10-K: D-Wave Amends Strategic Innovation Fund Agreement and Files Annual Report

D-Wave Systems Inc. amends a contribution agreement with the Canadian government and files its annual report on Form 10-K, detailing financial results and strategic updates.

Summary

• D-Wave Systems Inc. has amended its Strategic Innovation Fund agreement with the Canadian government, modifying indirect cost allocations and project cost breakdowns.
• The company's annual report on Form 10-K for the fiscal year ended December 31, 2023, was also filed, highlighting the company's financial condition and operational results.
• The report indicates a net loss of $82.8 million for 2023, compared to a net loss of $53.7 million in 2022.
• D-Wave's revenue for 2023 was $8.8 million, up from $7.2 million in 2022, primarily driven by an increase in professional services revenue.
• The company's operating expenses increased to $85.2 million in 2023 from $63.7 million in 2022, due to increased investments in research and development, general and administrative, and sales and marketing.
• D-Wave is focused on expanding its cloud-based quantum computing services and professional services, and is also developing gate-model quantum computing systems.
• The company is pursuing a three-pronged go-to-market model involving direct sales, partner channels, and developers.
• D-Wave has a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future.
• The company's ability to continue as a going concern is dependent upon obtaining additional capital and financing.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While revenue is growing and the company is making strategic advancements, the significant increase in net losses and the need for additional financing raise concerns about its financial stability. The company's unique position in the market is a positive, but the financial challenges are a significant negative.

Positives

• D-Wave's revenue increased by 22% year-over-year, driven by growth in professional services.
• The company is expanding its reach through partnerships with AWS Marketplace and other resellers.
• D-Wave is the only company offering both annealing and gate-model quantum computing systems.
• The company has achieved SOC 2 Type 2 compliance, demonstrating its commitment to data security.
• D-Wave has a strong track record of innovation in building and delivering annealing quantum computing systems to the market.

Negatives

• D-Wave reported a significant net loss of $82.8 million for 2023, an increase from $53.7 million in 2022.
• The company's operating expenses increased substantially, impacting profitability.
• D-Wave has a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future.
• The company's ability to continue as a going concern is dependent upon obtaining additional capital and financing.
• The company has identified a material weakness in its internal control over financial reporting.

Risks

• D-Wave is in its growth stage, making it difficult to forecast future results and funding requirements.
• The company has a history of losses and expects to incur significant expenses and continuing losses.
• D-Wave may not be able to achieve its technological goals or meet customer demand if research and development efforts are not adequately funded.
• The company depends on its ability to retain key employees and attract new talent.
• D-Wave expects to require additional capital and may be unable to raise it on acceptable terms.
• The quantum computing industry is highly competitive, and D-Wave may not be successful in competing.
• Cybersecurity attacks or data breaches could damage D-Wave's reputation and affect its business.
• Market adoption of cloud-based quantum computing is relatively new and unproven.
• Unfavorable conditions in the global economy could limit D-Wave's ability to grow.
• System failures or interruptions could harm D-Wave's reputation and subject it to liability.
• D-Wave may be unable to protect its intellectual property or prevent third parties from making unauthorized use of it.
• The price of D-Wave's Common Shares has been and may continue to be volatile or may decline regardless of operating performance.
• D-Wave may issue additional Common Shares or other equity securities without stockholder approval, which would dilute ownership interests.
• The D-Wave Quantum Charter contains anti-takeover provisions that could adversely affect the rights of stockholders.

Future Outlook

D-Wave expects to incur additional losses and higher operating expenses for the foreseeable future as it continues to invest in research and development and go-to-market programs. The company also anticipates that its cloud service revenue will continue to grow.

Management Comments

• D-Wave's management is focused on building a quantum ecosystem of developers, talent, systems, software, tools, and users.
• Management believes the maturity of D-Wave's technologies, its deep professional services expertise, and its track record of delivering scientific advancements and new quantum products via cloud services equip it to partner with customers on their quantum journeys.
• Management is focused on providing an accelerated path to practical, real-world applications that deliver measurable value to customers.

Industry Context

The quantum computing market is highly competitive, with new technologies and entrants expected to increase competition. D-Wave differentiates itself by being the only provider building both annealing and gate-model quantum computers, and by focusing on practical, real-world applications.

Comparison to Industry Standards

• D-Wave's annealing quantum computing technology is unique in the industry, with no direct competitors offering similar commercial systems.
• Other companies, such as Rigetti, IBM, Google, IonQ, and Quantinuum, are pursuing gate-model quantum computing using different technologies.
• D-Wave's technology was rated at TRL 8 (mature technology) by NIST in 2021, while other gate-model superconducting providers were rated from TRL 1 to TRL 3.
• D-Wave's Leap quantum cloud service offers real-time access to quantum computers, unlike other cloud access providers that rely on third-party systems.

Related Party Transactions

• The company has entered into a term loan with PSPIB, a related party to the company's largest shareholder.
• The company has entered into a purchase agreement with Lincoln Park, a related party.
• The company has entered into a side letter agreement with PSP, a related party.
• The company has entered into a promissory note with the Sponsor, a related party.

Stakeholder Impact

• Shareholders may experience dilution due to potential future equity issuances.
• Employees may be affected by potential cost-cutting measures if the company is unable to secure additional funding.
• Customers may benefit from the company's continued development of quantum computing solutions.
• Suppliers may be impacted by the company's financial condition and ability to pay for goods and services.
• Creditors may be at risk if the company is unable to meet its debt obligations.

Next Steps

• D-Wave will continue to invest in research and development to enhance its annealing and gate-model quantum computing systems.
• The company will focus on expanding its customer base and moving more applications into production.
• D-Wave will pursue government sales and grants to support its growth.
• The company will continue to develop and implement a comprehensive partner program.
• D-Wave will continue to improve its internal controls over financial reporting.

Key Dates

Keywords

quantum computing, annealing, gate-model, cloud service, QCaaS, hybrid solvers, professional services, strategic innovation fund, financial results, intellectual property