D-Wave Quantum (QBTS) - 2024 Q4 - Annual Report

Part I Business The company develops and delivers commercial annealing and gate-model quantum computers via its QCaaS cloud platform and professional services - D-Wave is the only quantum computing company building both commercial annealing and gate-model systems to serve the full quantum total addressable market (TAM)[38] - Revenue is primarily derived from its Quantum Computing as a Service (QCaaS) platform, professional services, and sales of on-premises quantum computers[49] - The company demonstrated quantum supremacy on a useful, real-world problem, solving a complex simulation in minutes that would take a supercomputer nearly one million years[43][70] - The growth strategy focuses on a verticalized go-to-market model, advancing quantum science, and improving its dual annealing/gate-model technology platforms[82] Overview - D-Wave's mission is to solve problems intractable for classical computers using its commercial-grade annealing quantum solutions[31] - The company is focused on transitioning quantum computing from academic research to enterprise-scale adoption for real-world commercial problems[32] - Recent advancements include the Advantage2™ system prototype with significant performance improvements and progress in high-coherence fluxonium qubits[34] Our Quantum Computers, Developer Tools, and Quantum Hybrid Solvers Delivered via QCaaS - D-Wave's offerings include Advantage™ and Advantage2™ annealing quantum computers accessible via the Leap™ quantum cloud service with over 99.9% uptime[49][51] - The D-Wave Launch™ program provides professional services to guide customers from problem identification to in-production application deployment[51] - The company offers a full suite of open-source programming tools through its Ocean™ software development kit (SDK) to simplify application creation[53] Customers and Applications - D-Wave's customers include blue-chip companies like Mastercard, Deloitte, and BASF, with hundreds of user-built applications developed[41][56] - Pattison Food Group reduced a weekly scheduling task from 80 hours to 15 hours, an over 80% time saving, using a quantum hybrid application[58] - SavantX increased per-crane deliveries at the Port of Los Angeles from 60 to 97 per day, a 62% productivity increase, by optimizing cargo handling[58] - NTT DOCOMO reduced mobile network base station congestion by 15% and completed an optimization task in 40 seconds versus 27 hours classically[58] Our Business Strategy and Differentiators - D-Wave differentiates through its "Quantum Realized" framework, benchmarking value based on outperformance, reliability, and customer success[70] - The company is the only quantum provider developing both annealing and gate-model computers, offering a full-stack, cross-platform solution[71][72] - A key strategy is its hybrid approach, with over 200 million problems submitted to its solvers since the Leap service launched in 2018[74] - D-Wave became the first full-stack quantum provider to be SOC 2 Type 2 compliant, ensuring enterprise-grade security[77] Our Growth Strategy - The company's growth strategy is built on three pillars: Build the business, Advance the science, and Improve the technology[82] - D-Wave employs a three-pronged go-to-market model targeting direct sales, partner channels, and developers[82] - The company is prioritizing key vertical markets including manufacturing, logistics, and financial services for use cases like scheduling and routing[83] - D-Wave is actively pursuing government sales and grants, achieving "awardable" status on the DoD's Tradewinds Solutions Marketplace[84] Competition - D-Wave faces competition from large tech companies like Google and IBM, other quantum firms, and classical optimization solution providers[114][119] - NIST rated D-Wave's annealing technology at Technology Readiness Level (TRL) 8, while other gate-model providers were rated between TRL 1 and TRL 3[116] - The company differentiates by building both annealing and gate-model systems and its track record of delivering scalable systems with business value[113] Intellectual Property - As of December 31, 2024, D-Wave owned more than 240 issued U.S. patents and over 200 additional patents worldwide[122] - The company's patent portfolio is the third largest in the world related to quantum technology[122] - D-Wave protects its IP through a combination of patents, trademarks, trade secrets, and contractual agreements[120][123] Human Capital Resources - As of December 31, 2024, D-Wave had approximately 220 employees, with 216 being full-time[133] - Approximately 64% of employees are based near the R&D headquarters in Burnaby, British Columbia, Canada[133] - A majority of employees are engaged in R&D, with about 20% holding a PhD[133] Risk Factors The company faces significant financial, operational, and regulatory risks due to its history of losses and the nascent, competitive quantum market - The company has a history of significant net losses, with an accumulated deficit of $626.9 million as of December 31, 2024[142] - The immature and competitive quantum computing market poses risks that it may not develop as expected or that D-Wave's technology could be outpaced[160][168] - The company's technical roadmap relies on scientific and engineering advances that are not yet available and may be delayed or never achieved[163][165] - Cybersecurity attacks, data breaches, or system disruptions could damage the company's reputation and adversely affect financial results[192] - The company has previously been notified of non-compliance with NYSE's minimum stock price requirement and could face delisting[245] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - Not Applicable[278] Cybersecurity The company maintains a comprehensive cybersecurity program with board-level oversight, annual risk assessments, and SOC 2 Type 2 compliance - The company's cybersecurity risk management involves annual risk assessments and mitigation measures for identified threats[279] - Board-level oversight is provided by a newly established Cybersecurity Committee that offers strategic guidance[285] - The company's Leap™ quantum cloud system is SOC 2 Type 2 compliant, with security policies applied across the entire organization[284] - The Chief Financial Officer and head of IT are primarily responsible for managing cybersecurity risks, reporting quarterly to the Board[286] Properties The company operates three leased facilities in North America for R&D, manufacturing, and fabrication purposes | Location | Size (sq. ft.) | Purpose | Lease Expiration | | :--- | :--- | :--- | :--- | | Burnaby, B.C. | ~42,000 | R&D, Manufacturing, HQ | Dec 2033 | | Richmond, B.C. | ~7,000 | Superconducting Circuit Board Mfg. | Dec 2028 | | Palo Alto, CA | ~6,000 | In-house Fabrication | Jun 2026 | Legal Proceedings The company reports no pending legal proceedings that are likely to have a material adverse effect on its business - As of the filing date, the company is not involved in any legal proceedings that are expected to have a material adverse effect[289] Mine Safety Disclosures This item is not applicable to the company - Not applicable[290] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, no dividends are planned, and significant unregistered share sales were conducted in FY2024 - The company's common stock and warrants trade on the NYSE under the symbols "QBTS" and "QBTS.WT" since August 8, 2022[293] - D-Wave has a policy of retaining all available funds for business growth and does not currently intend to pay any cash dividends[295] - In FY2024, the company sold 34,860,416 common shares to Lincoln Park for $44.3 million in unregistered sales[298] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue was stable in FY2024, but net loss widened due to non-cash warrant charges, while liquidity improved significantly from equity financing | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $8.8M | $8.8M | 1% | | Gross Profit | $5.6M | $4.6M | 20% | | Loss from Operations | ($77.2M) | ($80.5M) | (4)% | | Net Loss | ($143.9M) | ($82.7M) | 74% | | Net Loss per Share | ($0.75) | ($0.60) | 25% | - The significant increase in net loss was primarily due to a $68.5 million non-cash expense from the change in fair value of warrant liabilities[317][327] | Cash Flow Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($42.6M) | ($60.6M) | | Net Cash Used in Investing Activities | ($3.1M) | ($0.6M) | | Net Cash Provided by Financing Activities | $182.5M | $95.6M | - The company's liquidity and going concern status improved significantly due to $214.2 million in net proceeds from equity offerings in 2024[330][566] - The company fully repaid its $30.0 million Term Loan with PSPIB, including $4.3 million in accrued interest, on October 22, 2024[338][663] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a Smaller Reporting Company - Not applicable to Smaller Reporting Companies[355] Financial Statements and Supplementary Data This section refers to the audited consolidated financial statements and related reports included later in the Form 10-K - This item incorporates by reference the financial statements, notes, and auditor's report commencing on page 104 of the report[356] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company changed its independent auditor from PwC to Grant Thornton in 2023, with no disagreements on accounting principles reported - PricewaterhouseCoopers LLP (Canada) declined to stand for re-election, and their term ended on August 10, 2023[358] - Grant Thornton LLP was engaged as the new independent registered public accounting firm on August 24, 2023[360] - There were no disagreements with PwC on accounting principles, though prior reports contained a going concern paragraph[359] Controls and Procedures Management concluded that disclosure controls were effective as of year-end 2024, having remediated a prior-year material weakness - Management concluded that disclosure controls and procedures were effective as of December 31, 2024[364] - A material weakness in internal control over the financial statement close process, identified as of December 31, 2023, was successfully remediated[366][367] - Remediation steps included hiring senior finance personnel, enhancing training, and engaging external consultants[367] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during Q4 2024[369] Part III Directors, Executive Officers, and Corporate Governance The company details its board structure, executive leadership, and corporate governance framework, including four board committees and a Code of Conduct - The Board of Directors is divided into three classes serving staggered three-year terms[373] - The company's executive leadership includes Alan Baratz (President & CEO), John M. Markovich (CFO), and Diane Nguyen (General Counsel)[389] - The Board has four standing committees: Audit, Compensation, Nominating and Governance, and Cybersecurity[373][376] - A Code of Conduct is in place for all directors, officers, and employees, available on the company's investor relations website[408] Executive Compensation This section details compensation for Named Executive Officers, which includes base salary, equity awards, and incentive plan payments 2024 Named Executive Officer Compensation | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Alan E. Baratz, President & CEO | 2024 | 575,000 | 630,000 | — | 517,500 | 1,722,500 | | John M. Markovich, CFO | 2024 | 430,000 | 315,000 | — | 283,360 | 1,028,360 | | Diane Nguyen, General Counsel | 2024 | 310,000 | 378,000 | 162,000 | 151,800 | 1,001,800 | - Non-employee directors receive an annual cash retainer of $35,000 and an annual RSU grant valued at $140,000[433] - The Board adopted a clawback policy in compliance with NYSE requirements to recover erroneously awarded incentive-based compensation[440] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial share ownership, with directors and executive officers as a group owning 2.9% of common shares Beneficial Ownership of Directors and Executive Officers | Beneficial Owner | Number of Shares Beneficially Owned | Percentage Ownership | | :--- | :--- | :--- | | Alan Baratz | 5,122,604 | 1.8% | | John M. Markovich | 2,130,410 | * | | Diane Nguyen | 457,711 | * | | Steven M. West | 441,329 | * | | All Directors and Executive Officers as a Group (10 individuals) | 8,334,681 | 2.9% | - The 2022 Equity Incentive Plan authorizes an initial 16,965,849 shares, with an annual "evergreen" increase of up to 5% of outstanding shares[457] - The 2022 Employee Stock Purchase Plan (ESPP) reserves an initial 8,036,455 shares, allowing purchases at a discount of up to 15%[472][473] Certain Relationships and Related Transactions, and Director Independence The company discloses its policy for related person transactions, including a now-repaid loan from a major shareholder, and confirms director independence - The Board maintains a written policy for the review and approval of related person transactions over $120,000[497][498] - The company entered into a $50 million Term Loan with PSPIB, a related party, and fully repaid the drawn amount in October 2024[509][512] - The Board of Directors has determined that six of its directors are independent under NYSE listing standards[517] Principal Accountant Fees and Services This section details fees paid to auditors Grant Thornton and PwC for fiscal years 2024 and 2023, all pre-approved by the Audit Committee Accountant Fees (USD) | Fee Category | 2024 (Grant Thornton) | 2023 (Grant Thornton) | 2023 (PwC) | | :--- | :--- | :--- | :--- | | Audit Fees | $714,000 | $475,000 | $536,000 | | Audit Related Fees | — | — | $8,000 | | Tax Fees | — | — | $255,000 | | All Other Fees | — | — | — | | Total Fees | $714,000 | $475,000 | $799,000 | - The Audit Committee's policy is to pre-approve all audit and non-audit services provided by the independent auditor[527] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key corporate and material contracts - This item provides a comprehensive list of all exhibits filed with the annual report, including governance documents and material contracts[529][530] Form 10-K Summary The company has elected not to provide a summary for its Form 10-K - The Company has elected not to provide summary information[535] Financial Statements Consolidated Balance Sheets Total assets grew to $199.9 million in 2024, driven by increased cash, while stockholders' equity turned positive due to financing activities Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $177,980 | $41,307 | | Total current assets | $185,040 | $47,046 | | Total assets | $199,853 | $59,356 | | Liabilities & Equity | | | | Total current liabilities | $30,145 | $11,250 | | Warrant liabilities | $69,875 | $1,630 | | Loans payable, net, non-current | $30,128 | $63,850 | | Total liabilities | $137,207 | $83,837 | | Total stockholders' equity (deficit) | $62,646 | ($24,481) | Consolidated Statements of Operations and Comprehensive Loss Revenue was flat at $8.8 million in FY2024, while net loss increased to $143.9 million due to a large non-cash warrant liability charge Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Revenue | $8,827 | $8,758 | | Total gross profit | $5,563 | $4,622 | | Loss from operations | ($77,223) | ($80,546) | | Change in fair value of warrant liabilities | ($68,245) | $262 | | Net loss | ($143,879) | ($82,715) | | Net loss per share, basic and diluted | ($0.75) | ($0.60) | Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' equity improved from a $24.5 million deficit to a $62.6 million positive balance, driven by significant capital raising activities - Stockholders' equity increased from a deficit of ($24.5M) at YE 2023 to a positive balance of $62.6M at YE 2024[555] - The increase was primarily due to proceeds from common stock issuance, including $44.3M from the Purchase Agreement and $169.9M from ATM Agreements[555] - The positive impact of financing was offset by the net loss of $143.9M for fiscal year 2024[555] Consolidated Statements of Cash Flows Net cash from financing of $182.5 million far outpaced cash used in operations, resulting in a $136.7 million net increase in cash Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($42,643) | ($60,649) | | Net cash used in investing activities | ($3,141) | ($630) | | Net cash provided by financing activities | $182,450 | $95,636 | | Net increase in cash and cash equivalents | $136,673 | $34,242 | | Cash and cash equivalents at end of period | $177,980 | $41,307 |