Rigetti Computing, Inc.

Thank you for standing by and welcome to the Rigetti Computing fourth quarter and full year 2022 financial results conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star one one on your telephone. As a reminder, today's call is being recorded. I will now turn the conference over to your host, Dr. Subodh Kulkarni, president and CEO. Please go ahead.

Thank you, Valerie. Good afternoon and thank you for participating in Rigetti's earnings conference call covering the fourth quarter and full year 2022. Joining me today is Jeff Bertelsen, our CFO, who will review our results in some detail following my overview. Our CTO, David Rivers, 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-end 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-Q for the three and nine months ended September 30th, 2022, and our subsequent filings with the SEC including our Form 10-K for the year ended December 31st, 2022, 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 fourth quarter of 2022, I would like to start by sharing a few words about myself and my thoughts on leading Rigetti and the opportunity ahead of us now. My career for the past 30 plus years has been with the semiconductor industry, starting with IBM research and within an IBM fab after completing my master's and PhD at MIT in chemical engineering. Later, I served as CEO for Prism Computational Sciences. For the past nine years, I have been CEO of CyberOptics, a semi-cap company that was successfully acquired by Nordstrom Corporation in November of 2022. While quantum is a new world, the heart of the technical work is basically a semiconductor device. The fundamental principles that are used in semiconductors are the same in the quantum world. It centers on the interactions of the zeros and ones and the supporting of both states. That being said, quantum is a brand new way of doing computing that is mathematically more powerful than the way computing is currently done. In my time here at Rigetti, I found the team to be very passionate and technically impressive. Our mission is to build the world's most powerful computers to help solve humanity's most important and pressing problems. You don't get these kinds of chances that often. It has been about 50 years since there has been this type of opportunity where there is potentially a full paradigm change in the way information can be processed and problem solved. At Rigetti, our energy today is focused on fidelity. The newest roadmap development relates to our next generation qubit chip, known as ANCA-1 84-qubit chip, with its new architecture of square lattice and tunable couplers, which is now deployed internally for testing. This chip is a leap forward in architectural design and is already showing superior performance compared with our prior generation 80-qubit Aspen M3 system based on our internal analysis. And initial performance demonstrates improved median 2Q fidelity and faster gate speeds compared to the Aspen M3 system. We'll continue to work on to improve ANCA1 performance over the next few months with the goal to reach median 2Q fidelity of 98% and anticipate making it available for select customers in mid 2023. ANCA2 with anticipated improved design and further improvement in performance is expected to be deployed in Q4 2023. Assuming we reach ANCA2 median 2Q fidelity of 99%, which we currently expect to reach in 2024, we plan to move to tiling four ANCA chips to enable the 336-qubit LIRA system. We expect this milestone to enable vastly greater scale and is a key and exciting step to bring Rigetic significantly closer to quantum advantage. What we are doing is taking a single dye and building a cell out of that with certain number of qubits arranged in a lattice. We are taking one or more of those dyes and connecting them together. The critical issue to have happen there is you have to have those two qubits on different dyes communicate with each other. They have to entangle in the language of quantum mechanics. It's near neighbor electrons entangling with each other and photons entangling with each other across those dyes. It's a non-trivial thing to do, yet we have done it. This ability to scale gets us out of the business of what we have been doing in the past and what most of the rest of the industry and some in superconducting are doing, which is building larger and larger dyes on entire wafers. As previously outlined, in 2023 and 2024, we'll continue to focus on improving ANCA performance, primarily in fidelity, and also other important metrics, including gate speed and coherence time. Additionally, we continue to make good progress with our software stack. We believe we will be able to demonstrate narrow quantum advantage with significantly superior performance and cost over classical computing in two to three years. Notably, we believe we have already demonstrated in our labs the existence principle with median 2Q fidelity of 99.5% on a few qubits. We are now working on the important step of bringing our median averages to that level for all 84 qubits. This is a technical challenge for the entire industry. And we believe Riget's superconducting approach is optimal for users as they factor quantum advantage into their computing solutions. Following the anticipated successful introduction of Lyra, we then plan to move to deeper commercialization initiatives within our strategic agenda. In terms of production and cost, right now we are making a relatively small number of chips and using a small number of dilution refrigerators. But the cost to do so remains high. And the reward of doing so, we believe, has the potential to be high as well. Before we turn to our financial results, I want to be clear that our priority at the company for 2023 will be on technology and moving towards our goal of achieving narrow quantum advantage. As such, in the first quarter of 2023, we reduced our workforce to focus the organization and preserve our cash resources. We value the contributions of all our employees, and we thank them for the tremendous work they have done to help Rigetti reach this important point in time. We also brought on a new CFO, Jeff Bertelsen. Jeff and I have worked together for nine years at CyberOptics, where he served as CFO and COO. Additionally, we are pleased to recognize David Rivas by promoting him to CTO. David is a technical leader at Rigetti who joined in 2019. Prior to expanding his role to CTO, he has been overseeing the engineering and operations of Rigetti's Quantum Cloud Services platform. Prior to Rigetti, David held executive technical roles at companies such as Nokia and Sun Microsystems. And with that, I'll turn the call over to Jeff, who will review our fourth quarter and full year 2022 performance.

Thanks, Subodh. Revenues in the fourth quarter of 2022 were $6.1 million. compared to 1.8 million in the same period in 2021. 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 with revenue recognition varying according to the timing of deliverables. Gross margins in the fourth quarter of 2022 came in at 87% versus 62% in the same period in 2021. The year over year increase in gross margin was mainly driven by the timing of revenue recognition and the variable nature of our customer contracts. On the expense side, total OPEX in the fourth quarter of 2022 was $32 million compared to $12.2 million in the same period the prior year. The year-over-year increase was mainly due to our investment in research and development, a $5.4 million goodwill impairment charge, as well as higher costs related to being a public company. In the fourth quarter of 2022, stock compensation expense totaled $7.2 million and depreciation and amortization expense totaled $2.2 million. Compared to $375,000, and $1.4 million in the fourth quarter of 2021. The change in the fair value of the Ampere warrant recorded through G&A expense in the fourth quarter of 2022 was a gain of $300,000 compared to a gain of $170,000 in the fourth quarter of 2021. Operating loss for the fourth quarter of 2022 was $26.7 million compared to an operating loss of $11.1 million for the same period of 2021. Net loss for the fourth quarter of 2022 was $22.9 million or 19 cents per share compared to a net loss of $14.1 million or 61 cents per share for the same period of 2021. Cash, cash equivalents and available for sale investments totaled 142.8 million as of December 31, 2022 compared with $11.7 million as of December 31, 2021. As previously disclosed, in October 2021, we changed our year end from January 31st to December 31st, effective December 31, 2021. For the 12 months ending December 31, 2022, total revenues were $13.1 million, and the net loss was $71.5 million, or 70 cents per share. For the 11 months ending December 31, 2021, total revenues were $8.2 million, and the net loss was $38.2 million, or $164 per share. Full-year CapEx for 2022 was $22.7 million. In February 2023, the Board of Directors approved a reduction in workforce to align with the company's updated business strategy and revised technology roadmap. In the first quarter of 2023, we expect to incur restructuring charges of approximately $1.4 million, primarily for severance payments and temporary healthcare coverage for employees with respect to eliminated positions. We anticipate having cash, cash equivalents, and available for sale investments of between $65 and $75 million at the end of 2023. At this time, we anticipate that we will need to raise additional funding by late 2024 or early 2025 to continue our research and development efforts and achieve our business objectives based on our current business plans. At our current stage of development, we believe that executing toward our roadmap and achieving our technology milestones are key to fueling our goal of achieving quantum advantage. Our financial strategy is aligned with this view and we remain focused on meeting our objectives. Thank you. We would now be happy to answer your questions.