Rigetti Computing Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Rigetti Computing Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Subodh Kulkarni.

Operator

Please go ahead.

Speaker 1

Good afternoon, and thank you for participating in Rigatti's earnings conference call covering the Q3 of 2023. Joining me today is Jeff Bertelsen, our CFO, who will review our results in some detail following my overview. Our CTO, David Revance is also here to participate in the Q and A session. We will be pleased to answer your questions at the conclusion of our remarks. We would like to point out that this call and Rigatti's Q3 2023 press release contain forward looking statements regarding current expectations, objectives and underlying assumptions regarding our outlook and future operating results.

Speaker 1

These forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described and are discussed in more detail in our Form 10 ks for the year ended December 31, 2022, our Form 10 Q for the 3 9 months ended September 30, 2023, and our subsequent filings with the SEC and other filings with the Securities and Exchange Commission. We urge you to review these discussions of risk factors. Turning now to the business of Q3 of 2023. I'm pleased to report that we continue to grow our QPU system sales. In the Q3 of 2023, Rigetti expanded its QPU customer base with its delivery of a 9 qubit quantum processing unit QPU to another premier national laboratory.

Speaker 1

This follows our first QPU sale in the Q2 of 2023 to Fermilab, in which we delivered a 9 qubit QPU as part of our partnership with the Superconducting Quantum Materials and Systems Center, SQMS. We were awarded a 5 year indefinite delivery, indefinite quantity IDIQ contract with the Air Force Research Lab, AFRL, information directorate to supply AFRL researchers with quantum foundry services. This contract allows Within the scope of the contract, we will be able to provide quantum integrated circuits, quantum limited amplifiers, cryogenic microwave components and 9 Qubit QPUs. This contract builds on the existing relationship between Rigetti and AFRL to harness our fabrication capabilities for quantum networking hardware, research and development. We are thrilled that leading government agencies and national labs Are beginning to choose Rigetti's established fabrication capabilities to advance their quantum computing research and development.

Speaker 1

By providing hands on access to our QPUs, we believe that we are enabling greater progress towards narrow quantum advantage and quantum technology breakthroughs. I'm pleased to report that we were recently awarded a DARPA Impact contract to advance quantum algorithms for solving Our DARPA Impact project seeks to develop a novel and efficient encoding of Optimization problems onto cubits with the goal of enabling larger problems to be mapped to currently available NISC era Quantum Computers. The project will specifically address scheduling problems, which are among the best known and most pervasive types of combinatorial optimization problems across numerous industries as well as some of the most challenging to solve. Additionally, in October 2023, We were awarded an Innovate U. K.

Speaker 1

Grant as part of the feasibility studies in quantum computing applications competition. Joining Righetti in this work is HSBC, the Quantum Software Lab based at the University of Edinburgh and the National Quantum Computing Center. Together, the consortium aims to enhance existing money laundering techniques by using quantum machine learning techniques with the goal of improving the performance of current state of the art machine learning algorithms. On the technology front, We are continuing to work to improve the system performance of our 4th generation chip architecture, which features a square lattice and tunable couplers to support our anticipated ANCA-two eighty four Cubit System. Our ANCA-two eighty four Cubit System is expected to be deployed and made available to External customers in the Q4 of 2023.

Speaker 1

We continue to make good progress with Fidelity on our 4th generation systems. We have achieved higher than 98% median 2 cubit fidelity with our 9 cubit system, 98% median 2 cubit fidelity with our 24 cubit system And higher than 97 percent median 2 Cubit Fidelity with our ANCA-two eighty four Cubit System. Our plan continues to be to get to 98% median 2 qubit fidelity with our ANCA-two eighty four Cubit system and over 99% median 2 qubit fidelity in 2024. Thereafter, we intend to develop the 336 Cubit Lyra system and to demonstrate NQA narrow quantum advantage in 2 to 3 years. And with that, I'll turn the call over to Jeff, who will review our Q3 2023 financial performance.

Speaker 2

Thanks, Subodh. Revenues in the Q3 of 2023 were $3,100,000 compared to $2,800,000 in the same period of 2022. Revenue variability is to be expected at this stage of the company's evolution given the variable nature of contract deliverables and timing with major government agencies. Gross margins in the Q3 of 2023 came in at 73%, up from gross margins in the Q3 of 2022 of 72%. On the expense side, Total OpEx in the Q3 of 2023 was $19,100,000 compared to 33 point $4,000,000 in the same period in the prior year.

Speaker 2

The year over year decrease was primarily due to a $11,500,000 reduction in stock compensation expense. Other decreases in the Q3 of 2023 The non cash change in the fair value of the forward agreement for the Ampere warrant increased G and A expense In the Q3 of 2023, stock compensation expense totaled 3,700,000 and depreciation and amortization expense totaled $2,100,000 compared to $15,100,000 1.8 $1,000,000 in the Q3 of 2022, respectively. Operating loss for the Q3 of 2023 was $16,800,000 compared to an operating loss of $31,300,000 for the same period of 2022. Net loss for the Q3 of 2023 was $22,200,000 or $0.17 per share compared to a net loss of $18,800,000 or $0.16 per share for the same period of 2022. Net loss for the Q3 of 2023 was negatively impacted by the non cash change in the fair value of the earn out And derivative warrant liabilities of $1,700,000 $3,400,000 respectively.

Speaker 2

Net loss for the Q3 of 2022 was favorably impacted by the non cash change in the fair value of the earn out and derivative warrant liabilities of $4,900,000 $8,100,000 respectively. Cash, cash equivalents and available for sale investments totaled $110,200,000 as of September 30, 2023, compared with $105,500,000 as of June 30, 2023. During the Q3 of 2023, 2023, we raised $12,700,000 from the sale of 6,300,000 shares of common stock under our common stock purchase agreement with B. Riley. Based on our current operating plan and assuming no additional capital is raised in the 3 months ending December 31, 2023, we expect to have cash, cash equivalents and available for sale securities of $88,000,000 to $94,000,000 at the end of 2023.

Speaker 2

Thank you. We would now be happy to answer your questions.

Operator

And our first question comes from Krish Sankar with TD Cowen, your line is open.

Speaker 3

Hi, guys. Thanks for taking my questions. This is Steven calling on behalf of Krish. Yes. The first question I had, I mean, for Sibod, I want to get some more details on the Air Force Research Lab contract win that you just highlighted.

Speaker 3

Any detail you could provide on sort of the maybe long term value of that contract and maybe how soon that some of the revenues Might materialize for that. Any kind of contingencies that it might be based on whether it's technical or with timing of when you might be Applying some of those foundry components that you highlighted, that'd be great.

Speaker 1

Sure. Thanks, Stephen. So as we described, the Air Force Research Lab contract is a IDIQ contract, which by definition means it's indefinite in its valuation. They Give us broad guidelines on what all they expect, certainly foundry services, QPU and affiliated services Are included in the contract. It's hard to put a monetary value on it because by definition it's indefinite.

Speaker 1

Certainly, AFRL is a huge organization, Committed to Quantum Computing, they get funding out of DoD. So we certainly expect it to be sizable, but we cannot quantify sitting here right now. Regarding monetization of the contract that has already started, we booked some dollars from that contract already in Q3. We definitely expect That value to increase in Q4 and in the subsequent quarters. Hopefully, that answers your question.

Speaker 3

Okay. It does. Thanks. And I guess another follow-up to sort of the QPU sales that you recognized in the last two quarters. Just kind of like big picture Question is just given that there's a number of government agencies that are issuing in person QPUs

Speaker 1

and I

Speaker 3

think previously you said there's The potential to tell more even going to next year. And just given the sizable investment that these government agencies need to make to support The superconducting modality system, it's a necessary infrastructure like dilution refrigerators. I assume it's a long term investment. So I guess, Does this say anything about Chief National Labs and the views on superconducting modalities versus, let's say, other competing modalities With respect to the maturity of superconducting, where the scalability of it compared to other modalities?

Speaker 1

Sure. So superconducting modality certainly is one of the leading contenders for quantum computing, although there are other competitive modalities as you know. Certainly, we believe superconducting modality has a huge advantage of scalability. As you can already see, we are at 84 cubits. Other competitors in superconducting are in the similar range.

Speaker 1

So we certainly are significantly higher than other competitive modalities already and we have the benefit of scaling up. Having said that, all of us are still significantly off the Quantum Advantage area. As we have said, We are about 2 to 3 years from demonstrating narrow quantum advantage, which means performance and or cost benefits Compared to classical computing on many practical applications, the government organizations or DOE, DoD are committed to Investing in different modalities, we will definitely benefit when they invest in superconducting. Regarding The QPU sales, in Q2 we sold our first QPU and now we can disclose that was to SQMS Center at Fermilab. In Q3, we shipped another QPU to another premier national lab.

Speaker 1

We cannot disclose the name right now. Hopefully, we'll be able to disclose that soon. But it's exciting as far as we know, we are the only company that has actually sold A working quantum computer to any organization and now we have done 2 in a row in the first in Q2 and second in Q3. It's a huge milestone for the company. We are super excited about it.

Speaker 1

We are proud of that accomplishment. The pipeline continues to build. We are talking to a number of Our customers, National Labs, University researchers and those kinds of organizations who have significant interest In getting an on premise quantum computer, there's a lot of value in doing that. They can do hands on research, they can get full stand experience with How do you do not only computations with quantum computing, but also how do you optimize, how do you do algorithm developments and so on. So there are many reasons why Customers are interested in getting a quantum computer on premise.

Speaker 1

The way we have enabled a 9 qubit quantum computer, It's a simple module that essentially gets plugged into an existing dilution refrigerator. And many national labs and university researchers have already purchased a dilution So for them, it's a relatively straightforward change to take off some components and put in our quantum computer and they can be up and running Fairly quickly. So it's a relatively simple process to get somebody enabled with a quantum computer and get them hands on experience and that's what we are focused on right now Besides the technology development part, of course.

Speaker 3

Okay, perfect. Just the last question, if I could. I wanted to ask about Your Quantum Cloud Service. So I know it's still very early innings for your QCS business. I guess in terms of non government cloud service revenues, it's still I think just given your The strategic shift in focus to Fidelity rates and all the progress you've made so far this year, I guess, Have you sent any noticeable shift in commercial interest in using your QCS services either from direct feedback from customers and maybe any indication From your ecosystem partners that you work with to deliver QCS?

Speaker 1

So sure, for Quantum Service through the cloud, we obviously have relationships with AWS, Azure, as well as our own cloud and also ORNL offers On Quantum Computer to select government organizations, commercial interest is definitely there, but still relatively low compared to National Labs and University Researchers. And most likely it is because we are still away from Quantum Advantage. As we approach Narrow Quantum Advantage in the next 2 to 3 years, we definitely expect commercial interest to soar and that's where the potential exclusive growth opportunity comes in 2 or 3 years from now. But as of today, most of the usage is from researchers and National Labs and University researchers still dominate the usage of quantum computing today.

Speaker 3

Okay. Great. Thank you so much and nice job on the quarter. Thank you, Stephen.

Operator

One moment for our next question. Our next question comes from David Williams with The Benchmark Company. Your line is open.

Speaker 4

Hey, good afternoon and thanks for taking my question. Forgive me if this was asked or answered already. I'm a little Joining here, but just wanted to see, if you could talk a little bit about the QPU sale you had previously. I know you mentioned another one That you can't disclose, but just I guess if you could talk maybe about the inbound activity and anything you're seeing there that gives you optimism of additional sales in the future? Thank you.

Speaker 1

So sure. Thanks, David. So we sold our 4th CPU in Q2 and as I mentioned earlier, As far as we know, that is the first time any company has sold a quantum computer to a customer and that was to SQM Center at Formula. That happened in Q2 of this year. We sold another GPU in Q3 of this year with one of our premier national lab, we will hopefully be able to disclose the name soon.

Speaker 1

Pipeline for future GPU sales continues to build. We are talking to more than a dozen Customers right now, most of them are for 9 cubits, some have expressed interest in 24 cubits and one has Overall, we are very pleased with the reaction we are getting for QPU, on premise QPU specifically. And again, most Optimization, to algorithm development and many other applications that they can think of. So hopefully that answers your question.

Speaker 4

No, no, that's very helpful. Thank you. And then maybe if you just kind of think about this opportunity as you go forward, It feels like you've got multiple revenue stream potentials here in terms of the processor and then also the quantum as a service. And you've made some really great progress. I have to commend you on just the efficiency that you've definitely instilled in getting the 84 out and And everything you've been able to achieve there, so congrats on that.

Speaker 4

But I guess just if you could help us understand how you envision the business developing over time? And if Any different today, I guess, given some of this interest on the QBUs versus where you would have thought whenever you came in some time ago? Thank you.

Speaker 1

Thanks, David. So, as we have stated before, our fundamental strategy right now is to focus on technology development and improve our fidelity to 99% and then scale up to 336 Cubit from there. As we mentioned in our press release, right now we are making QPUs When we are talking 9 qubit QPUs, we are talking more than 98% closer to 99% fidelity. When we are dealing with 24 qubit, we are at about 98% Good numbers considering that we started the year. So our error rates have essentially been slashed by a factor of 2, which is a huge accomplishment Since I've been in the company.

Speaker 1

We'll continue to focus on that. That is the core mission and objective of the company is to improve the error rates Because that's what gets you to the Halo Quantum Advantage. That's what enables the explosive growth opportunity. Having said that, in the meantime, we have latched on to this QPU sales opportunities for researchers who want to get their hands on and do experiments themselves. And as I mentioned, 9 qubit QPU is already close to 99%.

Speaker 1

So there are many practical things researchers can do and experiment with. And that's why they are I believe they are finding value and will continue to generate sales. But again, I don't want to sales will hopefully continue to grow for QPU and Quantum Cloud as a Service, Certainly exciting potential to keep moving sales in the near term. But again, we are not focused on that. Our focus is clearly on developing technology, getting us

Speaker 3

Thank you very much.

Speaker 1

Thank you, David.

Operator

And this concludes the question and answer session. I would like to turn the call

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Key Takeaways

  • Rigetti expanded its on-premise hardware sales by delivering 9-qubit QPUs to Fermilab’s SQMS center and another premier national laboratory during Q3 2023.
  • The company secured a 5-year IDIQ contract with the Air Force Research Lab to supply quantum foundry services, including integrated circuits, amplifiers, cryogenic components and 9-qubit QPUs.
  • Rigetti was awarded a DARPA IMPACT contract to develop efficient encodings of combinatorial optimization problems on NISQ-era quantum computers, with an initial focus on scheduling applications.
  • On the technology front, the 4th-generation chip architecture achieved over 98% median two-qubit fidelity on its 9-, 24- and 84-qubit systems, aiming for 99% fidelity in 2024 and a 336-qubit Lyra system to demonstrate narrow quantum advantage in 2–3 years.
  • Financially, Q3 revenue rose to $3.1 million (up 10% YoY) with a 73% gross margin, operating loss narrowed to $16.8 million, and a strong cash position of $110.2 million, with year-end liquidity expected between $88 million and $94 million.
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Earnings Conference Call
Rigetti Computing Q3 2023
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