Rigetti Computing Inc (RGTI) 2022 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to Rigetti Computing third quarter 2022 business update conference call. (Operator Instructions)

Please be advised that today's conference is being recorded. I would now like to hand the call over to a representative from Investor Relations for a brief introduction. Please go ahead.

Thank you, operator. And good evening, everyone.

Today, Rigetti will provide an update regarding its business and technology progress during the third quarter 2022. In addition to recent CEO transition announcements, we will not be discussing the financial results for the third quarter of 2022 as financial statements for the third quarter are not yet available. And Rigetti has filed an extension notice for its third quarter 10-Q with the SEC. With me is Dr. Alissa Fitzgerald, member of Rigetti's Board of Directors and Audit Committee, and Chair of the Nominating and Corporate Governance Committee; Rick Danis, Interim President and CEO, and General Counsel; Brian Sereda, CFO; and David Rivas, SVP of Systems and Services.

Before I turn the call over to Alissa, I'd like to point out that this call and Rigetti business update press release contain forward-looking statements concerning current expectations, objectives, and underlying assumptions, including statements with respect to Rigetti's technology and technology road map, milestones, business plans, strategy and prospects, collaborations and partnerships, CEO transition; and expectations with respect to the company's financial statements and internal control over financial reporting and disclosure controls and procedures among others. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described.

Please refer to Rigetti's business update press release issued today for factors that could cause those results to differ materially. And now, I'll turn it over to Alissa.

Thank you, and welcome, everyone. To start off, I'd like to take a few moments to speak on behalf of the Board of Directors regarding the recent announcements on the transition of Rigetti's Chief Executive Officer, as well as our executive search for a new CEO currently underway.

But first, I'll introduce myself. I'm the longest-tenured Board Member, member of the audit committee, and Chair of the Nominating and Corporate Governance committee. I'm also one of three technologists on the Board. I completed my education at MIT and Stanford in aerospace engineering and worked in the aerospace industry earlier in my career, later moving into a specialty area of the semiconductor industry known as MEMS or Microelectromechanical systems.

Since 2023, I've been the CEO of a technology development company, which I founded, A.M. Fitzgerald & Associates, which provides specialized engineering services to develop emerging silicon chip technologies into products. Through my participation on Rigetti's Board over the past four years, I have a comprehensive understanding of Rigetti's technology, its technical team, and ultimately, what I believe is its collective promise to potentially revolutionize computing technology as we know it today.

Now to address the CEO transition, we filed an 8-K earlier today, reflecting that Rick Danis has been appointed Interim President and CEO of the company. And that Chad will be remaining with the company in a non-executive capacity until his previously announced departure date on December 15, 2022.

The Board firmly believes that at Rigetti's current growth stage, it is important to have a seasoned public company executive at the helm that can focus on the time-consuming, day-to-day demands of running a public company, as well as leading and scaling an advanced technology organization. Although the company anticipated that Chad would remain with the company in a tactical position, Chad has made the personal decision to leave the company.

The company expects to enter into a separation agreement with Chad in connection with his departure, the terms of which will be made publicly available when filed. On behalf of the Board, I want to assure you that the CEO transition was prompted solely by the Board's consideration of who should run the day-to-day operations of this growing company going forward.

In addition, on behalf of the Board and the Rigetti team, I want to recognize and thank Chad for his visionary leadership. Chad is a pioneer in the development and commercialization of quantum computers and his vision has been instrumental in bringing Rigetti to where we are today.

Since the company's inception, it has built the world's first dedicated quantum fab, brought some of the very first quantum computers to the market, and developed a strong and differentiated technology position. Perhaps most importantly, this pioneering vision has helped us to build a world-class and highly capable team, one that possesses incredible ambition and technical expertise, and we believe is well positioned to continue driving our business and technology progress going forward.

While this has been a dynamic period, we remain well versed and confident in the company's long-term trajectory, its unique technical capabilities and approach, its technology roadmap, and the potential enormity of the opportunity for quantum computers. Furthermore, the talent and technical brilliance that we're getting is outstanding with dozens of PhDs from some of the world's most renowned universities. The team has been responsible for the company's pioneering progress in quantum over the years and remained laser-focused on advancing toward our milestone.

Chad's departure does not impact our technology roadmap portfolio of 152 patents issued or pending, nor our other proprietary approaches. As previously announced, we are conducting an executive search for the CEO position. Rick Danis, Rigetti's general counsel has taken on the role of Interim President and CEO while we work to fill this role on a more permanent basis.

Rick is well suited to steward Rigetti through this period and has our full confidence. He's been a leader with the company for three years now, and is also well-versed in our mission, roadmap, and all other considerations regarding Rigetti, as well as the day-to-day activities of running a public company.

And with that, I'll now turn it over to Rick Danis, Interim CEO.

Thank you, Alissa. I'd like to reiterate a couple of Alissa's points and also provide some additional color where helpful.

First, I remain highly confident in the company's technology and roadmap. Its strength and ingenuity are the result of the extraordinary depth and talent we've built across the organization and the hard work our teams have put in over many years. Between our Chief Technology Officer, Mike Harburn; and our SVP of Systems and Services, David Rivas; and their truly outstanding world-class technical teams, the Board and I believe our technology development is in strong and capable hands.

Across the organization, the people of Rigetti have a deeply held shared vision for what Rigetti Computing has the potential to become, and what our technology could enable in the world. We have strong core values that bind us together, give us clarity, and serve as a bedrock for our future.

On top of this, the company's fundamentals and governance are strong. Now the remainder of this call will be focused on our business update for the third quarter of 2022, starting off with Brian Sereda, CFO; followed by David Rivas, SVP of Systems and Services, for a lengthier discussion of our technology progress.

Thanks, Rick. Rigetti maintained solid business momentum in the third quarter. And we continued to make steady progress toward our roadmap objectives.

Now for some color regarding our postponement of our third quarter financial results. As you are aware, we completed our business combination with Supernova on March 2 of this year. At the closing of the business nomination, Supernova agreed to subject the portion of their common stock to vesting based on the performance of Rigetti's common stock.

Approximately 3.1 million shares became subject to vesting and are considered unvested and will only vest if during the five-year period started on March 2, closing date, certain volume-weighted share prices are maintained for certain periods of time.

The fair market value of this earn-out be calculated quarterly as reflected on our balance sheet, as well as on our income statement under other income and expense. We have historically used a valuation methodology that included a volatility factor that is based on the weighted average of the volatilities of the trading price of common stock of a group of comparable public companies, including the company's common stock and the trading price of the publicly traded warrants.

The company and its auditors have determined that it is appropriate to revise the weighting of the volatility assumptions to include a greater weight for the volatility of the trading price of the company's public warrants for the third quarter 2022 financial statements. In addition, the company has determined that a restatement of its Q1 and Q2 financial statements is required to reflect this revision.

In addition to the earn-out liability, the company has completed its analysis with respect to treatment of additional operating expenses. These expenses are estimated to total approximately $1.6 million in aggregate relating to electrical utility fees for a portion of electrical usage at Rigetti's Berkeley locations since 2019 that were not paid and recognized in prior periods. We are now evaluating how to account for these additional operating expenses, which is expected to include recording an accrual of the estimated additional electrical utility fees to be paid to the utility provider in our financial statements for the quarters ended March 31, 2022, and June 30, 2022, and recording operating expenses in our financial statements for the quarter ended September 30, 2022.

As part of the restatement of the financial statements for the quarters ended March 31, 2022, and June 30, 2022, we also expect to reflect the correction of an immaterial error related to the valuation of the warrant liability with respect to the warrants issued to Trinity Capital Inc., in the restated financial statements for the quarters ended March 31, 2022. And reverse the prior correction we previously reported for such immaterial error in the financial statements for the quarter ended June 30, 2022, and the restated financial statements for such periods.

We are also reassessing the calculation of fair value for our private warrants that are treated as derivative warrant liabilities for periods ended March 31, 2022, and June 30, 2022. Any revisions resulting from the reassessment would impact the reported amount of derivative warrant liabilities on the balance sheets and change in fair value of derivative warrant liabilities on the statements of operations. It is possible that additional adjustments may be identified in connection with the company's further assessment.

Due to the foregoing, we are assessing the effect of the company's internal control over financial reporting and disclosure controls and procedures, which may result in a material weakness in our internal control related to the accounting for complex instruments, in addition to our previously reported material weakness in internal control over financial reporting related to insufficient controls over the accounting for complex warrant interest instruments; which resulted in our disclosure controls and procedures having been determined to be ineffective for the first quarter of 2022 and second quarter of 2022, as previously disclosed. It is possible that such assessment may result in the identification of other material weaknesses.

As a result of all of these matters, we filed a notification of late filing with the SEC today to extend the filing dates of our Form 10-Q for the third quarter and nine months ended September 30, 2022. Accordingly, we will not be disclosing our financial results for the period today but look forward to providing investors with this information when available.

Now before handing it over to David, I'd like to provide a quick update on what we are seeing in the current macroeconomic landscape, as well as where we are seeing Rigetti in this climate. First, government interest in quantum remains strong. And we are actively working with our partners to pursue relevant opportunities. Second, we, like many other companies, are taking actions to monitor operations and burn rate. Specifically, this consistent aiming to enhance our operational efficiency, inclusive of SG&A activities and maximizing our R&D spend through strategic collaborations.

Given the current state of the industry, we believe that our roadmap progress and strategic partnerships will continue to be the most important elements of our company's success over the next several years. Thanks again, everyone. I'll now turn the call over to David Rivas, Senior Vice President of Systems and Services. David.

Thank you, Brian. Many of us met during Rigetti's inaugural Investor Day in September. And I'm really happy to be here with you again today.

Now, I will provide everyone with an update on our technology progress during the quarter, starting with a few key highlights. First, as we continue to make technical progress on our 84 Ankaa and 336-q Lyra systems in the quarter, we plan for these systems to leverage our fourth-generation architecture, which is designed for higher fidelities and connectivity, and is expected to deliver meaningful performance improvements when compared with our third-generation circuit architecture.

Second, Rigetti entered into public preview on Microsoft Azure Quantum platform. With this announcement, we are excited to say that Rigetti quantum computers are now available on the world's two largest public cloud platforms.

Third, we announced the partnership with Bluefors to supply new modular dilution fridges that will be necessary for our anticipated 336-qubit Lyra system and beyond. Fourth, we made progress with Ampere on leveraging hybrid quantum classical computing for quantum machine-learning, with recent tests completed on a finance application. And fifth, we begin a new collaboration with Nvidia, aiming to develop a hybrid GPU-QPU workflow for climate-modeling applications. This work is expected to build on our prior application of quantum-classical solutions to weather modeling.

Now at our Investor Day, we presented our product roadmap, which lays out what we believe to be the building blocks for achieving performance at scale and progressing towards quantum advantage. You can find it in a video of the discussion on our investor website located at investors.rigetti.com.

There are three key beliefs at Rigetti that drive the company's approach to quantum advantage. First, we believe that quantum computers with a few hundred to a few thousand qubit will demonstrate quantum advantage and unlock real world commercial value. While we are confident in our long-term approach to much larger systems, we simply do not believe that it will take a million qubits to reach quantum advantage and start scaling our quantum computing as a service business model.

Second, we see quantum advantage unfolding in two phases: narrow and then broad. We define narrow quantum advantage as the ability to run real world customer workloads better, faster, or cheaper than classical alternatives available to customers. We believe broad QA or classically intractable problems can be solved for the first time will be a second inflection point after narrow QA. We expect the Ankaa and Lyra generation systems to accelerate the path towards achieving quantum advantage.

Third, we see the delivery of Ankaa as a critical milestone towards quantum advantage inflections, and one that should instill high confidence in our roadmap and plans to unlock commercial quantum computing in our QCaS model. Ankaa will be the first system based on our fourth-generation circuit architecture designed for higher performance. Most importantly, we plan to leverage the Ankaa chip and subsequent larger systems such as Lyra 336-q, aiming to deliver performance at scale. By combining four Ankaa processors into a single Lyra system as planned, we are striving to become the first in the industry to truly bring together advances in speed, scale, and fidelity in a production system.

Turning to our Q3 progress on our Ankaa system, last quarter, we announced we were beginning tests on the first 84-q silicon. In Q3, we tested a 24-qubit sublattice on that 84-qubit silicon and demonstrated several gates with fidelities exceeding 99% and as high as 99.5%.

We expect the first deployed Ankaa chip will roughly cut in half our median 2-qubit error rates compared to our current Aspen-M-2 system. And with planned ongoing improvements from there, we expect Ankaa and our fourth-generation architecture to ultimately reach the error rates needed for quantum advantage and error correction.

We have also continued making progress on our Lyra system. And we have now successfully demonstrated tunable inter-chip coupling in the multi-chip arrangement that our 336-q Lyra is expected to leverage. We are also in the progress of upgrading our production fleet. In the near term, we are working to upgrade our current 80-q Aspen-M-2 system with a new 80-qubit chip, which we expect to provide users with better fidelities and improved stability.

Now turning to our partnerships, last quarter, we noted that we successfully integrated Ampere's cloud-native processing platform with Rigetti's quantum computing systems. Since then, we've tested increasingly complex quantum machine-learning use cases with this hybrid setup, including applications and finance. And we continue to see what we believe are promising results. We continue to see financial applications based on quantum machine learning as an exciting area for the pursuit and demonstration of quantum advantage.

We look forward to sharing more about the progress on our existing engagements in finance, including with partners at Standard Chartered and Nasdaq in the future. We are also developing air mitigation and correction capabilities through our partnerships. For example, we announced the anticipated integration of Keysight's True-Q error mitigation software into our quantum cloud services platform and have recently onboarded our first beta users. We believe that error mitigation is a critical ingredient in achieving quantum advantage on near-term systems.

With regards to error correction, today, Rigetti published a blog highlighting the results of an ongoing collaboration with Goldman Sachs. In this work, the teams proposed a new gate design to adapt large-scale quantum computers for error correction and insight that could potentially inform our future chip architectures.

In summary, we continue to make strong technical progress during the quarter with solid momentum toward meeting our roadmap milestones. To close, I'd like to end on a personal note.

During my time at Rigetti, it's been clear to me that the brilliance and dedication of rigorous people to our craft is one of our most telling advantages. We are driven by the compelling tactical approach at Rigetti, and what we see as a once in a lifetime opportunity expressed in the company's mission statement to build the world's most powerful computers to solve humanity's most important and pressing problems. This is as true today as it was when I joined the company not quite four years ago. And we firmly believe we have the right approach, assets, and advantages to potentially become the standard in quantum over the long term. And with that, we'd like to take your questions now.

(Operator Instructions) Krish Sankar, Cowen.

Yeah, hi. Thanks for taking my question. I actually have many questions. I tried to condense it.

The first two ones are for Alissa. On the CEO transition, number one, from an outsider perspective, it's not a very good look when the founder-CEO resigned so early. We're kind of curious, from your vantage point, is there anything else you can disclose about the reason or besides personal? And if China comes at the same time your controls are being impacted, financial control, anything you can discuss on that.

And then I had a quick follow-up for you, Alissa. I have a couple of questions for Brian.

Yeah, thanks for the question, Krish. So let me reassure you, this transition was the Board's decision because of a belief that it is time to have a CEO who has experience running the time-consuming, day-to-day of a public company, as well as leading and scaling an advanced technology organization.

We had expected that Chad would remain with the company in a technical position. However, he made the personal decision to leave. And that was his decision. So we have, in this transition period, decided that the company will be best served by having Rick Danis as Interim CEO. And that's how we arrived with today.

Got it. Then a quick follow-up on that, Alissa. Have you spoken to your partners and customers about this? And does this impact any of your DARPA contracts?

Yeah, Krish, why don't I take that. This is Rick.

Yeah, our teams are in close dialogue with our partners and customers on a very regular basis. It's not impacting anything. We are having those conversations, and the relationships are being managed by highly competent individuals within our organization. I take this opportunity to also say that as we've sort of reiterated numerous times here, the tech team here is world-class, very deep -- those relationships were and still are managed by those folks in the rest of the team.

Got it. Thanks for that, Rick. And then I had three questions for Brian.

Brian, on the internal controls, when did you guys realize this? Was it just a few weeks ago? Was it recently, a long time ago? And can you help us kind of tab that roadmap onto what led to this? When did you realize it? And when the decision was made?

Yeah, all I can say is that, as we were going through the review process of the quarter, as we were entering discussions and reviewing the results with our auditors, this is when the issue was discovered. So this is subsequent to the close of the quarter and again, during the close process and review process of the quarter eclipse.

Got it. And then two other questions to you, Brian. One was, I think, can you come and tell us what your cash burn rate is now that you're ramping Fab-1? Is it still in the $25 million to $30 million a quarter range or is it higher?

Actually, I cannot get into the financial discussions right now. You could take a look at our prior quarter filings and I'm more than happy to get into the details when we do publish our results. And as we've discussed previously, we're on track as far as our capital expenditures are going for the year. But again, more details to follow and happy to take the follow-up questions once we publish our results, Krish.

Thank you. I mean, just to follow up on that, Brian, would Fab-1 ramp change the cash burn rate?

Yeah, in terms of Fab-1, yeah, there are some capital expenditures that we have earmarked for Fab-1. We've done billing and redundancy, additional tools, expanding the facilities, et cetera. But we're not expecting any great inflection as we've talked about in the past in our capital expenditures.

Got it. And then a final question is you have $75 million in committed equity facility. Are there any conditions around that? Like in many countries, dead people have covenants. I'm just wondering, is there any conditions around that $75 million committed equity facility?

The only conditions are those that are in the agreement itself around trading volume. And so far, it's that we have to maintain a balance with the daily trading volume if we decide to use it. Obviously, we maintain a very strong balance sheet as we report in the past. And if and when we decide to utilize the facility, we have to manage within the conditions of the agreement, the facility agreement itself.

David Williams, Benchmark.

Hey, thanks so much for taking my questions. Certainly appreciate it.

I guess I'm not sure who is best suited to answer this, I believe. But there's a lot of information really to parse through. And it sounds like a lot of different issues this quarter that have kind of reared their head.

I guess from just a high level, can you help us understand the significance of the restatement that needs to happen? And then maybe just -- I guess I'm a bit confused on the electricity that you pointed to. But can you give us anything that, I guess, gives us comfort that these types of issues were overlooked, but the technology is still progressing exactly as you said. Just anything that would give us a bit of confidence here would be very, very helpful.

Completely separate issues, David. The complex financial instrument issue, it was a discovery after the quarter end, again as we're going through the review and close process in the quarter. On the electrical facility issue, as we've discussed in the past that we're doing some improvements at our facilities, and we discovered that part of the project, part of the capital expenditure plans for the year involve facility improvements at Berkeley, including improvements to utility services, et cetera.

And during that work, which has actually just recently been kicked off, we came to the conclusion that there were some deficiencies in the electrical (technical difficulty) or the infrastructure that is currently in place. And so it led us to the conclusion that we had to revisit how much electricity usage was actually being accounted for in the Berkeley facility. So, we're in process now to repair that. And again, the estimates that we quoted will be recorded in the third quarter and also in the restated financials.

And David, this is Rick. I'll take the sort of second part of your question there.

This is completely unrelated to our technology roadmap. The team, as I keep kind of reiterating, is really, really deep and smart and very good at developing this technology and very motivated by that. And our Board is extremely supportive of our technology road map and the plans to continue on that roadmap.

Thanks so much for the color there. And then maybe secondly, just kind of on the signaling here, it seems like there's been quite a bit of difference just kind of from, I guess, the board standpoint and expecting Chad to stay on, to him then leading and remaining as CEO, to now not being a CEO and just an executive.

I guess just help us understand, in the end, what this should all look like. Should we expect more changes? Is there another shoe to drop here that we should be concerned about? Just again, looking for some comfort that we're -- at least have everything out in the open here and we can move forward.

Sure, David. It's been a really dynamic situation. We have been filing updates immediately as events unfolded. We have a CEO search underway with a top-tier executive recruiting firm. We have seen a landscape of very seasoned individuals who are available, who are a great fit for Rigetti's profile. And we are moving forward as soon as possible to get a new CEO in place.

Okay, thanks. And the last one for me is just maybe from the Analyst Day: the progress, the roadmap, all of the things that were announced and discussed. Is there anything from that that we should be expecting to change in terms of maybe the CapEx, or the fab expansion, the geographic expansion, anything there that we should think about changing?

No, thanks, David. This is Rick. There isn't any expected changes on any of the roadmap or any of the things that were presented to you at the Investor Day. And we remain on track with our technology roadmap.

Thanks so much. Best of luck. Appreciate the time.

Thank you.

Quinn Bolton, Needham.

Hey, I guess first for Brian. As I go through the reasons for the restatement, the warrant expense sounds like that's all non-cash but the electricity consumption sounds like that is a cash charge. And just wanted to make sure that I'm sort of reading this correctly.

Yeah, correct, yeah. Operating expenses for the electricity is cash and the rest is all non-cash below the line.

Okay. So on the electricity, can you just go through again exactly what happened. I understand you guys are going through a facility upgrade. You may realize that you need a better electrical infrastructure. But how did the electricity company not realize you guys are consuming a lot more electricity than perhaps they were billing you for.

I wish I could explain. This site has began a few years ago. Only recently did we realize that the, I guess, the electrical delivery or the infrastructure that was delivering the electricity service now, was insufficiently recording the expense over the last few years.

And so, we are in the process of upgrading them. And in the process of upgrading that, we made an estimate of what we thought the underreported expense was related to electricity usage. And we'll then start to obviously negotiate going forward on how we rectify that with the utility provider.

So the $1.6 million is your estimate of the electricity consumption or what you think you'll settle with the electricity company for. And then on a go-forward basis, do you think you have the proper infrastructure in place to properly record future electricity consumption at that facility?

Yeah, no. Well, it's being repaired as we speak. That whole -- the infrastructure delivery utilities to the Berkeley facility is being upgraded. And it's expected to be completed sometime in the new year.

But for now, we'll continue to monitor and discuss with the utility provider on how we can accrue expenses on a real-time basis going forward. And so that we're not deficient, you might say, in the future periods.

So now that we're aware of the issue, we wouldn't expect any additional catch-up accruals. Or we don't expect to recognize anything related to electricity usage going forward that would result in a deficiency in any type of accrual.

Got it. I apologize if I missed it, but have you provided or can you provide any estimate of how long do you think it will take to go through the warrant expense in that electricity issues and be in a position to restate? Do you think it is a matter of months? Could it be potentially quarters?

As you know, I hesitate to give an estimate. We don't expect it to take months. We expect it to take a far shorter period of time. But we are starting to work now. I wish I could qualify this with a hard number of days or weeks, but we wouldn't expect it to extend for firmly any sort of a lengthy period of time.

Got it. Okay. And then, Brian, you mentioned just recognizing the macro-environment. You made a comment about sort of looking at expenses, trying to conduct R&D through strategic partnerships.

Just wondering, are you guys -- have you changed in response to the economic environment? Have you changed your OpEx plans or are you continuing sort of under the kind of the previous guidance or expectations that you provided the street? I guess I'm just -- yeah. But has there been any meaningful change in OpEx or cash burn? I know you can't give us exact figures. But for thinking about the go-forward expense or cash burn rate, just wondering if there have been meaningful changes relative to past expectations.

Yeah, I look forward to giving everybody an update here in due course, once we complete the work on the restatement. And at that time, we'll share the guidance for the full year as we have in past quarters. But for now, we really can't speak to the numbers, Quinn. So we have to stick with just the statement of facts about the delay in filing of the financial statements.

And then, our expectations are that within a reasonable period of time here. We'll be able to discuss the full quarter results along with our results in comparison to what we had offered as guidance to previous quarters.

Got it. Thanks very much, Brian.

Thank you. At this time, I'd like to turn the call back over to Rick Danis for any closing remarks. Sir.

Thank you, operator. And thank you, everyone, for joining us today. We genuinely appreciate your time and interest in Rigetti Computing. Thanks.

This concludes today's conference call. Thank you for participating and you may now disconnect.