Rigetti Computing, Inc. Q1 FY2022 Earnings Call

Good day. Thank you for standing by and welcome to the Rigetti Computing First Quarter 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. I would now like to hand the conference over to your speaker today, Polly Pearson, Senior Vice President of Investor Relations at Sharon Merrill Associates. Please go ahead, ma'am.

Thank you, operator and good evening everyone. Today we'll be reviewing Rigetti's first quarter 2022 earnings results. With me here is Chad Rigetti, Founder and CEO of Rigetti Computing, and Brian Sereda, CFO. Before I turn the call over, I'd like to point out that this call and Rigetti's Q1 press release contain forward-looking statements concerning current expectations, objectives, and underlying assumptions regarding future operating results. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. Also, in an effort to provide useful information to investors, comments today include non-GAAP financial measures. For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect Rigetti's future operating results, please refer to today's earnings release on Rigetti's website at investors.rigetti.com or to the 8-K filed with the SEC earlier today. And now I'll turn it over to Chad.

Thank you, Polly, and welcome everyone to our first quarter 2022 earnings call. As this is the first call we've held since our public debut, I'd like to first acknowledge the tremendous work from our team and support from our investors leading up to today. Thank you all. For those new to the Rigetti story, I will start out with some background on our leadership in the industry, followed by the current state of quantum, our technology progress, and our business model for driving adoption. At Rigetti, we are on a mission to build the world's most powerful computers to help solve humanity's most important and pressing problems. We envision a world where drug development takes a fraction of the current time and more lives are saved, where affordable clean energy is abundant, and where supply chain routes are fully optimized through the power of Rigetti's Quantum Cloud Services platform. In the years ahead, we expect that it will be difficult to find an industry that quantum doesn't impact. And we are laser-focused on working to unlock this next frontier of economic opportunity. Today, we're getting offices in the United States, United Kingdom, and Australia, with more than 50 Technical PhDs from many of the world's most renowned universities. Our launch in 2013 marked the first ever pure-play universal quantum computing startup and we have gone on to achieve many trailblazing quantum firsts and to help pioneer the quantum computing industry. In 2014, we patented a hybrid co-processing architecture. The combination of this architecture and our superconducting approach has enabled us to achieve industry-leading speeds. Earlier this year, we demonstrated that our 80 qubit system is 18% faster than IBM's comparable 65 qubit system using IBM zone CLOPS or circuit layer operations per second speed metric. In 2017, we built the world's first dedicated quantum chip fab right here in Silicon Valley, where I'm speaking from today. This capability called Fab-1 services serves as the bedrock of our cutting-edge R&D infrastructure. In 2018, the first chemically accurate simulation on a cloud quantum computer was achieved by one of our customers using our machines. In 2019, we were one of three original hardware launch partners for Amazon Web Services' Quantum Computing Service. In 2020, we were selected to build a commercial quantum computer in the United Kingdom. This is just one of several partnerships we're building in Europe as we continue to grow and expand our global operations. In 2021, we introduced the world's first modular scaling quantum chip. Today, this architecture serves as the foundation of our 80 qubit Aspen-M System, which is the largest quantum computer available on AWS. We believe Rigetti is a wealth of quantum and engineering talent. First mover advantages and state-of-the-art infrastructure give us a significant competitive edge and have allowed us to accumulate a robust IP portfolio with more than 140 patents issued and pending. Outside of our organization, Rigetti's reputation for quantum leadership continues to compound, helping us form deep partnerships with key public and private sector players in the quantum ecosystem. We see these collaborations as important markers of our progress. For example, we are working with Ampere Computing to unlock a new generation of machine learning applications through an integrated cloud platform. We're working with Deloitte and Strangeworks to explore applications in materials simulation, optimization, and machine learning with our scalable processors. We're partnering with Riverlane and Astex Pharmaceuticals to develop molecular simulations and explore drug discovery applications. We're collaborating with NASDAQ to explore quantum applications in fraud detection, order matching, and risk management. We're working with Standard Chartered Bank to advance quantum machine learning applications for finance, and with Lawrence Livermore National Lab and the University of Southern California to solve important problems in fusion energy. While this is just a sampling of our partnership base, we find it to be illustrative of the broader emergence of quantum that is taking place. In short, organizations are waking up to the promise of quantum and the need to engage with quantum companies. Today, the classical approach to computing faces limitations in solving certain high-value computationally intensive problems despite the power of several new advanced computing solutions. Many of these problems will always be intractable for classical computers. Quantum represents a different approach to building the powerful computers of tomorrow. By leveraging properties such as superposition and entanglement, quantum computers have the potential to deliver exponentially greater compute power than traditional machines. Similar to the rise of personal computing, mobile, and the internet, it's hard to fully imagine the impact this may bring in the transformative potential that quantum computing holds. For example, today, modeling for drug development requires enormous computational power. Quantum has the potential to significantly reduce the cost of bringing new therapies to market. By helping us improve our understanding of material science, quantum could potentially aid in the development of next-generation materials for consumer goods, industrial components, and medical applications. On the finance side, quantum computers have the potential to deliver faster market insights, to run more accurate models, and ultimately, lead to better functioning markets overall. In addition, we believe the hybrid approach, combining advanced classical and quantum computing solutions holds enormous potential for artificial intelligence. Simply put, we don't expect quantum computing to be an incremental improvement in computational horsepower. We expect it to be a phase change. Over the next decade, we expect one Rigetti quantum computer could be more powerful than the entire current global cloud. According to industry researchers, fault-tolerant quantum computers could ultimately produce up to an estimated $850 billion in annual value creation for end users and technology providers. We believe this opportunity is clearly significant and we are laser-focused on advancing the science, technology, and solutions through our full-stack engineering approach to unlock this potential and bring Quantum Cloud Services to the broad commercial market. At Rigetti, we see progress occurring on an application-by-application basis, as Quantum Solutions achieve varying levels of progress across different industries and verticals over a given period of time. This view has informed our approach both in terms of technology and the importance of early collaborations. On the technology side, we maintain three core principles. First, we are fully vertically integrated from chip design and manufacturing to the development of systems, software, and applications to cloud delivery. Second, we prioritize hybrid quantum-classical computing in all aspects of our system architecture and cloud services business model. Third, we use the superconducting modality, which is widely believed to be the most mature, most advanced, and most likely to lead to broad commercial success. Our quantum fab has become a key driver of our progress over the years, allowing us to advance beyond our humble beginnings to compete with established tech giants in quantum. By owning and operating the means of quantum chip innovation and production, we have gained critical advantages in cycle time, testing infrastructure, and supply chain. Our capabilities in quantum chip manufacturing are also driving ongoing interest from academic and government institutions, emphasizing the strategic value of our fab and quantum expertise. I'll expand on some of these partnerships in just a moment. Turning to our technical approach, we are focused on three key pillars for advancing our machines: scale, speed, and fidelity. We have demonstrated leadership in both scaling and speed through our most recent quantum processor systems. For example, we believe we've cracked the code on scaling through our modular chip technology. This architecture took more than six years to develop. As a result, we have more than 20 patents around this critical IP. We introduced the scaling technology in our Aspen-M system and we aim to use the same technology to continue scaling our machines going forward. As noted, we have achieved what we believe are industry-leading speeds on our machines, surpassing IBM as measured by their own internally developed metrics. Let's talk about fidelity. Today, it is broadly recognized that scale and fidelity are the key areas in which advancement is needed to run commercial quantum applications and unlock broader adoption. We believe that we are one of the leaders in scale and that we're also making clear progress in fidelity. First, multiple 15 qubit connected lattices on our Aspen-M system have demonstrated fidelity above 98%, making the machine competitive with other commercially available devices at that scale. Second, our next generation chip design has displayed two-qubit gate fidelities as high as 99.5%, crossing what is believed to be a key threshold for commercial quantum computing. On that note, I'm excited to announce that we plan to release a single chip 84 qubit quantum computer in 2023. This system will be based on our next generation chip designed for higher fidelity and increased connectivity. We plan to combine the anticipated improvements of our 84 qubit processor with our modular multi-chip scaling technology of the Aspen-M to deliver a 336 qubit multi-chip processor later in 2023, representing a key milestone for the company. For a longer-term roadmap, we now plan to introduce our 1,000-plus qubit system in late 2025 and our 4,000-plus qubit system in or after 2027. We expect both systems to utilize the advantages of our multi-chip technology and next generation chip architectures similar to our 336 qubit multi-chip system. This updated timeline and roadmap is based on several factors including the following considerations. First, higher than anticipated labor, equipment, and system component costs are leading to increases in the costs associated with system development. Second, market and supply chain conditions have hampered the timely availability of input materials for our machines. Third, our valuable working capital coming out of our business combination close was lower than anticipated, which has limited our ability to absorb these increased costs and timing factors. Now, turning to our foundational cloud business model, which we refer to as Quantum Computing-as-a-Service or QCaaS. We deliver access to our computers through our quantum cloud services platform and third-party cloud partnerships. Today, in addition to Rigetti QCS, our machines are available on AWS Bracket, the Oak Ridge leadership computing facility, and more. We expect the machines to soon be available on Microsoft Azure and Strangeworks. We're also accelerating quantum development and adoption through technology development services, which are more comprehensive partnerships with early adopters and sponsors in the public and private sectors. We provide these services under development contracts, which are multiyear and highly collaborative engagements, allowing us to advance our technology, generate revenue, and explore a broader spectrum of use cases. We have already won several key development contracts. For example, we provide quantum computing hardware, software, and benchmarks as part of the second phase of DARPA's program to develop quantum computers to solve complex optimization problems. We are the lead industry partner at the Superconducting Quantum Materials and System Center or SQMS, led by the U.S. Department of Energy's Fermilab. SQMS is one of the federal government's five national centers established to bring about transformational advances in quantum information science as part of the U.S. National Quantum Initiative. We were awarded a $3 million contract in partnership with Lawrence Livermore National Lab and the University of Southern California to work on advancing fusion energy, as noted earlier. In sum, as Rigetti has made its public debut, our deep understanding and technical infrastructure have already been vetted by some of the most demanding users in the world. In conclusion, leading organizations are recognizing the potential of quantum to unlock the next frontier of advanced computing and this has resulted in more activity in the space. We believe this is positive because it will lead to greater awareness, education, and action around quantum. With an established track record of success in advancing technology and forming partnerships, we believe Rigetti is well positioned to spearhead the continued development of quantum going forward. With that, I would now like to turn the call over to our CFO, Brian Sereda, for a review of our financial results. Brian?

Thanks, Chad. We continue to execute on our strategy this quarter, leveraging net proceeds raised from our successful business combination close to advance in areas of key strategic importance for our business. The combination of this cash infusion and our near-decade of experience in quantum provides us with a solid foundation from which to launch into our next growth phase. With that as the backdrop, let me now turn to our quarterly results. In the first quarter, we generated revenue of $2.1 million compared to $2.4 million a year ago. This was due to the completion of the first phase of one large government agency project in the first quarter of 2021. The second phase of this project is expected to begin in this fiscal year. The bulk of our revenues were derived from development contracts during the first quarter of 2022. We anticipate this trend to persist for at least the next few years as we ramp up our QCaaS business. Going forward, as we advance along our product roadmap and prove out a broader set of quantum use cases, we expect our QCaaS revenue growth to outpace development contract revenue growth over time. Given QCaaS' potential to drive significant operating leverage, we expect that this transition will ultimately result in a margin profile similar to that of other cloud-based computing business models today. Turning to our expenses, total GAAP OpEx for the quarter was $25.5 million compared to $9.8 million a year ago. This was primarily due to significantly higher stock compensation tied to the closing of the business combination; other public company costs including audit, insurance, and additional legal fees; as well as increased headcount in R&D and SG&A on a year-over-year basis. GAAP OpEx also included a $2 million expense related to one-time cash bonuses awarded in connection with the closing of the business combination. R&D expenses were $12.5 million compared with $6.9 million a year ago. The year-over-year increase was driven by higher headcount, stock compensation tied to the closing of the business combination, as well as higher material and software subscription costs. We plan to continue ramping up our R&D investment going forward to meet our development requirements. Sales and marketing expenses were $1.5 million versus $0.3 million a year ago, mainly due to increased headcount and stock compensation expenses. We recently announced the appointment of Greg Peters to head our Revenue organization and expect to continue investing in sales and marketing as we move into our next phase of growth. G&A expenses were $11.6 million versus $2.5 million a year ago. The increase was due to increased stock compensation related to the closing of the transaction, along with additional headcount costs and public company costs, including Director and Officer insurance expense. This was partially offset by a benefit from a change in the fair value of a forward contract liability with one of our customers. As a public company, we plan to continue to invest in key areas of G&A, such as intellectual property and information security. We don't expect this line item to increase at the same rate as R&D going forward. On a non-GAAP basis, our operating expenses were $15.6 million compared with $8 million a year ago. Non-GAAP operating expenses back out depreciation, stock-based compensation, and a change in the fair value of a forward contract liability. We've included a table of reconciliation in our press release and 8-K as a reference. The $15.6 million includes a $2 million expense related to one-time transaction bonuses awarded in connection with the closing of the business combination. Net GAAP loss was $10.5 million or $0.20 per share on 53.7 million weighted average shares outstanding. This compares with a net GAAP loss of $7.8 million or $0.36 per share on 21.8 million weighted average shares outstanding for the prior year period. As a reminder, the difference in average share count is a direct result of our successful business combination close on March 2nd earlier this year. Adjusted EBITDA was a loss of $13.9 million in Q1 of 2022 compared with a loss of $6 million a year ago. For a reconciliation of net GAAP loss to adjusted EBITDA, please refer to the reconciliation table in our press release and 8-K. As of March 31st, 2022, we had cash and cash equivalents of $206.6 million versus $11.7 million as of December 31st, 2021 due to the net proceeds gained from our successful business combination close. Now, turning to our outlook for 2022. While we continue to gain traction with private sector enterprises, we are providing annual guidance today based largely on our visibility into existing government contracts, which we expect to remain the core driver of our topline growth for at least the next few years. Revenue from these contracts is recognized as we perform against milestone deliverables and we anticipate this revenue to have variability in timing and size over the same period as we ramp up our QCaaS model for the long-term. For the full year 2022, we expect total revenue between $12 million and $13 million and adjusted EBITDA loss between $50 million and $53 million. The main limiting factor to our revenue guidance is due to what we believe to be lower than anticipated new government contract opportunities for quantum and the timing of government funding and appropriations. Although we expect to close additional agreements this year, we believe they will not have a material impact on our 2022 revenue. In addition, as Chad mentioned, we anticipate higher costs associated with equipment, system components, and labor as global macro conditions are expected to persist through at least the balance of this year. From a non-GAAP perspective, we expect our expense profile to grow in line with our operational ramp-up for the remainder of this year. Given the current macroeconomic environment and market volatility, lack of visibility and uncertainty, we are only providing financial guidance for fiscal 2022. In conclusion, despite difficult capital market conditions, our successful business combination close and NASDAQ listing have enhanced our overall balance sheet strength and business profile. We will remain prudent in our spending while prioritizing areas of R&D, sales and marketing, and capital expenditures that tie directly to the advancement of our Quantum Computing technology. Thanks again, everyone. I'll now hand the call back over to Chad before we take questions.

Thanks, Brian. Rigetti's technology and partnerships success continue to compound and accelerate our business momentum. By leveraging quantum mechanics, we are building machines that process information in fundamentally new, more powerful ways. Today, we are in a new phase of growth marked by our successful listing, continuing technology progress, and build-out of our vision for Quantum Cloud Services. Now, let's open it up for questions. Operator?

Thank you. Your first question comes from David Williams from Benchmark. Please go ahead.

Hey, good afternoon and congrats on the progress and the public company listing here.

Hey, thanks, David.

Yes, thanks. And Chad, you provided some good color, but I've wondered kind of sit back and think just about the commercial viability and maybe any insight you can provide in terms of the customer mix between your academic and research, and how much is corporate do you think today? And you talked about that slowly growing, but how quickly does that ramp, I guess, in terms of that mix of business between the different end markets or different customers?

Hi, David, great to hear from you. The business is heavily weighted towards development contracts and government customers today. For Rigetti, that is part of our long-term strategy in driving towards industry leadership in this arena. These contracts provide a blend of both revenue but also technical expertise and partnerships, and also our pathway towards developing long-term relationships with key customers within the government and public sector space. DARPA, we've discussed our DARPA contracts previously, that's an example, our partnership with SQMS under the United States Department of Energy is another such example, but we anticipate that within the Department of Defense and within the Department of Energy, these are going to be long-term major customers of quantum computing. And we're partnering with those agencies, organizations, and customers today to accelerate the growth and development of our technology. Now, with respect to the commercial growth, ultimately, we're seeing that unfold in what we anticipate to be unfolding in phases going forward. Today, we are seeing growing interest in demand for partnerships and engagements centered on our cloud services business model, typically coming with a degree of auxiliary services around pursuing quantum advantage, identifying use cases with those customers and partners, and working jointly with them over quarters or years to drive towards quantum advantage and getting those use cases into production. We expect to continue to invest in that model. I believe that's going to be the long-term path to ultimately building those commercial relationships. Now, tying it back to our government business and the partnerships we develop there, I think we've got real opportunities and we started to work on this to bring the expertise and the partnership capabilities that we have, and the collaboration capabilities from the government relationships and the internal capabilities to apply those in the commercial sector. And so, we're going to continue with that progress and that approach down the road.

Great, thanks. And then maybe just on the Aspen-M system, can you kind of talk maybe how that’s progressing, what the feedback has been? And just any color around the Aspen-M launch?

Yes, the Aspen-M system has been performing very well. As I kind of discussed in the remarks, we're seeing high performance. The 15 qubit lattices on that large Aspen-M system are performing very well, compared to other smaller systems of that size in the market. We're very pleased with the performance of Aspen-M. This platform is the basis of many of our active commercial and enterprise partnerships and collaborations in pursuit of quantum advantage today. We're going to continue to leverage that machine. It's also available now in AWS; it's the largest quantum computer available on AWS. And we're going to continue to leverage it through the course of this year as we drive towards our single chip 84 qubit system that we're announcing today as well.

Great. And on that new system, the 84 qubit single chip, that's an impressive result, just kind of given where you are. They got the multi-chip for the 80, and you've got an 84-bit single system, and of course, you're going to put forward those together for the next system. But it seems like that is progressing much more quickly than what maybe we had expected. Has there been any changes, I guess, or maybe what is helping drive the scalability of the single chip solution?

Yes, our intention historically has been to prove out our scaling approach based on the multichip with the Aspen-M release. And then subsequently, drive our single chip die up to a larger qubit count. The Aspen-M is based on 40 qubit dies. So, the next step on our roadmap is this 84 qubit single chip machine that we expect to be available in early 2023. That is going to be based on our next-generation architecture designed for higher fidelity and higher connectivity as well. We've previously disclosed early results on that next generation architecture that are very promising and I alluded to them briefly earlier, showing high two-qubit gate fidelities on that system. So, the 84 qubit, we're developing the core die that is then the tiling and scaling unit of subsequent larger systems. The 336 qubit multi-chip that we're targeting to deliver in late 2023 will then combine the scaling technology of our Aspen-M that has already proven out in end market with this next-generation architecture targeting higher fidelities. Ultimately, the combination of those two things is what underpins a longer-term roadmap towards 1,000 and 4,000 Q.

Okay, thanks for that color. And then maybe it's from a technical standpoint, there has been some discussion about fidelity, maybe gate systems to work in optimization type problems. And I guess how do you think about the different problem types that you can address? And are there any areas specific to the problem types that maybe the superconducting gate systems may not be best suited for, where you may have another type or another modality that would be better situated for that?

The strength of superconducting qubit systems centers on, in my view, and in our view, their scalability. This has been well-established in the industry; the scale that we've reached at this stage is already quite impressive, in our view. They are also very fast. When we combine that with our core architecture of emphasizing hybrid quantum-classical computing in all aspects of the technology as well as our cloud services business model, that lends our platform and our approach to specific advantages, we believe, in the area of quantum machine learning. And that's an area where we expect to continue to really double down into focus on driving quantum machine learning-based capabilities and applications to quantum advantage.

Great. And then maybe one last one here for Brian, just kind of thinking about the balance sheet, you talked about the funding being a little bit lower than anticipated. What are the, I guess, the puts and takes there? If you kind of think about your model, has anything changed in terms of your roadmap or direction of the company based on a slightly smaller business combination proceeds? Or are there changes that we should be thinking about, I guess, going forward in terms of that?

Yes, no, there's no change to the technical roadmap. And of course, we know what we have to deliver here in the near term and long term. So, we're going to continue to invest prudently in those areas and reallocate spending to those areas that we know we have sufficient funds to work with. So, no, we're continuing to challenge the CapEx decisions and marry that to the roadmap. And again, we're just going to be as prudent as possible. So, again, no overall change in our strategy. Some of the global macro conditions may affect the timing, but again, no change in the strategy.

Great. Thanks so much for the time. Certainly appreciate it and best of luck on the quarter.

Thanks, David.

Your next question comes from the line of Sidney Ho from Deutsche Bank. Your line is now open.

Thanks and congrats on your first earnings call as a public company. So, I have a couple of questions. And the first one, there are a number of your peers, whether it's a standalone company or part of a bigger company that are addressing the quantum computing market in various ways. Chad, you talk a lot about Rigetti's approach in your prepared remarks, but can you talk about the few most important things how Rigetti differentiates from your competitors in terms of technology roadmap or go-to-market strategy? And do you see quantum computing as a market that can accommodate many, many winners?

First and foremost, we believe this is a very significant opportunity and it's an area where we anticipate there being multiple, very successful big winners as quantum computing continues to develop. I think we've held the view that the industry is just getting started, and that there's room for a lot of very successful players in the space long-term on the hardware and software and application side, as well as on the cloud services side. Rigetti's particular strengths rely on our vertical integration and our hybrid approach to quantum computing. As a vertically integrated player, we have the capability and the expertise to go from chip design and manufacturing here from our Fab-1 facility in the Bay Area, all the way through quantum processor development and technology integration, data cloud services, and solutions delivered to the customer. The ability to put all those capabilities together under one roof is, I believe, a very differentiating advantage within the industry today. It allows us to control our iteration time, our innovation cycles. Ultimately, in these research and development-driven industries and competitive challenges, those iteration times become critical and ultimately shape the long-term outcome. The second thing is, Sidney, we believe it's a very long-term substantial opportunity. There's going to be room for multiple, very big winners in the space. Our view is that we're all working together to build the industry. We're all working together to bring this technology to market and to unlock the technology for the broad commercial use cases that ultimately will provide that kind of world-changing opportunity. That's what we're focused on at Rigetti. That is baked into how we do things from a culture perspective and from a strategy perspective; we partner, we collaborate, we work with public and private sector players to build the industry together. Ultimately, we believe that's a differentiated approach. Now, on the hybrid quantum-classical computing, this emphasis that we place on that dovetails with the speed of our superconducting quantum processes because our machines are very fast. The value we can get in application performance from hybrid quantum-classical integration and unlocking those capabilities for our customers is substantial. And that leads to specific advantages, we believe, that we're going to see as certain applications like quantum machine learning start to mature and become real production ready for the industry.

Great, that's helpful. Maybe my follow-up question is the industry expects the different stages of quantum advantages, the narrow quantum advantage, the broad quantum advantage? Maybe we can first touch on what those timings you're looking at? But the question I have is one of the key performance metrics that investors should monitor when looking at Rigetti's and perhaps the industry's progress to was that broad quantum advantage? And just looking at your roadmap, to your 1,000 qubit system and 4,000 plus qubit systems seem to be aligned with narrow and broad quantum advantage, respectively. Are they the right milestones to monitor? Thanks.

Thank you, Sidney, for the excellent follow-up question. We are continuously making significant strides toward achieving quantum advantage. As previously mentioned, we believe quantum machine learning will likely be the first application area to reach this advantage. We foresee quantum machine learning having diverse applications across multiple industries and domains beyond the basic computational tasks in machine learning that you're currently engaging with. Therefore, we expect ongoing advancements in quantum machine learning and are committed to making substantial investments both internally and through our partnerships to develop this capability for the industry. Moreover, as we've discussed, attaining quantum advantage is anticipated to be a pivotal moment or growth driver for our cloud services business. As we progress, you will see quantum advantage emerge in a gradual, application-specific manner; it won’t occur simultaneously across a single industry. However, quantum machine learning remains a critical area of our focus. This endeavor is supported by advancements in both hardware and technology, alongside collaborations with customers. That's why we continue to invest in these partnerships. Ultimately, it's the application of quantum capabilities to significant customer challenges that will unlock quantum advantage and serve as a growth catalyst for our quantum cloud services business.

Great, thank you very much. And congrats again.

Thank you.

Your next question comes from the line of Krish from Cowen and Company. Your line is now open.

Yes, hi. Thanks for taking my question and Chad and Brian, congrats on your first call as a public company. Very impressive. I had a few questions, actually. The first one, Chad, given the strategic importance of quantum computing and your exposure to government contracts, do you think you or the quantum computing industry in general can tap a bit of the chips fab? Or is that mostly reserved for like pure classical computing at this point?

Hey, Krish, thanks so much for the question. I missed just the last part of it. If you could repeat the last part, please.

Yes, Chad, I was just trying to figure out if you can tap a piece of the chips at the government funding, the $52 billion you're talking about?

So, thank you. If I understand the question, it's around the chip fab and manufacturing. If we can compete with very large, expensive semiconductor industry fabs out there, is that correct?

No, actually I was trying to figure out if you can get a piece of the chip at the government funding, the $52 billion you're talking about?

Got it. Okay, I think I understand better now. Thank you. We absolutely believe that there are opportunities to leverage our investment in the fab and the alignment of U.S. domestic leadership in chip manufacturing, especially in kind of breakthrough advanced technologies like quantum. There's a high degree of alignment with government interests on that and we anticipate working with key partners and sponsors on the government side to continue to make those investments and bring more resources into the organization to continue to invest in our strategy of manufacturing leadership.

Got it. Thanks a lot for that, Chad. And then a few other questions just wanted to follow up. Number one, also, I think in the past, you mentioned your contract or your $40 million, I'm kind of curious where it is now? And how much of that is already shipped? And what percentage gets shipped this year?

Hey, Krish, it's Brian. Yes, we still have a substantial portion of that sitting in backlog. A lot of that is tied back to longer-term development contracts, obviously. So, timing, when the next phases of these projects will kick in is still in progress within various government agencies. Being able to predict the timing of that is what causes some of the variability in terms of when we could expect revenue from the next project or what the milestones might look like in order for us to recognize revenue.

Yes, we still have a substantial portion of that sitting in backlog. A lot of that is tied back to longer-term development contracts, obviously. So, timing, when the next phases of these projects will kick in is still in progress within various government agencies. Being able to predict the timing of that is what causes some of the variability in terms of when we could expect revenue from the next project or what the milestones might look like in order for us to recognize revenue.

Substantial bookings remain in backlog and we continue to make progress in growing the bookings as well. That's a metric that at this stage we expect to report in the revenue and the bookings backlog is something we're tracking.

Got it. And then I have like three other quick questions. Number one is, how many production systems do you plan to ship this year? And can you give a color on how much the split is going to be between 40 and 80 qubits?

Yes, thanks for the question. We expect to grow the number of production systems available on our Quantum Cloud Services platform this year. We've currently got the 40 Q, Aspen 11, and the Aspen-M 80 qubit system. We do anticipate additional systems this year coming out and increasing the number of production systems. As we drive towards the interim milestones discussed on the call here, the 84 qubit single chip next year, and then the 336 qubit single chip, we're going to continue to build out the production QBUs or production QBU infrastructure to best meet the demands of our customers in the market as the cloud services business matures.

Got it, very helpful, Chad and Brian. And also on the cloud business, when you have cloud customers, can multiple cloud customers use the same system or as you sign more cloud customers, that has to scale up too?

We do anticipate a business model where multiple customers can be accessing different systems and that's something we're continuing to work through. Our systems are not dedicated to particular accounts or to particular customers. There's a process we're working through to define the timing by which different customers can switch back and forth between working on different systems. That's part of our Quantum Cloud Services product development. We continue to work with our partners under the existing accounts and in pursuit of new partnership opportunities to get customer feedback and input on the best way to implement all that.

Got it. Thanks. My final question is about the delay of about a year for the 1,000 and 4,000-plus qubit systems. You mentioned supply chain issues as a bottleneck. Can you clarify what specific aspects of the supply chain are causing this delay in your ability to produce the system?

Thank you. In our roadmap update, we noted that we are facing higher-than-expected costs related to labor, system inputs, and the expenses associated with developing our systems. We are also dealing with timing uncertainties in the development of our QBUs, which primarily affect our hardware components. While fridges are one aspect of this, they do not encompass the entire impact we are experiencing. Ultimately, our ability to forecast when we will have the necessary parts for our roadmap is a crucial factor influencing the timing update. We are very enthusiastic about introducing the single chip 84-qubit system built on our next-generation architecture. We expect to achieve significant improvements in fidelity and connectivity on that platform, and integrating these advancements with our scaling technology and the 336-qubit system later in 2023 is poised to represent a meaningful advancement for our technology, guiding us toward our long-term objectives of 1,000 to 4,000 qubits.

Awesome. Thanks a lot. And congrats again, Chad and Brian, congrats.

Yes, thanks, Krish.

Your next question comes from Quinn Bolton from Needham & Company. Your line is now open.

Hey guys, thanks for letting me ask a question. I wanted to start by apologizing to Chad and Brian, as I missed part of the prepared comments. Regarding the 84-bit next-generation QBU and the multi-chip version, can you discuss whether that utilizes classical communications or if there are quantum links in that multi-chip architecture? I'm trying to understand if it's possible to entangle qubits across the four chips in the 336 qubit system.

Quinn, the answer is yes, that 336 qubit system is based on the inter-chip coupling technology that we have developed and demonstrated for the Aspen-M and is currently in production on the Aspen-M. This is based on direct qubit-to-qubit interactions across dye boundaries. It’s a technology we've pioneered, and there's extensive IP around. So, in our multi-chip approach, this is not a networked solution and it's not classical communication between chips; it's direct two qubit gates mediated across dye boundaries. Ultimately, the physical qubit lattice is extending across multiple pieces of silicon. Now, on the 84 Q, the 84 Q will become the tiling unit of our future 336 qubit systems as well as subsequently, Quinn, the 1,000 Q and 4,000 qubit systems down the road. That 84 qubit chip is based on an updated lattice architecture, targeting higher conductivity. We're anticipating improvements in two-qubit gate fidelity and stability on that system as well.

Got it. That was my next question. It sounds like the 84 qubit will be the sort of the max size of a single chip and then you'll just scale through more and more multi-chip connections to get to the 1,000 Q and the 4,000 Q?

Regarding our current roadmap, we plan to use the 84 qubit single dye as the foundational unit for larger systems in the future. However, we don't see this as a fundamental limitation on our ability to increase the number of qubits on a single dye. This plan includes systems of 336, 1,000, and 4,000 qubits. We believe we can continue to scale the number of qubits per dye in the long term if that proves to be the most cost-effective and efficient method to achieve the high-end performance we are aiming for. We'll make those decisions as we obtain more information in the years to come.

Got it. Thanks, Chad. And my second question is you sort of launch the 84 qubit next-gen processor with higher gate fidelities and you look forward to 336 qubit and then the 1,000 and the 4,000 beyond that. When do you expect to see quantum error correction sort of being implemented? Do you think the roadmap for either 336, 1,000 Q or 4,000 Q incorporates quantum error correction or is that further out on the roadmap?

Quantum error correction is an emerging and accelerating focus for our engineering development teams. We are anticipating to begin testing on an internal basis early error correction capabilities over the next handful of years. The 1,000 qubit machine is likely the first machine where that is likely to become a production capability for our end customers. However, as we discussed, our approach to developing this technology centers on partnerships with government and private sector customers and partners. Through that, we anticipate continuing to push on early tests and demonstrations of error correction on an R&D and scientific basis over the next few years. Driving towards production systems with error correction requires ongoing progress in fidelities, which we feel like we're on a good path towards, especially with the next-generation 84 qubit dye. It also requires a larger and larger qubit fabric and the ability to put those pieces together with our multi-chip technology, proven out in the Aspen-M and with a single chip, next-gen processor. We're really excited about the prospects of beginning to test that internally and with our customers and partners over the next few years.

Great, thank you.

There are no further questions at this time. I would now like to turn the call back over to Chad Rigetti, Chief Executive Officer.

Thank you, operator. To close, I'd like to extend a warm congratulations and thank you to our team and partners whose support and belief in the future has powered Rigetti's progress thus far. At Rigetti, we believe wholeheartedly in embracing grand challenges to unlock transformative, positive change in the world. Our mission to build the world's most powerful computers to solve humanity's most important and pressing problems unites us. We look forward to keeping our investors and stakeholders updated on our progress. Thanks again everyone for joining today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.