Q3 2022 Rigetti Computing Inc Earnings Call

Yeah.

Good day, and thank you for standing by welcome to forgetting computing third quarter 2022 business update 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. Please be advised that today's conference is being recorded I would now.

I'd like to hand, the call over to a representative from Investor Relations for a brief introduction. Please go ahead.

Thank you operator, and good evening, everyone. Today, we're getting we'll provide an update regarding its business and technology progress during the third quarter 2022. In addition to recent CEO transition announcements, we will not be discussing the financial results for the third quarter of 2020 to its financial statements for the third quarter.

There are not yet available and Righetti has filed an extension noticed sports third quarter 10-Q with the SEC.

With me is Dr. Lisa Fitzgerald.

We're ever getting board of directors and audit Committee and chair of the nominating and corporate governance Committee.

With Dana's interim president and CEO and General counsel.

Ryan Cerita, CFO , and David resist SVP of systems and services.

Before I turn the call over to Lisa I'd like to point out that this call and Mcgeady business update press release contain forward looking statements concerning current expectations.

Objectives, and underlying assumptions, including statements with respect to righetti is technology and technology roadmap.

Stones.

This plan.

Strategy and prospects collaborations and partnerships CEO transition and expectations with respect to the company's financial statements and internal control over financial reporting and disclosure controls and procedures. Among others. These statements are subject to risks and uncertainties that could cause actual results.

To differ materially from those described please.

Please refer to were getting business update press release issued today for factors that could cause those results to differ materially and now I'll turn it over to Lisa.

Thank you and welcome everyone to start off I'd like to take a few moments to speak on behalf of the board of directors regarding the recent announcements on the transition of forgetting Chief Executive officer, as well as our executive search for a new CEO currently underway.

But first I'll introduce myself.

I'm a longest tenured board member member of the audit Committee and chair of the nominating and corporate Governance Committee I'm also one of three technologists on the board I completed my education at M. I T and Stanford and Aerospace engineering and worked in the aerospace industry earlier in my career later moving into a specialty area of the semiconductor industry.

<unk> known as Mems micro electro mechanical systems.

Since 2003, I've been the CEO of a technology.

The company, which I founded Amtrust children Associates, which provides specialized engineering services to develop emerging silicon chip technologies into products.

Through my participation on Righetti board over the past four years I'd have a comprehensive understanding of forgetting technology. Its technical teams and ultimately what I believe is its collective promise to potentially revolutionize computing technology as we know it today.

Now to address the CEO transition, we filed an 8-K earlier today, reflecting that Rick Davis has been appointed interim president and CEO of the company and that Chad will be remaining with the company and a nonexecutive capacity until his previously announced departure date on December 15th 2022.

The board firmly believes that ever getting current growth stage. It is important to have a seasoned public company executive at the helm.

Can focus on the time consuming day to day demands of running a public company as well as leading and scaling and advanced technology organization.

Although the company anticipated that Chad would remain with the company in a tactical position chat has made the personal decision to leave the company.

The company expects to enter into a separation agreement with Chad in connection with his departure the terms of which will be made publicly available when filed.

On behalf of the board I want to assure you that the CEO transition was prompted solely by the board's consideration of who should run the day to day operations of this growing company going forward.

In addition on behalf of the board and the we're getting team I want to recognize and thank Chad for his visionary leadership chat as a pioneer in the development and commercialization of quantum computers and his vision has been instrumental in bringing we're getting to where we are today.

Since the company's inception, it has built the world's first dedicated quantum fab brought some of the very first quantum computers to the market and developed a strong and differentiated technology position, perhaps most importantly, this pioneering vision has helped us to build a world class and highly capable team one that possesses incredible ambition.

<unk> technical expertise and we believe is well positioned to continue driving our business and technology progress going forward.

Well this has been a dynamic period, we remain well versed and confident in the company's long term trajectory its unique technical capabilities and approach its technology road map and the potential enormity of the opportunity for quantum computers.

More the talent and technical brilliance that we're getting is outstanding with dozens of phds from some of the world's most renowned university. The team has been responsible for the company's pioneering progress in quantum over the years and remain laser focused on advancing toward our milestones.

Chat is departure does not impact our technology roadmap portfolio of 152 patents issued or pending nor our other proprietary approaches.

As previously announced we are conducting an executive search for the CEO position right thing. It's Righetti General counsel has taken on the role of interim President and CEO , while we work to fill this role on a more permanent basis, Rick is well suited to steward, we're getting through this period and has our full confidence he has been a leader with the <unk>.

Company for three years out and there's also well versed in our mission roadmap and all other considerations regarding righetti as well as the day to day activities of running a public company.

And with that I'll now turn it over to Rick Davis interim CEO .

Thank you Lisa I'd like to reiterate a couple of our leases points and also provide some additional color were helpful.

I remain highly confident in the Companys technology and roadmap.

Strength and ingenuity are the result of the extraordinary depth and talent, we built across the organization and the hard work of our team our teams have put in over many years.

Between our Chief Technology Officer, Mike Heartburn, and our SVP of systems and services, David Rebase and they are truly outstanding World class Technical teams the board and I believe our technology development is in a strong and capable hands.

Across the organization that people forget you have a deeply held shared vision for what we are getting computing has the potential to become and what our technology could enable in the world.

We have strong core values that bind us together give us clarity and serves as a bedrock for our future.

On top of this the company's fundamentals and governance are strong.

Now the remainder of this call will be focused on our business update for the third quarter of 2022, starting off with Brian Cerita CFO , followed by David <unk> SVP of systems and services for a lengthy discussion of our technology progress.

Thanks, Rick.

We're getting maintained solid business momentum in the third quarter, and we continue to make steady progress toward our roadmap objectives now for some color regarding our post from one of our third quarter financial results.

As you are aware, we completed our business combination with supernova on March 2nd of this year.

At the closing of the business combination supernova agreed to subjective portion of their common stocks investing based on the performance of our common stock.

Approximately $3 1 million of shares became subject divesting it or considered unvested and will only vest if during the five year period started on March 2nd closing date certain volume weighted share prices are maintained for certain periods of time.

The fair market value of this earn out recalculated accordingly, as reflected on our balance sheet as well as on our other income as well as on our income statement under other income and expense we.

We have historically used evaluation methodologies that included a volatility factor and that is based on a weighted average of the volatilities of the trading price of common stock or a group of comparable public companies, including the Companys common stock and the trading price of the publicly traded warrants.

Company as auditors determined that it is appropriate to revise the weighting of the volatility assumptions to include a greater weight for the volatility of the trading price of the Companys public warrants for the third quarter 2022 financial statements.

In addition, the company has determined that a restatement of its Q1 and Q2 financial statements as required to reflect to reflect this revision.

In addition to the earn out liability of the company is completing its analysis with respect to treatment of additional operating expenses. These.

These expenses are estimated to total approximately $1 6 million in aggregate relating to your electrical utility fees for a portion of electro electrical usage aggregating Berkeley location. Since 2019 that were not paid and recognized in prior periods. We are now evaluating how to account for these additional operating expenses, which.

As expected to include recording an accrual of the estimated additional electrical electrical utility fees to be paid to the electric utility provider and our financial statements for the quarters ended March 31, 2022, and June 32022, and recording operating expenses in our financial statements for the quarter ended September 32022.

As part of the restatement of the financial statements for the quarters ended March 31, 2022, and <unk> 32022, we also expect to reflect the correction of an immaterial error related to the valuation of a warrant liability with respect to the warrants issued to Trinity capital pick in.

And the restated financial statements for the quarters ended March 31, 2022 and reversed the prior correction. We previously reported for such immaterial errors in the financial statements for the quarter ended June 32022, and the restated financial statements from such period.

We're also reassessing the calculation of fair value for our private warrants that are treated as derivative warrant liabilities for periods ended March 31, 2022, and June 32022, any revisions, resulting from the reassessment would impact the reported amount of derivative warrant liabilities on our balance sheets and change in fair value of <unk>.

Riveted warrant liabilities on the statements of operations.

It is possible that additional adjustments may be identified in connection with the company's further assessment.

Due to the foregoing we are assessing the effect of the company's internal control over financial reporting and disclosure controls and procedures, which may result in a material weakness in our internal controls related to the accounting for complex instruments. In addition to our previously reported material weakness in internal controls over financial reporting related to.

Insufficient controls for the accounting for complex warrant instruments, which resulted in our disclosure controls and procedures, having been determined to be an effective for the first quarter of 2022.

Second quarter 2022, as previously disclosed it.

It is possible that such assessment May result in the identification of other material weaknesses.

As a result of all of these matters, we filed our notification of late filing with the FCC today to extend the filing dates of our Form 10-Q for the third quarter at nine months ended September 32022 Accordingly.

Accordingly, we will not be disclosing our financial results for the period today, but look forward to providing investors with this information was available.

Now before handing it over to David I'd like to provide a quick update on what we're seeing in the current macroeconomic landscape as well as where we are seeing we are getting in this climate.

First government interest in quantity remains strong and we are actively working with our partners to pursue relevant opportunities set.

We like many other companies are taking actions to monitor operations and burn rate specifically this consistent aiming to enhance our operational efficiency inclusive of SG&A activities and maximizing our R&D spend through strategic strategic collaborations.

Given the current state of the industry, we believe that our roadmap progress in strategic partnerships will continue to be the most important elements of our company success over the next several years.

Thanks again, everyone I'll now turn the call over to David <unk> Senior Vice President of the systems and services David Thank.

Thank you Brian many of US met during <unk> inaugural Investor Day in September and I'm really happy to be here with you again today now I will provide everyone with an update on our technology progress during the quarter, starting with a few key highlights.

First as we continue to make technical progress on our 84, <unk> and $3 36 to lira systems in the quarter. We planned for we plan for these systems to leverage our fourth generation architecture, which is designed for higher fidelities and connectivity and is expected to deliver meaningful performance improvements when compared with our third generation circuit architecture.

Sure.

Second we're getting entered into public preview on Microsoft Azure quantum platform.

With this announcement, we are excited to say that we're getting quantum computers are now available on the worlds two largest public cloud platforms.

<unk>.

We announced a partnership with Blue force to supply new modular dilution for that will be necessary for our anticipated 336 cubic wireless system and beyond.

Fourth.

We made progress with amp here on leveraging hybrid quantum classical computing for quantum machine learning with recent tests completed on our finance application.

Yes.

We begin a new collaboration with Nvidia aiming to develop a hybrid gpus <unk> workflow for climate modeling applications.

This work is expected to build on our prior application of quantum classical solutions to weather modeling.

Now at our Investor Day, we presented our product roadmap, which lays out what we believe to be the building blocks for achieving performance at scale and progressing towards quantum advantage.

You can find it in a video of the discussion on our Investor website located at investors Dot Righetti Dot com.

There are three key beliefs at righetti that drive the company's approach to quantum advantage.

<unk>.

We believe the quantum computers with a few hundred to a few thousand cubits will demonstrate quantum advantage and unlock real world commercial value.

While we are confident in our long term approach to much larger systems, we simply do not believe that it will take a million two bits to reach quantum advantage and start scaling our quantum computing as a service business model.

Second we.

We see quantum advantage unfolding in two phases narrow and then broad.

We defined narrow quantum advantage as the ability to run real world customer workloads, better faster or cheaper than classical alternatives available to customers.

We believe broad QA, where classically intractable problems can be solved for the first time will be a second inflection point after narrow QA.

We expect the anchor in lira generation systems to accelerate the path towards achieving quantum advantage.

Third.

We see the delivery of anchor as a critical milestone towards quantum advantage inflections and one that should instill high confidence in our roadmap and plans to unlock commercial quantum computing and our Q cost model.

OCA will be the first system based on our fourth generation circuit architecture designed for higher performance.

Most importantly, we plan to leverage the Orca chip and subsequent larger systems, such as <unk> 336, Q aiming to deliver performance at scale.

By combining four anchor processors into a single Lyra system as planned we're striving to become the first in the industry to truly bring together advances in speed scale and fidelity in a production system.

Turning to our Q3 progress on our anchor system.

Last quarter, we announced we were beginning tests at the on the first 80 <unk> silicon.

In Q3, we tested a 24 cubits sublattice on that 84, cubits silicon and demonstrated several gates with fidelity is exceeding 99% and as high as 99, 5%.

We expect the first deployed <unk> chip will roughly cut in half our median <unk> error rates compared to our current Aspen <unk> system and with planned ongoing improvements from there we expect AGA and our fourth generation architecture to ultimately reach the error rates needed for quantum advantage and error correction.

We have also continued making progress on our Lyra system and we have now successfully demonstrated tunable <unk> coupling in the multi chip arrangement that our $3 36 to lira is expected to leverage.

We are also in the progress of upgrading our production fleet.

In the near term we are working to upgrade our current 80, Q Aspen <unk> system with a new 80 cubic chip, which we expect to provide users with better fidelities and improved stability.

Now turning to our partnerships last quarter, we noted that we successfully integrated amperes cloud native processing platform with <unk> quantum computing systems.

Then we've tested increasingly complex quantum machine learning use cases with this hybrid setup, including applications in finance and we continue to see what we believe are promising results.

We continue to see financial applications based on quantum machine learning is an exciting area for the pursuit and demonstration of quantum advantage.

We look forward to sharing more about the progress on our existing engagements in finance, including with partners at standard chartered in NASDAQ in the future.

We are also developing are mitigation and correction capabilities through our partnerships.

For example, we announced the anticipated integration of key sites <unk> Air mitigation software into our quantum cloud services platform and have recently on boarded our first beta users. We believe the air mitigation is a critical ingredient in achieving quantum advantage on near term systems.

With regards to error correction today regarding published a blog highlighting the results of an ongoing collaboration with Goldman Sachs.

And this work the team has proposed a new gate designed to adapt large scale quantum computers for Eric correction and insight that could potentially inform our future chip architectures and.

In summary, we continued to make strong technical progress during the quarter with solid momentum towards meeting our roadmap milestones.

To close I'd like to end on a personal note.

During my time at <unk>, it's been clear to me that the brilliance and dedication of or getting people to aircraft is one of our most telling advantages.

We are driven by the compelling technical approach it we're getting and what we see as a once in a lifetime opportunity expressed in the Companys mission statement to build the world's most powerful computers to solve humanity's most important and pressing problems. This is as true today as it was when I joined the company not quite four years ago.

And we firmly believe we have the right approach assets and advantages to potentially become the standard in quantum over the long term.

And with that we'd like to take your questions now.

Okay.

As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of.

Chris Thanks.

Please go ahead.

Yes, hi, Thanks for taking my question I actually have many questions. So I'll try to condensate.

The first one.

On the CEO transition a number one.

From an outsider perspective, it's not a very good luck on the founder and CEO to sign so early.

Thanks Julia.

From your vantage point.

Anything else you can disclose about.

Our reasoning.

<unk> spokesman will join the company at the same time your controls are being impacted production control.

Hoping you can discuss on that and then I had a quick follow up for you.

A couple of questions for Brian .

Yeah. Thanks for the question, Chris So let me reassure you this transition with the board's decision.

Because of our belief that it is time to have a CEO who has experience running the time consuming day to day of a public company as well as leading and scaling and advanced technology organization.

We had expected that Chad would remain with the company in a technical position.

However, he made the personal decision.

To leave and that was his decision.

So we have in this transition period decided that the company would be best served by having <unk> interim CEO and that's how we arrived in today.

Got it got it fair enough and then a quick follow up on that.

Have you spoken to your partners and customers about there.

In fact, many of your Dot com.

Contract.

Yes, Chris why don't I take that this is Rick.

Yes, we our teams are in close dialogue with our partners and customers on a very regular basis.

It's not it's not impacting anything we are having those conversations and the relationships are being managed by highly competent individuals within our organization.

I'd take this opportunity to also say that.

As we've sort of reiterated numerous times here that the tech team here is world class very deep.

Relationships were and still are managed by by those folks in the rest of the team.

Got it thanks, a lot Greg.

Question for Brian Brian on the.

The internal control like when did you guys can realize.

Was it just like a few weeks ago was it simply a long time ago and kind of like can you help us kind of like that.

Our roadmap onto what led to this when did you realize and when the decision was made.

Yes, all I can say is that we were as we were going through the review process of the quarter.

As we were entering into discussions and reviewing the results with our auditors.

Yes.

The issue was discovered.

Okay.

So this is something we start with subsidy subsequent subsequent to the.

Close of the quarter and again during the close process and review process a quarterly close.

Got it and then a.

Two other questions can be Brian one.

Kevin.

Tell us what your cash burn rate is now that you're ramping fab one is it assuming that $25 million to $30 million a quarter range on us at all yet.

I.

Cannot cannot get into the financial discussions right now you can take a look at our prior quarter filings.

And more than happy to get into the details when we do publish our results and.

As we've discussed previously we're on.

We're on track as far as our our capital expenditures are going for the year. So.

But again more details to follow and happy to take the follow up questions. Once we publish our results.

I mean, just to follow up on that Brian I have one gram.

The cash burn rate.

Yes.

In terms of fab wide is there are some capital expenditures that we have earmarked for fab one bill.

Billing and redundancy.

Additional tools, expanding our facilities et cetera, but.

We're not we're not expecting a great inflection as we've talked about in the past that our capital expenditures.

Got it got it and then the final question is you have like $75 million and committed equity facility.

Are there any conditions around that.

Right.

Something that people have covenants I'm just wondering is there any concerns around that.

The $10 million committed equity facility.

The only conditions or those that are that are in the agreement itself around trading volume.

And so forth is that we have to maintain a balanced with the traded daily trading volume if we decide to use it.

Obviously at.

We maintained a very strong balance sheet as we reported in the past.

If and when we decide to utilize the facility.

We have to manage within the conditions of the agreement the facility agreement itself.

Okay.

Thank you. Our next question comes from the line of David Williams of Benchmark. Please go ahead.

Hey, Thanks, so much for taking my questions certainly appreciate it.

I guess I'm not sure who's best suited to answer this maybe lease but there is a lot of information really to parse through and it sounds like a lot of different issues. This quarter that have kind of weird their head I.

I guess from just a high level can you help us understand the significant of the restatement and that needs to happen and then.

Maybe just.

Yes.

A bit confused on the electricity that you pointed to.

Can you give us anything that I guess it gives us comfort.

These types of issues or were overlooked but the technology is still progressing exactly as you said just anything that would give us some a bit of confidence here would be very very helpful.

Okay. Okay.

Oh, yes, sorry.

Totally separate issues or David.

<unk>.

Complex financial instrument issue.

It was a discovery after the quarter end as quick and as we're going through the review and close process in the quarter.

The electrical facility issue as we've discussed in the past that we are doing some improvements at our facilities and we discovered and part of the part of the project are part.

Part of the capital expenditure plans for the year. It falls facility improvements at Berkeley, including improvements to utility services et cetera, and during that work, which has been which is actually just recently been kicked off.

We came to the conclusion that there were some deficiencies in the electrical.

First there are the the infrastructure that is currently in place and so it led us to the conclusion that we had to revisit what.

Electricity usage was actually being.

Being accounted for in the FERC facilities. So.

We are in process now to repair that and again the estimates that we quoted will be recorded in the third quarter and also in the restated financials.

And David This is Rick I'll take the second part of your question there.

This is completely unrelated to our technology Road map.

Team is I keep kind of reiterating is really really deepen smarten very good at developing this technology and very motivated by that and our board is extremely supportive of our technology roadmap and the plans to continue on that on that road map.

Thanks, so much for the color there.

Then maybe secondly.

But just kind of on the signaling here it seems like there's been quite a bit of difference.

Just kind of from I guess, the board standpoint, expecting Chad to stay on.

And leaving and remaining a CEO to now not being CEO and executive I guess.

Just help us understand what this should in the end what it should all look like should we expect more changes is there another shoe to drop here that we should be concerned about just again looking for some comfort.

Were worried at least have everything out in the open here and we can move forward.

Sure David.

<unk> been a really dynamic situation, we have been filing updates immediately as events unfolded, we have a CEO search underway with a top tier executive recruiting firm.

We have seen a landscape of very seasoned individuals who are available who are a great fit for we're getting profile.

And we are moving forward as soon as possible to get a new CEO in place.

Okay. Thanks, and the last one for me is just maybe from the analyst day. The progress of the road map all of the things that were announced and discussed is there anything from that that we should be expecting to change in terms of maybe the capex or the fab expansion. The geographic expanse that you're getting there that we should think about changing.

No. Thanks, David This is Rick there isn't any expected changes on any of the roadmap or any of the things that were presented to you at the Investor day, and we remain on track with our technology roadmap.

Thanks, So much best of luck I appreciate the time.

Thank you.

Yeah.

Thank you. Our next question comes from Quinn Bolton of Needham. Please go ahead.

Hey, I guess.

First for Brian as I go through the reasons for the restatement.

The warrant expense sounds like Thats, all non cash, but the electricity consumption sounds like that is a cash charge and just wanted to make sure that I'm sort of reading this correctly.

Yes, correct, yes operating expenses.

Electricity is cash and the rest is all noncash below the line okay.

So on the electricity can you just go through again exactly what happened.

Understand you guys are going through a facility upgrade you may realize that you need better electrical infrastructure, but how does the electricity company not realized you guys were consuming a lot more electricity than perhaps they were billing for ya billing.

Telling you for.

I wish I could explain this as began a few years ago only recently to July .

Realize that.

That the utility or the I guess, the electrical delivery or the infrastructure that was delivering the electricity service now was insufficiently recording the expense over the last few years and so we are in the process of upgrading them and in the process of upgrading that we made an estimate of what we thought the.

Under reported expense was related to electricity usage and we will.

<unk> been start to.

Obviously negotiate going forward on how we rectify that with the utility provider.

So the $1 6 million as your estimate of the electricity consumption or what you think you will you'll settle with the electricity company.

Sure.

And then on a go forward basis.

Do you think you have the proper infrastructure in place to properly record.

Future electricity consumption at that facility.

Yes, yes.

It's being repaired as we speak.

That whole infrastructure deliberate utilities to the Berkeley facility is being upgraded.

And it's expected to be completed sometime in the new year.

But for now we'll continue to monitor and.

And discussed with the utility provider on how we can.

Accrued expenses on a more real time basis going forward and and so so that we're not deficient you might say in the future periods. So now that now that were aware of the issue we wouldn't expect that.

Additional catch up accruals or we don't expect to recognize anything related to electricity usage going forward.

That.

That would result in a.

A deficiency in any type of an accrual.

Got it and I apologize if I missed it but have you.

<unk> or can you provide.

Any estimate of how long do you think it will take to go through the warrant expense and the electricity issues and being positioned to restate do you think this is a matter of months could it be potentially quarters.

Yes.

I hesitate to give an estimate we don't expect it to take months.

We expect it to take.

For a short period of time, and but we are starting to work now.

And it.

I wish I could I wish I could quantify this with that.

Number of days or weeks, but we wouldn't expect it to extend for.

Any sort of a lengthy period of time.

Got it okay.

Then Brian you mentioned, just just recognizing the macro environment you made a comment about sort of.

Looking at expenses trying to conduct.

R&D through strategic partnerships just wondering.

Are you guys have you changed in response to the economic environment have you changed your Opex plans or are you continuing sort of under the cow.

The previous.

Guidance or expectations that you'd provided the street I guess Im just has there been any meaningful change in opex or cash burn I know you can't give us exact figures but.

As we're thinking about the.

Go forward expense or cash burn rate just wondering if there have been meaningful changes relative to past expectations.

I look forward to it and look forward to giving everybody an update here and.

In due course once we complete the work on the restatement.

And at that time.

Sure sure.

The guidance for the full year as we have in past quarters.

But for now we really can't speak to the numbers Quinn, So we have to stick with.

With just the statement of facts about the delay in the filing of the financial statements and then.

Our expectations are that within a reasonable period of time here, we'll be able to discuss the full quarter results along with our.

Our results in comparison to what we what we had offered his guidance in previous quarters.

Got it okay. Thanks, very much Brian .

Okay.

Thank you at this time I would like to turn the call back over to Rick Davis for any closing remarks, Sir.

Okay.

Okay.

Thank you operator, and thank you everyone for joining us today, we genuinely appreciate your time and interest in Regatta computing.

Okay.

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

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

[music].

Okay.