Rigetti Computing, Inc.

Good day, and welcome to the Rigetti Computing second quarter 2023 financial results call. At this time, all participants are listening on remote. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Sabahat Kulkarni. You may begin.

Good afternoon, and thank you for participating in Rigetti's earnings conference call covering the second 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 Q2 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 and six months ended June 30th, 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 second quarter of 2023, I'm pleased to report our belief that we remain on track to reach our year-end technology milestones with our fourth generation system. After having launched ANCA-1 internally, We are excited to have our longtime partner, River Lane, as the first external partner using the system to work on improving error correction techniques on our new architecture. We also look forward to making our most innovative quantum system available to the general public in Q4 of this year. As previously disclosed, we are continuing to work to improve ANCA-1 performance with the goal of reaching median two-qubit fidelity of 98% to support the anticipated ANCA-2 84-qubit system. Our ANCA-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 median two-qubit fidelity of 99% with the anticipated ANCA-2, which we expect to be achieved in 2024 and development of the 336-qubit Lyra system thereafter. We also recently announced that we signed a collaboration agreement with ADIA Lab to design, build, execute, and optimize a quantum computing solution intended to address the probability distribution classification problem, which has many direct applications to practical use cases in the investment industry. Tackling real-world computationally challenging problems like this is an important part of working towards narrow quantum advantage. I'm also very pleased to announce that we recently completed our first QPU sale, which went to a national lab. We delivered a nine-qubit QPU and associated hardware to the lab, which features a square lattice with tunable couplers that can perform entangling two-qubit gate operations. 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. 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. We remain focused on meeting our objectives. And with that, I'll now turn the call over to Jeff who will review our second quarter 2023 financial performance.

Thanks, Subodh. Revenues in the second quarter of 2023 were $3.3 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 second quarter of 2023 came in at 82%, up from gross margins in the second quarter of 2022 of 59%. The improvement in total gross profit is primarily due to the significant variability in the pricing in terms of our development contracts. On the expense side, total OPEX in the second quarter of 2023 was 19 million compared to 27 million in the same period in the prior year. The year-over-year decrease was primarily due to a reduction in stock compensation expense. Other decreases in the second quarter of 2023 included lower professional fees and lower employee wages and benefit costs resulting from our February 2023 reduction in workforce. The change in the fair value of the forward agreement for the Ampere warrant increased G&A expense by $44,000 in the second quarter of 2023, compared with a $2.1 million reduction in G&A expense in the second quarter of 2022. In the second quarter of 2023, stock compensation expense totaled 3.4 million, and depreciation and amortization expense totaled 2.2 million, compared to $11 million and $1.6 million in the second quarter of 2022, respectively. Operating loss for the second quarter of 2023 was 16.2 million. compared to an operating loss of $25.8 million for the same period of 2022. Net loss for the second quarter of 2023 was $17 million, or 13 cents per share, compared to a net loss of $12.3 million, or 11 cents per share, for the same period of 2022. Net loss for the second quarter of 2022 was favorably impacted by changes in the liability for the earn out and derivative warrant liabilities of $6.6 million and $8 million, respectively. Cash, cash equivalents and available for sale investments totaled $105.5 million as of June 30, 2023, compared with $122 million as of March 31, 2023. During the second quarter of 2023, we raised 2.348 million from the sale of 1.869 million shares of common stock under our common stock purchase agreement with B. Reilly. Based on our current operating plan, we expect to have cash, cash equivalents and available for sale securities of between 65 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.