B.C. quantum pioneer D-Wave gets US$50-million lifeline from PSP but stock sinks on reduced outlook

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Quantum computing pioneer D-Wave Quantum Inc. QBTS-N said Friday it had secured US$50-million in financing from its majority shareholder, Public Sector Pension Investment Board. The money has eased a near-term liquidity crunch, but was overshadowed by a disappointing 2023 financial forecast.

Burnaby, B.C.-based D-Wave said Friday it had entered into a four-year term loan agreement with a PSP affiliate, starting with a US$15-million advance, with the rest to follow this year if the company meets certain terms and conditions.

The financing is crucial for D-Wave, which ended 2022 with just US$7.1-million in cash. It used US$45.2-million in cash to fund its operations last year.

D-Wave forecast Friday it would generate US$12-million to US$13-million in revenue in 2023, and indicated that its operating loss this year could be worse than the US$48-million it lost last year. The revenue figure was below analyst estimates, which typically ranged between US$15-million and US$20-million. It was also below the US$27-million D-Wave forecast last May it would bring in this year.

D-Wave stock, which had already sunk by more than 90 per cent since last August, shed a further 23.28 per cent Friday, closing at 50 cents a share on the New York Stock Exchange.

D-Wave went public in August by merging with a publicly listed special purpose acquisition company (SPAC) in the hopes of raising US$340-million. But it only secured a fraction of that, as SPAC investors redeemed 97 per cent of the US$300-million they had paid in. The remaining US$9-million didn’t even cover deal costs. D-Wave’s prior investors committed US$40-million, but more than half of that went to repay a venture loan. D-Wave has to date raised more than US$350-million from investors, plus tens of millions of dollars in federal aid.

With the SPAC deal struggling, D-Wave secured an equity line of credit last June with Chicago’s Lincoln Park Capital, under which it could draw up to US$150-million in exchange for shares. But under the agreement Lincoln Park couldn’t own more than 9.9 per cent of D-Wave – which has a market cap of less than US$85-million. If the stock sank below US$1 a share, D-Wave would be prohibited from using the credit line.

D-Wave has received US$20-million from Lincoln Park, but its stock sank below US$1 in February, shortly after a lockup ended for its pre-SPAC merger investors. The company’s shares continued to lose value, meaning D-Wave was unable to access further Lincoln Park financing and needed to find another source of capital.

The PSP money adds to the US$120-million-plus the Montreal-based pension giant has invested in D-Wave since 2014. That total is one of the largest commitments by a Canadian pension fund in a domestic early-stage tech company.

D-Wave has spent 24 years developing machines that draw computing power from the quantum effects of subatomic particles, which it has said will one day outperform the world’s most powerful computers.

Its technology is advanced enough that it earned revenue last year from 67 clients, including Mastercard, Deloitte, BASF and grocer Save-On-Foods. They used D-Wave’s quantum computing services to solve complex optimization problems, such as employee scheduling and launching loyalty programs. Rival quantum computers won’t be able to do that for years.

But D-Wave is in the early days of building a business. Its technology, which clients access over the internet, hasn’t reached full potential. Meanwhile, rivals that include IBM and Google are building machines that could one day surpass D-Wave’s capabilities. The company decided early on to develop a machine that could get to market faster, but would deliver limited functions. D-Wave recently said it will also develop a full quantum computer.

D-Wave chief executive Alan Baratz addressed his company’s situation on a call with analysts Friday to discuss fourth-quarter results. “At this point we’re still early in the true commercialization of quantum” he said. “It’s still earlier rather than later in the maturity of this industry and our business model. We want to be realistic about what we can expect for the future.”

The company said it generated fourth quarter revenue of US$2.4-million – unchanged from a year earlier – and US$7.2-million for all of 2022. That was at the low end of its guidance, issued in November, of US$7-million to US$9-million, which in turn was lower than the US$11-million it had told analysts last May it would generate. D-Wave lost US$12.5-million in the fourth quarter.

Mr. Baratz acknowledged that it is a challenge for D-Wave to convince new clients “quantum is real today.” He said this necessitates an “educational process” the company is trying to deliver by providing professional services to bring clients aboard.

Benchmark analyst David Williams said in an interview that he isn’t concerned about D-Wave’s forecast. “It wouldn’t change my thesis or the way I think about the company,” he said. “For me it’s about the constant progression, hitting the milestones, progressing the technology, adoption trends. Like any technology that takes time.”