Thank you for standing by, and welcome to the Rigetti Computing Fourth Quarter and Full Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there'll be a question-and-answer session. As a reminder, today's call is being recorded. I will now turn the conference to the host Dr. Subodh Kulkarni, President and CEO. Please go ahead.

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

Thanks, Subodh. Revenues in the fourth quarter of 2022 were $6.1 million, compared to $1.8 million in the same period in 2021. Revenue variability is to be expected at this stage of the company's evolution given the nature of contract timing with major government agencies. Our development contracts also primarily consist of technical milestone-based work with revenue recognition varying according to the timing of deliverables. Gross margins in the fourth quarter of 2022 came in at 87% versus 62% in the same period in 2021. The year-over-year increase in gross margin was mainly driven by the timing of revenue recognition and the variable nature of our customer contracts. On the expense side, total OpEx in the fourth quarter of 2022 was $32 million, compared to $12.2 million in the same period the prior year. The year-over-year increase was mainly due to our investment in research and development, a $5.4 million goodwill impairment charge, as well as higher costs related to being a public company. In the fourth quarter of 2022, stock compensation expense totaled $7.2 million, and depreciation and amortization expense totaled $2.2 million, compared to $375,000 and $1.4 million in the fourth quarter of 2021. The change in the fair value of the Ampere warrant recorded through G&A expense in the fourth quarter of 2022 was a gain of $300,000 compared to a gain of $170,000 in the fourth quarter of 2021. Operating loss for the fourth quarter of 2022 was $26.7 million, compared to an operating loss of $11.1 million for the same period of 2021. Net loss for the fourth quarter of 2022 was $22.9 million or $0.19 per share, compared to a net loss of $14.1 million, or $0.61 per share for the same period of 2021. Cash, cash equivalents, and available for sale investments totaled $142.8 million as of December 31, 2022, compared with $11.7 million as of December 31, 2021. As previously disclosed, in October 2021, we changed our year-end from January 31 to December 31 effective December 31, 2021. For the 12 months ending December 31, 2022, total revenues were $13.1 million, and the net loss was $71.5 million, or $0.70 per share. For the 11 months ending December 31, 2021, total revenues were $8.2 million, and the net loss was $38.2 million or $1.64 per share. Full year CapEx for 2022 was $22.7 million. In February 2023, the Board of Directors approved a reduction in workforce to align with the company's updated business strategy and revised technology roadmap. In the first quarter of 2023, we expect to incur restructuring charges of approximately $1.4 million, primarily for severance payments and temporary healthcare coverage for employees with respect to eliminated positions. We anticipate having cash, cash equivalents, and available for sale investments of between $65 million and $75 million at the end of 2023. At this time, we anticipate that we will need to raise additional funding by late 2024 or early 2025 to continue our research and development efforts and achieve our business objectives based on our current business plans. At our current stage of development, we believe that executing toward our roadmap and achieving our technology milestones are key to fueling our goal of achieving quantum advantage. Our financial strategy is aligned with this view and we remain focused on meeting our objectives. Thank you. We would now be happy to answer your questions.

Thank you. Our first question comes from the line of Sidney Ho of Deutsche Bank. Your line is open.

Good afternoon. Can you guys hear me?

Yes, we can.

Hi, good afternoon, everyone. Thank you for taking my question. This is Sidney. My first question is about the technology roadmap. Subodh, when we review the new plan you've outlined, it's clear that there is a greater emphasis on enhancing fidelities before progressing to a higher qubit count. However, I would like to know how you find the right balance between reducing error rates and increasing the number of qubits to stay competitive in technology.

It's a good question, and thanks for that question. Certainly, both are important, the total number of qubits and the quality of qubits, long-term. But in the short term, by that we mean 2023, and even part of 2024, we decided that fidelity was our shortcoming, if you will, for the time being. We know we have already taken 240-qubit chips and put them together, tied them together if you will, to get our 80-qubit Aspen M3 system. So we know how to scale up fundamentally taking two different dies and stitching them together, if you will. But what we need to demonstrate is more than 99% 2-Q fidelity across all of the qubits. And that we haven't done yet. We have, as I mentioned, in principle shown that we can get 99.5% 2-Q fidelity on a few qubits, but not on the entire lattice. The quality of qubits right now is critical, in my opinion, across the whole industry. And this is not just a Rigetti statement. All of us need to improve the quality of qubits before we go up in just the number of qubits. There are many experts in the industry who have also said that if you could get near perfect qubits, you can get a lot of computational power, even at 40 or 50 qubits, certainly with 84-qubits and very good fidelity, we think we can demonstrate narrow quantum advantage type with some applications. Hope that answers your question.

Got it. That's very clear. Thank you so much. And then I guess my second question is on these cost-cutting measures that you announced earlier in February. I guess, when we look at the new technology roadmap, and these measures, should we expect any sort of impact to your industry partnerships that you announced last year, for example, the one with Ampere or any of your DARPA contracts?

Again, good question. We already have several partnerships that we are working on, including the one with Ampere that you mentioned. We have several partnerships with DoE and DoD labs as well. We will continue to be engaged with our partners and seek more partners that make sense. We have laid out and defined our roadmap. So long as the partnerships are consistent with the roadmaps, we would be very happy to be seeking new partners and staying with the current ones. If the partnerships are taking us in a different direction, we will choose to take different actions. But as of today, the partnerships we have in place, we feel very good about them and helping us accomplish our objective of narrow quantum advantage in the next two to three years.

Got it. Okay, that makes sense. And I guess if I can squeeze one last one in, if you could touch on sort of the level of engagement that you're seeing among your customers given sort of like the tighter IT budgets, meaning are customers still willing to adopt quantum systems instead of exploring the technology at this stage?

Sure. So again, good question. I mean, we certainly see a lot of interest from our customers, including the ones who are using AWS, as well as Azure and our own cloud platform. Having said that, certainly we are still very much in the research stage of quantum computing. So the interest level from customers right now is to use our QPU for some research purposes. It's not really to try our QPU for any commercial application, where they will see a benefit with respect to classical computation. So we are seeing very high interest and very high awareness of where we are and where we are going. I certainly anticipate that as we get our fidelity up to 98% later this year and 99% next year, the customer engagement will only continue to increase because then they will be able to do more and more with those kinds of QPUs. So expect customer engagement to increase. Right now, as I said, it's high, but primarily for research purposes.

Thanks, guys.

Thank you.

Thank you. One moment, please. Our next question comes from the line of David Williams of Benchmark Company. Your line is open.

Good afternoon, and thank you for the question. Subodh, I'd like to briefly discuss our previous conversation. I feel that you seem more confident now in discussing the roadmap and your current position. I'm curious if there's anything that has changed to increase that confidence. Is it simply more time spent with the technology? You previously believed it was very solid, but it seems that some of the timelines we discussed are further along now. Any insights on this would be appreciated.

Certainly. Thanks David, for the question. One thing that has certainly boosted my confidence and our team's confidence here is the internal deployment of our Ankaa-1 chip. When we talked last more than a month ago, we had not done that. In the month of March, we have successfully deployed our Ankaa-1 chip, which is a brand new architecture of a square lattice and tunable couplers. It is exactly doing what we expected it to do. I mean, we are seeing significantly better Median 2-Q Fidelity as well as significantly faster gate speeds. We have some challenges left to work on in other metrics areas, and we obviously want to continue to improve fidelity and gate speeds from where we are. But the fact that our first out of-the-gate brand new architecture is working exactly as planned and getting us in the right direction has certainly boosted my and our team's confidence. Hopefully that answers your question.

That's very great color. Thanks so much for that. And then maybe just on the philosophy, clearly you have made some structural changes, I think, in the spend. But I think just it would be great to hear your philosophy and how you're thinking about the roadmap? And then maybe just if you could touch on the employee morale, just kind of given some of the structural changes that have been made within these four years?

Yeah, again good question. The employee morale does tie with technical performance as you can imagine. Most of our employees are technical employees. And all of them are seeing the performance that I just reported, which is Ankaa-1 is internally deployed. We are getting better Median 2-Q Fidelities and our Aspen system and faster gates, and all our employees see that. That certainly excites employees because they see the goal is getting closer and more visible now. As we continue to improve fidelity that will only continue to improve. Regarding your question about roadmap, as I stated, and simply put, right now, we want to focus on fidelity. We want to stay at 84-qubit with our Ankaa-1 chip and continue to improve fidelity to get to 98% Median 2-Q Fidelity by the end of this year, and get to 99% sometime next year. Once we get there, then tile four Ankaa chips to get us the 336-qubit Lyra system. We feel pretty good about our ability to scale because we have already done that once with our 40-qubit chip. We know exactly what is involved in tiling chips and making them communicate across each other. So we have to repeat that obviously with our 84-qubit chip. But once we get our fidelity to 99%, we think that is the right time to take on that challenge, and through that we can tile four 84-qubit chips into 336 without losing any performance. So roadmap simply is we have already deployed Ankaa-1 internally. Now the roadmap is to continue to improve the fidelity to get it to 98% by the end of this year, 99% sometime next year, and then tile four Ankaa to get Lyra 336-qubit. In parallel, we'll continue to develop our software stack. We have already published some papers to show what kind of potential benefits one can see with QPUs, we'll continue to work more in that area. And the overall goal obviously, as I said in my statement is to demonstrate narrow quantum advantage, which is significantly better performance or cost compared to classical computers in the next two to three years. So that is the overriding goal right now is to get NQA in the next two to three years.

Really great color. And thanks for the clarity there. And maybe just one last one for Jeff, if you kind of think about I guess on the OpEx side, you've given a target where you expect your cash balance to be. But can you give us kind of how we should be thinking about OpEx and how that trends just given some of the restructurings already taking place?

Yeah, I mean, great question. I mean, in terms of forward-looking guidance, I think this year, we're really going to be focused mainly on our year-end cash balance. Obviously, as I'm sure you know, when we reduced headcount by 50 people, there'll be certainly be some savings there from the restructuring effort. And also we intend certainly to focus on our expense management and try to reduce expenses wherever possible without impacting our technology roadmap and those plans. But in terms of the forward-looking number, we're mainly focused on our year-end cash balance range that we gave today.

Okay, very helpful. Thanks again. Certainly appreciate it. And best of luck on the quarter.

Thank you, David.

Thank you. One moment, please. Our next question comes from the line of Quinn Bolton with Needham & Company. Your line is open.

Hey, guys. Congratulations on the fourth quarter revenue. I guess, Jeff, you just sort of touched on managing 2023 to that year-ending cash balance. But I guess, could you give us any sort of sense, revenue, do you think that could grow in 2023? I know it's going to be lumpy around contract signings and milestone achievements. But with the change in strategy, does that change any of the milestones in previously signed contracts? And then also CapEx, I think you said, is $22.7 million in 2023. Can you give us some sense of what the CapEx might be in your initial plan for the year, understanding that things may change throughout the year, and you're going to try to keep that cash and ending balance at $65 million to $75 million? But any thoughts you might have on CapEx would be helpful?

Sure. Given our current stage of development and our emphasis on the technology roadmap, I don't anticipate any significant structural changes to our revenue at this point. Subodh mentioned partnerships, which remain an important source of cash that we will continue to monitor and aim to grow where possible. Last year, we invested $22.7 million in capital expenditures, which is crucial for our fabrication operations. Due to the restructuring we've undertaken and our commitment to maintaining cash, we expect a reduction in capital expenditures. While I won't provide a specific figure for guidance, I would generally expect to see a decrease in line with our focus on cash and a smaller workforce.

Got it. As you consider the technology roadmap, which is now focused on enhancing gate fidelities, do you have any flexibility in either operating expenses or capital expenditures in case revenue declines? How much flexibility do you have in managing that $65 million to $75 million target in light of potential revenue fluctuations?

For the full year, we achieved $13 million in revenue. I believe that if any fluctuations occur, we have the cash resources and capacity to manage it. Our forecast remains between $65 million and $75 million in revenue. At this point, we're well-funded to meet our goals and objectives for the year. Subodh, do you have anything to add?

I wanted to provide some insight, Jeff. As Jeff mentioned, our priority is on technical performance, especially fidelity. If we can generate more sales from our current partners, such as the Department of Energy labs or the Department of Defense labs, we would certainly welcome that as it's beneficial cash flow. However, my main focus for the technical team is to ensure that revenue aligns with our overall technology objectives. While we will pursue these revenues, we will decline any that come with conditions that detract from our commitment to fidelity. Our goal is to improve our fidelities because we are in this for the long haul. We believe enhancing fidelity is crucial, and once we achieve that, we can effectively scale. So, while revenues are significant, we will seek to maximize them as long as they align with our overarching technology goals. I hope that clarifies things.

Yeah, no. It does. Thank you, Subodh. And I guess just sort of a technology question for you. Obviously, I think your decision to prioritize improving gate fidelity makes a lot of sense, rather than just trying to build a device with the greatest number of qubits. Just my question is as you focus on improving qubit fidelity for Ankaa to 98% this year and 99% in 2024, do you think you'll be able to maintain that kind of two-qubit gate fidelity, as you start to tile these Ankaa devices together? I know you've shown the ability to take two tiles and place them together in Aspen, but that was at lower fidelity levels. And I'm just wondering if you've done any internal work today trying to link Ankaa to maintain that higher 98%, 99% fidelity as you begin to tile these devices together, because I think that would be obviously the next key to scaling the technology.

Terrific question, Quinn. Certainly, we know as you said how to tile 240-qubit chips at lower fidelity without losing any performance. We have some basic work done which shows that we should be able to do the same with Ankaa with high fidelity, but that's mostly at a much smaller scale and simulation kind of work, because we don't have an Ankaa-type chip at 98% or 99% fidelity today. All indications are that the tiling approach that we did for Aspen will work for Ankaa and we will not see any deterioration in performance. But we absolutely have to prove that next year once we start tiling our four Ankaa chips at 99% 2-Q fidelity. So there is some risk here. But we feel that risk is manageable, and we feel that we have a good handle on that risk.

Understood. Thank you.

Thank you, Quinn.

Thank you. One moment, please. Our next question comes from the line of Krish Sankar of Cowen. Your line is open.

Hey, guys. This is Eddie for Chris. Can you hear me?

Yes, we can.

Yeah. Hey, congrats on the new role. Nvidia at the GTC Conference last week talked about the GPU for error correction and mentioned that it's working with you guys, among other quantum computer companies. Can you walk us through how the error correction process works? And what innings are we in, and how GPUs can accelerate error correction mechanism for quantum computers?

Certainly, at a high level, both error mitigation and error correction are extremely important in the final computational performance. And we are looking at both those areas, albeit not as much as the fundamental chip performance and mix layer in the stack, which is a control software and application software. Having said that, there's a lot of good work going on within the superconducting quantum computing companies in error corrections from other companies. And they are doing some pretty good work to show what exactly needs to happen with error correction. I will say that all of us are critically dependent on high fidelity to begin with. So error correction today, when the median fidelities of our chips are sub-98%, is good work. Nothing wrong with it. But it doesn't really pay any dividends to be doing error corrections when you are less than 98% median 2-Q fidelities. To make error corrections work, you really need to be north of 99% median 2-Q fidelity, and ideally north of 99.5% or even higher before error correction makes sense. David is here with me, our CTO. David, do you have any thoughts about error corrections more than what I just said?

The only thing I would add is that for error correction to occur, your underlying control systems must be able to be programmed to take measurements from our circuits while also performing high-performance computations alongside them to assess the syndromes produced by the system. One of the early investments made by Rigetti was in a highly capable control system that can be enhanced in this manner. While it isn't unique to the industry, only a few companies are actually doing it.

Interesting, interesting. Thanks for that. And another one, when you stack more than four tiles together, does it get exponentially difficult to increase fidelity rates? Or is it like the most difficult part, is the early stages? And once you establish that the technology work, it gets a bit easier, or maybe it doesn't get as hard as during the initial stages.

And it does come down to the fundamental physics here, Krish, on how the electrons and photons tangle across the different dies. All the work we have done so far and including the current Aspen M3 system, we feel we have got the physics well understood. We have proven that you can entangle across chips without losing any performance. So clearly the fundamental principle is there. But as I answered the previous question that we have demonstrated that with lower median 2-Q fidelities. We absolutely have to prove that the same holds true with higher median 2-Q fidelities, once Ankaa is at the 99% level. All indications based on our work we have done so far with smaller qubits, and simulation studies suggest that we should be able to get there, but we absolutely have to prove it next year. But the physics is sound that we can entangle across dies, and that is the gist of our scale-up strategy is to use the effectively a chiplet-like philosophy that is commonly deployed in semiconductor industry today, but in the quantum world by using multiple dies and tiling them together.

Got it. Thank you, Subodh. Thanks, Jeff.

Thanks.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Subodh Kulkarni for any closing remarks.

Thank you. In closing, we believe Rigetti has enormous potential and could contribute tremendous value, as quantum computing potentially becomes mainstream between now and 2030. We believe quantum computing is probably one of the areas that can experience expansive growth in the next 5 to 10 years. There's obviously risks involved in quantum computing. It's not for the faint of heart. But we feel very good and believe at Rigetti that it's a question of when not if. And we believe the next decade is going to show that quantum computers will change the way we know the digital world today. Rigetti has an incredibly compelling approach. I'm excited to be part of the company. And I thank you for your interest and time. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.