Rigetti Computing, Inc. (NASDAQ:RGTI) Q4 2023 Earnings Call Transcript March 14, 2024
Rigetti Computing, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to Rigetti Computing’s Fourth Quarter and Full Year 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. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Subodh Kulkarni, Chief Executive Officer. Please go ahead, sir.
Subodh Kulkarni: Good afternoon and thank you for participating in Rigetti’s earnings conference call covering the fourth quarter and year ended December 31st, 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 Q4 and year ended December 31st, 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 annual report on Form 10-K for the year ended December 31st, 2023 and other documents filed by the company from time to time with the Securities and Exchange Commission.
These filings identify and address important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. We urge you to review these discussions of risk factors. Turning now to recent events, I am pleased to report on a number of new developments. In February 2024, we were awarded a Small Business Research Initiative grant from Innovate UK and funded by the National Quantum Computing Center to develop and deploy a 24-qubit quantum computer based on our Ankaa class architecture. The proposed system is planned to be deployed at NQCC’s Harwell Campus, which is expected to open later this year and will serve as NQCC’s landmark facility to support quantum computing research in the UK.
Since deploying our first UK-based quantum computer in 2022, we have had the privilege of collaborating with the UK’s talented quantum computing research community. We believe building a system at the NQCC could enable even more innovative discoveries to deepen our understanding of how to improve superconducting quantum computers with the goal of solving practical problems currently intractable by classical resources alone. In December 2023, we launched the Novera quantum processing unit, our first commercially available QPU. Novera has 9-qubit and is based on our Ankaa class chip architecture. We have completed two Novera QPU sales, both to leading national labs. The first sale was to the Superconducting Quantum Materials and Systems Center, led by Fermilab in the second quarter of 2023.
In the third quarter of 2023, we delivered our second Novera QPU to the Air Force Research Lab Information Directorate as part of our Indefinite Delivery Indefinite Quantity contract. The IDIQ contract enables AFRL to harvest Rigetti’s fabrication capabilities for quantum networking hardware research and development. We are continuing our efforts to develop quantum computing solutions for financial institutions. We were recently awarded an Innovate UK grant with the aim to develop quantum machine learning techniques to enable financial institutions to more effectively process, interpret, and make decisions with complex data streams. Joining Rigetti in this project is Amazon Web Services, Imperial College London, and Standard Chartered. We were recently awarded Phase 2 of the DARPA program, which aims to develop a resource estimation framework to provide insight into the requirements of a superconducting quantum computing system necessary for solving large-scale complex problems.
The goal of Phase 2 is to refine and optimize the estimates for selected utility-scale problems, delivering new upper bounds on these requirements. The University of Technology Sydney, Aalto University, and the University of Southern California will continue to be project partners in Phase 2. We are partnering with Riverlane and Oak Ridge National Laboratory to work to improve high performance computing and quantum integration. To develop the integration of quantum computers into high performance computing environments, the project partners plan to build a first-ever benchmarking suite for measuring the performance of a joint HPC plus quantum system to be run on ORNL’s Summit supercomputer. For the quantum components, researchers plan to use simulated hardware based on key elements of Riverlane’s quantum error correction stack and real remote hardware located at our headquarters in California.
And now a few comments regarding our technology roadmap. Following the internal development of 84-qubit Ankaa-1 system in March 2023, our 84-qubit Ankaa-2 system was made publicly available in December 2023. The 84-qubit Ankaa-2 system is our highest qubit count QPU available to the public. In addition to a new chip architecture that features a square lattice and tunable couplers, Ankaa-2 includes a new chip fabrication process, new printed circuit board technology, and electronics improvements. Combined, this improvements contributed to Ankaa-2 achieving a 98% median 2-qubit gate fidelity, a 2.5x increase in error performance compared to our prior QPUs. We plan to develop and deploy our anticipated 84-qubit Ankaa-3 system with the goal of achieving 99% median 2-qubit gate fidelity by the end of 2024.
Thereafter, it’s our plan to develop the 336-qubit Lyra system. We are confident in our ability to build better performing QPUs as evidenced by our impressive Ankaa-2 performance. We believe we have laid the groundwork for building scalable, high performing QPUs with our proven modular chip architecture and innovative Ankaa chip design that resulted in a 98% median 2-qubit gate fidelity. We are excited for the anticipated development and deployment of our Ankaa-3 system which we believe will demonstrate the excellence and ingenuity of our R&D teams. We believe our leadership and expertise in full-stack quantum systems, paired with our strong collaborations with researchers around the world across academia, industry and government, puts us in a unique position to tackle the challenges of building a quantum computer capable of addressing real-world problems.
With Rigetti QPUs now in two research labs internationally, we are even more optimistic that practical quantum computing is in reach. Jeff will now make a few remarks regarding our recent financial performance.
Jeffrey Bertelsen: Thanks, Subodh. Revenues in the fourth quarter of 2023 were $3.4 million compared to $6.1 million in the same period of 2022 when a large amount of revenue from SQMS was recognized. Gross margins in the fourth quarter of 2023 came in at 75% compared to 87% for the fourth quarter of 2022. Revenue and gross margin variability is to be expected at this stage of the company’s evolution given the variable nature of contract deliverables and timing with major government agencies. On the expense side, total OpEx in the fourth quarter of 2023 was $19.7 million compared to $32 million in the same period in the prior year. The year-over-year decrease was primarily due to the $5.4 million goodwill impairment charge booked in the fourth quarter of 2022 and a $3.5 million reduction in stock compensation expense.
In the fourth quarter of 2023, stock compensation expense totaled $3.7 million compared to $7.2 million in the fourth quarter of 2022. Other decreases in the fourth quarter of 2023 included lower employee wages and benefit costs resulting from our February 2023 reduction of workforce. Operating loss for the fourth quarter of 2023 was $17.2 million compared to an operating loss of $26.7 million for the same period of 2022. Net loss for the fourth quarter of 2023 was $12.6 million or $0.09 per share compared to a net loss of $22.9 million or $0.19 per share for the same period of 2022. Cash, cash equivalents and available-for-sale investments totaled $99.9 million as of December 31, 2023, compared with $110.2 million as of September 30, 2023 and $142.8 million at December 31, 2022.
During the fourth quarter of 2023, we raised $5.5 million from the sale of 5.2 million shares of common stock under our common stock purchase agreement with B. Riley. Subsequent to year-end, during the first quarter of 2024, we raised a further $12.8 million from the sale of 10.1 million shares of common stock under the B. Riley agreement. There are no more shares available for sale under this agreement. In December 2023, we filed a $250 million shelf registration statement with the Securities and Exchange Commission. We are continually evaluating our financing options. Thank you. We would now be happy to answer your questions.
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Q&A Session
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Operator: Our first question comes from the line of Quinn Bolton with Needham & Company. Your line is now open.
Quinn Bolton: Hey, guys. Can you hear me?
Subodh Kulkarni: Yes, we can.
Quinn Bolton: Perfect. Perfect. Congratulations on the nice finish. I guess since this is the fiscal year-end, Subodh, are there any milestones you can give us for 2024, sort of your highest priorities? You mentioned a couple, the Ankaa-3 at 99% median 2-qubit gate fidelities and but wondering if there’s anything else you can share kind of in terms of big milestones. And then maybe for Jeff, anything, I think last year, you sort of provided a year-end cash balance target. I don’t know if you’re prepared to do anything like that for ’24. But anything you can sort of do to help shape revenue cash flow or year-end cash expectations would be helpful. Thank you.
Subodh Kulkarni: Sure. Thanks, Quinn. So certainly, the most important milestone we plan to deliver in 2024 is improvement in fidelity. That is the most important metric for quantum computing right now. So our plan, as we stated, is to get us from 98% median 2-qubit gate fidelity, which is where we are today with our 84-qubit system to 99-plus percent median 2-qubit gate fidelity, and that’s a big milestone not only because it’s a 2x reduction in errors, but also at 99% fidelity, you can start doing realistic error correction, error mitigation, those kinds of things that are well known and well proven in conventional computation systems. So that’s a big milestone from a technology standpoint. As we mentioned in our press release, once we hit 99%, we’ll also start working towards our 336-qubit Lyra system.
And while we do that, we’ll obviously continue to improve fidelity. Our goal is to get into the mid-99s next year along with the several hundred qubit. So those are the technology milestones. Along with it and as you can see [Technical Difficulty] both the DOE quantum computing lab and now that we can say AFRL, the premier DOD quantum computing lab have essentially chosen Rigetti [Technical Difficulty] choice [Technical Difficulty] with all the other big companies. So [Technical Difficulty] securing the DOE and DoD [Technical Difficulty] if you will. Along with it, the UK government or national lab of UK government had set up a competition and we came out at the top, so the UK government has chosen to deploy our 24-qubit quantum computing system.
We are continuing to work with other national governments, including DOE, DOD and the UK, and we hope we’ll announce some more wins as the year goes on, whether it’s higher qubit count systems to the existing customers like DOE or DOD or UK or to new national labs, and we certainly hope we can announce some of those. So that’s at a high level what we are doing both from a technology as well as business standpoint. Jeff, you want to answer the question about cash?
Jeffrey Bertelsen: Sure. Yes, Quinn, we are not providing any forward-looking guidance right now, although I would comment that given our current cash and available for sale securities on hand, we have sufficient funding to take us into the early part of Q3 2025. So I just want to provide that cash runway outlook.
Quinn Bolton: Okay. Understanding that you don’t want to sort of give sort of any kind of formal guidance for ’24. Maybe can you walk through, Jeff, obviously, you’ve got contracts. You also have the QPU sales and especially as you get to a 24-qubit QPU, I think the ASPs go up. Is it reasonable for analysts to sort of think you should see revenue trending sort of flat to higher through the year from kind of the December run rate? I mean, again, I won’t try to get you to, I won’t pinpoint you, but certainly feels like between contracts that you’ve announced and QPU sales that revenue is likely to grow ’24 over ’23.
Jeffrey Bertelsen: Sure. Again, no forward-looking guidance, but obviously, it’s our goal to continue to drive revenues and reduce our loss. I mean we do have the 9 QPU Novera product now that we can sell, and we did just get the nice 24-q NQCC contract, which certainly helped. So we’re definitely focused on those things, which will extend our cash runway and help in that regard. So we’re definitely focused on all the levers.
Subodh Kulkarni: I mean again [Technical Difficulty] that just given the basic contracts we already have, plus the 24-qubit sale to NQCC, we certainly expect sales growth. But the main story over here continues to be the technology and fidelity improvement and getting close to quantum [Technical Difficulty]. So I don’t want sales to be the metric of how we are succeeding with the technology.
Quinn Bolton: Got it. Maybe just one last quick one, Subodh. Just knowing that the gate fidelity is the most important goal, obviously, you announced that Ankaa-2 is at 98%. But as you continue to run wafers in Fab-1, do you feel like perhaps the 9-qubit fidelities are already well on their way to sort of the 99% or 99-plus percent qubit fidelity? And do you have sort of the proof points that give you confidence in your ability to get to that 99% for Ankaa-3 by the end of the year? Thanks.
Subodh Kulkarni: That’s a good question. And actually, we do have data. I mean you always have a lot of data on 9-qubit before we put it out together for 24-qubit and 84-qubit systems. So all initial indications with 9-qubit and Ankaa-3 are that we feel very confident of hitting our 99% goal at the 84-qubit level, which means we certainly will be much higher than that at the 9-qubit level. So all our initial data is very promising for Ankaa-3, and we feel pretty good about getting to 99% at the 84-qubit level before the end of this year.
Quinn Bolton: Perfect. Thank you.
Subodh Kulkarni: Thank you, Quinn.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is now open.
