D-Wave Quantum Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing was signed April 18, 2023. D-Wave completed its business combination and became publicly traded on August 5, 2022; the transaction was accounted for as a reverse recapitalization, with D-Wave Systems as the accounting predecessor. Accordingly, FY2022 includes pre- and post-transaction periods.
Business context
D-Wave sells cloud access to its annealing quantum computers and hybrid quantum-classical solvers, along with professional services, training, and limited hardware-related sales. Its commercial systems are available through its Leap cloud service; its gate-model system remains under development and is not commercialized. The company reported 69 commercial customers in 2022, with more than 60% of revenue from commercial customers.
Financial results and liquidity
| Metric (USD millions, except percentages) | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $7.2 | $6.3 | +14% |
| Gross profit | $4.3 | $4.5 | Down $0.3 |
| Gross margin | 59.3% | 72.1% | Down 12.8 percentage points |
| Operating expenses | $63.7 | $43.5 | +47% |
| Operating loss | $(59.5) | $(38.9) | Loss widened |
| Net loss | $(51.5) | $(31.5) | Loss widened |
| Cash used in operations | $(45.2) | $(34.8) | Outflow increased |
QCaaS revenue rose to $5.6 million from $4.4 million; professional-services revenue fell to $1.5 million from $1.8 million. Cost of revenue increased 67% to $2.9 million, faster than revenue. Research and development, general and administrative, and sales and marketing expenses all increased, reflecting investment, higher staffing and stock-based compensation, and public-company costs.
At December 31, 2022, cash was $7.1 million, current assets were $13.9 million, current liabilities were $15.8 million, and working capital was negative $1.9 million. Total liabilities were $32.9 million. Loans payable, net, were $9.5 million, including $1.7 million current; the prior-year Venture Loan was repaid at the merger closing. Operating lease liabilities were $8.8 million in total. The company had an accumulated deficit of $376.8 million.
Financing cash flow was $43.3 million, principally including $40.0 million of PIPE proceeds and offset by repayment of the Venture Loan and transaction costs. Large DPCM shareholder redemptions left approximately $9.1 million of trust cash available at closing. The auditor issued an unqualified opinion but included a going-concern paragraph; management and the auditor said substantial doubt existed about the company’s ability to continue as a going concern, dependent on obtaining additional financing.
Changes, outlook and notable matters
- Net loss increased from $31.5 million in 2021 to $51.5 million in 2022; operating cash outflow also increased. Government assistance recognized as income fell to zero from $7.2 million, while a $5.7 million non-cash SIF interest benefit and a $6.2 million warrant-liability fair-value gain partially affected 2022 results.
- Management expects continued losses and higher operating expenses, including R&D and public-company costs. It expects QCaaS to comprise a smaller share of revenue in 2023 as professional-services engagements increase, with the QCaaS share expected to rise later as applications reach production. The filing provides no specific revenue or profit guidance.
- After year-end, D-Wave entered a PSPIB term loan making up to $50 million available in three conditional tranches. The initial $15 million tranche was advanced April 14, 2023 and management said it provided about two months of cash runway. The remaining tranches depend on specified conditions, so availability is not assured. The loan is secured by substantially all assets; proceeds from Lincoln Park share sales must be applied to repayment, with an additional 10% premium on those proceeds.
- The Lincoln Park equity facility provides for up to $150 million of purchases over 36 months, subject to conditions including a $1.00 floor price. The company reported $4.2 million of proceeds through year-end 2022 and a further $15.7 million through February 10, 2023. The filing says the share price had remained below the floor since February 14, 2023, limiting access to this facility. Potential share sales and resale registrations may cause substantial dilution and pressure the stock price.
- Three customers each generated 14%, 12%, and 11% of FY2022 revenue. D-Wave disclosed a material weakness in financial-reporting controls, ineffective disclosure controls at year-end, and a restatement of its unaudited nine-month 2022 financial statements. Remediation was in progress and not yet complete. The 10-K was filed within an extension after the company missed its initial filing deadline.
- The filing reported an NYSE notice dated March 16, 2023 for a share price below $1.00 over 30 trading days, with six months to regain compliance. It also describes technology-development, customer-adoption, competition, supply-chain, cybersecurity, foreign-exchange, regulatory, and financing risks. Management reported no material 2022 financial-statement impact from COVID-19 or the Russia-Ukraine conflict.
Investor verification priorities
- Confirm the company’s current cash runway, operating cash burn, and ability to satisfy the conditions for the remaining PSPIB loan tranches.
- Track NYSE listing compliance and whether the Lincoln Park facility is available at the prevailing share price; assess the dilution and resale overhang.
- Review progress remediating the material weakness and verify that subsequent financial statements are timely and reliable.
- Monitor conversion of professional-services projects into recurring QCaaS production contracts, customer concentration, and gross-margin trends.
- Check the executed term-loan documentation for the applicable PIK interest rate: the filing’s discussion gives inconsistent figures (11% in MD&A and 10% in a financial-statement note).