D-Wave Quantum Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited and prepared under U.S. GAAP. D-Wave provides cloud access to superconducting quantum computers through Leap and sells professional services and related products.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1.583 million | $1.713 million | Down 8% |
| Gross profit / margin | $0.421 million / 26.6% | $1.097 million / 64.0% | Margin down 37.4 percentage points |
| Operating expenses | $25.111 million | $12.048 million | Up 108% |
| Operating loss | $(24.690) million | $(10.951) million | Loss increased |
| Net loss | $(24.608) million | $(11.657) million | Loss increased |
| Net loss per share | $(0.20) | $(0.09) | — |
| Cash used in operations | $(13.574) million | $(9.509) million | Cash use increased |
Revenue consisted primarily of QCaaS ($1.168 million, down from $1.384 million) and professional services ($0.406 million, up from $0.309 million). Management attributed the revenue decline mainly to non-renewal of several QCaaS customer contracts, partly offset by new contracts. Two customers represented 15% and 13% of revenue in Q1 2023.
Research and development expense rose 60% to $10.915 million, primarily reflecting personnel and stock-based compensation, higher wafer fabrication activity, and reduced Canadian research tax credits. General and administrative expense rose 210% to $11.296 million, largely due to public-company costs, professional services, personnel and insurance. Sales and marketing expense increased 81% to $2.900 million. Stock-based compensation totaled $6.755 million versus $0.783 million a year earlier.
At March 31, 2023, cash was $8.988 million, total current assets were $14.912 million and current liabilities were $18.084 million, a working-capital deficit of approximately $3.2 million. Loans payable had a carrying value of $9.050 million, including $0.790 million current; operating lease liabilities were also reported. Total liabilities were $34.772 million and stockholders’ deficit was $7.313 million. Cash increased by $1.923 million during the quarter, principally because $15.683 million of financing proceeds from Lincoln Park offset operating cash use and other outflows.
Material changes and outlook
- Management expects continuing operating losses and negative operating cash flows while investing in research and development and commercial expansion. It anticipates increased R&D, sales and marketing, and public-company expenses; no numerical revenue or earnings guidance was provided.
- Management expects QCaaS revenue to be a smaller share of 2023 revenue as professional-services demand grows, with the longer-term mix potentially shifting back toward QCaaS as customer applications enter production.
- The company concluded that its liquidity raises substantial doubt about its ability to continue as a going concern for the year following issuance of the financial statements. It stated that additional financing is required to fund operations over the next 12 months.
- After quarter-end, D-Wave entered into a related-party term loan providing up to $50 million in three conditional tranches. The first $15 million was advanced April 14, 2023; the additional $15 million and $20 million depend on specified conditions. The loan bears interest at the company’s choice of 10% cash or 11% payment-in-kind, is secured by substantially all assets, matures March 31, 2027, and includes fees, prepayment premiums and covenants. The filing says the first tranche was expected to provide runway until the second tranche, assuming it becomes available.
- Q1 Lincoln Park share sales raised $15.7 million through issuance of 13.24 million shares. The facility permits purchases up to $150 million through June 2025, subject to restrictions; the company could not sell under it while its share price was below the $1.00 floor price. Proceeds from future sales under the agreement must be applied toward the term loan, with an additional 10% premium payment.
- D-Wave reported it was not in compliance with certain NYSE continued-listing standards and warned that failure to cure or maintain compliance could result in delisting and impair trading liquidity and access to capital.
- Disclosure controls were deemed ineffective because of a material weakness in the financial-reporting close process, including insufficient personnel with relevant complex GAAP and SEC reporting experience. Remediation efforts include hiring, consultants and improved segregation and review of duties. Management stated the financial statements were fairly stated in all material respects.
- No material litigation was reported. The filing also notes that macroeconomic conditions, access to capital, customer adoption, competition and execution risks could affect results. The company had no material changes to the risk factors disclosed in its 2022 Form 10-K.
Key facts investors should verify
- Whether D-Wave met the conditions for the second and third term-loan tranches, and the resulting cash runway, debt service and covenant position.
- Whether the share price and facility conditions allow further Lincoln Park sales, and the associated dilution and required loan prepayments.
- Progress toward resolving NYSE listing noncompliance and remediating the material weakness in internal controls.
- Trends in QCaaS renewals, customer concentration, professional-services conversion to production use, revenue and gross margin.
- Actual cash burn, financing needs and progress toward sustained revenue growth and profitability.