D-Wave Quantum Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited U.S. GAAP results. Dollar amounts below are U.S. dollars; financial statement amounts are in millions unless noted. D-Wave sells access to its quantum-computing cloud platform (QCaaS) and related professional services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.56 | $1.70 | $5.85 | $4.78 |
| Gross profit | $1.53 | $1.04 | $2.66 | $2.92 |
| Gross margin | 59.7% | 61.4% | 45.4% | 61.1% |
| Operating expenses | $19.94 | $16.21 | $66.66 | $41.35 |
| Operating loss | $(18.41) | $(15.16) | $(64.00) | $(38.43) |
| Net loss | $(15.83) | $(13.31) | $(66.34) | $(38.74) |
| Basic and diluted loss per share | $(0.12) | $(0.11) | $(0.50) | $(0.32) |
- Q3 revenue rose 51% year over year, mainly on higher professional-services revenue; lower QCaaS revenue from customer non-renewals partly offset the increase. Q3 QCaaS revenue was $1.13 million versus $1.35 million; professional services were $1.42 million versus $0.35 million.
- For the first nine months, revenue increased 22%, but gross profit fell as cost of revenue rose 72%. Operating expenses increased 61%, with higher R&D, public-company and personnel costs contributing. Nine-month stock-based compensation was $17.36 million, versus $3.36 million.
- Cash used in operating activities was $45.91 million for the nine months, versus $34.34 million a year earlier. Investing cash use was $0.18 million; financing provided $92.41 million, primarily from Lincoln Park stock sales and term-loan proceeds.
Financial position and funding
- At September 30, cash was $53.32 million; current assets were $58.19 million and current liabilities $43.33 million, yielding working capital of $14.9 million. Accumulated deficit was $443.1 million.
- Loans payable totaled approximately $39.1 million carrying value, including the $29.8 million term loan classified as current because covenant breaches could make it callable. The term loan is secured by substantially all assets, carries 10% cash or 11% payment-in-kind interest, and matures March 31, 2027.
- The lender waived minimum-revenue covenant breaches for Q2 and Q3 2023. A further $20 million term-loan tranche remained conditional, including on obtaining $25 million of acceptable non-dilutive financing and lender approval of the operating budget and IP valuation.
- D-Wave raised $61.3 million from Lincoln Park during the nine months by issuing 39.5 million shares. Further sales require the share price to exceed $1.00 and are subject to agreement limits. The term-loan amendment allowed up to $50 million of qualifying proceeds received by December 31, 2023 to avoid required loan paydown.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance. The company expects further operating losses and negative operating cash flows and says additional financing is required; financing may not be available on acceptable terms or at all.
Outlook, risks, and other notable items
- No quantified revenue or earnings guidance is provided. Management expects continued losses and investment in R&D, commercial expansion, and sales and marketing. It expects professional services to support customer application development, with QCaaS potentially becoming a larger share of revenue over time; it also expects costs to rise.
- On October 20, 2023, the NYSE notified D-Wave that its average closing share price had been below $1.00 for 30 consecutive trading days. The company said it intended to cure the deficiency within the six-month period and was considering alternatives, including a reverse stock split subject to shareholder approval. Trading continued during the cure period, subject to other listing standards.
- Disclosure controls were deemed ineffective due to a previously reported material weakness in the financial-reporting close process, including insufficient experienced accounting personnel and review. Remediation was ongoing; management stated the financial statements were fairly stated in all material respects.
- No material litigation was reported. A Chief People Officer resignation, effective December 13, 2023, was disclosed. The filing also identifies macroeconomic conditions, competition, technology and commercialization execution, capital availability, dilution, loan covenant compliance, and NYSE listing status as risks.
Important facts for investors to verify
- Whether D-Wave can secure sufficient financing and meet the conditions for the remaining $20 million loan tranche, and the resulting cash runway.
- Whether the lender continues to waive covenant breaches and whether the term loan remains callable or is otherwise amended.
- Whether the share price regains the $1.00 NYSE threshold and permits further Lincoln Park sales, and the potential dilution from additional equity issuance.
- Whether professional-services growth translates into renewed QCaaS demand, and whether revenue growth can improve gross margins and reduce operating cash burn.
- Progress and testing of controls remediation, and the status of the NYSE listing deficiency.