Q3 2023 Rigetti Computing Inc Earnings Call

Good day and thank you for standing by welcome to the Getty Computing third 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 this session you will need to press star.

Our one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.

Be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today.

Connie.

Please go ahead.

Good afternoon, and thank you for participating in <unk> earnings conference call covering the third 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 Ross is also here to participate in the Q&A session.

We will be pleased to answer your questions at the conclusion of our remarks.

We would like to point out that this call integrated Q2, 2023 press release contain forward looking statements regarding our current expectations objectives and.

Underlying assumptions regarding our outlook and future operating results.

These forward looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described.

And are discussed in more detail in our Form 10-K for the year ended December 31 2022.

Our Form 10-Q for the three and nine months ended September 30 of 2023.

Our subsequent filings with the SEC and other filings with the Securities and Exchange Commission.

We urge you to review these discussions of risk factors.

Turning now to the business of third quarter of 2023, I'm pleased to report that we continue to grow our GPU system segments.

In the third quarter of 2023, you get expanded excuse me your customer base, which is delivery of a nine qubit quantum processing unit GPU.

Another Premier National Laboratory.

This follows our first GPU sales in the second quarter of 2023 to fund me lab in which we delivered in nine cubic GPU as part of our partnership with the superconducting quantum materials and systems Centre S. M S.

We were awarded a five year indefinite delivery indefinite quantity I D IQ contract with the Air Force Research lab.

Information Directorate to supply a foreign researchers with quantum foundry services.

This contract allows <unk> to leverage if you gave these fabrication and manufacturing capabilities to build customized quantum systems.

Within the scope of the contract we will be able to provide quarter integrated circuits quantum limited amplifiers cryogenic microwave components and nine cubic Gpus.

This contract based on the existing relationship between <unk> and <unk> to harvest, our fabrication capabilities for quantum networking hardware research and development.

You are correct that leading government agencies and national labs are beginning to choose the gateways established fabrication capabilities to advance their quantum computing research and development.

By providing hands on access to our Gpus do you believe that we are enabling greater progress towards narrow quantum advantage and quantum technology breakthroughs.

I am pleased to report that we were recently awarded a darker impact contract to advance quantum algorithms for solving combinatorial optimization problems.

Our DARPA impact project seeks to develop a novel and efficient and coding of optimization problems onto <unk> with the goal of enabling larger problems to be mapped to currently available NIST quantum computers.

The project will specifically address scheduling problems.

Among the best known and most pervasive types of combinatorial optimization problems across numerous industries as well as some of the most challenging to solve.

Additionally in October 2023, we've been awarded and innovate UK Grant as part of the feasibility study is in quantum computing applications competition.

Joining me today are doing this work is HSBC the quantum software lab based at the University of Edinburgh and National quantum computing centers.

Together the consortium aims to enhance existing money laundering techniques by using quantum machine learning techniques with the goal of improving the performance of current state of the art machine learning algorithms.

On the technology front, we are continuing to work to improve the sustained performance of our fourth generation Chip architecture, which features a square galactosan tunable couplers to support our anticipated anchor 284 cubic system.

I've got 284 cubic system is expected to be deployed and made available to external customers in the fourth quarter of 2023.

We continue to make good progress with facility on our fourth generation systems, we have achieved higher than 98% media and to cubic's utility with our nine qubit system.

98% median two cubic feet 30, with our 2004 cubic system and higher than 97% median two cubic solidarity with our anchor to 84 cubic system.

Our plan continues to be to get to 98% media and two cubic for today, Davita and <unk> 84 cubic system and over 99% media into cubic's fidelity in 2024.

Thereafter, we intend to develop the 236 cubic lidar system and to demonstrate in Q, a narrow cornerback advantage in two to three years.

And with that I'll turn the call over to Jeff who will review, our third quarter 2023 financial performance.

Thanks, Sue boat revenues in the third quarter of 2023 were $3 1 million compared to two 8 million in the same period of 2022.

Revenue variability is to be expected at this stage of the company's evolution.

The variable nature of contract deliverables and timing with major government agencies.

Gross margins in the third quarter of 2023 came in at 73%.

Up from gross margins in the third quarter of 2022 of 72%.

On the expense side total opex in the third quarter of 2023 was $19 1 million compared to $33 4 million in the same period in the prior year.

Year over year decrease was primarily due to <unk>.

11, 5 million reduction in stock compensation expense.

Other decreases in the third quarter of 2023 included lower employee wages and benefit costs, resulting from our February 2023 reduction in workforce.

The noncash change in the fair value of the forward agreement for the Amp here warrant increased G&A G&A expense by $1 1 million in the third quarter of 2023.

Compared with the $387000 reduction in G&A expense in the third quarter of 2022.

In the third quarter of 2023 stock compensation expense totaled $3 7 million and depreciation and depreciation and amortization expense totaled $2 1 million compared to $15 1 million and one 8 million in the third quarter of 2022, respectively.

Operating loss for the third quarter of 2023 was $16 8 million compared to an operating loss of $31 3 million for the same period of 2022.

Net loss for the third quarter of 2023 was $22 2 million or <unk> 17 per share.

Compared to a net loss of $18 8 million or <unk> 16 per share for the same period of 2022.

Net loss for the third quarter of 2023 was negatively impacted by the noncash change in the fair value of the earn out and derivative warrant liabilities of one 7 million and three 4 million respectively.

Net loss for the third quarter of 2002 was favorably impacted by the noncash change in the fair value of the earn out and derivative warrant liabilities of $4 9 million and $8 1 million respectively.

Cash cash equivalents and available for sale investments totaled $110 2 million as of September 32023.

Compared with $105 5 million as of June 32023.

During the third quarter of 2023, 2023, we raised $12 7 million from the sale of $6 3 million shares of common stock under our common stock purchase agreement with B Riley.

Based on our current operating plan and assuming no additional capital is raised in the three months ending December 31, 2023, we expect to have cash cash equivalents and available for sale securities of $88 million to $94 million at the end of 2023. Thank.

Thank you we would now be happy to answer your questions.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

And our first question comes from Chris Schenker with TD Cowen Your line is open.

Hi, guys. Thanks for taking my questions. This is Steven calling on behalf of Krish.

The first question I had first of all the.

I want to get some more details on the Air Force Research lab.

Trackman.

Right.

Any detail you can provide on sort of the.

Long term value of that contract and maybe how soon that some of the revenues might materialize for that any kind of contingencies that might be based on whether it's technical or.

The timing of when you might be supplying.

Supply in some of the assembly components that you'd highlight would be great.

Sure. Thanks, Stephen So as we just described.

Research lab contract is.

<unk>, which by definition means it's indefinite in its valuation.

Duration.

The gift giver.

Give us some broad guidelines on board.

They expect certain pharmacy services <unk> and <unk>.

Affiliated services uninsured in the contract it's hard to put a mortgage a value on it because by definition its indefinitely.

And therefore, there is a huge organization committed to quantum computing.

Thats foreseeing of DVD. So we certainly expect it to be sizable, but we cannot quantify sitting here right now.

Regarding monetization of the contract that has already started.

Some.

From that contract already in Q3.

Thanks value to increase Q4 and in subsequent quarters.

Hopefully that answers your question.

Okay got it thanks.

Just another follow up to <unk>.

<unk> sales that we recognized in last two quarters I'm, just kind of like Big picture question, just given that there is a number of government agencies that Eric's I assume personal <unk> I think previously you said, there's potential tell more even go into next year.

Just given the fact what investment.

These government agencies need to make to support.

So we're conducting mcgalley's system.

And if necessary infrastructure and introduce refrigerators I assume it's a long term investment so.

I guess does it say anything about.

Keith National Labs, and reviews on superconducting modalities versus other competing modalities with respective maturity of superconducting, where the scalability of it compared to other modalities.

Sure. So super undertake morality suddenly is one of the leading contenders for quantum computing under that another competitor do more Leds as you know.

Certainly we believe superconducting for IBD is a huge advantage also scalability as you can already see the order.

<unk>.

There are competitors in superconducting not dissimilar.

Each will be certainly significantly higher than other competitive modalities.

And do you have the benefit of scaling.

We've said that.

All of US are still significantly off following onto that warrant a J D power as we have said we had about two to three years from demonstrating that quantum advantage, which means performance and cost benefits.

Classical computing on the practical applications.

The Goldman organizations <unk> committed to investing in different modalities.

Definitely benefit when they invest in superconducting regarding.

<unk> sales in.

In Q2, we sold our first <unk> you and now we can disclose that goes to the <unk> Center of excellence, we lap in Q2, we shipped another <unk> one of the Premier National Lab, we cannot disclose the names right now hopefully we'll be able to disclose that soon.

As exciting as far as we know we are the only company that has actually sold.

Making quantum computer to any organization and now we have been doing.

And post acute wounds that are in Q3, so it's a huge milestone for the company. We are super excited about and we are proud of that accomplishment.

Pipeline continues to build we are talking to a number of our customers the national Labs University, researchers and those kinds of organizations, who have significant interest in getting it onto the mice quantum computer and there is a lot of value in doing that.

<unk> hands on research and again get firsthand experience with how old are you.

Modeling computations that quantum computing, but also how we optimize our use.

Ongoing developments and so on so there are many reasons why customers are interested in getting a quantum computer device.

The way we have enabled our nine qubit quantum computers.

Marty will that essentially gets plugged into an existing dilutions refrigerator and many national labs and University researchers have already purchased our dilution and appreciate it.

So for them, it's a relatively.

Straightforward change to take off some comprehension within our quantum computer and R&D can be up and running.

He quickly so it's relatively.

Elegantly simple process to get somebody.

And I believe with the quantum computer and get them hands on experience and Thats. What we are focused on besides the technology part of course.

Okay perfect.

Last question, if I could I wanted to ask about your.

Youre quantum cloud service.

So I know, it's still very early innings for your Tcs.

Our business I.

I guess in terms of non government cloud service revenues.

Yes, it's still a I think just given your strategic shifts in focus to a fidelity rates and all the progress you've made so far this year.

I guess have you sensed any noticeable shift in commercial interest in using your Tcs services either from direct feedback from customers and maybe any indications from your ecosystem partners that you brokerage to the other for QTS.

So im sure Gautam.

Service through the cloud would be obviously have relationship with AWS Azure as well as our own cloud and also for us.

A quantum computer to select Goldman organizations commercial interest is definitely there, but still relatively low compared to national labs and University researchers.

Most likely it is because we are still be from quantum advantage as we approach now to go into my advanced age in the next two to three years, we definitely expect commercial interest as soon and that shows the potential exclusive opportunity comes in two or three years from now but as of today. Most of them do you think you some researchers and.

National Labs, and universities, such as to dominate the usage of quantum computing today.

Okay, great. Thank you so much and nice job on the quarter.

Thank you Stuart.

One moment for our next question.

Our next question comes from David Williams with the Benchmark Company. Your line is open.

Hey, gentlemen, good afternoon, and thanks for taking my question forgive me. If this was asked or answered already I'm a little late joining here, but just wanted to see if you could talk a little bit about the.

<unk> sale you had previously I know you mentioned another one.

Cant disclose but just I guess, if you could talk maybe about the inbound activity and anything youre seeing there that gives you optimism of additional sales in the future. Thank you.

Sure. Thanks, David So we sort out for you in Q2 and as I mentioned.

As far as we know that is the first time any company has sort of quantum computer to a customer that wants to ask your Ms franchise that happened in Q2 of this year we sold.

<unk> in Q3 of this year.

One of the Premier National narrative, and hopefully be able to disclose the names.

Pipeline for future <unk> sales continues to be we are talking to more than a dozen customers right now.

Most of them are 490, <unk> some have expressed interest in 2020 event.

One hasn't expressed interest in using 84 gigabit.

Thirdly, the price Brian continue boost.

Dramatically when you move from nine to 20.

We give it.

What are really are very pleased with the reaction.

Foreign <unk> orders.

Pmi's give you specifically and again most of the applications are for buses.

We can do anything from <unk>.

The individual understanding quantum computing to ultrashape optimization.

Got it.

Many of the applications that against Ingalls.

So hopefully that answers your question.

No no that's very helpful. Thank you.

And then maybe if you if you can just kind of think about this opportunity as you go forward. It feels like you've got multiple revenue stream potentials here.

In terms of the processor and then also the quantum as a service in and you've made some really great progress and I have to commend you on just the efficiency that you.

Field and getting the 84 out and everything <unk> been able to achieve there so congrats on that.

I guess, just if you could help us understand how you envision the business developing over time and if there are any different today I guess given some of the interest on the <unk> versus where you would've thought whenever you came in some time ago. Thank you.

Thanks, David So as we have stated before.

Fundamental strategy right now is to focus on technology development and fidelity.

<unk> hundred 99% and then scale up.

236 cubic from there as we mentioned in our press release right now beyond making Gpus.

Nine cubic Gpus, we are talking more than 90% closer to 99% fidelity.

24 geographic beyond at about 98% and then we are at 84 cubic we are at about 97%. All these numbers are two pubic securities.

And just out of the market really good numbers considering have you started the year. So on interim rates have essentially been.

Slashed by a factor of which is a huge accomplishment.

Since I've been at the company will continue to focus on that that is the core mission and objectives of the Companys to include interface because that's what gets you a and then I just wanted I wanted to ask one and it was exclusive opportunity.

Having said that in the meantime, we have latched onto this.

<unk> sales opportunities for researchers who wanted to get their hands on and do experiments themselves and as I mentioned, the nine cubic to be use already close to 99%. So there are many practical things researchers can do an experiment with and that's why I believe they are finding value and will continue to generate sales, but again I don't want to see.

Well hopefully continue to grow for <unk> and quantum cloud as a service.

Certainly exciting potential to keep doing things in the near term, but again, we are not focused on that our focus is clearly on developing technology getting us as fast as possible and that will garner background age and then also the exclusive opportunities that come after that.

Thank you very much.

Thank you David.

And this concludes the question and answer session I would like to turn the call back over to Dr. Kulkarni for closing remarks.

Thank you for your interest and questions. We look forward to updating you after our Q4 results. Thanks again.

And this concludes today's conference call. Thank you all for participating you may now disconnect.

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