Analyst Summary
- Revenue remained relatively flat at approximately $8.8 million for both 2024 and 2023.
- Net loss increased significantly by 74% from $82.7 million to $143.9 million, primarily due to changes in the fair value of warrant liabilities.
- Cash and cash equivalents increased significantly from $41.3 million to $178.0 million due to successful fundraising.
- Management emphasizes the company’s focus on building the business, advancing the science, and improving the technology.
- Gross Profit Margin increased from 52.77% to 63.02%, a 19.42% increase.
- Operating Profit Margin increased from -920.83% to -874.85%, a 4.99% increase, indicating a slight improvement in managing operating expenses relative to revenue.
- Net Profit Margin decreased from -944.49% to -1630.00%, a 72.58% decrease, significantly impacted by warrant liabilities.
- Current Ratio increased from 4.18 to 6.14, a 46.89% increase, indicating a strong ability to cover short-term liabilities with current assets.
- Debt-to-Assets Ratio decreased from 1.07 to 0.15, an 85.05% decrease, indicating that a smaller portion of the company’s assets are financed by debt in 2024 compared to 2023.
- Asset Turnover decreased from 0.15 to 0.04, a 73.33% decrease, indicating a less efficient use of assets in generating revenue.
- Revenue Growth increased from $8,758 to $8,827, a 0.79% increase.
- Net Income Growth increased from $(82,715) to $(143,879), a 73.94% increase in net loss.
Opportunities and Risks
- Difficulty forecasting future results and funding requirements due to the company’s growth stage.
- History of losses and expectation of continuing losses.
- Competition from both quantum and classical computing companies.
- Cybersecurity risks and potential data breaches.
- Uncertainty in the market adoption of cloud-based quantum computing.
- Potential impact of global public health crises and unfavorable economic conditions.
- Risks related to intellectual property protection and potential infringement claims.
- Volatility in the price of the company’s common shares.
Potential Implications
Company Performance
- Monitor the company’s progress in reducing its net loss and achieving profitability.
- Track the company’s success in securing new customer contracts and expanding its partner ecosystem.
- Assess the company’s ability to maintain its technological lead in the quantum computing industry.
Stock Price
- Volatility in the price of the company’s common shares.
- Reliance on external financing and the need to maintain a share price above $1.00 to access the Lincoln Park purchase agreement are potential red flags.
D-Wave Quantum Inc. (QBTS) 10-K Filing Analysis – FY2024
Executive Summary
This report analyzes D-Wave Quantum Inc.’s 10-K filing for the fiscal year ended December 31, 2024. D-Wave is a pioneer in quantum computing, focusing on annealing quantum computing and developing gate-model systems. Key findings include consistent revenue year-over-year, a significant increase in net loss, and successful fundraising activities. The company has addressed going concern uncertainties and is focused on expanding its business and advancing its technology. However, significant risks remain, including competition, technological challenges, and the volatile market for quantum computing. Overall, a cautious approach is warranted, given the company’s early stage and the inherent uncertainties of the quantum computing industry.
Company Overview
D-Wave Quantum Inc. is a quantum computing systems, software, and services company. They are focused on delivering commercial-grade annealing quantum computing solutions and are also developing gate-model quantum computing systems. Their primary revenue source is cloud-based quantum computing as a service (QCaaS) and professional services.
Detailed Analysis
Financial Statement Analysis
Income Statement Highlights
- Revenue remained relatively flat at approximately $8.8 million for both 2024 and 2023.
- Cost of revenue decreased by 21% from $4.1 million to $3.3 million.
- Operating expenses decreased slightly by 3% from $85.2 million to $82.8 million.
- Net loss increased significantly by 74% from $82.7 million to $143.9 million, primarily due to changes in the fair value of warrant liabilities.
Key Ratios and Trends
While specific ratios aren’t provided in the extracted text, the following trends are evident:
- Gross margin improved due to a decrease in the cost of revenue.
- Operating loss remained substantial, indicating ongoing investment in R&D and sales & marketing.
- The significant increase in net loss despite relatively stable revenue and controlled operating expenses suggests a high sensitivity to non-operating items, particularly changes in the fair value of warrant liabilities.
Balance Sheet Highlights
- Cash and cash equivalents increased significantly from $41.3 million to $178.0 million due to successful fundraising.
- Total assets increased substantially, while total liabilities also increased, though to a lesser extent.
- Stockholders’ equity improved from a deficit of $24.5 million to a positive equity of $62.6 million.
Management’s Discussion and Analysis (MD&A) Insights
- Management emphasizes the company’s focus on building the business, advancing the science, and improving the technology.
- They highlight the importance of winning the fast-growing optimization market and expanding their partner strategy.
- The MD&A discusses the company’s growth strategy, including prioritizing key vertical markets and reducing the time to production for customer applications.
Risk Factors
The 10-K filing outlines numerous risk factors, including:
- Difficulty forecasting future results and funding requirements due to the company’s growth stage.
- History of losses and expectation of continuing losses.
- Competition from both quantum and classical computing companies.
- Cybersecurity risks and potential data breaches.
- Uncertainty in the market adoption of cloud-based quantum computing.
- Potential impact of global public health crises and unfavorable economic conditions.
- Risks related to intellectual property protection and potential infringement claims.
- Volatility in the price of the company’s common shares.
Uncommon Metrics & Red Flags
- The significant impact of changes in the fair value of warrant liabilities on net income is a key area to monitor. This highlights the sensitivity of D-Wave’s financial results to factors outside of its core operations.
- The reliance on external financing and the need to maintain a share price above $1.00 to access the Lincoln Park purchase agreement are potential red flags.
Comparative & Trend Analysis
- While revenue remained consistent, the increased net loss suggests challenges in achieving profitability.
- The improved balance sheet position due to fundraising provides a stronger foundation for future growth.
- The company’s focus on key vertical markets and a partner strategy aligns with industry best practices for scaling a technology business.
Conclusion & Actionable Insights
D-Wave Quantum Inc. is operating in a high-risk, high-reward industry. While the company has made progress in securing funding and expanding its business, significant challenges remain. Investors should carefully consider the risk factors outlined in the 10-K filing and monitor the company’s progress in achieving profitability and technological milestones.
Overall Assessment: Hold. While the company shows promise, the risks are substantial.
Recommendations:
- Monitor the company’s progress in reducing its net loss and achieving profitability.
- Track the company’s success in securing new customer contracts and expanding its partner ecosystem.
- Assess the company’s ability to maintain its technological lead in the quantum computing industry.
Commentary
D-Wave Quantum Inc. experienced a slight increase in revenue in 2024, but continues to operate at a significant net loss. While revenue grew marginally, a substantial decrease in total other expenses, primarily driven by changes in the fair value of warrant liabilities, contributed to a smaller net loss compared to the previous year. The company’s cash position improved significantly due to financing activities, mainly through the issuance of common stock. Operating expenses remain high relative to revenue, indicating ongoing challenges in achieving profitability.
Financial Ratio and Metric Analysis
Profitability
Gross Profit Margin
Metric: 63.02% (2024), 52.77% (2023)
Trend: Increased from 52.77% to 63.02%, a 19.42% increase.
Industry: The software industry generally has high gross profit margins, often exceeding 70%. D-Wave’s margin is lower, reflecting the costs associated with its quantum computing technology and professional services.
Operating Profit Margin
Metric: -874.85% (2024), -920.83% (2023)
Trend: Increased from -920.83% to -874.85%, a 4.99% increase. While still negative, this indicates a slight improvement in managing operating expenses relative to revenue.
Industry: Most software companies aim for positive operating margins, typically above 15%. D-Wave’s negative margin highlights its significant investment in R&D and other operating activities relative to its current revenue.
Net Profit Margin
Metric: -1630.00% (2024), -944.49% (2023)
Trend: Decreased from -944.49% to -1630.00%, a 72.58% decrease. Despite improvements in gross profit and operating loss, other expenses, particularly related to warrant liabilities, significantly impacted the net loss.
Industry: A healthy net profit margin for software companies is typically above 10%. D-Wave’s negative margin underscores its current unprofitability.
Return on Assets (ROA)
Metric: -71.99% (2024), -139.36% (2023)
Trend: Increased from -139.36% to -71.99%, a 48.34% increase. This indicates a more efficient use of assets in generating revenue, although still significantly negative.
Industry: The average ROA for the software industry is around 5-10%. D-Wave’s negative ROA indicates that the company is not generating profits from its asset base.
Return on Equity (ROE)
Metric: -229.67% (2024), 337.85% (2023)
Trend: Decreased from 337.85% to -229.67%, a 168.49% decrease. This is due to the large net loss relative to the equity base.
Industry: A good ROE for software companies is typically above 15%. D-Wave’s negative ROE reflects its significant losses and negative equity.
Earnings Per Share (EPS) – Basic and Diluted
Metric: -$0.75 (2024), -$0.60 (2023)
Trend: Decreased from -$0.60 to -$0.75, a 25% decrease. This reflects the increased net loss spread over a larger number of outstanding shares.
Industry: Most established software companies have positive EPS. D-Wave’s negative EPS indicates it is not yet profitable on a per-share basis.
Liquidity
Current Ratio
Metric: 6.14 (2024), 4.18 (2023)
Trend: Increased from 4.18 to 6.14, a 46.89% increase. This indicates a strong ability to cover short-term liabilities with current assets.
Industry: A current ratio between 1.5 and 2 is generally considered healthy. D-Wave’s high current ratio suggests it has ample liquidity, possibly due to recent financing activities.
Quick Ratio (Acid-Test Ratio)
Metric: 6.08 (2024), 3.99 (2023)
Trend: Increased from 3.99 to 6.08, a 52.38% increase. This indicates a very strong ability to meet short-term obligations without relying on the sale of inventory.
Industry: A quick ratio of 1 or higher is generally considered acceptable. D-Wave’s high quick ratio suggests strong liquidity.
Cash Ratio
Metric: 5.90 (2024), 3.67 (2023)
Trend: Increased from 3.67 to 5.90, a 60.76% increase. This indicates a very strong ability to cover short-term liabilities with cash and cash equivalents.
Industry: A cash ratio of 0.5 to 1 is often considered adequate. D-Wave’s high cash ratio suggests a very liquid position.
Solvency/Leverage
Debt-to-Equity Ratio
Metric: 2.19 (2024), -3.42 (2023)
Trend: Increased from -3.42 to 2.19. The negative value in 2023 is due to negative equity. The increase indicates higher leverage in 2024.
Industry: A debt-to-equity ratio of 1 to 1.5 is generally considered acceptable. D-Wave’s ratio indicates a relatively high level of debt compared to equity.
Debt-to-Assets Ratio
Metric: 0.15 (2024), 1.07 (2023)
Trend: Decreased from 1.07 to 0.15, a 85.05% decrease. This indicates that a smaller portion of the company’s assets are financed by debt in 2024 compared to 2023.
Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. D-Wave’s ratio is relatively low, indicating a conservative use of debt financing.
Interest Coverage Ratio (Times Interest Earned)
Metric: -19.82 (2024), -2176.92 (2023)
Trend: Increased from -2176.92 to -19.82. The negative values indicate that the company’s operating loss is not sufficient to cover interest expenses.
Industry: An interest coverage ratio above 1.5 is generally considered healthy. D-Wave’s negative ratio indicates a significant challenge in covering its interest obligations with operating income.
Activity/Efficiency
Asset Turnover
Metric: 0.04 (2024), 0.15 (2023)
Trend: Decreased from 0.15 to 0.04, a 73.33% decrease. This indicates a less efficient use of assets in generating revenue.
Industry: The average asset turnover ratio for the software industry is around 0.5 to 1. D-Wave’s low ratio suggests it is not effectively utilizing its assets to generate sales.
Valuation
Price-to-Earnings Ratio (P/E)
Metric: Negative (due to negative earnings)
Trend: Not applicable due to negative earnings.
Industry: P/E ratio is not meaningful for companies with negative earnings.
Price-to-Book Ratio (P/B)
Metric: 2.58
Trend: Not applicable as previous year book value was negative.
Industry: A P/B ratio between 1 and 3 is often considered reasonable. D-Wave’s P/B ratio suggests that the market values the company’s assets higher than their book value.
Price-to-Sales Ratio (P/S)
Metric: 23.23
Trend: Not enough information to calculate previous P/S ratio.
Industry: A high P/S ratio can indicate that investors have high expectations for future revenue growth. D-Wave’s P/S ratio is very high, suggesting significant investor optimism despite current low revenues.
Enterprise Value to EBITDA (EV/EBITDA)
Metric: Negative (due to negative EBITDA)
Trend: Not applicable due to negative EBITDA.
Industry: EV/EBITDA is not meaningful for companies with negative EBITDA.
Growth Rates
Revenue Growth
Metric: 0.79%
Trend: Increased from $8,758 to $8,827, a 0.79% increase.
Industry: The software industry generally experiences high revenue growth rates, often exceeding 10-20%. D-Wave’s growth rate is significantly lower, indicating slower market penetration or challenges in scaling its business.
Net Income Growth
Metric: 73.94%
Trend: Increased from $(82,715) to $(143,879), a 73.94% increase in net loss.
Industry: N/A
EPS Growth
Metric: -25%
Trend: Decreased from $(0.60) to $(0.75), a -25% decrease.
Industry: N/A
⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️