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Rigetti Computing Inc
NASDAQ:RGTI

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Rigetti Computing Inc
NASDAQ:RGTI
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Price: 1.53 USD -0.65% Market Closed
Updated: Mar 29, 2024

Earnings Call Analysis

Summary
Q4-2023

Advancing Quantum Computing with 99% Fidelity Goal

In 2024, the company aims to achieve a major technological milestone by increasing the median 2-qubit gate fidelity from 98% to over 99%, a key metric in quantum computing that allows for more realistic error correction. This fidelity improvement is a significant step as it could potentially lead to the development of a 336 qubit Lyra system. The company has already gained confidence from government entities, with plans to continue securing contracts throughout the year. Financially, no specific revenue guidance was offered, but the current cash reserves should fund operations into Q3 2025, indicating stable financial footing as efforts are made to drive revenues and reduce losses.

Earnings Call Transcript

Earnings Call Transcript
2023-Q4

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Operator

Good day, and thank you for standing by. Welcome to Rigetti Computing's Fourth Quarter and Full Year 2023 Financial Results Conference Call. [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. .

S
Subodh Kulkarni
executive

Good afternoon, and thank you for participating in Rigetti's earnings conference call covering the fourth quarter and year ended December 31, 2023. Joining me today is Jeffrey 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 31, 2023, press release contain forward-looking statements regarding current expectations, objectives and underlying assumptions regarding our -- 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 described in more detail in our annual report on Form 10-K for the year ended December 31, 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'm pleased to report on a number of new developments. In February 2024, we were awarded a small business research initiative brand from Innovate U.K. and funded by the National Quantum Computing Center to develop and deploy a 24-qubit quantum computer based on our Ankaa architecture. The proposed system is planned to be deployed at NQCC's hardware campus, which is expected to open later this year and will serve as NQCC's landmark facility to support quantum computing research in the U.K.

Since deploying our first U.K.-based quantum computer in 2022, we have had the privilege of collaborating with the U.K.'s talented quantum computing research community. We believe building a system at NQCC could enable even more innovative discoveries to deepen our understanding of how to improve superconducting quantum computers with the goal of solving tactical 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 qubits and is based on our Ankaa class chip architecture. We have completed 2 Novera QPU sales both to leading national labs. The first sale was to Superconducting Quantum Materials and System Centers led by Fermilab in the second quarter of 2023.

In the third quarter of 2023, we delivered our second Novera to the Air Force Research Lab Information Director Head as part of our indefinite delivery, indefinite quantity contract. The IDIQ contract enables AFRL to harness Rigetti's fabrication capabilities quantum networking hardware research development. We are continuing our efforts to develop quantum computing solutions for financial institutions.

We were recently awarded an Innovate U.K. 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 states. 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 of 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 [indiscernible] the performance of a joint HPC plus quantum system to be run on ORNL 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 road map. Following the internal development of 84 qubit or 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 electronic improvements. Combined, these improvements contributed to Ankaa-2 achieving a 98% median 2-qubit [ get ] fidelity, a 2.5x increase in error performance compared to our prior QPUs.

We plan to develop and deploy our anticipated 84-qubit an3 system with the goal of achieving 99% median 2 qubit gate fidelity by the end of 2024. [ Master, ] it's our plan to develop the 336 -- qubit LiDAR 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 [indiscernible] chip architecture and the 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 2 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.

J
Jeffrey Bertelsen
executive

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.

Operator

Our first question comes from the line of Quinn Bolton with Needham & Company. .

Q
Quinn Bolton
analyst

Can you hear me?

S
Subodh Kulkarni
executive

Yes, we can.

Q
Quinn Bolton
analyst

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.

S
Subodh Kulkarni
executive

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 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 through [indiscernible] 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 could see [indiscernible] both the quantum computing lab and now that we can say AFRL, the premier DoD quantum computing lab have essentially chosen Rigetti [indiscernible] choice [indiscernible] with all other big companies. So [indiscernible] securing the DOE and DoD piece if you will. Along with it, the U.K. government or national lab of U.K. government had set up a competition and we came out at the top, so the U.K. 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 U.K., 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 U.K. 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?

J
Jeffrey Bertelsen
executive

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.

Q
Quinn Bolton
analyst

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.

J
Jeffrey Bertelsen
executive

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.

S
Subodh Kulkarni
executive

I mean, again, [indiscernible] that just given the basic contracts we already have, plus 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 [indiscernible]. So I don't want sales to be the metric of how we are succeeding with the technology.

Q
Quinn Bolton
analyst

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 and [ have won ], 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?

S
Subodh Kulkarni
executive

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 the overall 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.

Operator

[Operator Instructions] Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. .

B
Brian Kinstlinger
analyst

My first is could you discuss the NQCC award for the 24 qubit system. How long was the evaluation process? Who is the competition specifically for the QPU piece of the procurement? And what was the feedback on why Rigetti?

S
Subodh Kulkarni
executive

Thanks, Brian. Good questions. So the NQCC competition was set by, basically, the U.K. government. They wanted a foundational quantum computer in their facility on which they build U.K.'s quantum infrastructure. So that's a very key piece of equipment that they were procuring.

The competition was set for roughly a 6-month period. They didn't divulge all the competitors that they evaluated, but we are pretty sure most of the companies that are at the cutting edge of technology and quantum computing were part of that competition. That's why we feel really good that they chose us as the technology of choice to build U.K.'s quantum infrastructure. So clearly, it demonstrates their faith in superconducting quantum computing technology and [ municipal ] conducting quantum computing technology Rigetti as the leading technology of choice.

So very important competition. We feel really good about the fact that an external third-party validated and confirmed our beliefs that we are making the best quantum computers right now.

B
Brian Kinstlinger
analyst

And did you for your QPU only compete with the gating technology? Or was it against, you think, all the different types of technology for you?

S
Subodh Kulkarni
executive

They didn't clarify that, but based on the fact that they were looking for general purpose computing, they probably looked more at gate-based computing approaches. As you probably know, when you look at things like annealing, they're very restricted to the number of applications they can pursue like optimization and a few other applications like that. As soon as you say general purpose computing for the broader market, really, you have to go with a gate-based approach. So the fact that they were looking for general computing tells you that they were primarily looking at gate-based approaches.

B
Brian Kinstlinger
analyst

Great. And then does this award put you in a leadership position so that the NQCC has other procurements or other national labs see that, are you seeing increased interest? I guess I'm just kind of curious if this can lead to additional QPU sales, whether it's 9 qubit, 24 or even more.

S
Subodh Kulkarni
executive

Certainly, I mean, the fact that the DOE's premier quantum computing facility, Fermilab, chose us middle 2023, that certainly was a factor, I'm sure, in NQCC's decision of choosing us. And now that both the U.S. government DOE, DOD labs and now in NQCC, the U.K. lab have chosen us, I'm pretty sure the next few national labs who are looking at similar test beds and quantum computing facilities will look at us much more carefully because of -- if the U.S. government and U.K. government deems that we are making the best quantum computer, chances are we are making the best quantum computers.

B
Brian Kinstlinger
analyst

And are there any other national labs that are running procurements right now? Or is it all incoming early base calls to kind of fill out the industry?

S
Subodh Kulkarni
executive

There are several countries around the world where they have quantum initiatives going on. If you go around the world, you can certainly see governments have sponsored and sometimes even gotten builds to their respective governments. I mean, Japan in specific, Australia, India, Italy, Germany, Denmark and a few other European countries. There are clearly initiatives going on in various countries to get themselves up to speed in quantum computing. So we are really optimistic about our position with U.S. and U.K. right now and leveraging that and extending that to these different countries that are getting into quantum computing.

B
Brian Kinstlinger
analyst

Right. Last question I have. What's the biggest obstacle you have to achieving the 99% fidelity on the 84 qubit system in 2024? And I guess the same question for 2025 on the larger system for 99.5.

S
Subodh Kulkarni
executive

Certainly, I mean, the basic discipline most of us in the semiconductor industry use to improve on our rate is what we [ cooperate or ] analysis. So we'll -- we look at errors just about every day. We'll do a thorough diagnosis of where the errors are coming from and log them and then that's called Pareto analysis and then we look at the biggest contributor of errors and then we go chase them. And then once we resolve them, then the next tier and so on. So first, to get from 98% -- 95% to 98% last year, we did all things in the -- what you call the [indiscernible] conjunction itself, which is a proper device in the chip. We also did some changes in the electronics like PCBs that we use as well as the refrigeration systems. This year, to go from 98% to 99%, our focus is primarily on the proper design of the qubit itself, of what we call the [ Hamiltonian ], also more look into the refrigeration systems and the losses that we are getting from the refrigeration systems. So [indiscernible] scientific way of going after errors and addressing them. We feel pretty good about getting to 99% this year using that methodology.

Operator

Our next question comes from the line of Krish Sankar with TD Cowen. .

U
Unknown Analyst

This is [ Steven ] calling on behalf of Krish. Subodh, maybe first one for you. Just kind of going back to the NQCC win and sort of the deployment timing. I know you mentioned that, that facility will be up and running later this year and start the deployment of the system around that time. But just curious in terms of when the procurement and installation of your -- whether it's the QPU or a number of subcomponents that goes into their system. Can you talk about when that approximate timing might be? Is it late this year? Or is it potentially into next year?

And also, just more broadly, you referenced other initiatives in other countries that might still be early. Is the NQCC's time line in terms of building out and potentially installing it, is that a good template for future kind of installments or buildouts by other countries?

S
Subodh Kulkarni
executive

Yes. Thanks, Krish. So certainly, the NQCC time line that they have provided us is more gated by the facility rather than our ability to supply the QPU. We have started ordering several subcomponents, and we already have the chip and the core products are already ready basically. So we are with them right now on the facility side to make sure that the facility is done once it comes up.

Having said all that, target right now is middle of this year, sometime in the June through August time period is when the facility. It will take us a few weeks, maybe a month or so to get it delivered and installed properly and then probably another month of debugging also. So before -- well before the end of this year, system should be up and running. That's the overall time line.

As we discussed with other national labs in other countries. This model that NQCC is doing is a replicable model, if you will, and other countries are looking along the same lines where they want 20-odd qubit is to start. 9 qubit is a good starting point, but it's really for basic research applications. 28-plus qubits gives you enough horsepower to do some real computations work. So many national labs that we are talking to right now are talking about 20-plus systems.

There are a couple that are about 80-plus cubit systems, too. Those are the more aggressive ones. Obviously, the price points will be higher. So our hope is that besides NQCC, we will get at least one more, maybe a couple more national labs this year, different countries using the 20-plus qubit system and then hopefully, some early work starts with some 80-plus cubit systems that may get installed early next year or middle of next year.

But again, really, the focus is all mostly on fidelity. As fidelity improves, all these opportunities will continue to happen.

U
Unknown Analyst

Got it. Got it. That's very helpful. And also, in terms of the Novera QPU, very exciting to see the formalized program and marketing for that. From some of the details that you've published so far, and it seems like the pricing for that is just under $1 million, but just kind of curious, like are you only selling standard versions? Or is there opportunities for more bespoke configurations and what that -- would you be able to talk about is sort of the rough ASP revenue that could be associated with more bespoke designs?

And lastly, in terms of the product lead time or backlog, is it still sort of intra-quarter type orders that get fulfilled pretty quickly? Or is there a longer backlog or a lead time associated with Novera?

S
Subodh Kulkarni
executive

Regarding Novera, I mean, the product is fairly simple. I mean our product is essentially for [ 900,000 ]. We will see a basic QPU that can essentially become a plug and play modules into your additional refrigeration systems. Our baseline assumption is that the customer already has a DR in their facility, are familiar with quantum computing in general, so they can just take on QPU and plug it into their DR. That's the whole concept of Novera [indiscernible].

We have all of the parts ready and we literally keep 1 or 2 in store now. So if an order comes tomorrow, we can ship it within a day practically. And it's fairly straightforward to get integrated and up and running for a customer who's familiar with quantum computing and dilution refrigerations.

So it's a fairly straightforward product sale, if you will, get the order. Ship the standardized QPU that goes into the intra system. There's 3 dilution refrigeration companies that are generally available in the world right now, Blue Force, a Finnish company; Oxford Instruments from U.K.; Form Factor from California. And then a couple of other smaller companies are getting into the business. Each one has a slightly different consideration of their DR. So depending on the exact model and which -- what the customer has, it may need some customization, but our plan is to try to keep it as an off-the-shelf standard product that we can ship quickly, that will plug into your existing DR. But there are some DRs that may not be suitable to do a plug and play, in which case, we may have to do some adjustments or they may have to do adjustment on the customer side. But the idea is a straightforward simple shipment.

U
Unknown Analyst

Okay. Great. And just a last one for Jeff. Jeff, on the share count side, just wondering if you could help quantify a bit what the share count might be for this quarter and when the full dilution from the recent equity raise, what that might be for next quarter?

J
Jeffrey Bertelsen
executive

Sure. Yes. I mean the full share count impact from the activity that I mentioned in Q1 of 2024 that will really kick in for the second quarter of 2024. We did sell 10.1 million shares in the first quarter. So from a share count perspective, we will be north of 150 million shares here by the time we get to the end of Q1.

Operator

[Operator Instructions] Our next question comes from the line of David Williams with The Benchmark Company. .

D
David Williams
analyst

I hope you can hear me okay.

S
Subodh Kulkarni
executive

Yes, we can hear you. David.

D
David Williams
analyst

Great. Some pretty significant progress the aspects of the firm and the company. And just bringing that road map, I think from [indiscernible] something that be sustainable. [indiscernible] path as you set forward. Kind of wondering, as you look out, what do you think the next big steps are for Rigetti? And how do you feel about your [indiscernible] relative to your peers?

S
Subodh Kulkarni
executive

Yes. Your line was cutting out, but I think I got the gist of the question, so I'll answer it from what I understood. So regarding our road map and critical points, as I mentioned, Fidelity is the top critical point for all of us in quantum computing. We are at 98% median 2 qubit gate fidelity at the 84 qubit level. Obviously, the number is much higher for smaller qubit accounts. Our goal is to get to 99% this year and in the [ mid-99s ] next year at 84 qubit at which point, hopefully, we'll start dialing up the qubit count to several 100 qubit. We talk a lot about fidelity and qubit count, and that gets a lot of the attention. But other important metric is gate speed. Generally, our gate speeds are in the 50 to 100 nanosecond range right now. Most of us in the supercomputing space are in that 50 to 200 nanosecond gate speed range. When we look at other modalities, particularly things like trapped ion or pure atoms, they are dealing with 3 orders of magnitude slower gate speeds than what we in the superconducting camp are looking at. So as we have always said, the challenge for superconducting quantum computing is fidelity. The benefits we have are scalability and gate speed. The challenges for the other modalities like Trapped Ion and Pure Atoms, our fidelity intrinsically is better because they are dealing with pure irons or pure atoms. But the big challenge for them is scalability and gate speed. I mean it's really hard to overcome 3 orders of magnitude gate speed for those kinds of technologies in addition to the scalability challenge.

So overall, within the quantum computing space, we continue to be firm believers in superconducting quantum computing. We think that is the right way to go about tackling real-life problems. And that's why you look at collectively between us and other companies in the superconducting space like IBM, Google and a few others. We are really making rapid progress, all of us. So within the next 2 to 3 years, I'm sure more than 1 of us in the superconducting camp will be at 1,000-plus qubit at 99.5% or better percent fidelity with sub-100 nanosecond gate speed. And that's really when real-life quantum advantage type applications start becoming meaningful.

So I think that's where the superconducting camp is going. We feel pretty good that we are in the leadership position in that camp as evidenced by the government of U.S. and the government of U.K. choosing us over others. So this is pretty good about superconducting quantum computing in general and within that, our position. Hopefully, that answers your question if I heard it correctly.

Operator

I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Subodh Kulkarni for closing remarks.

S
Subodh Kulkarni
executive

Thank you all for your questions and interest. We look forward to updating you as the year progresses. Thanks again.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

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