Q2 2022 Rigetti Computing, Inc Earnings Call

August 11, 2022

Good day and thank you for standing by welcome to the Getty Computing second quarter 2022 financial results Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need a press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Poly person with Sharon Merrill Associates. Please go ahead.

Thank you operator, and good evening, everyone. Today, we will be reviewing righetti second quarter 2022 earnings results with me here is chatter Getty founder and CEO , Brigetti computing and Brian's Marina CFO .

Before I turn the call over I'd like to point out that this call and Righetti Q2 press release contain forward looking statements concerning current expectations objectives and underlying assumptions regarding future operating results.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described.

Also in an effort to provide useful information to investors comments today include non-GAAP financial measures.

For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect <unk> future operating results.

Please refer to today's earnings release on <unk> website at investors <unk> dot com or to the 8-K filed with the SEC earlier today and now I'll turn it over to Chad.

Scott.

Thank you Paul and welcome everyone to our second quarter 2022 earnings call.

Yes.

We delivered strong results this quarter advancing on our product roadmap continuing to attract key talent and strengthening our base of customer and partner relationships.

Our R&D and product development team has made excellent progress and remain on track to meet our technology roadmap targets. This includes our plan to next generation 84 qubit system in 2023.

And 336 qubit system later that year.

Our quantum cloud services team achieved a major step forward in quantum processing speed, Devon, demonstrating a four five times improvement compared to the performance. We reported this past February as we're getting continues to be a pioneer and hybrid quantum classical systems.

We unveiled our first UK based quanta computer and won two new UK government awards for projects to advanced quantum computing technology and applications.

And we announced our selection to lead a new DARPA program focused on developing benchmark applications for quantum computing.

Over the next decade, we expect the world's most powerful computers to leverage quantum processors as accelerators and quantum classical hybrid architecture like the <unk>.

One we have pioneered at righetti.

<unk> is working to build the core hardware and software technologies to unlock this future and we are commercializing it and our <unk>, our quantum computing as a service business model using our quantum cloud services platform.

Over the years, we have carved out a distinctive position in the industry as a leading platform for delivering quarter classical computational power.

Our trailblazing leadership in hybrid if no accident, we have been pursuing this vision since 2014, when we patented or hybrid co processor architecture for practical chronic computing.

In 2018 with the release of our <unk> platform. We were the first to offer access to quantum processor is tightly integrated with classical computing infrastructure.

By optimizing for flexibility functionality and low latencies righetti superconducting quantum processing units. Our Gpus are deliberately designed to integrate with classical computing systems and infrastructure.

These features underpinned the fast processing speeds, we have been able to achieve on our platform.

One metric for measuring quantum processing speed as circuit layer operations per second our clubs.

Originally developed and introduced by IBM crops assesses the processing speed of a quantum computer.

This past February we Benchmarked, our 80 qubit Aspen in one system using clubs showing that our system was 18% faster than Ibm's comparable 65 qubit system at the time.

Since then we have continued to iterate and improve on these results recently, we reached a new milestone with our team successfully achieving our cost performance greater than 4000 on both our 40 qubit Aspen 11 system and our <unk> system.

These results represent a four five times acceleration since February .

This is a big win and I'd like to congratulate our team for their effort and success on this front.

For more information about how clocks is calculated and important disclaimers regarding the use of crops as a performance measure please refer to our earnings release.

<unk> is also pioneering hybrid performance for real world applications by engaging in partnerships with classical chipmakers, such as <unk> and our work with Amp here, we have made significant progress in advancing viable hybrid use cases.

This includes successfully integrating <unk> cloud native processing platform with <unk> systems as well as completing the first rounds of tests for running quarter machine learning applications on the combined platform.

We couple our leadership in hybrid with an emphasis on cloud delivery, which is core to our <unk> business model.

<unk> has been delivering <unk> over the cloud since 2017, we expect cloud delivery to allow us to continue scaling adoption achieve faster go to market times and optimize for capital efficiency and strong margin profiles.

Cloud delivery also allows our customers and partners to access our latest systems choose the most suitable keep you for their business our research objectives and obtain maximum value. We're beginning a new quantum initiative or application development campaign.

In our view this emphasis on building quantum processors designed for hybrid integration and co processing paired with our cloud delivery model is the most practical approach to commercializing quantum computing.

That note we're excited to announce plans for our inaugural Investor Day on September 16th at our Fab one facility the industry's first dedicated content fab.

The theme of this event will be integrating quantum into the fabric of the cloud and we will provide attendees with the opportunity to tour our fab facility.

If youre interested in attending the event please reach out to our Investor relations team at our GTI at Investor Relations Dot Com, we will also be announcing the webcast option for those unable to attend in person.

Now I'll provide more color on our technology updates for the quarter. We are very excited about our product roadmap and remain on track to meet our technology roadmap targets announced in connection with our first quarter 2022 earnings.

We are making excellent progress on our 84 qubit system planned for 2023.

We recently completed the design of the chip packaging and expect to begin testing chips. This month.

This next generation processor will be the first to introduce a new lattice expected to bring higher connectivity and our tunable coupling technology.

As development has progressed, we continued to see high two cubic capabilities around 99% on test devices in line with the anticipated performance improvements of our 84 qubit system.

Our planned 336 cubic machine currently expected in late 2023 will be based on $4 84 cubic chip assembled together using our proprietary multi chip technology.

We introduced the multi chip architecture, beginning with our Aspen <unk> systems and continue to advance this modular approach to enable our next generation machines.

With our unique and patented multi chip technology, we believe that we hold a very strong position relative to direct competitors and that we are well positioned to continue pioneering this critical scaling technology for.

For example, our engineering and R&D teams have recently completed several important milestones towards delivering our 336 qubit system.

First in Q2, we demonstrated tunable coupling between Q, but it's on separate chips paving the way to leverage this patent pending technology in our next generation multi chip processors.

Second we have begun designing and producing the advanced higher density packaging for this system.

Third we executed the first proof of concept for our next generation control system expected to be based on radio frequency system on a chip technology.

We believe this approach can bring greater performance increased scalability and reduce cost to a control system for the 336 cubic <unk> and beyond.

Turning to partnerships during the second quarter of 2022, we deepened existing relationships and one new deals in both the UK and U S. As we continue to work hand in hand with top organizations in pursuit of quantum advantage.

During the quarter, we launched our first UK based quanta computer a 32 cubic machine.

Backed by U K government funding Righetti is leading a consortium that includes Oxford instruments, the University of Edinburgh phased craft and standard chartered bank. Our goal is to advance practical quantum computing applications in the areas of machine learning materials simulation and finance.

Building on this momentum in the U K. We recently won two new innovate UK awards through the ICF commercializing quantum technologies challenge.

Under one of these initiatives we plan to work alongside River Lane, an error correction research and development on.

On the other we plan to work with phased craft and BT, formerly British telecom to build quantum algorithms and software for solving optimization and constraint satisfaction problems for the telecom industry.

Back here in the U S. We announced that we are getting with selected by DARPA to lead a multiyear program focused on developing and evaluating benchmark applications for quantum computing.

This project expands on our current work with DARPA and aims to reformulate key quantitative metrics to make those metrics testable and estimate the required quantum and Costco resources needed to reach critical performance thresholds.

Total award to Righetti in as partners is worth up to $2 $9 million over three years and is based on the achievement of certain milestones of which approximately $1 $5 million of subject to DARPA is exercise of an option to extend the initial 18 month term.

Additionally, we are making good progress on our work with NASDAQ and are now in the process of identifying and selecting finance use cases for further development.

Notably we continue to see strong potential for quantum advantage and valuable applications in quantitative finance.

Turning to our cloud platform, we on boarded our first Azure private preview users. This quarter, we expect to announce public access to regaining systems on azure in the coming months.

Alongside this momentum on our technology and business. We are excited to announce a committed equity facility.

We believe this facility should provide financial flexibility to support our continued focus on our mission and business plan.

Given the current macro environment. We believe this is both prudent and an important vote of confidence from the capital markets with technology advancements business progress and the potential to add cash to our balance sheet, we are moving with focus and attention towards our mission.

In conclusion, we believe for Getty remains at the forefront of industry progress with an enduring commitment to build and operate the world's most powerful computers.

During the quarter, we continued to make tremendous advances driving forward, our quantum technologies and strengthening key partnerships. As a result, we remain on track to meet our technology objectives that we laid out on our prior earnings call.

With that let's turn it over to Brian for the financials.

Thanks, Chad we increased revenues in the second quarter 2022 by 39% year over year to $2 1 billion from $1 5 million in the same period, a year ago higher quarterly revenues were mainly driven by a new government agency contract signed in late 2021 as well as additional revenue earned from the second phase of a large governor.

Agency contract that we initiated in August of last year gross margins came in at 59% for the quarter versus 73% of the same period in 2021, the decline year over year was because of an increase in third party subcontractor costs and speaks to the variability and timing around the amount of third party resources applied to various projects.

Total GAAP.

GAAP Opex for the second quarter, 2022 was $26 9 million versus $10 9 million in the same period a year ago. This was primarily due to significantly higher stock compensation in connection with the closing of the business combination other public company costs, including audit insurance and additional legal fees tied to Q2 public company transition activities as well.

As increased head count in R&D, and SG&A on a year over year basis.

R&D expenses were $12 6 million in the second quarter compared with $7 5 million in the same period a year ago. This increase was mainly driven by higher head count stock compensation and increased materials and software subscription costs.

Can to continue investing in R&D going forward to advance our technology and drive towards meeting our roadmap objectives.

Sales and marketing expenses were $1 5 million in the second quarter versus <unk> 6 million in the same period a year ago. This increase was driven by higher head count stock compensation of sales and development activities as we continue to execute our go to market strategies. We are pleased with the progress. We are making are seeing in this area and expect our established technology relationships.

And hands on experience to continue winning us deals such as our recent DARPA contract announcements.

G&A expenses were $12 8 million in the second quarter compared to $2 7 million in the same period a year ago. This increase was due to higher stock compensation as well as increased employee and other costs related to operating as a public company, including director and officer insurance higher quarterly G&A expenses were partially offset by $5, one up $5 1 million gain in fair.

Value forward contract agreement change connected to our strategic collaboration with <unk>.

Yeah.

non-GAAP Opex was $16 formulated in the second quarter versus $9 3 million for the same period a year ago.

non-GAAP Opex removes depreciation stock compensation and change in fair value of forward contract agreement liability. We've included the table of reconciliation in our press release as an additional reference for investors.

Net GAAP loss was $10 million or <unk> <unk> per share in the second quarter of 2022 compared to a net GAAP loss of $10 1 million or <unk> 46 per share in the prior year period.

Adjusted EBITDA was a loss of $15 1 million in the second quarter compared with a loss of $8 1 million in the same period a year ago for a reconciliation of net GAAP loss to adjusted EBITDA. Please refer to the reconciliation table in our press release.

As of June June 30 of 2022, we had cash equivalents of $184 million versus $11 7 million as of December 31, 2021, as a reminder, the higher cash balances due to the net proceeds gain we achieved through our successful business combination in March of this year and pipe financing as we continue to work closely with our partner.

And invest in our technology Road map. We believe we are taking important steps to lay the foundation for growth while macro headwinds persist, we do continue to see pressure and fluctuations in various cost areas, such as labor and supply.

Regarding our revenue outlook for this fiscal year as we discussed on our Q1 earnings call in May our estimated revenue for 2022 is 12% to $13 million. This includes approximately $4 million tied to contracts that are being negotiated with the government entity that is also an existing customer as mentioned in our Q2 results press release issue.

Aftermarket today, the contracting process has taken longer than anticipated and revenue recognition for some or all of the estimated $4 million could potentially be deferred to a fiscal period beyond 2022. If this were to occur adjusted EBITDA loss for the fiscal year 2000, 22022 could be greater than the $50 to $53 million range. We estimated in may.

I'd like to finish with some added color on our committed equity facility that we announced today.

We believe additional working capital on our balance sheet would allow us to remain focused on our key priorities and tech technology roadmap. We also believe that having access to capital is another important vote of confidence from the equity markets. Despite current conditions.

With that I'll hand, the call back to Chad for his closing comments, thanks again, everyone.

Thanks, Brian with disciplined engineering execution, we continued to deliver solid results in the second quarter and we remain on track to meet our technology roadmap is laid out on our first quarter 2022 earnings call.

Now, let's open it up for questions operator.

Thank you to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of David Williams with Benchmark Company. Your line is open. Please go ahead.

Hey, good afternoon. Thanks for letting me ask the question and congrats on the progress with the customer wins.

I guess.

I guess maybe first.

If we kind of think about the the contract customer contract and Brian you talked about this a bit at the end of the call for <unk>.

The script, but you talked about taking longer and its an existing customer I guess I'm just trying to understand why that's taking longer maybe but what are the puts and takes there or maybe the challenges hurdles that youre trying to overcome is it is it pricing is it timing what are the big I guess hurdles in getting that completed.

There is a lot of details to these contracts as you can imagine and it goes from not so much pricing, but the structure of the contract structure around costs incurred et cetera. So typical contract government contract negotiation process for technology development services nothing out of the ordinary it's an existing customer or a very strong working relationship with.

This customer for a lengthy period already.

And we expect this agreement will expand the relationship and provide opportunities for for several years going forward. So it's an important contract for the company.

And this is an important.

Stage, you might see an inflection point in our relationship.

Okay. Thanks for the color there and then you had mentioned maybe if it took longer that that would push into 2023, what is that timeframe that you would expect not to be able to produce revenues this year from that contract.

Yes.

Well, we would expect is that if we if we can close before the end of the fiscal year, there will be some some contract some revenue recognize it depends on the timing of when those contract negotiations are completed and the contracts are executed.

Difficult to estimate at this point, but we do believe that we have a very good potential to closing this in time to meet our revenue guidance.

Okay Fantastic and then maybe maybe another one for you, Brian , but just kind of thinking about the share purchase agreement.

Just it seems like the balance sheet is really strong here and I understand the rationale, but should we think maybe that the cost or maybe the profitability is being pushed out is there anything I guess from a fundamental perspective that we should be thinking about here just given the increased capital here.

No not at all I mean, we point to just given the current macroeconomic.

Conditions condition of the of the capital markets No. One can estimate the duration of the cycle and we just want to be prudent.

The opportunity for the company strengthened its balance sheet at this time.

We think it just allows us to continue to double down and focus on our short term and long term technology roadmap not have to deviate from that.

Again.

Mainly because of just the current market conditions, we wanted to be absolutely sure that we can remain focused.

Okay. Thanks, so much and then maybe Chad real quick.

You talked about the performance advantages and what you've been able to accomplish in February and four five times. The increased improvement in performance can you give a little more color just kind of around that the magnitude of that and what that means is you kind of think about the progress and the road map and just kind of how you think about that that performance advantage.

We're very excited about the performance we've been able to demonstrate.

Opex improvement in clubs.

We are an industry leader in.

And this.

And this is a result of righetti long term commitment investment and pioneering innovation in hybrid quantum Costco computing.

Our full stack of technology are optimized for that environment for integrating quantum with Costco infrastructure.

And our ability to deliver.

<unk> performance in the tremendous work from our engineering teams to make this happen over the quarter as a result of that enduring commitment in that in that primary leadership.

Great. Thanks, so much to the help I appreciate it.

Okay.

Thank you and our next question comes from the line of Krish Shankar with Cowen. Your line is open. Please go ahead.

Hi, guys. This is steven calling on behalf of Krish.

Taking my questions that I had a couple.

For either Chatterer, Brian .

Just in terms of that.

Second quarter revenues.

Was wondering if perhaps some more color on the underlying trends from <unk>.

The research professional services pushing revenues compared to the quantum system access fees, we've been sharing.

Both sides of the.

The demand was relatively stable through the quarter, where there's any lumpiness during QTS, Delaware and kind of.

Yes, yes, sorry, we're seeing consistency quarter over quarter, I think again, our long term vision hasnt hasn't deviated quantum quantum computing as a service through the cloud as is ultimately where this where we see our business model headed and we're continuing to see.

Ongoing strengths in that model no change and we don't anticipate that that will happen I mean, it was a matter of fact, we.

We anticipate that that will just continue to grow over time as more.

As we broaden the user base for quantum computing.

And I guess to follow up on that.

With the U K.

Quantity teams that are now online.

Should we expect that that will be.

You will primarily drive the more research and professional services for the near term or could there actually be a decent demanded.

Quantum access revenues in the third.

Quarter.

Bringing up our first quantum computer in the UK is a big step forward. We're very excited about this and our long term strategy towards building a corner computing facilities to underpin our chronic cloud services model.

This this contract and this machine is under a existing UK contract and it's a big milestone for the teams to to deliver that machine.

Got it.

China I was wondering with DARPA.

Performance benchmarking.

Could you provide some more color on sort of what the with regard each portion of the potential proceeds from the initial ketene months $1 4 million.

Turning to the program that you guys think.

Third or some other percentage of.

The value here.

Yes. This is a $2 $9 million program over.

Up to three years.

Righetti M partners.

As prime contractor on this.

Program with DARPA and.

A step forward for us as an organization and an important capability.

Our portion over the full program is approximately $1 5 million.

Got it thank you so much.

Yeah.

Okay.

Thank you and our next question comes from the line of Charles <unk> with.

Needham Your line is open. Please go ahead.

Hey, Chad Hey, Brian This is Trevor on for Quinn Bolton and thanks for letting me ask a question.

On the outlook I wanted to clarify so this $4 million falls to 2023 does this basically changing your 2022 guidance to $8 million to $9 million.

We're not changing guidance, we expect revenue this year of 2000 $12 million to $13 million.

And we want to identify the specific risk associated with that.

Protracted contracting process, but we remain confident we're going to close that by the end of the year.

Okay and another clarification this contract on the $4 million with the government customer a single contract or is it possible that negotiations on the part of the already performed the work could be completed and recognized in 2022, I'm trying to get a better sense of if this car.

<unk> is an all or nothing thing for 2022.

As of right now, we fully anticipate being able to invoice secure complete an invoice against the contract.

And to be in that $12 million to $13 million range.

It is multiple contracts and with an existing customer that we have had a longstanding relationship with.

Okay and on the cloud scores congrats on that Thats very encouraging but could you provide some more color on the changes made that led to this the collapse in school Clop score increase is it mainly a function of Q V layers any info would be helpful.

Sure our performance improvements that we've been able to deliver in clubs directly result from our long term commitment to optimizing our quantum processors for practical use cases, where they are integrated with classical computing.

The particular engineering developments that led to this or not something we're going to get into however.

What we can describe is that the club's performance characterizes the overall throughput of a quantum classical computing system inclusive of communication and back and forth between classical and quantum.

Computing capabilities and overall. This result has been driven by kind of an aggregate system optimization towards that goal of delivering faster and faster customer performance.

We believe the clock speed and overall speed of quantum computers is very important.

Area and it's something we will remain focused it relates to overall throughput of our systems and kind of walk off time as.

As well as to the directly impacts our customer and user experience when computing with the system. So speed matters in all forms of computing and we're really excited to be with the leadership position with clubs right now in the industry.

Yes.

Awesome.

Thank you.

Thank you and our next question comes from the line of Sidney Ho with Deutsche Bank. Your line is open. Please go ahead.

Thank you and good afternoon. This is Jim Mccaughan for kidney just a few questions for me. The first one is.

Do you previously spoke about deployment of your quantum machines through strange work.

Could you just touch on how that is progressing.

When would you expect your systems to go live.

We're continuing to have a strong relationship with strange works things seem to work with them on bringing customers onto the shared platform.

We will be able to write more.

A more fulsome update on this at our upcoming Investor Day in September .

Got it that's helpful. And then congrats on your deployment of the quantum system in the U K.

As you mentioned in your prepared remarks. My question is what is sort of like a realistic timeline for you to start seeing revenues revenue opportunities from both.

Public and private customers in the U K and in the EU.

Yes in this particular case with the <unk> in the U K.

We are already under revenue generating agreements and partnership.

To deliver that <unk> and provide access to the partners under that program.

So that gives you is currently being used by partners to carry out research and development towards climate vantage.

We are also really excited this quarter to a welcome to the first.

Private.

Beta users of our <unk> over Azure.

And we anticipate additional announcements on this going forward in the next quarter as well.

Got it thank you.

And then one just one last one for me.

Just curious to hear your takes on the recent developments in probabilistic error cancellation PUC.

That was announced by the block posted by one of your competitors recently.

I guess given the progress achieved in industry is there a possibility that you could introduce or mitigation ahead of your 1000 qubit system.

Potentially with <unk>.

36 qubit system.

Thank you for the question.

Very encouraged by what we're seeing in the industry more broadly as well as within Righetti work on air mitigation techniques.

<unk> error correction long term is going to be an essential component of unlocking the full.

Potential Tam of quantum computing over the next handful of years.

We anticipate that are mitigation techniques, especially when those techniques can be identified in a manner, where they are stackable with one another to further reduce error rates. We believe those have a real potential and possibility too.

To enable much higher customer facing performance on practical applications into unlock real world use cases, and it's a very promising area.

Thanks, Ken Thanks team.

Thank you and we do have a follow up question from the line of David Williams with Benchmark Company. Your line is open. Please go ahead.

Hey, guys again, thanks for let me ask a follow up here I just wanted to ask on the on the share repurchase if that requires an SEC filing and maybe what that does in terms of the float what youre expectations are in terms of maybe the take down and just the price impact anything.

I guess around that structure would be helpful.

Yes, David there are plenty of filings, you'll see those start to flow out today.

It's referred to as a synthetic ATM. So it's an as needed facility Theres no.

Requirement for us to sell anything into the markets again, we view this as a.

As.

Not as a defensive but as a prudent method of protecting us in the event that there is a protracted downturn in the markets.

The geopolitical and current macroeconomic economic environment persists. So we view this as a strategy just to maintain a strong balance sheets. So that we can focus on the objectives at hand.

Okay, Great and then any color around maybe the window there.

In terms of when you request the shares and when they can when they take.

Was down in terms of funding.

They don't say, it's up to again it works very similar to an aftermarket facility, where we would we would place orders to sell shares through through our bank.

Okay, and then that happens fairly immediately afterwards.

Well timing uncertain, but certainly it's at it's at our availability. So we would we would plan to use it opportunistically in the market, but again as needed.

Don't see any immediate urgency to be selling shares into the market and have no plans to do so in the immediate term but.

Again, the facility is available to us and it has certain parameters around it as youll see on the filings.

It is a very it is a very.

Say measured way of raising capital at a very low cost and effective way as well.

Okay, very well thanks, so much.

Okay.

Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Chad Mcgeady for any further remarks.

Thank you operator to close I'd like to thank our teams partners and investors for their support and collaboration.

He is a mission driven company laser focused on developing the world's most powerful computers. Looking ahead, we will soon be announcing our attendance at several investor conferences, we ask that those interested in meeting with us at these conferences. Please contact the conference organizer or reach out to our IR team directly.

Separately, we are excited to host our inaugural Investor day. This coming September while we will be webcasting. The event, we encourage investors interested in attending to reach out to our IR team for more information. Please note that this is a limited capacity event. Thank you everyone again for joining today that concludes the call.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Good day and thank you for standing by welcome to the Righetti Computing second quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need a press star one on your telephone please be advised that today's conference is being recorded.

Now like to hand, the conference over to your Speaker today Poly Pearson with Sharon Merrill Associates. Please go ahead.

Thank you operator, and good evening, everyone. Today, we will be reviewing righetti second quarter 2022 earnings result.

With me here is Chad Righetti, founder and CEO , Righetti computing and Brian Cerita CFO .

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described.

Also in an effort to provide useful information to investors comments today include non-GAAP financial measures.

For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect <unk> future operating results.

Please refer to today's earnings release on <unk> website at investors got righetti dot com or to the 8-K filed with the SEC earlier today and now I'll turn it over to Chad.

<unk>.

Thank you Polly and welcome everyone to our second quarter 2022 earnings call.

Yes.

We delivered strong results this quarter advancing on our product roadmap continuing to attract key talent and strengthening our base of customer and partner relationships.

Our R&D and product development team has made excellent progress and remain on track to meet our technology roadmap targets. This includes our plan to next generation 84 qubit system in 2023.

And 336 qubit system later that year.

Our quantum cloud services team achieved a major step forward in quantum processing speed, Devon, demonstrating a four five times improvement compared to that performance. We reported this past February everybody continues to be a pioneer and hybrid quite a classical systems.

We unveiled our first UK based quanta computer and won two new UK government awards for projects to advanced quantum computing technology and applications.

And we announced our selection to lead our new DARPA program focused on developing benchmark applications for quantum computing.

Over the next decade, we expect the world's most powerful computers to leverage quantum processors as accelerators and quantum classical hybrid architecture like the one we have pioneered at we're getting.

<unk> is working to build the core hardware and software technologies to unlock this future and we are commercializing it in our Q cast our quantum computing as a service business model using our quantum cloud services platform.

Over the years, we have carved out a distinctive position in the industry as a leading platform for delivering quantum classical computational power.

Yeah.

Our Trailblazing leadership and hybrid is no accident, we have been pursuing this vision since 2014, when we patented or hybrid co processor architecture for practical chronic computing.

In 2018 with the release of our QTS platform. We were the first to offer access to quantum processor is tightly integrated with classical computing infrastructure.

By optimizing for flexibility functionality and low latencies, we're getting superconducting quantum processing units or <unk> are deliberately designed to integrate with classical computing systems and infrastructure.

These features underpin the fast processing speeds, we have been able to achieve on our platform.

One metric for measuring quantum processing speed is circuit layer operations per second.

Slops.

Originally developed and introduced by IBM crops assesses the processing speed of a quantum computer.

This past February we Benchmarked, our 80 qubit Aspen in one system using clubs showing that our system was 18% faster than Ibm's comparable 65 qubit system at the time.

These results represent a four five times acceleration since February .

This is a big win and I'd like to congratulate our team for their effort and success on this front.

For more information about how Fox is calculated and the important disclaimers regarding the use of <unk> as a performance measure please refer to our earnings release.

We're getting is also pioneering hybrid performance for real world applications by engaging in partnerships with classical chipmakers, such as Amp here.

In our work with Amp here, we have made significant progress in advancing viable hybrid use cases there.

We couple our leadership in hybrid with an emphasis on cloud delivery, which is core to our <unk> business model.

<unk> has been delivering <unk> over the cloud for 2017, we expect cloud delivery to allow us to continue scaling adoption achieve faster go to market times and optimize for capital efficiency and strong margin profiles.

Cloud delivery also allows our customers and partners to access our latest systems choose the most suitable for you for their business our research objectives and obtain maximum value. We're beginning a new quantum initiative or application development campaign.

In our view this emphasis on building quantum processors designed for hybrid integration and co processing.

Paired with our cloud delivery model is the most practical approach to commercializing corner computing.

On that note, we're excited to announce plans for our inaugural Investor Day on September 16th at our Fab one facility the industry's first dedicated content that the.

The theme of this event will be integrating quantum into the fabric of the cloud and we will provide attendees with the opportunity to tour our fab facility.

If you're interested in attending the event please reach out to our Investor relations team at our GTI at Investor Relations Dot Com.

We'll also be announcing a webcast option for those unable to attend in person.

We're making excellent progress on our 84 qubit system planned for 2023, we.

We recently completed the design of the chip packaging and expect to begin testing chips that's not.

This next generation processor will be the first to introduce a new lattice expected to bring higher connectivity and our tunable coupling technology.

As development has progressed, we continued to see high <unk> around 99% on test devices in line with the anticipated performance improvements of our 84 qubit system.

Our planned 336 cubic machine currently expected in late 2023 will be based on $4 84 cubic chip assembled together using our proprietary multi chip technology.

We introduced the multi chip architecture, beginning with our Aspen <unk> systems and continue to advance this modular approach to enable our next generation machines.

For example, our engineering and R&D teams have recently completed several important milestones towards delivering our 336 qubit system.

First in Q2, we demonstrated tunable coupling between Q based on separate chips paving the way to leverage this patent pending technology in our next generation multi jet processors.

Second we have begun designing and producing the advanced higher density packaging for this system.

Third we executed the first proof of concept for our next generation control system expected to be based on a radio frequency system on a chip technology we.

We believe this approach can bring greater performance increased scalability and reduce cost to a control system for the 336 cubic <unk> and beyond.

Turning to partnerships.

The second quarter of 2022, we deepened existing relationships and one new deals in both the UK and U S. As we continue to work hand in hand with top organizations in pursuit of quantum advantage.

During the quarter, we launched our first UK based quanta computer at 30 to keep it machine.

Backed by U K government funding Righetti is leading a consortium that includes Oxford instruments, the University of Edinburgh Phase craft and standard chartered bank. Our goal is to advance practical quantum computing applications in the areas of machine learning materials simulation and finance.

Building on this momentum in the U K. We recently won two new innovate UK awards through the IFC F commercializing quantum technologies challenge.

Under one of these initiatives we plan to work alongside River Lane on aircrafts in research and development.

On the other we plan to work with faith craft and BT, formerly British telecom to build quantum algorithms and software for solving optimization and constraint satisfaction problems for the telecom industry.

Back here in the U S. We announced that we are getting with selected by DARPA to lead a multiyear program focused on developing and evaluating benchmark applications for quantum computing.

Additionally, we are making good progress on our work with NASDAQ and are now in the process of identifying and selecting finance use cases for further development.

Notably we continued to see strong potential for quantum advantage and valuable applications in quantitative finance.

Turning to our cloud platform, we on boarded our first Azure private preview users. This quarter, we expect to announce public access to righetti systems on Azure in the coming months.

Alongside this momentum on our technology and business. We are excited to announce a committed equity facility.

We believe this facility should provide financial flexibility to support our continued focus on our mission and business plan.

Even the current macro environment. We believe this is both prudent and an important vote of confidence from the capital markets with technology advancements business progress and the potential to add cash to our balance sheet, we are moving with focus and attention towards our mission.

In conclusion, we believe for Getty remains at the forefront of industry progress with an enduring commitment to build and operate the world's most powerful computers.

With that let's turn it over to Brian for the financials.

Total GAAP.

It'll GAAP opex for the second quarter, 2022 was $26 9 million versus $10 9 million in the same period a year ago. This was primarily due to significantly higher stock compensation in connection with the closing of the business combination other public company costs, including audit insurance and additional legal fees tied to Q2 public company transition activities as well.

As increased head count in R&D, and SG&A on a year over year basis.

Dan can to continue investing in R&D going forward to advance our technology and drive towards meeting our roadmap objectives.

Sales and marketing expenses were $1 5 million in the second quarter versus <unk> 6 million in the same period a year ago. This increase was driven by higher head count stock compensation of sales and development activities as we continue to execute our go to market strategies. We're pleased with the progress we are making are seeing in this area and expect our established technology relationships.

And hands on experience to continue winning us deals such as our recent DARPA contract announcements.

Value forward contract agreement change connected to our strategic collaboration with Empire.

Yeah.

non-GAAP Opex was $16 formulated in the second quarter versus $9 $3 million in the same period a year ago.

non-GAAP Opex removes depreciation stock compensation and change in fair value of forward contract agreement liability. We've included a table a reconciliation in our press release as an additional reference for investors.

Net GAAP loss was $10 million or <unk> <unk> per share in the second quarter of 2022 compared to a net GAAP loss of $10 1 million or <unk> 46 per share in the prior year period.

As of June 32022, we had cash equivalents of $184 million versus $11 7 million as of December 31, 2021, as a reminder, the higher cash balances due to the net proceeds gain we achieved through our successful business combination in March of this year and pipe financing as we continue to work closely with our partner.

And invest in our technology roadmap. We believe we are taking important steps to lay the foundation for growth while macro headwinds persist, we do continue to see pressure and fluctuations in various cost areas, such as labor and supply.

Regarding our revenue outlook for this fiscal year as we discussed on our Q1 earnings call in May our estimated revenue for 2022 is 12% to $13 million. This includes approximately 4 million tied to contracts that are being negotiated with the government entity that is also an existing customer as mentioned in our Q2 results press release issue.

I'd like to finish with some added color on our committed equity facility that we announced today.

Balance sheet remains in good shape, we believe that having access to capital markets further strengthens our balance sheet and is prudent given the amount of general uncertainty in depth and duration of both the current macroeconomic and capital markets downturn, we believe additional working capital on our balance sheet would allow us to remain focused on our key priorities and techno technology roadmap.

We also believe that having access to capital is another important vote of confidence from the equity markets. Despite current conditions.

With that I'll hand, the call back to Chad for his closing comments, thanks again, everyone.

Now, let's open it up for questions operator.

Thank you to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of David Williams with Benchmark Company. Your line is open. Please go ahead.

Hey, good afternoon. Thanks for letting me ask the question and congrats on the progress with the customer wins.

I guess I guess, maybe first.

If we think about the the contract the customer contract and Brian you talked about this a bit at the end of the call.

The script, but you talked about taking longer and its an existing customer I guess I'm just trying to understand why that's taking longer maybe what are the puts and takes there or maybe the challenges hurdles that you are trying to overcome is it is it pricing is it timing what are the big I guess hurdles in getting that completed.

<unk> with this customer for a lengthy period already.

We expect this agreement will expand the relationship and provide opportunities for for several years going forward. So it is an important contract for the company.

And this is an important.

Stage, you might see an inflection point in our relationship.

Okay, great. Thanks, Thanks for the color there and then you had mentioned maybe if it took longer that that would push into 2023, what is that timeframe that you would expect not to be able to produce revenues this year from that contract.

Yes.

Difficult to estimate at this point, but we do believe that we have a very good potential closing this in time to meet our revenue guidance.

Okay Fantastic and then maybe maybe another one for you, Brian , but just kind of thinking about the share purchase agreement.

Just it seems like the balance sheet is really strong here and I understand the rationale, but should we think maybe that the cost or maybe the profitability has been pushed out is there anything I guess from a fundamental perspective that we should be thinking about here just given the increased capital here.

No not at all I mean.

We point to just given the current macroeconomic.

Conditions condition of the of the capital markets No one could estimate the duration of the cycle and we just want to be prudent.

The opportunity for the company the strength of its balance sheet at this time.

We think it just allows us to continue to double down and focus on our short term and long term technology roadmap not have to deviate from that.

Yes.

Mainly because of just the current market conditions, we want to be absolutely sure that we can remain focused.

Okay. Thanks, so much.

And then maybe Chad real quick.

We're very excited about the performance we've been able to demonstrate.

Four five opex improvement in clubs.

We are an industry leader in.

In this.

This is a result of <unk> long term commitment investment and pioneering innovation in hybrid quantum class called computing.

Our full stack of technology are optimized for that environment for integrating quantum with Costco infrastructure.

And our ability to deliver very fast crops performance and the tremendous work from our engineering teams to make this happen over the quarter is a result of that enduring commitment in that in that primary leadership.

Great. Thanks, so much for the help turn I appreciate it.

Yes.

Thank you and our next question comes from the line of Krish <unk> with Cowen. Your line is open. Please go ahead.

Hi, guys. This is Steven calling on behalf of Krish. Thanks for taking my questions that I had a couple.

Sure.

For either chatter, Brian with Chris in terms of that.

Second quarter revenues.

Was wondering if you could perhaps some more color on the underlying trends.

The professional services portion of revenues compared to the.

That's just an accuracy.

I was wondering a bit with.

Both sides of the demand were relatively stable through the quarter, where there's any lumpiness during QTS, Delaware and kind of.

Yes, yes, sorry, yes, we're seeing consistency quarter over quarter, I think again, our long term vision hasnt hasn't deviated quantum quantum computing as a service through the cloud as is ultimately where this where we see our business model headed and we're continuing to see.

Ongoing strength of that model no change and we don't anticipate that that will happen I mean, it was a matter of fact, we anticipate that that will just continue to grow over time as more.

As we broaden the user base for quantum computing.

And I guess to follow up on that.

With the U K.

Quite a few teams that are now online.

Should we expect that that will be.

Generally drive that more research from professional services for the near term or could there actually be a decent amount of.

<unk> access revenues.

Revenues in the third quarter.

This.

This contract and this machine is under a existing UK contract and it's a big milestone for the teams to to deliver that machine.

Got it.

Ill, let Jana I was wondering with the DARPA performance benchmarking win.

Could you provide some more color on sort of what the with regard each portion of the potential proceeds from the initial 18 months.

Turning to the program.

Yes.

Third or so of the percentage of <unk>.

The value here.

Yes. This is a $2 $9 million program over.

Up to three years for Righetti in partners Righetti as prime contractor on this.

Graham with DARPA and.

That forward for us as an organization and an important capability.

Our portion over the full program is approximately $1 5 million.

Got it thank you so much.

Okay.

Thank you and our next question comes from the line of Robert <unk> with <unk>.

Needham Your line is open. Please go ahead.

Yeah, Hey, Chad Hey, Brian This is Trevor on for Quinn Bolton and thanks for letting me ask the question.

On the outlook I wanted to clarify so this $4 million falls to 2023.

Basically changing your 2022 guidance to $8 million to $9 million.

We're not changing guidance, we expect revenue this year of 2000 $12 million to $13 million.

And we want to identify the specific risk associated with that.

No.

Protracted contracting process, but we remain confident we are going to close that by the end of the year.

Yes.

Okay and another clarification.

This contract on the $4 million with the government customer a single contract or is it possible that negotiations on the part of the already performed the work could be completed and recognized in 2022 I'm trying to get a better sense of if this contract is an all or nothing thing for 2022.

As of right now, we fully anticipate being able to invoice secure complete an invoice against the contract.

And to be in that $12 million to $13 million range.

It has multiple contracts and with an existing customer that we've had a longstanding relationship with.

Okay and on the class scores congrats on that Thats very encouraging but could you provide more color on the changes made that led to this the collapse in school Clap score increase is it mainly a function of Q V layers any info would be helpful.

The particular engineering developments that led to this or not something we're going to get into however.

What we can describe is it the club's performance characterizes the overall throughput of a quantum classical computing system inclusive of communication and back and forth between classical and quantum.

And in capabilities and overall. This result has been driven by kind of an aggregate system optimization towards that goal of delivering faster and faster customer performance.

We believe the clock speed and overall speed of quantum computers is very important.

Area, and it's something where we remained focus it relates to overall throughput of our systems and kind of wall clock time.

Yes.

Awesome.

Thank you.

Thank you and our next question comes from the line of Sidney Ho with Deutsche Bank. Your line is open. Please go ahead.

Thank you and good afternoon. This is Jim Mccaughan from kidney just a few questions for me. The first one is chat.

Scott do you previously spoke about deployment of your quantum machine stereo strange work.

Could you just touch on how that is progressing.

When would you expect your systems to go live.

We're continuing to have a strong relationship with strange works things seem to work with them on bringing customers onto the shared platform.

We will be able to write more.

A more fulsome update on this at our upcoming Investor Day in September .

Got it that's helpful and then.

That's on your deployment of the quantum system in the U K as you mentioned on in your prepared remarks. My question is what is sort of like a realistic timeline for you to start seeing revenues revenue opportunities from both.

Public and private customers in the UK and in the EU.

Yes.

Particular case with the <unk> in the UK.

We are already under revenue generating agreements and partnership.

To deliver that <unk> and provide access to the partners under that program.

<unk> is currently being used by partners to carry out research and development towards quantum vantage.

We are also really excited this quarter to a welcome to the first.

Private.

Beta users of our <unk> use over Azure.

And we anticipate additional announcements on this going forward in the next quarter as well.

Okay.

Got it. Thank you that's really helpful. And then just one last one for me I'm just curious to hear your takes on the recent development in <unk>.

<unk> ballistic error cancellation PUC.

It was announced by the blockbuster by one of your competitors recently.

I guess given the progress achieved in industry is there a possibility that you could introduce or mitigation ahead of your 1000 qubit system.

Potentially with Amgen 36 qubit system.

Thank you for the question, we're very encouraged by what we're seeing in the industry more broadly as well as within Righetti work on air mitigation techniques.

Eric correction long term is going to be an essential component of unlocking the full potential.

Potential Tam of quantum computing over the next handful of years.

To enable much higher customer facing performance on practical applications into unlock real world use cases, and it's a very promising area.

Thanks, Ken Thanks team.

Thank you and we do have a follow up question from the line of David Williams with Benchmark Company. Your line is open. Please go ahead.

I guess around that structure would be helpful.

Yes, David.

Plenty of filings, you'll see those start to flow out today.

It's referred to as a synthetic ATM. So it's an as needed facility Theres no.

Requirement for us to sell anything into the markets again, we view this as a as a.

Not as a defensive but as a prudent method of protecting us in the event that there is a protracted downturn in the markets.

The geopolitical and in the current macroeconomic economic environment persists. So we view this as a strategy just to maintain a strong balance sheet. So that we can focus on the objectives at hand.

Okay, Great and then any color around maybe the window there in terms of when you request the shares and when they can when they take those down in terms of funding.

They don't say, it's up to again it works very similar to an aftermarket facility, where we would place orders to sell shares through through our bank.

Okay, and then that happens fairly immediately afterwards.

Yes.

Timing uncertain, but certainly.

It's at our availability. So we would we would plan to use it opportunistically in the market, but again as needed.

We don't see any immediate urgency to be selling shares into the market and have no plans to do so in the immediate term but.

Again, the facility is available to us and it has certain parameters around it as youll see in the filings.

There is a very it is a very.

You might say measured way.

Of raising capital at a very low cost and effective way as well.

Okay, very well thanks, so much.

Okay.

Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Chad Mcgeady for any further remarks.

Thank you operator to close I'd like to thank our teams partners and investors for their support and collaboration Righetti as a mission driven company laser focused on developing the world's most powerful computers. Looking ahead, we will soon be announcing our attendance at several investor conferences, we ask that those interested in meeting with us at these conferences. Please contact <unk>.

<unk> organizer or reach out to our IR team directly.

You everyone again for joining today that concludes the call.

Yeah.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 Rigetti Computing, Inc Earnings Call

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