expenses declined due to reduced personnel costs and lower stock-based compensation. However, Sales and Marketing expenses increased 77% QoQ and 39% YTD.
- Improved Loss Profile: Net loss narrowed by 32% QoQ and 31% YTD, aided by a $2.2 million gain from the change in fair value of warrant liabilities and a $1.5 million gain on marketable equity securities.
- Debt Reclassification: Due to a covenant waiver requirement, the Term Loan balance was reclassified from non-current to current liabilities, significantly impacting the current liability total.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern Warning: Management has determined that the company's liquidity condition raises substantial doubt about its ability to continue as a going concern for a period of one year from the issuance of the financial statements. The company expects to incur additional operating losses.
- Financing Activities: The company raised $20.3 million via the Lincoln Park Purchase Agreement and $9.1 million via an At-The-Market (ATM) offering during the first half of 2024. Subsequent to quarter-end, an additional $16.9 million was raised through these facilities.
- Debt Covenants: On August 7, 2024, the company entered a Limited Waiver Agreement with its lender (PSPIB) regarding the 2024 Q2 permitted variance covenant. The company also prepaid $15.8 million of the Term Loan subsequent to the reporting period.
- Internal Controls: The company disclosed a material weakness in internal control over financial reporting related to the control environment and lack of sufficient accounting personnel with requisite GAAP knowledge. Remediation efforts are ongoing.
- Unusual Items: The net loss was significantly impacted by non-cash items, including a $2.2 million gain on warrant liabilities and a $1.5 million gain on the sale of an equity investment.
Investor Verification Checklist
- Liquidity Runway: Verify the sufficiency of the $40.9 million cash balance against the $26.6 million operating cash burn rate for the first half of the year.
- Debt Covenants: Confirm the status of the Term Loan covenants and the conditions required to access the remaining $20 million tranche.
- Revenue Quality: Assess the sustainability of the QCaaS revenue growth and the mix shift away from professional services.
- Internal Control Remediation: Monitor progress on hiring and training to address the material weakness in financial reporting controls.
- Dilution Risk: Track the utilization of the Lincoln Park and ATM facilities, noting the potential for significant share dilution to fund operations.