Rigetti Computing Inc

NASDAQ:RGTI

Earnings Call Transcript 2024-Q1

[Operator]

Hello and welcome to the Rigetti Company First Quarter 2024 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Subodh Kulkarni. You may begin.

[Subodh Kulkarni, executive]

Good afternoon and thank you for participating in Rigetti's earnings conference call covering the first quarter 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&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 first quarter ended March 31, 2024 press release contain forward-looking statements regarding current expectations, objectives and underlying assumptions regarding our outlook and future operating results. 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-K 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 am pleased to report on a number of new developments at Rigetti Computing. First on our technology roadmap and QPU performance, we have achieved a 99.3% median 2-qubit gate fidelity on our 9-qubit Ankaa class quantum system. This development gives us confidence that we will reach 99-plus percent median two-qubit gate fidelity on our anticipated 84-qubit Ankaa 3 system which we plan to deploy by the end of the year. Rigetti plans to develop the 336-qubit Lyra system thereafter.On the business update front, I am pleased to report that we are continuing to grow our non-premises quantum processor unit sales with the delivery of a Novera QPU to Horizon Quantum Computing in April 2024. The Novera QPU will be installed in Horizon Quantum Computing's new hardware testbed in Singapore and will be Horizon's first quantum computing system. 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 Novera 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.Our first Novera 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 Novera QPU Partnership Program to support on-premises quantum ecosystems. The Novera 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. Novera QPU customers can work with Novera 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 Novera QPU Partner Program include some of Rigetti's most long-term partners and our leaders in the respective areas of quantum computing technology. We intend to grow the Novera QPU Partner Program with additional partners on an ongoing basis. With the Novera 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. 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 Novera 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.

[Jeffrey Bertelsen, executive]

Thanks, Subodh. Revenues in the first quarter of 2024 were $3.1 million, up 39% compared to $2.2 million in the first quarter of 2023. Gross margins in the first quarter of 2024 came in at 49%, compared to 77% in the first quarter 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. On the expense side, total OpEx in the first quarter of 2024 was $18.1 million, compared to $23.7 million 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&D related IT systems rationalization.SG&A expense for the three months ended March 31, 2023 included $1.1 million of expense related to the Ampere Forward Agreement, which expired in October 2023. The Ampere Agreement had no impact on our results for the three months ended March 31, 2024. Stock compensation expense for the first quarter of 2024 was $3 million, compared to $1.7 million for the first quarter of 2023. Stock compensation expense was favorably impacted in the first quarter of 2023 by forfeitures related to the February 2023 restructuring and reduction in workforce.Operating loss for the first quarter of 2024 was $16.6 million, compared to an operating loss of $22 million for the same period of 2023. Net loss for the first quarter of 2024 was $20.8 million, or $0.14 per share, compared to a net loss of $23.4 million, or $0.19 per share for the first quarter of 2023. The non-cash change in the fair value of derivative warrant and earn out liabilities negatively impacted our net loss in the first quarter of 2024 by $4.2 million, compared to a negative impact of $1.2 million for the first quarter of 2023.Cash, cash equivalents, and available for sale investments totaled $102.8 million as of March 31, 2024, compared with $99.9 million as of December 31, 2023. 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 million. Year-to-date, through May 9, 2024, we have raised $32.9 million from the sale of 23 million shares under our prior common stock purchase agreement with B. Riley and our current ATM program, including $23.9 million raised in the three 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 security should be sufficient to meet our anticipated operating cash needs until midway through the fourth quarter 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 you. [Operator Instructions] Our first question comes from the line of Quinn Bolton with Needham & Company. Your line is open.

[Neil Young, analyst]

This is Neil Young I'm on for Quinn Bolton. So, you sold Novera to Horizon Quantum Computing. I was just wondering if you could elaborate further on that sale.

[Subodh Kulkarni, executive]

So, sure. So, 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. So, Horizon 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 the government of Singapore initiative and Horizon is the place where they are scaling of quantum computing in Singapore right now. Hopefully that answers your question.

[Neil Young, analyst]

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

[Subodh Kulkarni, executive]

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

[David Rivas, executive]

Let me add something there, Subodh.

[Subodh Kulkarni, executive]

Go ahead, David.

[David Rivas, executive]

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 is 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 are pretty excited about.

[Operator]

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

[Brian Kinstlinger, analyst]

Great. Can you talk about the pipeline first within the U.S. and the UK, countries where you have 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?

[Subodh Kulkarni, executive]

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 UK government. Certainly, it gives us a jumpstart with those national labs and many other national labs in those countries. As you know, there are multiple DOE labs in the U.S. and multiple DOD labs, 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 UK, I mean NQCC is the foundational lab for UK government. That's where they were built their first quantum system, but there are other labs and universities in the UK geography who are interested in potentially purchasing on-premise QPUs. So, it does give us a great jumpstart 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, but certainly we are quite excited about the potential opportunities with U.S. and UK, and we certainly are talking to other countries as they start looking into setting up their own quantum infrastructure.

[Brian Kinstlinger, analyst]

Yes, mostly and I am 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 are in discussions with?

[Subodh Kulkarni, executive]

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 their quantum computing is. Clearly, we are not at a point where quantum computers can demonstrate superiority over 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 pursuing every single lead that we get. So, we narrow the funnel quite a bit when we look at who is interested and of what reason. Having said that, I think we are pursuing about 10 to 15 leads right now worldwide.

[Brian Kinstlinger, analyst]

Great. And 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 will accomplish your goal this year and more importantly next year?

[Subodh Kulkarni, executive]

Well, as we mentioned in our press release, we are certainly excited to announce that we have accomplished 99.3% 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. We feel pretty good about executing to that roadmap. Once we hit 99%, we will embark on scaling up the qubit count, but we will also continue to work on fidelity. I mean this is going to be an ongoing evolution. 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 qubit count. We feel really good about where we are right now with our 9-qubit device and the 84-qubit device. So, we certainly feel that we are executing well on the roadmap. And before the end of this year, we will have 84-qubit at 99% or better 2-qubit gate fidelity. 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 roadmap and where we are and also the overall benefits of superconducting quantum computing and the overall roadmap of that modality.

[Operator]

Our next question comes from the line of Krish Sankar with TD Cowen.

[Unknown Analyst]

This is Steven calling on behalf of Krish. Yes, the first question I had was regarding the Horizon QPU sale. I am just wondering, first of all, like for that transaction, was the revenue recognized during the quarter or is that potentially a later rev-rec based on installation? And I have a couple of follow-ups as well.

[Subodh Kulkarni, executive]

Go ahead.

[Jeffrey Bertelsen, executive]

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

[Unknown Analyst]

Okay. Got it. 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 rev-rec at the time of shipment or is that during – potentially during the time of installation?

[Jeffrey Bertelsen, executive]

I will 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 Novera.

[Unknown Analyst]

Okay. Great. And just lastly, maybe a kind of a bigger picture question for you. And it's sort of related to the trade-off of hardware sales and Novera 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 Novera sales are great for cash generation, but just kind of wondering for these research labs and other contract-based labs that they are selling QPUs to, is there sort of a potential longer term revenue opportunity that's being traded off for the near-term hardware sale? Thank you.

[Subodh Kulkarni, executive]

It's a good question, Steven. 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 are doing it primarily for research purposes. They want to get their hands on the system. They want to experiment with it. 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 years when we are at a few hundred qubits at 99.5% or higher 2-qubit 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 QCS because by that time quantum advantage will be demonstrated or what we call, narrow quantum advantage will be demonstrated and the applications they will 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. So, I don't believe there is a trade-off. I view it as a first and a necessary step for national labs and researchers to understand quantum computing. 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 understand the system at a fundamental level. Once we enable narrow quantum advantage, they will move more into the application and so on. So, I don't believe there is 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 QCS services and they are not going to offset that against current purchases. Hopefully that answers your question.

[Operator]

Our next question comes from the line of David Williams with The Benchmark Company. Check to see if you are on mute. David Williams, your line is open. Due to no response, we will go to the next person. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Subodh for closing remarks.

[Subodh Kulkarni, executive]

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.