8-K: D-Wave Quantum Reports Mixed Q3 Results, Highlights Progress in Technology and Partnerships

D-Wave Quantum reported a 27% decrease in overall revenue for Q3 2024, but saw a 41% increase in QCaaS revenue and made significant advancements in technology and partnerships.

Summary

• D-Wave Quantum Inc. announced its financial results for the third quarter of fiscal year 2024, showing a mixed performance.
• Total revenue for the quarter was $1.9 million, a 27% decrease compared to $2.6 million in the same quarter of the previous year.
• However, Quantum Computing as a Service (QCaaS) revenue increased by 41% to $1.6 million, up from $1.1 million in Q3 2023, driven by higher average revenue per customer.
• Professional services revenue declined significantly by 80% to $0.3 million, down from $1.3 million in the prior year's quarter.
• Bookings for the quarter decreased by 22% to $2.3 million from $2.9 million in Q3 2023.
• The company's GAAP gross profit was $1.0 million, a 32% decrease from $1.5 million in the same quarter last year, while non-GAAP gross profit was $1.3 million, a 35% decrease from $1.9 million.
• GAAP operating expenses increased by 9% to $21.7 million, and the net loss for the quarter was $22.7 million, a 41% increase from the $16.1 million loss in Q3 2023.
• Adjusted EBITDA loss for the quarter was $13.8 million, a 19% increase from $11.6 million in the prior year's quarter.
• For the first nine months of fiscal year 2024, total revenue was $6.5 million, an 11% increase from $5.9 million in the same period of 2023.
• QCaaS revenue for the nine-month period increased by 52% to $5.1 million, while professional services revenue decreased by 42% to $1.3 million.
• GAAP gross profit for the nine months was $4.1 million, a 54% increase from $2.7 million in the same period of 2023.
• The net loss for the nine months was $57.8 million, a decrease of $8.9 million compared to the $66.7 million loss in the same period of 2023.
• Adjusted EBITDA loss for the nine months was $40.6 million, a 6% decrease from $43.4 million in the same period of 2023.
• D-Wave had 132 customers in the most recent four quarters, compared to 125 in the preceding four quarters, with 76 commercial customers, including 27 from the Forbes Global 2000 list.
• Revenue from government customers increased by 66% and research customers by 47%, while commercial revenue decreased by 4%.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with positive technological advancements and partnerships offset by concerning financial results, leading to a neutral sentiment.

Positives

• QCaaS revenue saw a significant increase of 41% in Q3 2024, indicating growing adoption of their cloud services.
• The company achieved a 54% increase in GAAP gross profit year-to-date, demonstrating improved profitability.
• The successful calibration of the 4,400+ qubit Advantage2 processor marks a major technological advancement.
• The introduction of SLAs for Leap cloud service provides customers with assurance of reliability and performance.
• The partnership with NTT DOCOMO for production deployment of a quantum application is a significant commercial validation.
• Being deemed awardable on the US Department of Defense's Tradewinds platform opens up new government procurement opportunities.
• The company is making progress in quantum-fueled AI technology, including generative AI architectures.
• D-Wave has expanded its reach through new partnerships, including with Staque in the Middle East and the Chicago Quantum Exchange.
• The company has a strong customer base with 132 total customers, including 76 commercial customers and 27 Forbes Global 2000 customers.
• The company has paid off the remaining balance of the $50 million four-year term loan agreement with PSPIB Unitas Investments II Inc.

Negatives

• Overall revenue decreased by 27% in Q3 2024, indicating a slowdown in total sales.
• Professional services revenue experienced a sharp decline of 80% in Q3 2024, impacting overall revenue.
• Bookings decreased by 22% in Q3 2024, suggesting a potential future slowdown in revenue.
• GAAP gross profit decreased by 32% in Q3 2024, indicating lower profitability for the quarter.
• The net loss increased by 41% in Q3 2024, showing a worsening financial position.
• Adjusted EBITDA loss increased by 19% in Q3 2024, reflecting higher operating expenses and lower revenue.
• Commercial revenue as a percentage of total revenue decreased from 70.1% to 59.2%, indicating a shift in focus towards government and research customers.
• The company's cash balance decreased to $29.3 million as of September 30, 2024, from $41.3 million at the end of 2023.

Risks

• The company's financial performance is subject to fluctuations in revenue, particularly in professional services.
• The company's ability to raise additional funds under the ELOC is subject to conditions, including a minimum stock price of $1.00 per share.
• The company's future performance is subject to various cautionary factors, including those described in their SEC filings.
• The company's ability to achieve its financial guidance is subject to various uncertainties and risks.
• The company's reliance on non-GAAP financial measures may not be comparable to other companies' measures.
• The company's ability to maintain its competitive edge in the quantum computing market is subject to technological advancements and market dynamics.

Future Outlook

The company expects the fourth quarter revenue and bookings to improve over the third quarter and reiterates its full year 2024 Adjusted EBITDA Loss guidance to be less than the fiscal 2023 Adjusted EBITDA loss of $54.3 million.

Management Comments

• Annealing quantum computing is continuing to drive the commercial adoption of quantum technology, said Dr. Alan Baratz, CEO of D-Wave.
• Organizations around the world are recognizing the value our technology can bring right now in fueling new discoveries, facilitating operational excellence and driving measurable outcomes.

Industry Context

The announcement highlights D-Wave's continued efforts to commercialize quantum computing, with a focus on annealing technology. The company is expanding its reach through partnerships and is targeting both government and commercial sectors. The progress in quantum AI and the introduction of SLAs are significant steps in the industry.

Comparison to Industry Standards

• D-Wave's focus on annealing quantum computing differentiates it from companies like IBM and Google, which are primarily focused on gate-based quantum computing.
• The 4,400+ qubit Advantage2 processor is a significant development, placing D-Wave among the leaders in qubit count, although the type of qubit and its performance characteristics are different from those of competitors.
• The introduction of SLAs for quantum cloud services is a unique offering, as most quantum computing companies are still in the early stages of commercialization and do not offer formal SLAs.
• The partnership with NTT DOCOMO is a notable example of a real-world application of quantum computing, which is still relatively rare in the industry.
• D-Wave's focus on optimization problems aligns with the current strengths of annealing quantum computing, while other companies are exploring a broader range of applications.

Management Changes

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and increase in net loss.
• Customers will benefit from the introduction of SLAs for Leap cloud service.
• Employees may be impacted by the company's financial performance and restructuring efforts.
• Partners will be interested in the company's progress in technology and commercialization.
• Creditors will be monitoring the company's cash balance and debt levels.

Next Steps

• The company will continue to develop and commercialize its Advantage2 processor.
• D-Wave will focus on expanding its customer base and partnerships.
• The company will continue to explore generative AI architectures using quantum processing units.
• D-Wave will work to improve its financial performance and achieve its 2024 Adjusted EBITDA Loss guidance.
• The company will host a conference call to discuss the financial results and business outlook.

Key Dates

Keywords

quantum computing, annealing, QCaaS, quantum cloud, Advantage2, AI, machine learning, optimization, SLA, NTT DOCOMO, Tradewinds, EBITDA, revenue, gross profit, bookings