D-Wave Quantum Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. D-Wave provides quantum-computing cloud access (QCaaS), professional services and related products. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $2.465 million | $1.583 million; up 56% |
| Gross profit / margin | $1.659 million / 67.3% | $0.421 million / 26.6% |
| Operating expenses | $19.175 million | $25.111 million |
| Operating loss | $17.516 million | $24.690 million |
| Net loss | $17.312 million; $0.11 per share | $24.406 million; $0.20 per share |
| Cash used in operations | $12.119 million | $13.574 million |
| Cash and cash equivalents | $27.304 million | $41.307 million at Dec. 31, 2023 |
| Working capital | $22.8 million | — |
| Loans payable, net | $63.4 million | $64.2 million at Dec. 31, 2023 |
| Total liabilities / assets | $85.562 million / $48.605 million | $83.837 million / $59.356 million at Dec. 31, 2023 |
Revenue growth reflected higher QCaaS revenue ($1.692 million versus $1.168 million) and professional services revenue ($0.639 million versus $0.293 million). Customer A represented 18% of revenue, compared with 15% a year earlier. Remaining performance obligations were $7.4 million; approximately 57% is expected to be recognized within 12 months.
Operating cash outflow improved by $1.5 million year over year, but cash fell by $14.0 million during the quarter. Investing cash outflow was $1.205 million, including a $1.0 million convertible note investment; financing cash outflow was $0.726 million. The current ratio was approximately 3.1x. Total liabilities exceeded assets by $37.0 million, and accumulated deficit was $500.4 million.
Material changes and unusual items
- Gross margin increased to 67.3% from 26.6%, as cost of revenue fell 31% while revenue grew.
- Research and development expense declined 22% and general and administrative expense declined 33%, primarily due to lower stock-based compensation and, for G&A, lower professional fees. Sales and marketing expense increased 6%.
- Other income included a $1.660 million gain from an observable price change in an equity investment and a $1.199 million Term Loan fair-value gain. These were partly offset by a $2.652 million warrant-liability fair-value loss. Interest expense rose to $1.140 million, largely due to the Term Loan.
- In February, D-Wave purchased a $1.0 million Zapata senior secured convertible note bearing 15% interest and entered a commercial collaboration. The note matures December 15, 2026.
- After quarter-end, D-Wave amended its Term Loan and issued 9,616,070 shares under its purchase agreement, receiving $13.4 million. This subsequent financing is not included in March 31 cash.
Outlook, liquidity, and risks
Management expects continued operating losses and negative operating cash flows as it expands commercial operations and invests in research and development. It expects R&D and sales and marketing spending to rise over time; near-term G&A may decrease, while cost of revenue is expected to rise in dollars but decline as a percentage of revenue as QCaaS becomes a larger revenue mix. The filing provides no specific revenue or earnings guidance.
Management concluded that liquidity conditions raise substantial doubt about D-Wave’s ability to continue as a going concern for one year from the financial statements’ issuance. Additional financing may be required; the company states that unavailable or unacceptable financing could require operations to be scaled back or discontinued. The $20 million third Term Loan tranche is conditional, including on qualifying non-dilutive financing, and availability is not assured. The Term Loan is secured by substantially all assets, carries 10% cash or 11% PIK interest, and includes covenants and prepayment provisions. It is from a lender related to the company’s largest shareholder.
The Lincoln Park equity purchase facility is subject to conditions, including a $1.00 share-price floor, and may dilute shareholders. D-Wave regained NYSE minimum-price compliance in March 2024 but must maintain listing compliance. The company reported no material litigation or material changes to its previously disclosed risk factors.
Disclosure controls were deemed ineffective as of March 31, 2024 because of a previously reported material weakness in the financial reporting close process, including insufficient personnel with relevant GAAP and SEC-reporting expertise. Remediation efforts are ongoing; the weakness was not yet considered remediated.
Important facts for investors to verify
- Cash runway and financing needs, including progress toward any remaining Term Loan availability and the terms and proceeds of subsequent equity issuances.
- Whether operating cash burn declines sustainably and revenue growth, QCaaS adoption, customer concentration and backlog convert into cash and recognized revenue.
- Term Loan covenant compliance, interest burden, repayment and prepayment terms, and the related-party lender relationship.
- Potential dilution from the purchase facility, warrants, stock-based awards and exchangeable shares.
- Progress in remediating the material weakness and restoring effective disclosure controls.
- Continued compliance with NYSE listing standards and the company’s stated going-concern uncertainty.