Q1 2023 Rigetti Computing Inc Earnings Call
Thank you for standing by and welcome to the rigid computing first quarter 2023 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 to press star one on your telephone.
To remove yourself from the queue simply press Star one one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Dr. Kulkarni.
Carney President and CEO . Please go ahead Sir.
Good afternoon, and thank you for participating in <unk> earnings conference call covering the first quarter of 2023.
Joining me today is Jeff Bertelsen, our CFO , who will review our results in some detail following my overview.
Our CTO David give us is also here to participate in the Q&A session.
We will be pleased to answer your questions at the conclusion of our remarks we.
We would like to point out that this call integrity as Q1 2023 press release contain forward looking statements regarding current expectations objectives, and underlying assumptions regarding our outlook and future operating results.
Forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described and are discussed in more detail in our Form 10-K for the year ended December 31st 2022.
Our Form 10-Q for the two months ended March 31, 2023, and our subsequent filings with the SEC and other filings with the Securities and Exchange Commission.
We urge you to review this discussion of risk factors.
Turning now to the business of all of the first quarter of 2023 I'm pleased to report that we believe we are on track and progressing towards the near term strategic priorities and technology roadmap, we announced in February 2023.
We are starting to see positive impacts following the implementation of our updated business strategy, We announced in February 2023, which is designed to improve our focus and operating efficiency and preserve cash resources.
Our next generation 84 cubic AMCOL, one system, which is built using new architecture of square <unk> and tunable couplers.
Internally, we are integrating our testing in March 2023.
I've got one is achieving 96%, 97% median cubic's utility and 65 to 70 nanosecond deep speech based on our internal testing.
Our prior generation 80 cubic Aspen MP system achieved 94% to 95% median two pubic facility and 185 to 190 nanosecond gait speeds.
We believe these metrics demonstrate the superior performance of <unk> as compared to Aspen empty and confirm our belief that the chip used in our current system is a leap forward in architectural design.
As previously disclosed we currently anticipate launching Ankur wanted to select customers in mid 2023.
For cubic system.
Cartoon 84 cubic sustain but anticipated improvements in design and performance is expected to be deployed and made available to external customers in the fourth quarter of 2023.
We remain committed to working to achieve two cubic fidelity of 19, 9% better anticipated okay.
Which we expect to be achieved in 2024 and development of the 3300 36 cubic Lyra Swisscom thereafter.
We recently released the results of application development work that demonstrates the progress the company is making towards improving its hardware and software capabilities, which we believe reflects advancement towards potentially achieving that or quantum advantage.
Using quantum inspired classical accumulations, we were able to demonstrate the computational power of quantum metrics compared to the classical alternatives.
The quantum Tech conference in April we presented the results of new application work undertaken with Moody's and Imperial College, London that illustrates a novel approach to addressing the problem of forecasting decisions using cutting edge machine learning techniques that combined classical signature cardinal methods with quantum enhanced data transformations.
By using nice list quantum simulation you were able to demonstrate that the quantum enhanced version of our martyr outperforms. The classical version as well as standard models used for this class of problems and accurately predicting agitation.
As part of our ongoing DARPA project, we released a manuscript that presents a new quantum algorithm for solving optimization programs with NASA that for.
Wife's performance assurances, even with noise and outperformed several classical and quantum approaches for solving the same problems.
At our current stage of development, we believe that executing towards our roadmap and achieving our technology milestones are key to hitting our goal of achieving quantum advantage.
We remain focused on meeting our objectives.
And with that I'll now turn the call over to Jeff who will review, our first quarter 2020 financial performance.
Thanks Sue.
Revenues in the first quarter of 2023 were $2 2 million compared to $2 1 million in the same period of 2022.
Revenue variability is to be expected at this stage of the company's evolution, given the nature of contract timing with major government agencies.
Our development contracts also primarily consist of technical milestone based work our cost share arrangements with revenue recognition varying according to the timing of deliverables.
Gross margins in the first quarter of 2023 came in at 77%.
Virtually in line with gross margins in the first quarter of 2022 of 80%.
On the expense side total opex in the first quarter of 2023 was $23 7 million compared to $27 million in the same period the prior year.
The year over year decrease was mainly due to expenses recorded in the first quarter of 2022 related to the business combination.
<unk> $8 9 million of cumulative deferred stock compensation expense related to satisfaction of our liquidity position condition that was resolved by virtue of the business combination in March 2022, and $2 1 million of transaction bonuses.
We also recognized $1 $3 million of expense in the first quarter of 2022 for a prior period catch up of electric utility feeds.
The change in the fair value of the forward agreement for the Amp here warrant increased G&A expense by $1 1 million in the first quarter of 2023, compared with the $3 million reduction in G&A expense in the first quarter of 2022.
We recognized expenses totaling $2 million in the first quarter of 2023 for restructuring and contractual based severance for our executive officers that were terminated during the quarter.
Other increases in the first quarter of 2023, when compared to the same period of 2022 included higher costs per head count.
Primarily in the R&D area.
$742000 impairment charge for deferred offering costs.
And higher costs for legal fees, and D&O insurance, mainly related to being a public company for the entirety of the first quarter of 2023.
In the first quarter of 2023 stock compensation expense totaled $1 7 million and depreciation and amortization expense totaled $2 1 million.
Compared to $11 5 million and $1 4 million in the first quarter of 2022, respectively.
Operating loss for the first quarter of 2023 was $22 million.
Compared to an operating loss of $25 3 million for the same period of 2022.
Net loss for the first quarter of 2023 was $23 4 million or <unk> 19 per share.
Compared to a net loss of $17 $6 million or <unk> 33 per share for the same period of 2022.
Cash cash equivalents and available for sale investments totaled $122 million as of March 31, 2023, compared with $142.
$8 million as of December 31, 2022.
Based on our current operating plan, we expect to have cash cash equivalents and available for sale securities of between 65 and $75 million at the end of 2023.
At this time based on our current operating plan, we anticipate that we're getty will need to raise additional funding by late 2020 for early 2025.
To continue its research and development efforts and achieve its business objectives. Thank you we will now be happy to answer your questions.
Certainly and as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone one moment for our first question.
And our first question comes from the line of Jana Marco from Viola from Deutsche Bank. Your question. Please.
Hey, guys. Thank you Jeremy Kwan for Sydney.
I guess you start with the progress so far.
It's certainly encouraging to hear about the performance improvements that you guys have made.
But I was hoping you could speak a little bit more to what are your expectations in terms of customer adoption. Once the system is deployed in mid 2023 and sort of how have your conversations with customers being proceed date and then just a quick follow up if you could speak to sort of.
The rate of utilization of your Tcs and where do you see that go once deployed and I have a follow up.
Just sure so thanks for your questions.
Certainly we are very pleased with the performance of Hong Kong as we have said before it is a new architecture. It is something that is a square letters with tunable couplers.
So that took a lot of effort to bring down the chip build and bring the chip.
And it is working right now we have reported the number one spot.
<unk> of <unk>.
I mean median facility of 96% to 97% pretty impressive gait speeds of 65 to 70 nanoseconds you certainly have more work to do.
Other metrics.
To improve our capability our expectation is that.
<unk> will continue to improve as the year goes on.
And B.
Should be.
In the 98 plus percent range for media and <unk> hundred 80 by the end of this year.
And 99 plus percent.
Change in in sometime in 2024.
The high level plan.
As we have already said and that was where do we have question was growing we are going to start making <unk> available to select customers a middle of this year right now, it's all internally that Stan.
Once we are done with our internal testing and feel confident.
Customer access and we'll do that.
Initially it will be available to select customers like the <unk> labs, and a few others.
That we have right now generally just from a customer standpoint, you mentioned that he hi.
A lot of customers that we currently have and potential customers.
I'm very interested in the 84 cubic.
Square larger student will upload chip.
Sure.
I would say that.
The higher the fluidity the better obviously from their application standpoint, so as we get to 98% of our options will continue to improve and certainly at 99 plus percent next year. They just will be significantly higher. So we are overall, we are pleased with what we are right now what we are hearing from our existing and potential customer.
And where this thing is going to evolve.
I hope that answers your question.
Absolutely that's very that's very helpful. Thank you so much and then I guess, if I can squeeze one more in for you Jeff maybe on.
Cash burn if you can help us think about the sort of the linearity of cash burn through 2023.
You have a better sense of what capex could be.
As we go through the year.
Thank you.
Yes.
As we said in today's release we.
Expect to have between 65 and $75 million of cash on hand.
At the end of the year.
When I think about or when we think about cash burn.
We had a restructuring here in Q1.
So we would expect to see.
Expense reduction.
From that action fully kick in starting in Q2.
We also incurred.
Severance and restructuring costs.
This quarter in Q1, which won't.
Recur in Q2, so from a linearity perspective, we would see.
Certainly thank that.
Expenses would go down from here plus you also have.
The 10-K and annual reporting type costs in the first quarter. So thats.
From a linear perspective.
We arent, giving any specific capex guidance, but certainly.
Our focus.
As to be very cautious on capex spending.
And to stay focused on that and to make sure. We're spending our dollars wisely. So I think.
Going forward and also tied into the reduction in head count.
I think we'll see some hopefully see some cautious.
And expect to see cautious capex spending going forward.
Thanks, guys.
Thank you one moment for our next question.
And our next question comes from the line of David Williams from the Benchmark Company. Your question. Please.
Hey, good afternoon, good to speak with you both.
Just a couple of quick questions I guess and Youll forgive me I missed a bit at the beginning of the call here, but.
It sounds like things are progressing as you would expect to making some good progress on the Fidelities, but I guess is there anything that.
Has surprised you over the last several months in terms of just the improvement in fidelity's or giving you more confidence.
And Kurt.
Or is the technology side.
Yes.
It's a tricky question, David when you don't know what all it's going to take to get to 99% utility sitting.
Sitting yet, but we are pleased with the initial facilities that can be measured with AMCOL.
EBITDA.
Our estimate and T system.
The red and the close to 95% media to capability.
But as with anchor we are starting off with 96% to 97%.
Jim Jumbo, particularly considering it's a new architecture of it does square lattice energy level coupler.
Certainly we know where the issues are coming right now we have data we are systematically analyzing that data and looking at my head though.
<unk> are coming from and we're going after them very systematically using the caustic burrito and then this is kind of approach which is quite common in semiconductor industry. So we are going at it systematically that's what gives me the confidence that.
By the end of this year on Covid.
The close to 98 plus percent median took infertility instead.
And certainly we already know what it will take to take us to 19, 9% for the next year or so.
I have high confidence our team will be able to get to those numbers based on the starting point for Oncall.
And what we have seen is contributing to orders right now and what actions we have already taken and are planning to taking the next few months to address those problems. So hopefully that answers your question.
No. It does and thanks, so much for that Thats certainly helpful and I guess secondly, now that you've had a little more time in the seat their CEO . What are you hearing from customers and are you still feeling like.
The adoption and maybe some of the programs the folks that maybe were kicking the tires previously or are they still looking at.
And has there been any changes maybe improvement or otherwise.
Good questions David.
Certainly as we improved fertility the interest continues to increase.
I would say definitely some of the.
Announcements, we gave and paperless papers were published on the <unk> side, the narrow quantum advantage site such as the vertically published at Moody's.
It's getting a lot of traction not only obviously did moody's, but other financial organizations I mean everyone's excited to see what can be done to improve though.
Predictability of realizations of bankruptcies.
There's a lot of interest obviously in those gains thoughts.
Algorithms and our work with Moody's certainly adds some garden more customers interested in us.
And our algorithms.
So we are talking to more financial customers because of those kinds of things.
Also our work with DARPA announced on the optimizations.
Pretty good.
Good work demonstrate our gpus can be used in Peru.
Total optimization problems and that is opening up some unique.
Doors.
With other vertical markets Besides financial markets. Many industries as you know need combinatorial optimization problems and our work is pretty good old basic but that leaves the foundation pretty well for many other vertical market should take a look at so I think it's a combination of.
Not only in improved <unk> chip at fidelity.
And Gabe speeds, but also the optimization.
Are you able if we are doing with our software stack that continues to generate a lot of interest among customers.
Certainly at a high level customers are still.
In general that will take us towards a very interested in quantum computing.
They definitely want to kick the tires using aerospace to make sure that.
It works.
They think it should.
<unk>.
As we demonstrate practical benefits like the Moody's work all of the DARPA NASA Award.
Certainly peak selling times to talk more about what other practical problems can be looked at.
In conjunction with them.
So hopefully that answers your question.
It certainly did I appreciate the color and congrats on the progress again and best of luck.
On the continued success.
Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Quinn Bolton from Needham Your question. Please.
Yeah, Hey, guys. This is Trevor on for Quinn. Thanks for letting me ask some questions here.
So to start.
Wondering if there are customers that you are currently engaged with that are waiting on the sidelines for anchor fidelity's to improve before actually becoming a paying customer.
And to add to that do you expect an incremental step up in revenue once 99% Fidelity's are achieved and Aqua has introduced to the cloud.
<unk>.
Thanks Trevor.
High level, certainly aspira entities improved interest income among customers, who are going to improve that goes without saying.
Exactly how the revenues ramp up.
That's really hard to tell.
I think in the whole quantum computing world.
Certainly all of the revenues that all of US are getting right now at from researchers at a government.
The national labs kind of customers.
So most of it is testing out.
Gpus and diluted terms and seeing how they could be delivered in the future. So none of us are at a point, where we can clearly see quantum computers are significantly better than classical computers in performance or cost yet.
That's the board yet.
The real example of revenues happens only when you reach that quantum everyone to each stage that you have said is roughly two to three years from now so at a high level.
Once we get to 99% for <unk> next year, and when you're ready for when we get more customer interest yes.
We get more dollars for this research kind of projects.
Likely yes, but it's really going to be small potatoes, if you will in the big scheme of things the real inflection.
Inflection point in revenues for quantum computing companies all of them certainly us.
Is going to happen once we are beyond that onto my advanced age, which is at least two to three years from now.
Hopefully that gives you some color on your question.
Yes, it does.
But I guess to the first part of my question.
I was asking.
Are you talking to any customers that are interested.
And using your acute QP used but they're waiting until <unk>.
Hits, a certain fidelity to start working with you so theyre not paying customers yet, but they plan to be do you do you see any of that or more of these.
<unk> and government agencies are they just working with you no matter what.
What system is available.
But certainly don't into the Goldman.
Organizations and universities, but we also need to commercial customers as well on all the time.
And many of them are current paying customers if you will.
Either directly with article out service ought to AWS or Azure.
But again.
<unk>.
Has anyone told us that they would give us a specific contract.
<unk> 98, or 99, I don't recall, and even having said that category.
The address is everyone wants to be involved and understand.
Once you are at that 99 plus percent certainly more applications open up.
So in general the direction is there, but I cannot say that we have X number of customers, who have said as soon as we hit 98 or 99, they will sign a contract or anything along those lines, yes. Okay.
Thank you and a quick clarification.
<unk>, one become available broadly to customers over the cloud platforms.
Or is that just <unk> two that's expected to come.
Come available over the cloud.
So what we have said is that on called <unk>, which has worked is what we are doing internally testing, we will make it available to select customers by the middle of this year.
Yes.
By the end of this year and got one would have evolved in Tor two.
Our plan is to make <unk> two available to the broader customer set once we are at 98 plus percent level. So.
We think the timing of the leasing or general availability, we're being uncollectable and 98%.
That's what we have announced.
Okay.
Okay. Thank you. So thank you thank you spud.
Thank you one moment for our next question.
And our next question comes from the line of Chris Schenker from TD Cowen Your question. Please.
Hi, guys. Thanks for taking my questions. This is Steven calling on behalf of Krish.
So maybe I had a question.
For you regarding.
And also.
Sort of the underlying infrastructure that supports the development I guess first in terms of market too.
It comes up here this year specifically.
The tape out timeline I guess just wanted to understand what are some of the potential risks to tape out.
Projects with a mix shift and for it to come out in that in Q4.
For example.
And incremental design that is already largely set or is it dependent on.
The progress that bunker, one reaching that 98% fatality rate before it picks up and so if you could talk about sort of how that architecture is expected to.
MTV R&D pipeline and two were first APAC that'd be helpful.
Sure. Thanks for your question I mean, you are getting into the details of exactly how we do the technology development.
As you can imagine the.
On our own fab as you probably know so we are living chips all the time.
Various different versions of experiment your chips and some large that are targeted Florida.
At this time and frankly, some lots even talking about I've got three and what we are doing so to all of those experiments are going in parallel.
So.
Right now we definitely keep looking at our data as we bring it up as we optimize that we look at it over here that are sort of coming from take all likelihood of being the type of incorporate.
Everything that we can learn and do you.
Use that to build on cut too and that will be available.
By by the end of this year.
For all practical purposes, we believe that <unk> got two chip that does become longer to maybe go into the fab as we speak right now.
Because it takes a certain amount of months to get the ship ready and make it into a <unk> system. So we are incorporating all of the learnings so uncle one putting it into a cutover to incorporate some more learnings in the next.
Couple of months, but will be cut to.
Design freeze on cargo design, if you will sometime in the next couple of months and that will become uncovered through by the end of this year.
I've got two is being brought up and we are doing evaluations and learning from that.
Work as I said <unk> already started so we are already running some early experiments. So I've got three that can become a hopefully 99 plus percent medium to consolidated chip.
Sometime in 2024 time period. So you have to kind of plan. This thing several months ahead of the actual launch obviously, that's what we're going to as we speak hopefully that gives you some color on the timelines.
Yes, yes, I think you've heard so much for that clarity and then my follow up question.
Is that related to I guess.
Kind of Capex related activities I guess.
Like I said very simply is uncle, one an opportunity is it pretty much compatible with existing infrastructure that Aspen and three of Amazon and if not are there certain GP.
I guess infrastructure, whether it's.
Some of the modular.
Dilution from Blue fours or is it.
No.
Multiplexers for the control signals.
Is there any dependencies from that if I may.
Infrastructure standpoint.
Congrats you can provide some more color. Thank you.
Sure. So certainly to go from Aspen to anchor it was a big design change.
That is to enable a couple of hours and that involves several other pieces of equipment not only in the fab, but even outside the fab the amplifiers the cables switches so elastic needed.
Significant upgrading to Wolfgang Aspen to Hong Kong.
Our teams will continue to evolve as we noted there that are sort of coming from and what needs to change obviously, we will keep changing the hardware.
Software the hardware, obviously need some capex. So it's not like on the catheter that we needed for our customer now countries already that I believe most of it is already dead, but there will be some additional pieces, we may need based on what we learn in the next few months that is needed for our customer in the country, but the big.
Capex that we had last year to bring out <unk> right now.
I don't think you will see those numbers as Jeff mentioned earlier going forward. So it would be much more careful with what all.
<unk> going to be spending on so a lot of the infrastructure.
I've got three is already but there will be some changes that we hope to make as we learn more and continue to optimize.
Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. Kulkarni for any further remarks.
Well. Thank you for your interest and questions. We look forward to updating you as the year progresses. Thank you.
Ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
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