D-Wave Quantum Inc. (QBTS) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. D-Wave Quantum Inc. is a commercial quantum computing company providing access to superconducting quantum computer systems via its Leap 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 | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Revenue | $1.87M | $2.56M | $6.52M | $5.85M |
| Gross Profit | $1.04M | $1.53M | $4.09M | $2.66M |
| Gross Margin | 55.8% | 59.7% | 62.7% | 45.4% |
| Net Loss | $(22.71M) | $(16.11M) | $(57.80M) | $(66.70M) |
| Operating Cash Flow | N/A | N/A | $(44.66M) | $(45.91M) |
| Cash & Equivalents | $29.27M | $53.32M | $29.27M | $53.32M |
| Working Capital | $9.25M | N/A | $9.25M | N/A |
| Total Debt (Loans Payable) | $46.08M | $64.25M | $46.08M | $64.25M |
Note: Debt figures include the Term Loan (fair value) and SIF Loan. The Term Loan was fully repaid in October 2024 (subsequent event).
Material Changes vs. Prior Period
- Revenue Decline (Q3): Revenue decreased 27% year-over-year to $1.87M, driven by a $1.1M drop in professional services revenue, partially offset by a $0.5M increase in QCaaS revenue.
- Expense Reductions: Research and Development (R&D) expenses decreased 8% to $8.67M, and General and Administrative (G&A) expenses increased 16% to $9.26M (driven by a $1.0M credit loss provision on a Zapata Computing note). Sales and Marketing expenses rose 52% to $3.75M.
- Debt Repayment: The company prepaid $21.1M of its Term Loan during the quarter. The remaining balance was repaid in full on October 22, 2024.
- Equity Issuance: The company raised $32.2M via the Lincoln Park Purchase Agreement and $20.7M via At-The-Market (ATM) offerings during the nine months ended September 30, 2024.
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 one year from the issuance date. The company expects to incur additional operating losses.
- Unusual Items: A $1.0M credit loss provision was recorded for a convertible note held in Zapata Computing, Inc., following Zapata's announcement of insolvency. Additionally, a $1.5M gain was recognized on the sale of marketable equity securities.
- NYSE Compliance: The company received notice of non-compliance with NYSE listing standards due to a share price below $1.00 but regained compliance on November 1, 2024.
- Internal Controls: A material weakness in internal control over financial reporting persists, related to a lack of sufficient accounting personnel with requisite GAAP knowledge. Remediation efforts are ongoing.
- Financing Capacity: As of September 30, 2024, the company had $49.9M remaining capacity under the Lincoln Park Purchase Agreement and $79.1M under the ATM Agreement.
Investor Verification Checklist
- Liquidity Runway: Verify the sufficiency of the $29.3M cash balance against the burn rate of ~$15M per quarter to assess the timeline for potential dilution or operational scaling back.
- Revenue Mix: Monitor the shift from professional services to QCaaS; the decline in professional services revenue is a key risk to near-term top-line growth.
- Debt Obligations: Confirm the status of the SIF Loan (Canada Strategic Innovation Fund), which is revenue-based and remains on the balance sheet at $32.0M.
- Internal Control Remediation: Track progress on hiring and training to resolve the material weakness in financial reporting controls.
- Share Price Floor: Monitor the stock price relative to the $1.00 floor price required to utilize the Lincoln Park Purchase Agreement for future capital raises.