Rigetti Computing, Inc.

Good day and thank you for standing by. Welcome to Regetti Computing third quarter 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. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Subodh Kulkarni. Please go ahead.

Subodh Kulkarni Good afternoon, and thank you for participating in DIGATI's earnings conference call covering the third 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 Regatti's Q3 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 31st, 2022, our Form 10-Q for the three and nine months ended September 30th, 2023, and our subsequent findings with the SEC and other findings with the Securities and Exchange Commission. We urge you to review these discussions of risk factors. Turning now to the business of third quarter of 2023, I'm pleased to report that we continue to grow our QPU system sales. In the third quarter of 2023, Rigetti expanded its QPU customer base, which is delivery of a nine-qubit quantum processing unit, QPU, to another premier national laboratory. This follows our first QPU sale in the second quarter of 2023 to Fermilab, in which we delivered a nine-qubit QPU as part of our partnership with the Superconducting Quantum Materials and Systems Center, SQMS. We were awarded a five-year indefinite delivery indefinite quantity IDIQ contract with the Air Force Research Lab AFRL Information Directorate to supply AFRL researchers with quantum foundry services. This contract allows AFRL to leverage Rigetti's fabrication and manufacturing capabilities to build customized quantum systems. Within the scope of the contract, we will be able to provide quantum integrated circuits, quantum limited amplifiers, cryogenic microwave components, and 9-qubit QPUs. This contract builds on the existing relationship between Rigetti and AFRL to harness our fabrication capabilities for quantum networking hardware research and development. We are thrilled that leading government agencies and national labs are beginning to choose the greatest established fabrication capabilities to advance their quantum computing research and development. By providing hands-on access to our QPUs, we believe that we are enabling greater progress towards narrow quantum advantage and quantum technology breakthroughs. I'm pleased to report that we were recently awarded a DARPA impact contract to advance quantum algorithms for solving combinatorial optimization problems. Our DARPA impact project seeks to develop a novel and efficient encoding of optimization problems onto qubits with the goal of enabling larger problems to be mapped to currently available NISQ era quantum computers. The project will specifically address scheduling problems which are among the best known and most pervasive types of combinatorial optimization problems across numerous industries as well as some of the most challenging to solve. Additionally, in October 2023, we were awarded an Innovate UK grant as part of the feasibility studies in quantum computing applications competition. Joining Rigeti in this work is HSBC, the quantum software lab based at the University of Edinburgh and the National Quantum Computing Center. Together, the consortium aims to enhance existing money laundering techniques by using quantum machine learning techniques with the goal of improving the performance of current state-of-the-art machine learning algorithms. On the technology front, we are continuing to work to improve the system performance of our fourth-generation chip architecture, which features a square lattice and tunable couplers to support our anticipated ANCA-2 84-qubit system. Our ANCA-2 84-qubit system is expected to be deployed and made available to external customers in the fourth quarter of 2023. We continue to make good progress with fidelity on our fourth-generation systems. We have achieved higher than 98% median 2-qubit fidelity with our 9-qubit system, 98% median 2-qubit fidelity with our 24-qubit system, and higher than 97% median 2-qubit fidelity with our ANCA-2 84-qubit system. Our plan continues to be to get to 98% median two-qubit fidelity with our ANCA 284-qubit system and over 99% median two-qubit fidelity in 2024. Thereafter, we intend to develop the 336-qubit LIRA system and to demonstrate MQA narrow quantum advantage in two to three years. And with that, I'll turn the call over to Jeff, who will review our third quarter 2023 financial performance.

Thanks, Subodh. Revenues in the third quarter of 2023 were $3.1 million compared to $2.8 million in the same period of 2022. Revenue 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. Gross margins in the third quarter of 2023 came in at 73%, up from gross margins in the third quarter of 2022 of 72%. On the expense side, total OPEX in the third quarter of 2023 was 19.1 million compared to 33.4 million in the same period in the prior year. The year-over-year decrease was primarily due to a 11.5 million reduction in stock compensation expense. Other decreases in the third quarter of 2023 included lower employee wages and benefit costs resulting from our February 2023 reduction in workforce. The non-cash change in the fair value of the forward agreement for the Ampere warrant increased G&A expense by $1.1 million in the third quarter of 2023. compared with a $387,000 reduction in G&A expense in third quarter of 2022. In the third quarter of 2023, stock compensation expense totaled $3.7 million, and depreciation and amortization expense totaled $2.1 million, compared to $15.1 million and $1.8 million in the third quarter of 2022, respectively. Operating loss for the third quarter of 2023 was $16.8 million compared to an operating loss of $31.3 million for the same period of 2022. Net loss for the third quarter of 2023 was $22.2 million or 17 cents per share compared to a net loss of $18.8 million or 16 cents per share for the same period of 2022. Net loss for the third quarter of 2023 was negatively impacted by the non-cash change in the fair value of the earn-out and derivative warrant liabilities of $1.7 million and $3.4 million respectively. Net loss for the third quarter of 2022 was favorably impacted by the non-cash change in the fair value of the earn-out and derivative warrant liabilities of $4.9 million and $8.1 million respectively. Cash, cash equivalents and available for sale investments totaled $110.2 million as of September 30, 2023, compared with $105.5 million as of June 30, 2023. During the third quarter of 2023, we raised $12.7 million from the sale of 6.3 million shares of common stock under our common stock purchase agreement with B. Riley. Based on our current operating plan and assuming no additional capital is raised in the three months ending December 31, 2023, we expect to have cash, cash equivalents, and available for sale securities of $88 to $94 million at the end of 2023. Thank you. We would now be happy to answer your questions.