D-Wave Quantum Inc.

Previous wording

The following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition. This section should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in Part I, Item I of this Quarterly Report of Form 10-Q (this "Report"), as well as our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 29, 2024. In this section, unless otherwise specified, the terms “we”, “our”, “us”, D-Wave" or the "Company" refer to D-Wave Quantum Inc. and its subsidiaries following the closing of the merger between DPCM Capital, Inc. ("DPCM"), D-Wave Systems Inc., and certain other affiliated entities through a series of transactions (the "Merger") on August 5, 2022 (the "Closing") while "D-Wave Systems" refers to D-Wave Systems Inc. prior to the Closing. All other capitalized terms have the meanings ascribed thereto elsewhere in this Report. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.

Current wording

The following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition. This section should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in Part I, Item I of this Quarterly Report on Form 10-Q (this "Report"), as well as our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission on March 14, 2025. In this section, unless otherwise specified, the terms “we”, “our”, “us”, D-Wave" or the "Company" refer to D-Wave Quantum Inc. and its subsidiaries following the closing of the merger between DPCM Capital, Inc. ("DPCM"), D-Wave Systems Inc., and certain other affiliated entities through a series of transactions (the "Merger") on August 5, 2022 (the "Closing") while "D-Wave Systems" refers to D-Wave Systems Inc. prior to the Closing. All other capitalized terms have the meanings ascribed thereto elsewhere in this Report. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.

Previous wording

We are a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to our superconducting quantum computer systems and integrated software environment through our Leap TM quantum cloud service. Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave Advantage TM system. We are a leader in the development and delivery of quantum computing systems, software and services, and we are the world’s first commercial supplier of quantum computers—and the only company developing both annealing quantum computers and gate-model quantum computers.

Current wording

We are a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to our superconducting quantum computer systems, integrated software environment through our Leap TM quantum cloud service, and sells superconducting annealing quantum computer systems. Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave Advantage TM system. We are a leader in the development and delivery of quantum computing systems, software and services, and we are the world’s first commercial supplier of quantum computers.

Previous wording

Our business model is focused primarily on generating revenue from providing customers access to our quantum computing systems via the cloud in the form of quantum computing as a service ("QCaaS") products, and from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications. We have three operating facilities, which we lease, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.

Current wording

Our business model is focused on generating revenue from providing customers access to our quantum computing systems via the cloud in the form of quantum computing as a service ("QCaaS") products, from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications, as well as selling our quantum computer systems to customers. We have three operating facilities, which we lease, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.

Previous wording

During the three months ended September 30, 2024 and 2023, we generated revenue totaling $1.9 million and $2.6 million, respectively. During the nine months ended September 30, 2024 and 2023, we generated revenue totaling $6.5 million and $5.9 million, respectively. We have incurred significant operating losses since inception. For the three months ended September 30, 2024 and 2023, our net losses were $22.7 million and $16.1 million, respectively. For the nine months ended September 30, 2024 and 2023, our net losses were $57.8 million and $66.7 million, respectively. We expect to continue to incur significant losses for the foreseeable future as we continue to invest in a number of research and development programs as well as a variety of go-to-market initiatives. As of September 30, 2024, we had an accumulated deficit of $540.9 million.

Current wording

During the three months ended March 31, 2025 and 2024, we generated revenue totaling $15.0 million and $2.5 million, respectively. We have incurred significant operating losses since inception. For the three months ended March 31, 2025 and 2024, our net losses were $5.4 million and $17.3 million, respectively. We expect to continue to incur significant losses for the foreseeable future as we continue to invest in a number of research and development programs as well as a variety of go-to-market initiatives. As of March 31, 2025, we had an accumulated deficit of $632.4 million.

Previous wording

Unfavorable conditions in the economy in the United States, Canada and abroad, including conditions resulting from changes in inflationary pressure, gross domestic product growth, financial and credit market fluctuations, banking collapses and related uncertainty, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, Israel or elsewhere, could cause a decrease in business investments on our products and negatively affect the growth of our business and our results of operations.

Current wording

Unfavorable conditions in the economy in the United States, Canada and abroad, including conditions resulting from changes in inflationary pressure, gross domestic product growth, financial and credit market fluctuations, banking collapses and related uncertainty, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, Israel or elsewhere, could cause a decrease in business investments in our products and negatively affect the growth of our business and our results of operations. However, to date, these unfavorable conditions have not affected our business.

Previous wording

We currently generate our revenue primarily through subscription sales to access our QCaaS cloud platform and professional services related to the development and implementation of quantum computing applications and delivery of quantum computing application training. QCaaS revenue is recognized on a ratable basis over the contract term, which generally ranges from one month to two years. Professional services revenue is recognized over time on a percentage of completion basis using the costs incurred input measure of progress.

Current wording

We currently generate our revenue primarily through subscription sales to access our QCaaS cloud platform and professional services related to the development and implementation of quantum computing applications and delivery of quantum computing application training. The Company also sells its superconducting quantum computer systems to customers. QCaaS revenue is recognized on a ratable basis over the contract term, which generally ranges from one month to two years. Professional services revenue is recognized over time on a percentage of completion basis using the costs incurred input measure of progress.

Previous wording

We expect that QCaaS revenue, as a percentage of total revenue, will increase due to an increasing number of QCaaS agreements being driven by the completion of professional services engagements yielding production applications that require QCaaS services, as well as by customers that choose to access our Leap TM cloud service without utilizing our professional services organization.

Current wording

We expect that QCaaS revenue, as a percentage of total revenue, will increase due to an increasing number of QCaaS agreements being driven by the completion of professional services engagements yielding production applications that require QCaaS services, as well as by customers that choose to access our Leap cloud service without utilizing our professional services organization. Quantum computing system revenue may have an outsized impact on our revenue and shift our product mix during the period when such revenue is recognized, though this revenue is expected to be irregular and intermittent.

Previous wording

We expect our total cost of revenue to trend upward in absolute dollars in future periods, corresponding to our anticipated growth in revenue and necessary to support our customers and to maintain the QCaaS cloud offering, operate our quantum computing systems, and to deliver our professional services. In the short term, decreases in share based compensation expenses may offset the expected long-term upward trend. We expect our cost of revenue as a percentage of total revenue to trend downward over time due to a higher mix of QCaaS revenue that has a lower cost to deliver compared to professional service revenue.

Current wording

We expect our total cost of revenue to trend upward in absolute dollars in future periods, corresponding to our anticipated growth in revenue and the higher costs that are necessary to support our customers, maintain the QCaaS cloud offering, operate our quantum computing systems, and deliver our professional services. We expect our cost of revenue as a percentage of total revenue to trend downward over time due to a higher mix of QCaaS revenue that has a lower cost to deliver compared to professional service revenue.

Previous wording

We expect our general and administrative expenses to decrease in absolute dollars in the near term due to significant investments in scaling up our ability to operate as a public company made in prior years. However, in the longer term we expect general and administrative expenses to increase in absolute dollars as we continue to invest in more comprehensive compliance and governance functions, increased IT security and compliance, and expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act of 2002. However, non-cash stock-based compensation expenses may cause downward fluctuations in these costs from time to time.

Current wording

We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as we continue to invest in more comprehensive compliance and governance functions, increased IT security and compliance, and expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act of 2002. However, non-cash stock-based compensation expenses may cause upward and downward fluctuations in these costs from time to time.

Previous wording

Sales and marketing expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future. However, non-cash stock-based compensation expenses may cause downward fluctuations in these costs from time to time.

Current wording

Sales and marketing expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future. However, non-cash stock-based compensation expenses may cause upward and downward fluctuations in these costs from time to time.

Previous wording

Cost of revenue decreased by $0.2 million, or 20%, to $0.8 million for the three months ended September 30, 2024 as compared to $1.0 million for the three months ended September 30, 2023. The decrease in cost of revenue was primarily driven by a decrease in non-cash stock-based compensation of $0.2 million.

Current wording

Cost of revenue increased by $0.3 million, or 39%, to $1.1 million for the three months ended March 31, 2025 as compared to $0.8 million for the three months ended March 31, 2024. The increase in cost of revenue was primarily due to system sales-related costs.

Previous wording

Sales and marketing expenses increased by $3.4 million, or 43%, to $11.2 million for the nine months ended September 30, 2024 as compared to $7.9 million for the nine months ended September 30, 2023. The increase was primarily driven by increases in personnel costs of $2.5 million, stock-based compensation expense of $0.5 million and marketing expenses of $0.3 million.

Current wording

Sales and marketing expenses increased by $3.8 million, or 124%, to $6.9 million for the three months ended March 31, 2025 as compared to $3.1 million for the three months ended March 31, 2024. The increase was primarily driven by increases in personnel costs of $2.1 million, marketing expenses of $1.1 million and stock-based compensation expense of $0.3 million.

Previous wording

Interest expense increased by $0.1 million, or 14%, to $1.2 million for the three months ended September 30, 2024 as compared to $1.0 million for the three months ended September 30, 2023. The increase is primarily due to interest expenses related to the Term Loan (as defined below). During the three months ended September 30, 2024, the Company had prepaid $16.4 million in principal of the Term Loan, reducing interest expense incurred. Refer to Note 6 to the accompanying condensed consolidated financial statements for further details.

Current wording

Interest expense decreased by $0.9 million, or 80%, to $0.2 million for the three months ended March 31, 2025 as compared to $1.1 million for the three months ended March 31, 2024. The decrease is primarily due to interest expenses related tothe Term Loan and Security Agreement ("Term Loan") with PSPIB Unitas Investments II Inc. ("PSPIB" or the "Lender"). The Company fully repaid and extinguished the Term Loan on October 22, 2024, including $30.0 million in principal and $4.3 million in accrued payable in kind ("PIK") interest. Refer to Note 6 - Loans payable, net to the accompanying condensed consolidated financial statements for further details.

Previous wording

The fair value of Term Loan increased by $1.6 million for the three months ended September 30, 2024 as compared to a decrease of $1.7 million for the three months ended September 30, 2023. On April 13, 2023, the Company entered into a Term Loan with PSPIB. The Company opted for the fair value option for accounting of the Term Loan (see Note 2 to the accompanying condensed consolidated financial statements). Changes in the fair value of the Term Loan, excluding changes due to the Company's own credit risk, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. The fair value of the Term Loan varies primarily based on the market yield rate, market yield volatility, and the probabilities of various settlement outcomes.

Current wording

Change in fair value of Term Loan was zero for the three months ended March 31, 2025 as compared to $1.2 million for the three months ended March 31, 2024. On April 13, 2023, the Company entered into a Term Loan with PSPIB. The Company opted for the fair value option for accounting for the Term Loan (see Note 2 - Basis of Presentation and Summary of Significant Accounting Policiesto the accompanying condensed consolidated financial statements). Changes in the fair value of the Term Loan, excluding changes due to the Company's own credit risk, were recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. The fair value of the Term Loan varied primarily based on the market yield rate, market yield volatility and the probabilities of various settlement scenarios. The Company fully repaid and extinguished the Term Loan on October 22, 2024; as a result, no fair value change was recorded for the three months ended March 31, 2025.

Previous wording

Gain (loss) on investment in marketable equity securities increased by $1.5 million for the nine months ended September 30, 2024 as compared to zero for the nine months ended September 30, 2023. On January 5, 2024, an investee of the Company was acquired for a combination of cash and stock in an observable orderly transaction. Consequently, the carrying value of the Company's investment was adjusted based on the consideration received, resulting in a net gain of $1.7 million, partially offset by a loss associated with the fair value of the conversion feature of the Zapata Note.

Current wording

Gain on investment in marketable equity securities decreased by $1.7 million for the three months ended March 31, 2025 as compared to $1.7 million for the three months ended March 31, 2024. On January 5, 2024, an investee of the Company was acquired for a combination of cash and stock in an observable orderly transaction. Consequently, the carrying value of the Company's investment was adjusted based on the consideration received, resulting in a net gain of $1.7 million, partially offset by a loss associated with the fair value of the conversion feature of the Zapata Note. There was no similar activity for the three months ended March 31, 2025.

Previous wording

Fair value of warrant liabilities decreased by $0.5 million for the three months ended September 30, 2024 as compared to a decrease of $1.4 million for the three months ended September 30, 2023. The fair value of the warrant liabilities varies primarily with the trading price of the Public Warrants listed on the New York Stock Exchange (see Note 2 and Note 7 to the accompanying condensed consolidated financial statements).

Current wording

The fair value of warrant liabilities decreased to $3.9 million for the three months ended March 31, 2025 as compared to an increase of $2.7 million for the three months ended March 31, 2024. The fair value of the warrant liabilities varies primarily with the trading price of the Public Warrants listed on the New York Stock Exchange (see Note 2 - Basis of Presentation and Summary of Significant Accounting Policiesand Note 7 - Warrant Liabilities to the accompanying condensed consolidated financial statements). As the trading price of the Public Warrants declined during the three months ended March 31, 2025, generally in correlation with the trading price of the Company’s common stock, the fair value of the warrant liabilities also decreased.

Previous wording

Other income (expense), net increased by $1.8 million or 5365%, to net income of $1.8 million for the nine months ended September 30, 2024 as compared to net expense of $34.0 thousand for the nine months ended September 30, 2023. The increase was primarily driven by the net impact of foreign exchange gains of $0.8 million and increase in interest income of $1.0 million, due primarily to higher interest rates earned on cash and cash equivalent balances.

Current wording

Other income (expense), net increased by $1.0 million or 89%, to a net other income of $2.2 million for the three months ended March 31, 2025 as compared to net other expense of $1.1 million for the three months ended March 31, 2024. The increase was primarily driven by an increase in interest income of $2.8 million due primarily to interest earned on higher cash and cash equivalent balances, partially offset by the impact of net foreign exchange loss of $1.8 million driven by depreciation of the U.S. Dollar against certain foreign currencies.

Previous wording

In conjunction with the Merger, the Company and D-Wave Systems entered into a purchase agreement with Lincoln Park Capital Fund, LLC ("Lincoln Park") on June 16, 2022, which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to$150.0 million of D-Wave's common stock, par value $0.0001 per share through November 1, 2025. The Purchase Agreement may provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement, including volume limitations tied to periodic market prices, ownership limitations restricting Lincoln Park from owning more than 9.9% of the then total outstanding Common Shares and a floor price of $1.00 at or below which the Company may not sell to Lincoln Park any Common Shares. When the Company sells shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its discretion. During the nine months ended September 30, 2024, the Company has received$32.2 million in proceeds through the issuance of 25,569,997 Common Shares to Lincoln Park under the Purchase Agreement. In order for the Company to issue Common Shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00. There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future. As of September 30, 2024, D-Wave had $49.9 million of issuance capacity under the Purchase Agreement.

Current wording

In conjunction with the Merger with DPCM, the Company and D-Wave Systems entered into a purchase agreement with Lincoln Park Capital Fund, LLC on June 16, 2022 (the "Purchase Agreement") which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to$150 million of D-Wave's common stock, par value $0.0001 per share through November 1, 2025. The Purchase Agreement may provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement, including volume limitations tied to periodic market prices, ownership limitations restricting Lincoln Park from owning more than 9.9% of the then total outstanding share of common stock of the Company, par value $0.0001, (the "Common Shares") and a floor price of $1.00 at or below which the Company may not sell to Lincoln Park any Common Shares. When the Company sells shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its sole discretion. In order for the Company to issue Common Shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00. There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future. During the three months ended March 31, 2025, the Company did not issue any Common Shares to Lincoln Park under the Purchase Agreement. As of March 31, 2025, D-Wave had $37.8 million of issuance capacity under the Purchase Agreement.

Previous wording

On May 24, 2024, the Company entered into an at-the-market sales agreement (the “ATM Agreement”) with Needham & Company, LLC, B. Riley Securities, Inc. and Roth Capital Partners, LLC (collectively, the “Agents”), pursuant to which the Company may sell from time to time, at its option, shares of the Company’s common stock, par value $0.0001 per share, through or to the Agents, as sales agent or principal. In accordance with the terms of the ATM Agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100.0 million from time to time through or to the Agents, as sales agent or principal. During the nine months ended September 30, 2024, the Company has received $20.7 million in proceeds through the issuance of 19,337,124 Common Shares under the Sales Agreement. As of September 30, 2024, D-Wave had $79.1 million of issuance capacity under the ATM Agreement.

Current wording

On May 24, 2024, the Company entered into an at-the-market sales agreement (the "$100M ATM") with Needham & Company, LLC, B. Riley Securities, Inc., and Roth Capital Partners, LLC (the "$100M ATM Agents"). Under this agreement, the Company could sell shares of its common stock with an aggregate offering price of up to $100.0 million through or to the $100M ATM Agents. During the year ended December 31, 2024, the Company has received $97.2 million in net proceeds through the issuance of 49,812,287 Common Shares. As of March 31, 2025, D-Wave had zero issuance capacity under the $100M ATM.

Previous wording

The Company is not obligated to make any sales of shares of common stock under the ATM Agreement. The offering of common stock pursuant to the ATM Agreement will terminate upon (a) the election of the Agents upon the occurrence of certain adverse events, (b) five business days’ advance notice from the Company to the Agents or five days’ advance notice from any of the Agents to the Company or (c) otherwise by mutual agreement of the parties pursuant to the terms of the ATM Agreement.

Current wording

The Company was not obligated to sell shares under these agreements. Each agreement could have been terminated by:(a) the election of the Agents upon the occurrence of certain adverse events, (b) five business days’ advance notice from the Company to the Agents or five days’ advance notice from any of the Agents to the Company or (c) otherwise by mutual agreement of the parties pursuant to the terms of the various sales agreements.

Previous wording

For the nine months ended September 30, 2024, net cash used in operating activities was $44.7 million, a decrease of $1.3 million from $45.9 million for the nine months ended September 30, 2023. The change is primarily due to a decrease in net loss of $8.9 million, offset by a decrease in noncash items of $10.0 million and an increase in cash released from working capital of $2.4 million. The decrease in noncash items was primarily due to a decrease in stock-based compensation of $5.6 million, a decrease in non-cash interest expense of $3.1 million due to the cash settlement of accrued PIK interest on the Term Loan, a gain on marketable securities of $1.5 million, a decrease in debt issuance costs of $1.0 million, and an increase in unrealized foreign exchange gain of $0.8 million, partially offset by an increase in fair value of Term Loan of $2.0 million. The decrease in working capital was primarily driven by an increase in change in accrued expenses and other current liabilities of $2.3 million, a decrease in change in trade accounts payable of $1.4 million, a decrease in change in operating lease liability of $0.7 million and an increase in change in other non-current assets of $0.6 million, partially offset by a decrease in change in prepaid expenses and other current assets of $2.5 million.

Current wording

For the three months ended March 31, 2025, net cash used in operating activities was $19.3 million, an increase of $7.2 million from $12.1 million for the three months ended March 31, 2024. The change is primarily due to a decrease in noncash items added back to net loss of $2.7 million and a decrease in cash absorbed by working capital of $16.4 million (primarily related to recognition of deferred revenue), offset by a decrease in net loss of $11.9 million. The decrease in noncash items was primarily due to a decrease in change in fair value of warrant liabilities of $6.6 million and a decrease in non-cash interest expense of $0.9 million, partially offset by a decrease in a gain on marketable securities of $1.7 million, an increase in change in fair value of Term Loan of $1.2 million, a decrease in unrealized foreign exchange gain of $1.1 million. The decrease in working capital was primarily driven by an increased change in deferred revenue of $12.8 million and a decreased change in accrued expenses and other current liabilities of $4.9 million, partially offset by a decreased change in trade accounts payable of $0.8 million.

Previous wording

Net cash provided by financing activities during the nine months ended September 30, 2024 was $34.9 million, a decrease of $57.5 million from cash provided by financing activities of $92.4 million for the nine months ended September 30, 2023. The decrease is primarily due to a decrease in proceeds from the issuance of common stock pursuant to the Purchase Agreement of $29.2 million, a decrease in debt financing proceeds of $29.0 million, an increase in debt repayments of $16.4 million, as well as a decrease in proceeds from the issuance of common stock upon exercise of stock options of $1.8 million, and the payment of tax withheld for common stock issued under stock-based compensation settlements of $1.5 million. The decrease was partially offset by proceeds from the issuance of common stock pursuant to the ATM Agreement of $20.7 million.

Current wording

Net cash provided by financing activities during the three months ended March 31, 2025 was $145.6 million, an increase of $146.3 million from $(0.7) million for the three months ended March 31, 2024. The increase is primarily due to an increase in proceeds from the issuance of common stock pursuant to the $150M ATM of $146.1 million.

Previous wording

A discussion of recent accounting pronouncements is included in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Report.

Current wording

A discussion of recent accounting pronouncements issued and adopted is included in Note 2- Basis of Presentation and Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included elsewhere in this Report.