Rigetti Computing Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 7 speakers on the call.

Operator

You for standing by, and welcome to the Rigetti Computing First 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 session. As a reminder, today's program is being recorded. And now I'd like to introduce Your host for today's program, Doctor.

Operator

Subodh Kulkarni, President and CEO. Please go ahead, sir.

Speaker 1

Good afternoon, and thank you for participating in Rigatti's earnings conference call covering the Q1 of 2023. Joining me today is Jeff Bertelsen, our CFO, who will review our results in some detail following my overview. Our CTO, David Rivas 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 Q1 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 months ended March 31, 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 the Q1 of 2023. I'm pleased to report that we believe we are on track and progressing towards the nearer term strategic priorities and technology roadmap we announced in February 2023. We are starting to see positive impacts following the implementation of our updated business strategy we announced in February 2023, which is designed to improve our focus, operating efficiency and preserve cash resources.

Speaker 1

Our next generation 84 Cubit ANCA-one system, Which is built using new architecture of square lattice and tunable couplers was deployed internally within Rigetti for testing in March 2023. Anka-one is achieving 96% to 97% median 2 qubit fidelity and 65 to 70 nanosecond gate speeds based on our internal testing. Our prior generation 80 qubit Aspen M3 system achieved 94% to 95% median 2 qubit fidelity We believe these metrics demonstrate the superior performance of ANCA-one as compared to Aspen M3 and confirm our belief that the chip used in ANCA-one system is a leap forward in architectural design. As previously disclosed, we currently anticipate launching Oncawone to select customers in mid-twenty 23. We continue to work to improve ANCA-one performance with the goal of reaching median 2 Cubit Fidelity of 98% To support the anticipated AMCAR 2 80 4 Cubit System.

Speaker 1

Our AMCAR 2 84 Cubit System With anticipated improvements in design and performance is expected to be deployed and made available to external customers in the Q4 of 2023. We remain committed to working to achieve 2 qubit fidelity of 99% with the anticipated ANCA II, which we expect to be achieved in 2024 And development of the 336 Cubit Lyra system thereafter. We recently released the results of application and development work That demonstrates the progress the company is making towards improving its hardware and software capabilities, which we believe reflects Advancement towards potentially achieving narrow quantum advantage. Using quantum inspired classical simulations, We were able to demonstrate the computational power of quantum methods compared to the classical alternatives. At the Quantum Tech Conference in April, We presented the results of new application work undertaken with Moody's and Imperial College London that illustrates a novel approach to addressing the problem of forecasting decisions Using cutting edge machine learning techniques that combine classical signature kernel methods with quantum enhanced data transformations.

Speaker 1

By using noiseless quantum simulation, we were able to demonstrate that the quantum enhanced version of our model outperforms the classical version as well as standard models used for this class of problems in accurately predicting a recession. As part of our ongoing DARPA project, We released a manuscript that presents a new quantum algorithm for solving optimization problems with NASA that provides Performance assurances even with noise and outperforms several classical and quantum approaches for solving the same problems. At our current stage of development, we believe that executing towards our road map and achieving our technology milestones are key to fueling our goal of achieving quantum advantage. We remain focused on meeting our objectives. And with that, I'll now turn the call over to Jeff, who will review our Q1 2023 financial performance.

Speaker 2

Thanks, Subodh. Revenues in the Q1 of 2023 were $2,200,000 Our development contracts also primarily consist of technical milestone based work or cost share arrangements With revenue recognition varying according to the timing of deliverables, gross margins in the Q1 of 2023 came in at 77%, virtually in line with gross margins in the Q1 of 2022 of 80%. On the expense side, total OpEx in the Q1 of 2023 was 23,700,000 compared to $27,000,000 in the same period the prior year. The year over year decrease was mainly due to expenses recorded in the first Quarter of 2022 related to the business combination, including $8,900,000 of cumulative deferred stock compensation expense And $2,100,000 of transaction bonuses. We also recognized $1,300,000 of expense in the Q1 of 2022 For a prior period catch up of electric utility fees, the change in the fair value of the forward agreement for the Ampere warrant Increased G and A expense by $1,100,000 in the Q1 of 2023 compared with a $3,000,000 reduction in G and We recognized expenses totaling $2,000,000 in the Q1 of 2023 for structuring and contractual based severance for executive officers that were terminated during the quarter.

Speaker 2

Other increases in the Q1 of 2023 when compared to the same period of 2022 included higher cost per headcount, Primarily in the R and D area, a $742,000 impairment charge for deferred offering costs And higher costs were legal fees and D and O insurance, mainly related to being a public company for the entirety of the Q1 of 2023. In the Q1 of 2023, stock compensation expense totaled 1,700,000 expense totaled $2,100,000 compared to $11,500,000 $1,400,000 in the Q1 of 2022, respectively. Operating loss for the Q1 of 2023 was $22,000,000 compared to an operating loss of $25,300,000 for the same period of 2022. Net loss for the Q1 of 2023 was $23,400,000 or $0.19 per share compared to a net loss of $17,600,000 $0.33 per share for the same period of 2022. Cash, cash equivalents and available for sale investments totaled $122,000,000 as of March 31, 2023 compared with 142 to have cash, cash equivalents and available for sale securities of between $65,000,000 $75,000,000 at the end of 2023.

Speaker 2

At this time, based on our current operating plan, we anticipate that Rigetti will need to raise additional funding by late 2024, early 20 25 to continue its research and development efforts and achieve its business objectives. Thank you. We would now be happy to answer your questions.

Operator

Certainly. And our first question comes from the line of Gianmarco from Deutsche Bank. Your question please.

Speaker 3

Hey, guys. Thank you. This is Jarmad Cole on for Sydney. I guess to start with the progress on ANCA. Well, it's certainly encouraging to hear about the performance improvements that you guys have made.

Speaker 3

But I was hoping you could speak a little bit more to what are your Expectations in terms of customer adoption once the system is deployed in mid-twenty 23? And How have your conversations with customers been proceeding? And then just a quick follow-up, if you could speak to sort of The rate of utilization of your QCS and where do you see that go once Anka is deployed? And I have a follow-up.

Speaker 1

Sure. So thanks for your questions. Certainly, we are very pleased with the performance of Anka. As we have Said before, it is a new architecture. It is a denser lattice, a square lattice with tunable couplers, so that it took a lot of effort to bring the Get the chip built and bring the chip up, which and it is working right now.

Speaker 1

We have reported the numbers for fidelities of 2Q, Median fidelity of 96% to 97%, pretty impressive gate speeds of 65 to 70 nanoseconds. You certainly have more work to do in other metrics and continue to improve our fidelity. Our expectation is that Anka will continue to improve as the year goes on, and we should be in the 98 plus percent range For median 2Q Fidelity by the end of this year and 99 plus percent range in sometime in 2024. That's the high level plan. As we have already said and that was where the question was going, we are going to Making Ankha available to select customers middle of this year.

Speaker 1

Right now, it's all internally tested. Once we are done with our internal testing and feel confident to get all the customer access, we will do that. Initially, it will be available to our select Customers like the DOE, DoD Labs and a few others that we have right now. General interest From a customer standpoint, it remains very high. A lot of customers that we currently have and potential customers Are very interested in a 84 qubit square lattice tunable coupler chip.

Speaker 1

I would say that the higher the fidelity, the better obviously from their application standpoint. So as we get to 98% adoption will continue to improve and certainly at 99% plus next year, the interest will be significantly higher. So we are overall we are pleased with what where we are right now, what we are hearing from our existing and potential customers And where this thing is going to evolve. I hope that answers your question.

Speaker 3

Absolutely. That's very helpful. Thank you so much. And then I guess if I can squeeze one more in for you, Jeff, maybe on cash burn, if You can help us think about the sort of the linearity of cash burn through 2023. And do you have a better sense of what CapEx could be as we go through the year.

Speaker 3

That's it for me. Thank you.

Speaker 2

Yes. I mean, As we said in today's release, we expect to have between $65,000,000 $75,000,000 of Cash on hand, at the end of the year, when I think about or when we think about cash burn, Obviously, we had a restructuring here in Q1. So we would expect to see Expense reduction from that action fully kick in starting in Q2. We also incurred severance and restructuring costs this quarter in Q1, which won't Recur in Q2. So from a linear perspective, we would certainly think that Expenses would go down from here, plus you also have the 10 ks and annual reporting type Costs in the Q1.

Speaker 2

So that's from a linear perspective. We aren't giving any specific CapEx guidance, but certainly Our focus is to be very cautious on CapEx spending To stay focused on that and to make sure we're spending our dollars wisely. So I think Going forward and also tied into the reduction in headcount, I think we'll see some hopefully see some cautious and expect to see cautious CapEx spending going forward.

Speaker 3

Thanks, guys.

Operator

Thank you. One moment for our next question. And our next question comes from the line of David Williams from The Benchmark Company. Your question please.

Speaker 4

Hey, good afternoon. Good to speak with you both. Just a couple of quick questions, I guess, and you'll forgive me, I missed a bit at the beginning of the call here. But it sounds like things are progressing as you expect making some good progress on the Fidelity. But I guess is there anything That has surprised you over the last several months in terms of just the improvement in Fidelity's or giving you more confidence in Towards the technology side?

Speaker 1

Yes, that's a it's a tricky question, David, when you Don't know what all it's going to take to get to 99% Fidelity sitting here, but we are pleased with the initial fidelities that we've measured with ANCA, I mean, with our Aspen M3 system, we were in the close to 95% median 2Q fidelity, Whereas with Anka, we are starting off with 96% to 97%, which is a nice jump up, Particularly considering it's a new architecture with a square lattice and a tunable coupler. Certainly, we know where the issues are coming right Now we have data, we are systematically analyzing that data and looking at where the errors are coming from and we are going after them very systematically Using the caustic Pareto analysis kind of approach, which is quite common in semiconductor industry. So we are going at it systematically. That's what gives me the confidence By the end of this year, ANCA will be close to 98 plus percent median to fee Fidelity. And certainly, we already know what it will take to take us to 19.9% plus Fidelity next year.

Speaker 1

So I have high confidence our team will be able to get to those numbers based on the starting point for ANCA And what we have seen is contributing to errors right now and what actions we have already taken and are planning to take in the next few months to address those problems. So hopefully that answers your question.

Speaker 4

No, it does. And thanks so much for that. Certainly helpful. And I guess secondly, now that you've had a little more time In the Seathair CEO, what are you hearing from customers? And are you still feeling like the adoption and maybe some of the programs, the folks that maybe were kicking the tires previously?

Speaker 4

Are they still looking at Brigitte? And has there been any changes, maybe improvement or otherwise?

Speaker 1

Good questions, David. I mean, certainly, as we improve Fidelity, the interest continues to increase. I would say, definitely, some of the Announcements we did and paper to papers we published on the NQA side, the Narrow Quantum Advantage side, such as the work we published at Moody's, That is getting a lot of traction, not only obviously with Moody's, but other financial organizations. I mean, everyone's excited to see What can be done to improve the predictability of recessions or bankruptcies? There's a lot of interest obviously in those kinds of algorithms.

Speaker 1

And our work with Moody's certainly has gotten more customers interested in us In our QPU and our algorithms, so we are talking to more financial customers because of those kinds of things. Also our work with DARPA and NASA on the optimizations, Pretty, really good work to demonstrate how QPUs can be used to improve combinatorial optimization problems. And that is opening up some unique doors with other vertical markets besides financial markets. Many industries, as you know, Need combinatorial optimization problems and our work is pretty ground basic work that lays the foundation pretty well for So I think it's a combination of not only an improved anchor chip with fidelity Engage speeds, but also the optimization and QA work we are doing with our software stack that continues to generate A lot of interest among customers. Certainly, at a high level, customers are still in general, I would say customers are very interested in quantum computing.

Speaker 1

Then they definitely want to kick the tires using your phrase to make sure that it works as they think it should As we demonstrate practical benefits like the Moody's work or the DARPA NASA work That certainly piques their interest to talk more about what other practical problems can we look at in conjunction with them. So hopefully that answered your question.

Speaker 4

It certainly did. I appreciate the color and congrats on the progress again and best of luck

Operator

And our next question comes from the line of Quinn Bolton from Needham. Your question please.

Speaker 5

Yes. Hey, guys. This is Trevor on for Quinn. Thanks for letting me ask some questions here. So to start, I'm wondering if There are customers that you're currently engaged with that are waiting on the sidelines for Anka Fidelity's to improve before becoming a paying customer.

Speaker 5

And to add to that, do you expect an incremental step up in revenue Once 99% Fidelity's are achieved and Ankha is introduced to the cloud. Thanks.

Speaker 1

Thanks, Trevor. At a high level, certainly, as Fidelity is improved, the interest among customers is going to improve. That goes without saying. Exactly how the revenues ramp up with Fidelity, hard to tell. I think in the whole quantum computing world, certainly all the revenues that all of us are getting right now Are from researchers or government, national labs kind of customers.

Speaker 1

So most of it is testing out GPUs and algorithms and seeing how they could be leveled in the future. So none of us are at a point where we can clearly say quantum computers are significantly better than classical computers in performance or cost yet. That's the goal here. I think the real ramp up of revenues happens only when you reach that quantum advantage Which you have said is roughly 2 to 3 years from now. So at a high level, once we get to 99% Fidelity next Here in 2024, will we get more customer interest?

Speaker 1

Yes. Would we get more dollars for this research kind of projects? Likely, yes. But it's really going to be small potatoes, if you will, in the big scheme of things. The real inflection point in revenues For quantum computing companies, all of them, certainly us, is going to happen once we are beyond that quantum advantage, which is At least 2 to 3 years from now.

Speaker 1

Hopefully, that gives you some color on your question.

Speaker 5

Yes, it does. But I guess to the first part of my question, I was asking like are you talking to any customers That are interested in using your QPUs, but they're waiting until Onka hits a certain fidelity to start working with you. So they're not paying customers yet, but they plan to be. Do you see any of that or more of these Universities and government agencies, are they just working with you no matter What system is available?

Speaker 1

Well, we are certainly talking to the government organizations and universities, but We are talking to commercial customers as well all the time. And many of them are current paying customers, if you will, either directly with our cloud service or through AWS or Azure. But again, Has anyone told us that they would give us a specific contract if Fidelity reached 98 or 90 I don't recall anyone having said that categorically. The interest is why everyone wants to be involved and understand Once you are at that 99 plus percent, certainly more applications open up. So in general, the direction is there, But I cannot say that we have X number of customers who have said as soon as we hit 98 or 99, they will sign a contract or anything along those lines.

Speaker 5

Yes. Okay. Thank you. And a quick clarification, will ONCA-one become available broadly to customers over the cloud platforms? Or is that just ANCA 2 that's expected to become available over the cloud?

Speaker 1

So what we have said, Trevor, is that Anchor 1, which is what is what we are doing internal testing, we will make it available to select customers by the middle of this year. By the end of this year, ANCA-one would have evolved into ANCA-two, and our plan is to make ANCA-two available To the broader customer set once we are at that 98% level. So we think the timing Of the leasing for general availability would be Anka 2 and 98% type Fidelity. That's what we have announced.

Speaker 5

Okay. Awesome. Okay. Thank you, Subodh. Thank you, Subodh.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Chris Hunter from TD Cowen. Your question please.

Speaker 6

Hi, thanks for taking my questions. This is Steven calling on behalf of Krish. Subut, maybe I had a question or a few for you regarding ANCA and also sort of the underlying infrastructure that I guess first in terms of ANCA 2 that comes out here this year, specifically the tape out timeline. I guess, I just wanted to understand what are some of the potential risks to keep out and that project with the next ship and And for it to come out in Q4, for example, is it an incremental design that is already largely set? Or is

Speaker 3

it dependent

Speaker 6

The progress of ONCA-one reaching that 98% Fidelity rate before it takes out. And so if you could talk about sort of how that ONCA-three chip is expected to

Speaker 1

I mean, you're getting into the details of How we do the technology development. And as you can imagine, we are we own our own fab, as you probably know. So we are using chips all the time, Various different versions of experimental chips and some lots that are targeted for ANCA 2 at this time and frankly some lots even talking about ANCA 3 and what we are doing. So all those experiments are going in parallel. So Right now, we definitely keep looking at uncovered data as we bring it up, as we optimize it, we look at the error, where the errors are coming from, take all that learning, we try to incorporate Everything that we can learn and we'll use that to build Anka 2 and that will be available by the end of this year.

Speaker 1

For all practical purposes, we believe that Anka 2 chip that will become Anka 2 Maybe going through the fab as we speak right now because it takes certain amount of months to get the chip ready and make it into a GPU system. So we are incorporating all the learnings from ANCA-one, putting it into ANCA-two. We will incorporate some more learnings in the next couple of months, but we will be running our ANCA-two Our design will freeze Ankatu design, if you will, sometime in the next couple of months, and that will become Ankatu by the end of this year. Hi, Lanka 2 is being brought up and we are doing evaluations and learning from that. The work, as I said, for Ankara 3 has already started.

Speaker 1

So we are already running some early experiments on AMCA-three that will become a hopefully 99 plus percent median 2QFidelity chip sometime in 2024 time period. So you have to kind of plan these things several months ahead of the actual launch, obviously. That's what we are going through as we speak. Hopefully, that gives you some color on the timelines.

Speaker 6

Yes, yes. Thank you so much for that clarity. And then my follow-up question It's related to, I guess, kind of CapEx related activities. I guess, very simply, Is ONCA 1 and ONCA 2, is it pretty much compatible with existing infrastructure that Aspen M3 runs on? And If not, are there certain key piece of, I guess, infrastructure, whether it's some of the modular Devolution phrases from Bluefors or is it multiplexers for the control signal?

Speaker 6

If there's any new dependencies from an infrastructure standpoint, it would be great if you can provide some more color on that. Thank you.

Speaker 1

Sure. So certainly, to go from Aspen to Anka, it was a big design change to the square lattice tunable couplers and that involved Several other pieces of equipment, not only in the fab, but even outside the fab, the amplifiers, the cables, the switches. So a lot of it needed a Significant upgrading to go from Aspen to Anka. Things will continue to evolve as we learn where the errors are coming from and what needs to change. Obviously, we'll keep changing the hardware and the software.

Speaker 1

The hardware will obviously need some CapEx. So it's not like all the capital that we needed for ANCA II and ANCA III is already there. I believe most of it is already there, but there will be some additional pieces we may need based on what we learn in the next few months that is needed for ANCA II and ANCA III. But the big CapEx that we had last year to bring out Anka right now, I don't think we will see those numbers, As Jeff mentioned earlier, going forward, so we'll be much more careful with what all we are going to be spending on. So A lot of the infrastructure for ANCA II and ANCA III is already here.

Speaker 1

But there will be some changes that we have to make as we learn more and continue to optimize.

Speaker 6

Great. Thank you so much. Thank you.

Operator

Thank you. This does conclude the I'd like to hand the program back to Doctor. Kulkarni for any further remarks.

Speaker 1

Well, thank you for your interest and questions. We look forward to updating you as the year progresses. Thank you.

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