Rigetti Computing, Inc. (NASDAQ:RGTI) Q1 2023 Earnings Call Transcript May 11, 2023

Rigetti Computing, Inc. misses on earnings expectations. Reported EPS is $-0.19 EPS, expectations were $-0.15.

Operator: Thank you for standing by. Welcome to the Rigetti Computing First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentations, there’ll be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now, I’d like to introduce your host for today’s program, Dr. Subodh Kulkarni, President and CEO. Please go ahead, sir.

Dr. Subodh Kulkarni: Good afternoon, and thank you for participating in Rigetti’s 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 Rivas, is also here to participate in the Q&A session. We will be pleased to answer your questions at the conclusion of our remarks. We would like to point out that this call and Rigetti’s Q1 2023 press release contain forward-looking statements regarding current expectations, objectives and underlying assumptions regarding our outlook and future operating results. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described and are discussed in more detail in our Form 10-K for the year ended December 31, 2022, our Form 10-Q for the three 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 these discussions of risk factors. Turning now to the business of the first quarter of 2023. I’m pleased to report that we believe we are on track and progressing towards the nearer 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, operating efficiency and preserve cash resources. Our next generation 84-qubit Ankaa-1 system, which is built using new architecture of square lattice and tunable couplers, was deployed internally within Rigetti for testing in March 2023. Ankaa-1 is achieving 96% to 97% median 2-qubit fidelity and 65 to 70 nanosecond gate speeds based on our internal testing.

Our prior generation 80-qubit Aspen M-3 system achieved 94% to 95% median 2-qubit fidelity and 185 to 190 nanosecond gate speeds. We believe these metrics demonstrate the superior performance of Ankaa-1 as compared to Aspen M-3 and confirm our believe that the chip used in Ankaa-1 system is a leap forward in architectural design. As previously disclosed, we currently anticipate launching Ankaa-1 to select customers in mid-2023. We continue to work to improve Ankaa-1 performance with the goal of reaching median 2-qubit fidelity of 98% to support the anticipated Ankaa-2 84-qubit system. Our Ankaa-2 84-qubit system with 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 2-qubit fidelity of 99% with the anticipated Ankaa-2, which we expect to be achieved in 2024 and development of the 336-qubit Lyra system thereafter. We recently released the results of application and 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 narrow quantum advantage. Using quantum-inspired classical simulations, we were able to demonstrate the computational power of quantum methods compared to the classical alternatives. At 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 recessions, using cutting-edge, machine learning techniques that combine classical signature kernel methods with quantum-enhanced data transformations.

By using noiseless quantum simulation, we were able to demonstrate that the quantum-enhanced version of our model outperforms the classical version as well as standard modems used for this class of problems in accurately predicting a recession. As part of our ongoing DARPA project, we released a manuscript that presents a new quantum algorithm for solving optimization problems with NASA that provides performance assurances even with noise and outperforms 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 fueling 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 2023 financial performance.

Jeff Bertelsen: Thanks, Subodh. 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 or 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, including $8.9 million of cumulative deferred stock compensation expense related to satisfaction of a liquidity 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 expenses in the first quarter of 2022 for a prior period catch-up of electric utility fees. The change in the fair value of the forward agreement for the Ampere warrant increased G&A expense by $1.1 million in the first quarter of 2023 compared with a $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 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 cost per headcount, primarily in the R&D area, a $742,000 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 $0.19 per share compared to a net loss of $17.6 million or $0.33 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 sales securities of between $65 million and $75 million at the end of 2023. At this time, based on our current operating plan, we anticipate that Rigetti will need to raise additional funding by late 2024, early 2025 to continue its research and development efforts and achieve its business objectives. Thank you. We would now be happy to answer your questions.

Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Jean-Marc [ph] from Deutsche Bank.

Operator: [Operator Instructions] And our next question comes from the line of David Williams from the Benchmark Company. Your question please?

Operator: And our next question comes from the line of Quinn Bolton from Needham. Your question please.

Operator: [Operator Instructions] And our next question comes from the line of Krish Sankar from TD Cowen.

Operator: 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.

Dr. Subodh Kulkarni: Thank you for your interest and questions. We look forward to updating you as the year progresses. Thank you.

Operator: Thanks you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.