Rigetti Computing Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 6 speakers on the call.

Operator

And welcome to the Rigetti Computing Second Quarter 2023 Financial Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call is being recorded.

Operator

I would like to turn the call over to Subhad Kulkarni. You may begin.

Speaker 1

Good afternoon, and thank you for participating in Rigetti's earnings conference covering the Q2 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 Q2 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 6 months ended June 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 the Q2 of 2023, I'm pleased to report our belief that we remain on track to reach our year end technology milestones with our 4th generation system. After having launched OncovONE internally, we are excited to have our long time partner RiverLane as the first external partner using the system to work on improving error correction techniques on our new architecture. We also look forward to making our most innovative quantum system available to the general public in Q4 of this year. As previously disclosed, we are continuing to work to improve ANCA-one performance With a goal of reaching median 2 cubit fidelity of 98% to support the anticipated AMCAR2 eighty four 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 median tocubit 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 also recently announced that we signed a collaboration agreement with ADIA Lab To design, build, execute and optimize a quantum computing solution intended to address the probability distribution classification problem, which has many direct applications to practical use cases in the investment industry. Tackling real world computationally challenging problems like this is an important part of working towards narrow quantum advantage. I'm also very pleased to announce that we recently completed our first QPU sale, which went to a national lab.

Speaker 1

We delivered a 9 qubit QPU and associated hardware to the lab, which features a square lattice with tunable couplers that can perform entangling 2 cubit gate operations. 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. At our current stage of development, we believe that executing toward 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 Q2 2023 financial performance.

Speaker 2

Thanks, Subodh. Revenues in the Q2 of 2023 were $3,300,000 compared to $2,100,000 in the same period of 2022. Revenue variability is to be expected at this stage of the company's evolution given the nature of contract timing with major government agencies. Our development contracts also primarily consist of technical milestone based work for cost share arrangements with revenue recognition varying according to the timing of deliverables. Gross margins in the Q2 of 2023 came in at 82%, up from gross margins in the Q2 of 2020 2 of 59%.

Speaker 2

The improvement in total gross profit is primarily due to the significant variability in the pricing and terms of our development contracts. On the expense side, total OpEx in the Q2 of 2023 was $19,000,000 compared to $27,000,000 in the same period in the prior year. The year over year decrease was primarily due to a reduction in stock compensation expense. Other decreases in the Q2 of 2023 included lower professional fees and lower employee wages and benefit costs resulting from our February 2023 reduction in workforce. The change in the fair value of the forward agreement for the Ampere warrant increased G and A expense by $44,000 in the Q2 of 2023 compared with a $2,100,000 reduction in G and A In the Q2 of 2023, stock compensation expense totaled $3,400,000 And depreciation and amortization expense totaled $2,200,000 compared to $11,000,000 $1,600,000 in the Q2 of 2022, respectively.

Speaker 2

Operating loss for the Q2 of 2023 was $16,200,000 Compared to an operating loss of $25,800,000 for the same period of 2022. Net loss for the Q2 of 2023 was $17,000,000 or $0.13 per share compared to a net loss of $12,300,000 or $0.11 per share for the same period of 2022. Net loss for the Q2 of 2022 was Favorably impacted by changes in the liability for the earnout and derivative warrant liabilities of 6,600,000 and $8,000,000 respectively. Cash, cash equivalents and available for sale investments totaled $105,500,000 as of June 30, 2023 compared with $122,000,000 as of March 31, 2023. During the Q2 of 2023, we raised $2,348,000 from the sale of 1.8 69,000,000 shares of common stock under our common stock purchase agreement with B.

Speaker 2

Riley. Based on our current operating plan, we to have cash, cash equivalents and available for sale securities of between $65,000,000 $75,000,000 at the end of 2023. At this time, based on our current operating plan, we anticipate that Rigetti will need to raise additional funding by late 2024, early 20

Operator

Thank you. Our first question comes from Quinn Bolton with Needham and Company. Your line is open.

Speaker 3

Hey, guys. Congratulations on the technical progress in the quarter. Great to see you're still on track for the 98% 2Qubit gate fidelity by year end. I guess, Subodh, I wanted to ask, kind of great to see the first QPU sale in the second quarter, wondering a couple of things. First, of the $3,300,000 can you quantify how much of that More development contracts versus the QPU sale.

Speaker 3

And then perhaps a more important question looking forward, Are you now starting to see greater interest from National Labs, other government agencies and perhaps even on a commercial side, Growing interest in the sale of Complete Systems and could that become a meaningful portion of the revenue stream for the business going forward? Thank you.

Speaker 1

Thanks, Quinn. Excellent questions. So first question regarding the revenue breakdown. Majority of it is still coming from Research contracts, although the QPU sale obviously contributed. We don't want to quantify the exact price Of 9 cubit QPU for obvious reasons, but suffice it to say for customers who have dilution refrigerators In their position, the price for a 9 qubit QPU is going to be under $1,000,000 So that gives you a frame of reference of what we are talking about here.

Speaker 1

So the majority of the revenue still comes from DoEdod type contracts and Cloud Service, obviously, AWS, Azure as well as our cloud, they all contributed as well during the quarter. Now for the more important and exciting part of your question as to what do we think will happen to the QPU sales Pipeline, if you will, that's what you are getting at. Certainly, we are very excited to see the interest we saw from our The first sale we did with the National Lab and the pipeline that seems to be coming along, a lot of customers are expressing interest In a 9 qubit QPU, particularly with the tunable coupler And the performance you get with the 9 gigabit, most of the applications are research applications. So for things like optimized control and pulse design Our materials research or simple algorithmic research, basic characterizations, measurements, student training, that kind of stuff. So primarily research, So we certainly still are not anywhere close to quantum advantage or even narrow quantum advantage.

Speaker 1

So it's mostly being used for research purposes. But there are many customers who are interested in having an on premise QPU for various reasons, security, Trying to see how the hybrid climate works in their environment and so on. So certainly, we are very excited to see the interest that seems to be emerging with the 9Q And we definitely think it will be a good contributor to our sales and margins. At the price points I mentioned, We make fairly healthy margins, so we are feel pretty comfortable that this will be a good potential revenue stream that could help us with our Hopefully that answers your questions.

Speaker 3

Yes. No, that was great. I guess a couple of follow ons. First, you mentioned customers, if they're buying the QPU, they have to have their own dilution refrigerator. I know dilution refrigerators are pretty expensive.

Speaker 3

So I'm assuming that this is just for the QPU, the dilution refrigerator, is purchased directly by the customer, That's not included in the sale.

Speaker 1

Yes, in general, I mean, we can obviously sell them the whole system if they want to. But many customers that we are talking As I said, it's primarily for research purposes. They already have purchased a dilution refrigeration system. So no point in trying to sell them the whole thing when they already have it. And we can ship them a finished QPU, if you will, in a FedEx or UPS type box and literally it just Plug and play kind of a system where they can immediately attach it to their existing dilution refrigeration system and get it working fairly quickly.

Speaker 1

So it's a fairly simple Our operation to ship and get it plugged into their environment and get it going. If they want to buy the whole system from us, including the Doctor, Obviously, the price point will be higher roughly in the 2 to 2.5 type in the range for 9 qubit systems. But we are primarily focused on customers who already have a Doctor and are interested in just buying the QPU from us.

Speaker 3

Got it. And my last question is, You mentioned the 9 cubit QPU in a square lattice. I guess, sort of begs the natural question, if you're doing a 9 Is there a roadmap in this QP business to do a 16 square lattice or 25 cubic or 36 cubic Kind of etcetera, etcetera to give QPUs with greater capability to this customer base so that they can do more complex

Speaker 1

Gates, circuits? Excellent question. And we debated internally a lot as to The right way to go forward with our road map, as we have already described, our Anka 1 is not a square It's not a square structure, if you will. It's 84 cubit. But when we say a square lattice, it is the actual structure of the Cubits, so Angkor 1 is still a square lattice, just in a 12 by 7 layout, if you will.

Speaker 1

So when we say square, it is the Exactly allocation of the 9 cubits and how they are the square style up with each other. Certainly, we can look at 9 going to 16 going to 81 and that's an approach we debate internally should be looking at that versus 84. But at this time, we want to stay with the 84 cubit, 12x7 in a square pattern with tunable coupler. And by the way, that is the more important part is a tunable coupler more than the square lattice. It certainly Leads to much higher performance than the fixed couplers that some others are doing in the superconducting cubit camp.

Speaker 1

And we actually published a blog today Getting into the details of why we believe tunable couplers are significantly better than fixed couplers that other companies are trying to do. So I certainly encourage you to take a look at that blog that is on our website right now. So anyway, so our roadmap is Get 84 cubit to 98% Fidelity, median 2Q Fidelity by the end of this year, get it to 99% sometime next year and then scale up Going from 84 to 168 and 336 and so on. But certainly, if we can look at Square, that is and just go 9, 16, 81 and so on. We are open to that, if that makes sense.

Speaker 3

Got it. Thank you.

Speaker 1

Thanks, Glenn.

Operator

Thank you. Our next question comes from Stephen Chen with TD Cowen. Your line is open.

Speaker 4

Hi, thanks for taking my questions. This is Steven calling on behalf of Krish. Actually some follow ups as well on the QPU sales. I guess, in terms of the associate hardware that you're referring to in terms of the overall Q2 sale. I assume some of the computing control hardware that's associated with couplers that's part of the package.

Speaker 4

And if so, is there any, I guess, follow on service or maintenance contract revenues that might be associated with this QPU sale, any official ones? And similarly for the EDIA Labs, Abu Dhabi partnership, any comments on sort of The revenue profile over a longer term period and also the profile for that.

Speaker 1

So thanks, Stephen, for your questions. Good questions. So regarding the QPU sale itself, this is a large national lab that we deal with. So it's Certainly, they wanted to get a QPU on premise. That's what this sale was about.

Speaker 1

Leads to exciting opportunities, as I mentioned, with Quinn in my previous answer with other Research Organizations, National Labs, Academic Institutes and other organizations, long term, certainly, we think service is a big contributor to the revenue stream when you start selling QPUs because these are going to be complex systems. They will need Service support, so definitely expect a service stream to go with the QPU sale long term. I think it's too early to talk about short term because we are dealing with large national labs who have hundreds of researchers on premise on their location. Many of them are quite capable of doing service. And in fact, they want core know how from us, but they want to do their own optimizations and tuning and stuff like that.

Speaker 1

So we really are not discussing service to this national lifetime customers in the short term, but long term definitely services a Significant portion of the revenue stream. Your second question was about ADIA Lab and the collaboration we announced, exciting Partnership with ADIA. ADIA is obviously a large organization focused on research on many different things, one of them being the financial areas and in specific, On the time series with the probability distribution functions, these are extremely complex problems as we mentioned in our press release To take on the classical computation, they approached us and they are giving us some money. We haven't disclosed how much. It's again in the small in the big It's more of a strategic partnership that we are excited about.

Speaker 1

We want to work with them. We want to show them that quantum computing makes a With quantum computing, you get a distinct advantage over classical computing in solving this complex problem. So our goal was really to demonstrate Narrow Quantum Advantage or as close proximity to Narrow Quantum Advantage as we can for this complex progress. It wasn't really done with Service or with the revenue specifically in mind, long term, certainly, ADIA is a fantastic partner To build our partnership with long term, and we hope the real opportunity comes from the financial vertical market, not just organizations like ADIA. Hopefully that answers your question.

Speaker 4

It does. Thank you so much for that. And just as my follow-up, regarding The announcement of RiverLane, I guess, working with your systems for error correction. I guess, can you talk about The longer term implications of that, since I know internally you guys are more focused on the gate fidelity, but is RiverLane's Efforts supplementing any of your own internal care correction development efforts. And are there any Expectation is that if RiverLane makes big progress on the error correction front, whether or not that leads to opens more doors for Additional QPU system sales or additional development contract signings that was potentially more lab projects.

Speaker 4

Thanks.

Speaker 1

Yes. Certainly, error correction is a very important part of any computing system, even including classical. I mean, we routinely use error corrections in any classical system today. So we definitely expect error correction to be a key component of quantum computing system long term. Riverland is an excellent company focused Specifically, with on error correction, we have partnered with them in the past and definitely we are excited to partner with them right now with the ONCA-one system.

Speaker 1

We are working on in general error areas ourselves, but certainly that doesn't preclude us from looking at partnerships like with RiverLane and with others, And we are talking to others too. Any advancement, whether we do or they do or in this area is generally will be received positively by the whole As I mentioned before, when the fidelities are much lower than 99%, Frankly, error correction doesn't make that big a difference. It does make some difference, obviously, but the overall errors are dominated by the intrinsic fidelity of your system. As you increase your Fidelity to 98% 99% and certainly 99.x percent range, error correction start becoming A big determining factor in your overall performance of the system. And that's really why we have started the partnership early As we improve our fidelity from our side, they will obviously see the benefit in the final results that they get.

Speaker 1

So hopefully that answers your question.

Speaker 4

Thank you so much for that and nice job in the quarter. Thank you. Thank you.

Operator

Thank you. Our next question Comes from David Williams with The Benchmark Company. Your line is open.

Speaker 5

Hey, good afternoon. And Subodh, I just wanted to extend my congratulations on your success. You've definitely done, I think, a fantastic job turning things around and putting things back on track. So congratulations on your progress.

Speaker 1

Thank you, David.

Speaker 5

I guess my first question is just around the interest that you're receiving. Just given the success and what you've been able to accomplish Short order. Are you seeing that the interest level from customers has improved? And maybe what you're hearing in terms of feedback from those customers, the Maybe pre arrival, pre your arrival contracts and then what you've done since then?

Speaker 1

Well, certainly, we are getting more interest from customers As our fidelities continue to increase, when I came in the company, as you know, we were dealing with our Aspen M3 system. We were just about to launch ANCA-one system. And the fidelities were on the lower side with Aspen and even when we started. We have continued to improve our fidelities. Our customers see that As we approach 98% before the end of this year, we definitely expect the interest to increase.

Speaker 1

And certainly at 99% plus next year, We definitely expect a lot more customers to be interested in our QPUs. So we see that firsthand right now. I mean, our facilities Are in the mid to high 90s with ANCA-one. We continue to work on it. We are pretty confident with ANCA-two.

Speaker 1

As we mentioned in our press release, we will be at 98 plus percent range before the end of this year. And that is that directly correlates with the interest from customers in using our QBOs. So we expect as we improve our fidelities, The interest from customers to use our quantum computers for a service or directly buy from us, That will continue to go up. They are definitely correlated. Going forward, certainly, we are excited to Get the first order and execute on it.

Speaker 1

So we already sold our first QPU as we disclosed, and that's a huge accomplishment. We are proud of what our team has accomplished In making that happen, we are dealing with the pipeline right now as we publish more results as the National Lab who has Who is our customer, they publish more results and others see value in this 9 qubit QPU with the two level couplers and square lattice. We definitely expect more customers to be expressing interest going forward. And we'll continue to increase both the Size number of cubits as well as the quality of cubits. So, Ankawa 2 chip is 84 cubit.

Speaker 1

So we are talking to some potential customers about 24 qubit and 84 qubit type systems. That's more in the long term. Near term, certainly, we will continue to talk to more customers. So our 9 cubit with the square lattice and 2 number couplers. But anyway, exciting to see the interest in the global community in using something like this right away.

Speaker 1

I mean, We are definitely getting a lot of interest on a number of research customers right now.

Speaker 5

Okay. That's great color there. And you mentioned this briefly, but how much interest do you have, I guess, in terms of your latest generation? Are you seeing more interest around kind of that research phase? Or do you see others that are maybe have more interest in getting something Closer to your latest 84 cubit, ONCA-two potentially at the end of the year, are you seeing a lot of interest there?

Speaker 5

And maybe what kind of price point would you be And is that something you'd be interested in maybe doing as this release is telling that right away?

Speaker 1

Excellent questions. I mean, right now, Certainly, we are entertaining customers with 9 qubit and maybe 24 qubit type levels. We want to bring our own system up for us with With good fidelity, with 84 qubit, so we definitely want to be our 1st user ourselves. And that will happen before the end of this year when we have an 84 qubit Ankar II system with 98 plus percent median 2Q fidelity. Beyond that, we will certainly entertain a request.

Speaker 1

Most customers would want to test it out in a cloud manner as a service first Before they want to bring it on premise, I mean, you can do a lot of good quality research with a 9 qubit q level coupler system today. As you know, this goes with exponential with 98% or 99% plus Fidelity. A lot of research projects can be handled with even 9 cubits because it's really 2 ways to that number. That is the level of the computational power you are getting. So that's a huge amount of computing power you get even with 9 cubits, 15 nanobulkouplars.

Speaker 1

Certainly, as the number goes up, you are dealing with an exponential power. So we will be happy to entertain customers, but it has to make sense for them. I mean, we just don't want to Take on projects that are difficult for customers to understand and for us to execute, but we certainly will be talking to customers with higher number of cubits with better fidelity early next year. Hopefully that answers your question.

Speaker 5

Thanks so much. And again, congrats on the progress.

Speaker 1

Thank you.

Operator

Thank you. There are no further questions at this time.

Speaker 1

I'd like to

Operator

turn the call over to Subhad for any closing remarks.

Speaker 1

Thank Thank you for your interest and your questions. We look forward to updating you with our progress next quarter. Thank you again.

Operator

Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.

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Key Takeaways

  • Rigetti is on track to achieve its year-end technology milestones for its 4th-generation system, having launched Onca-ONE internally and partnered with RiverLane on error-correction, with an 84-qubit ANCA-2 deployment (98% two-qubit fidelity) planned for Q4 2023 and a 99%-plus ANCA-II system expected in 2024 ahead of a 336-qubit Lyra system.
  • The company signed a collaboration with ADIA Lab to develop and optimize a quantum computing solution for probability distribution classification, aiming to demonstrate narrow quantum advantage in financial-industry applications.
  • Rigetti completed its first on-premises QPU sale, delivering a 9-qubit QPU with tunable couplers to a national lab for under $1 million, and sees growing interest from research institutions and national labs, with future service and maintenance contracts expected to drive additional revenue.
  • In Q2 2023, Rigetti reported revenue of $3.3 million (up from $2.1 million a year ago), gross margins of 82% (versus 59%), and an operating loss of $16.2 million (improved from $25.8 million), while reducing OpEx to $19 million through workforce cuts and lower stock-compensation expenses.
  • The company ended Q2 with $105.5 million in cash, cash equivalents, and securities, expects to hold $65–75 million by year-end after a $2.3 million equity raise, and anticipates needing additional funding by late 2024 under its current operating plan.
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Earnings Conference Call
Rigetti Computing Q2 2023
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