Rigetti Computing Q1 2024 Earnings Call Transcript

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May 9, 2024

There are 7 speakers on the call.

Operator

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

Speaker 1

Good afternoon, and thank you for participating in Rigetti's earnings conference call covering the Q1 ended March 31, 2024. 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 Rigetti's Q1 ended March 31, 2024, 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, 2023, our Form 10 Q for the 3 months ended March 31, 2024 and other documents filed by the company from time to time with the Securities and Exchange Commission. These filings identify and address important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward looking statements. We urge you to review these discussions of risk factors. Today, I'm pleased to report a number of new developments at Rigetti Computing. First on our technology road map and QPU performance.

Speaker 1

We have achieved a 99.3% median 2 qubit gate fidelity on our 9 qubit AMCA class quantum system. This development gives us confidence that we will reach 99 plus percent median 2 qubit gate fidelity on our anticipated 84qubit AMCA-three system, which we plan to deploy by the end of the year. Rigetti plans to develop the 336 Cubit Lyra system thereafter. On the business update front, I'm pleased to report that we are continuing to grow our on premises quantum processor unit sales with the delivery of a Nuvera QPU to Horizon Quantum Computing in April 2024. The Nuvera QPU will be installed in Horizon Quantum Computing's new hardware test bed in Singapore and will be Horizon's 1st quantum computing system.

Speaker 1

This is our first QPU located in Singapore. We expect that the system will be installed by early 2025. We are witnessing the emergence of a vibrant on premises quantum computing market. Quantum computing researchers need hands on access to quantum technology to gain a deeper understanding of how to work towards useful quantum computing. We launched the Nuvera QPU to address this need, and we are thrilled that our long time partners at Horizon selected our hardware to advance their quantum computing journey.

Speaker 1

Our first Nuverra QPU sales were to leading U. S. Government labs, the Superconducting Quantum Materials and Systems Center, SQMS led by Fermilab and the Air Force Research Lab AFRL. This past April, we launched the Nuvera QPU Partnership Program to support on premises quantum ecosystems. The Nuvera QPU Partner Program aims to enable high performing on premises quantum computing by creating an ecosystem of quantum computing hardware, software and service providers who build and offer integral components of a functional quantum computing system.

Speaker 1

Nuvera QPU customers can work with Nuvera QPU partners to build a quantum computer powered by the novera QPU that satisfies their system requirements and quantum computing research objectives. The founding members of the Nuvera QPU Partner Program include some of Rigetti's most long term partners and are leaders in the respective areas of quantum computing technology. We intend to grow the Nuvera QPU partner program with additional partners on an ongoing basis. With the Novara QPU, we have a unique opportunity to develop the development of on premises quantum computing capabilities worldwide. At Rigetti, we are experts at overcoming the challenges of building, installing and supporting a quantum computing system.

Speaker 1

After a decade in the quantum computing industry, we have also forged long lasting partnerships with world leading quantum technology companies, whose collaborations and expertise have helped us advance our capabilities even further. We want to empower Nuvera QPU customers with an ecosystem of our trusted partners to support their own quantum computing research pursuits and to help prepare us for a quantum ready society. Jeff will now make a few remarks regarding our recent financial performance.

Speaker 2

Thanks, Subodh. Revenues in the Q1 of 2024 were $3,100,000 up 39% compared to $2,200,000 in the first quarter of 2023. Gross margins in the Q1 of 2024 came in at 49% compared to 77% in the Q1 of 2023. Revenue and gross margin 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. In addition, our project to develop and deliver a 24 Cubit Quantum Computing System to the UK's National Quantum Computing Centre has a lower gross margin profile when compared to some of our other projects.

Speaker 2

On the expense side, total OpEx in the Q1 of 2024 was $18,100,000 compared to $23,700,000 in the same period of the prior year. The year over year decrease was primarily due to our February 2023 restructuring and reduction in workforce, a reduction in public company costs as more activities are being brought in house and savings from R and D related IT systems rationalization. SG and A expense for the 3 months ended March 31, 20 23 included $1,100,000 of expense related to the Ampere forward agreement which expired in October 2023. The Ampere agreement had no impact on our results for the 3 months ended March 31, 2024. Stock compensation expense for the Q1 of 2024 was $3,000,000 compared to $1,700,000 for the first quarter of 2023.

Speaker 2

Stock compensation expense was favorably impacted in the Q1 of 2023 by fixtures related to the February 2023 restructuring and reduction in workforce. Operating loss for the Q1 of 2024 was $16,600,000 compared to an operating loss of $22,000,000 for the same period of 2023. Net loss for the Q1 of 2024 was $20,800,000 or $0.14 per share compared to a net loss of $23,400,000 or $0.19 per share for the Q1 of 2023. The non cash change in the fair value of derivative warrant and earn out liabilities negatively impacted our net loss in the Q1 of 2024 by $4,200,000 compared to a negative impact of $1,200,000 for the Q1 of 2023. Cash, cash equivalents and available for sale investments totaled $102,800,000 as of March 31, 2024 compared with $99,900,000 as of December 31, 2023.

Speaker 2

On March 15, 2024, we entered into an ATM sales agreement for shares of our common stock having an aggregate offering price of up to $100,000,000 Year to date through May 9, 2024, we have raised $32,900,000 from the sale of 23,000,000 shares under our prior common stock purchase agreement with B. Riley and our current ATM program, including 23 $900,000 raised in the 3 months ended March 31, 2024. As disclosed in today's 10 Q filing, we believe that our existing balances of cash, cash equivalents and marketable securities should be sufficient to meet our anticipated operating cash needs until midway through the Q4 of 2025 based on our current business plan and expectations and assumptions considering current macroeconomic conditions. Thank you. We would now be happy to answer your questions.

Operator

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

Speaker 3

Hi, this is Neil Young on for Quinn Bolton. Thanks for letting me ask a question. So you sold Novera to Horizon Quantum Computing. I was just wondering if you could elaborate further on that

Speaker 1

sale. Sure. Horizon Computing is a company based in Singapore, funded primarily by the government of Singapore. Their goal is to establish a hardware test bed where they will experiment with different kinds of different modalities of quantum computing and evaluate the performance of different modalities. This was their first purchase for quantum computing.

Speaker 1

It started with superconducting and we are really thrilled that they chose us over some of our other competitors for superconducting quantum computing. We expect them to purchase other kinds of modalities as they mature and become available, but it will be an interesting project for us to see how superconducting fares with other modalities and what kind of uses and benefits and applications they develop with that system. But overall, this is a government of Singapore initiative and Horizon is the place where they are scaling up quantum computing in Singapore right now. Hopefully that answers your question.

Speaker 3

Yes, it does. Great. Thank you. I had a follow-up. So in the release, there was a list of founding members of the Nuvera QPU of the partner program.

Speaker 3

I was wondering if you can maybe go into detail on that partnership program. And then also given that you've already made a sale to one of the partners, what's the likelihood the other partners are potential customers for a sale similar to the Horizon sale? Thank you.

Speaker 1

Sure. Thanks, Neil. So first, we believe our open modular approach to developing quantum computing systems is a key enabler for the growth of quantum computing industry. So if you notice, we have chosen various partners in different parts of the stack. So even though we can and have developed a full stack quantum computer, we believe fundamentally believe open modular approach is the right way to allow innovation to come in faster.

Speaker 1

So we are allowing other partner companies to develop what they are good at. For instance, we have partnered with RiverLane in Cambridge, UK, who is very good at error correction. And then we have partnered with Quantum Machines in Israel and Zurich Instruments in Switzerland, who are very good in control systems. So we are allowing our QPU to interface with other parts of the stack from other companies. We think that's the right approach to develop quantum computing system in a faster and more efficient manner.

Speaker 1

Regarding your second part of the question, yes, one of the partners is Horizon and they have purchased Nuvera. We certainly hope some of the other partner companies start looking into purchasing a Nuvera. But there's no commitment per se. We are not insisting that they have to purchase a Nuvera to be a partner company. If it makes sense for them to have a hardware platform within their facility, they will purchase it.

Speaker 1

If it doesn't, then we are not insisting on that. The overall goal of the program is to enable development of a quantum computing system faster.

Speaker 4

Let me add something there. It's about go

Speaker 1

ahead, David.

Speaker 4

Yes. So the other one other thing to think about here is most of these partners here in the business is selling complementary, in fact all of them are selling complementary to the QPU product. And so there's an expected and likely channel opportunity here with most of these folks as they engage with customers and try to put together systems themselves, which we're pretty excited about.

Operator

Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open.

Speaker 5

Great. Thanks so much, guys. Can you talk about the pipeline first within the U. S. And the U.

Speaker 5

K, countries where you've already sold QPUs to the top national labs. Do you expect additional sales given that early penetration coupled with your fidelity rates this year in 2024?

Speaker 1

So yes, we definitely feel very good that we were the first ones to sell working quantum computers to DOE and DoD and also were the ones to win the competition set by U. K. Government. Certainly, it gives us a jump start with those national labs and many other national labs in those countries. As you know, there are multiple DOE labs in the U.

Speaker 1

S. And multiple DoD lab, but also they sponsor a lot of university research and many other fundamental research labs follow the lead from DOE and DoD. So certainly, we believe that the early entry into DOE and DoD Labs sets us with a good foundation to enable future QPU sales with other national labs and universities that those national labs sponsor. Same in the U. K, I mean NQCC is the foundational lab for U.

Speaker 1

K. Government. That's where they would build their first quantum system. But there are other labs and universities in the U. K.

Speaker 1

Geography who will who are interested in potentially purchasing on premise KPUs. So it does give us a great jump start to pursue those opportunities. So overall, our pipeline, we feel pretty good about our pipeline of on premise QPU sales. It seems to be a healthy growing ecosystem. We are still very early in the development of on premise QPU business or market.

Speaker 1

But certainly, we are quite excited about the potential opportunities with U. S. And U. K. And we certainly are talking to other countries as they start looking into setting up their own quantum infrastructure.

Speaker 1

Hope that answers your question.

Speaker 5

Yes, mostly. And I'm sure you can't give the exact number nor do I expect you to, but specifically in the U. S. And secondarily in the UK, are you talking to dozens of labs who want to get their hands on it potentially to test and evaluate what that power is for them or is that overstating how many you're in discussions with?

Speaker 1

We are certainly talking to a handful number of labs. I wouldn't call them dozens. Overall, if you look at the number of customers, we have active discussions going on right now. It's in the neighborhood of 10 to 15 customers. We also make sure that, A, they are funded, B, they are serious, they understand where quantum computing is.

Speaker 1

Clearly, we are not at a point where quantum computers can demonstrate superiority or classical computers today. So these are primarily for research purposes. So we make sure that the customer understands what exactly they are going to get and they are going to get value out of it before purchasing every single lead that we get. So we narrow the funnel quite a bit when we look at who's interested and for what reason. Having said that, I think we are pursuing about 10 to 15 leads right now worldwide.

Speaker 6

Great. And

Speaker 5

then my second question would be, has anything changed in terms of your technology roadmap? Do you still believe is there anything that's happened that changes your belief that you'll accomplish your goal this year and more importantly next year?

Speaker 1

Well, as we mentioned in our press release, we are certainly excited to announce that we have accomplished 99.3 percent 2 qubit gate fidelity with our 9 qubit device. That gives us confidence that before the end of this year, we should be able to demonstrate more than 99% or higher 2 qubit gate fidelity on our 84 qubit device. So that's consistent with what we have said and we feel pretty good about executing to that roadmap. Once we hit 99, we will embark on scaling up the cubit count, but we'll also continue to work on fidelity. I mean, this is going to be an ongoing evolution.

Speaker 1

Ultimately, long term, a decade from now, we expect quantum computers to hit 99.9% or even higher fidelity. So we will continue to improve both fidelity and cubit count. We feel really good about where we are right now with our 9 qubit device and 84 qubit device. So we certainly feel that we are executing well on the road map. And before the end of this year, we'll have 84 qubit at 99% or better 2 qubit gate fidelity.

Speaker 1

And before the end of next year, we should be able to improve both the qubit count and fidelity significantly from that point on. So overall, we feel very good about the road map and where we are and also the overall benefits of superconducting quantum computing and overall roadmap of that modality.

Speaker 5

Great. Thank you so much.

Speaker 1

Thanks, Brian.

Operator

Please stand by for our next question. Our next question comes from the line of Krish Sankar with TD Cowen. Your line is open.

Speaker 6

Hi, thanks for taking my questions. This is Steven calling on behalf of Krish. Yes, the first question I had was regarding the Horizon QPU sale. I was just wondering, first of all, like for that transaction, was the revenue recognized during the quarter? Or is that potentially a later rev rec date based on installation?

Speaker 6

And I had a couple of follow ups as well. Yes. Go ahead, Rod. Go ahead.

Speaker 2

I was going to say, yes, we anticipate that rev rec for that would be in Q2.

Speaker 6

Okay, got it. Thanks a lot, Jeff. And I guess more broadly speaking for these announcements related to sales to research labs where the installation may be further out in the future. In general, is the rec rec at the time of shipment or is that potentially during the time of installation?

Speaker 2

I'll take that one too, Subodh. I mean, it does depend somewhat on the terms of the contracts and what acceptance criteria might be in them. But generally, we would expect to recognize revenue for the QPUs when we ship them for Nuvera.

Speaker 6

Okay, great. And just lastly, Sibro, maybe kind of a bigger picture question for you. And it's sort of related to the trade off of hardware sales and no better QP sales in the near medium term versus sort of longer term revenue opportunities from your quantum computing services? I know like in the near term here, these incremental Moveira sales are great for cash generation. But just kind of wondering for these research labs and other contract based labs that are selling CPUs to, Is there sort of a potential longer term revenue opportunity that's being trade off for the near term hardware sale?

Speaker 6

Thank you.

Speaker 1

It's a good question, Stephen. I don't believe there is a trade off involved here. The National Labs who are purchasing the 9 qubit or in UK's case, the 24 qubit quantum computing system, they're doing it primarily for research purposes. They want to get their hands on the system. They want to experiment with it.

Speaker 1

They want to see what kind of pulses they should be using and optimization of pulses and fundamental understanding where their researchers understand how quantum computers work and how they should improve the parts of the system that they are working on. When we enable quantum advantage, which we think will happen in a couple of years when we are at a few 100 cubits at 99.5% or higher 2 cubit gate fidelity. They will start using them for applications and getting practical benefits. We don't think the current purchases of the research systems is going to be hurting future opportunities with QCaaS because by that time, quantum advantage will be demonstrated or what we call narrow quantum advantage will be demonstrated and the applications they'll be running on will be more commercial kind of applications or practical problems. Right now, it's mostly research type work that they are doing.

Speaker 1

So I don't believe there's a trade off. I view it as a first and a necessary step for National Labs and researchers to understand quantum computing. I mean it is a very different form of computing. They really need to understand how it works, what the firmware looks like, what kind of application software and user interfaces they need to develop. So it's a good way to get their hands dirty, if you will, and understand the system at a fundamental level.

Speaker 1

Once we enable narrow quantum advantage, they will move more into the application and so on. So I don't believe there's a trade off going on. I think these are cumulative opportunities. So when we enable narrow quantum advantage, I do believe the existing customers will come back and want to start either buying bigger devices or start using QCaaS services and they are not going to offset that against current purchases. Hopefully that answers your question.

Speaker 6

Yes, it does. Thank you so much and nice job on the execution.

Speaker 1

Thanks, Stephen.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of David Williams with The Benchmark Company. Your line is open. Check to see if you're on mute.

Operator

David Williams, your line is open. Due to no response, we'll go to the next person. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Subodh for closing remarks.

Speaker 1

Thank you for your interest and questions. We look forward to updating you after our Q2 earnings call. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Rigetti Computing Q1 2024
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