D-Wave Quantum Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. D-Wave Quantum Inc. was formed in January 2022 to complete the business combination and reported only nominal activity through June 30. The operating results below are for D-Wave Systems Inc., the quantum-computing business that became an indirect subsidiary when the business combination closed on August 5, 2022. Amounts are in U.S. dollars.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.371 million | $1.137 million | $3.083 million | $2.546 million |
| Gross profit / margin | $0.785 million / 57.3% | $0.689 million / 60.6% | $1.914 million / 62.1% | $1.800 million / 70.7% |
| Operating expenses | $12.770 million | $10.025 million | $24.544 million | $20.101 million |
| Operating loss | $11.985 million | $9.336 million | $22.630 million | $18.301 million |
| Net loss | $13.198 million | $4.668 million | $24.815 million | $13.496 million |
| Net loss per share | $0.12 | $0.04 | $0.22 | $0.12 |
At June 30, D-Wave Systems had cash and cash equivalents of $10.466 million, total assets of $35.685 million, and total liabilities of $55.778 million. Loans payable were $34.256 million, including $21.353 million classified as current. The company reported a $13.1 million working-capital deficiency and an accumulated deficit of $350.1 million.
For the six months, operating cash use was $21.499 million, investing cash use was $0.218 million, and financing provided $22.765 million. Cash increased by $0.983 million from year-end 2021. The company received $20 million under a venture loan during the period.
Changes versus prior comparable periods
- Revenue rose 21% in both Q2 and the first half, driven mainly by quantum-computing-as-a-service (QCaaS) growth. QCaaS represented $1.176 million of Q2 revenue and $2.560 million for the first half.
- Gross profit increased, but gross margin fell year over year in both periods as cost of revenue grew faster than sales.
- Operating expenses increased 27% in Q2 and 22% in the first half. Higher personnel, research and development, and sales and marketing costs contributed; general and administrative expense also rose, including increased stock-based compensation and professional fees.
- Net losses widened substantially. Interest expense increased to $1.746 million in Q2 and $2.538 million in the first half, primarily reflecting the venture loan and other borrowing costs. The prior-year periods included $4.586 million of government assistance, while none was recorded in 2022.
- Operating cash use was $21.5 million, versus $20.3 million in the first half of 2021.
Outlook, risks and unusual items
- Management expects continued operating losses and negative operating cash flow while investing in research and development, commercial expansion, and sales and marketing. It expects these expense categories to increase; public-company compliance and related costs are also expected to raise general and administrative expense. No specific revenue or earnings guidance was provided.
- The filing states that additional financing was needed to fund operations for the next 12 months and that the company’s ability to continue as a going concern depended on additional capital. Management warned that failure to obtain financing could require operations to be scaled back or discontinued, and the filing says these conditions raised substantial doubt about going concern.
- After quarter-end, the August 5 business combination and PIPE generated $49.0 million of gross proceeds, including $40.0 million from the PIPE. Net cash proceeds are reported as approximately $37.5 million in the D-Wave Systems note and $37.6 million in the D-Wave Quantum discussion. Transaction costs were approximately $11.5 million. The venture loan was repaid at closing: $20.8 million including accrued interest, plus a $1.0 million final fee.
- A committed equity line of credit permits the company, subject to conditions, to direct purchases of up to $150 million of common stock. It had not been drawn as of the filing. Management said available ELOC funds were expected to support operations for at least 18 months, subject to the agreement’s terms and conditions.
- Risks include customer concentration (three customers generated 42% of Q2 revenue and 39% of first-half revenue), dependence on future financing, execution and adoption of quantum products, competition, foreign-exchange exposure, and uncertainty related to COVID-19 and geopolitical events. D-Wave reported no material litigation pending.
- Disclosure controls were deemed ineffective at June 30 because of a material weakness in financial reporting controls, including insufficient qualified accounting staff and review over certain complex areas. Remediation efforts were underway; the weakness was not yet considered remediated.
Important facts for investors to verify
- Post-combination cash, cash burn, and the duration and conditions of available financing, including whether the ELOC is drawn.
- Whether revenue growth can outpace operating-cost growth and improve gross margins, and the progress of QCaaS and professional-services demand.
- The repayment and continuing terms of government-backed loans, and any related repayment or change-of-control obligations.
- Progress and independent evidence of remediation of the material weakness in internal controls.
- Revenue dependence on a small number of customers and the potential dilution from equity financing, incentive plans, exchangeable shares, and warrants.