Rigetti Computing, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are to Q1 2022 unless otherwise noted. Rigetti develops superconducting quantum computers and processors and provides cloud access through its Quantum Computing as a Service platform. Revenue is still primarily from development contracts.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $2.2 million | $2.1 million; up 4.6% |
| Gross profit / margin | $1.7 million / 76.8% | $1.7 million / 80.3% |
| Operating expenses | $23.7 million | $27.0 million |
| Operating loss | $22.0 million | $25.3 million |
| Net loss | $23.4 million | $17.6 million |
| Net loss per share | $0.19 | $0.33 |
| Cash used in operating activities | $15.5 million | $15.7 million |
At March 31, cash and cash equivalents were $26.1 million and available-for-sale investments were $95.8 million, totaling $122.0 million; combined, they were down from $142.8 million at December 31, 2022. The company reported $107.3 million of working capital. Investing activities used $15.0 million, including $4.8 million of property and equipment purchases and $10.2 million net purchases of securities. Financing activities used $1.2 million, including $1.8 million of debt principal payments.
Debt principal was $28.9 million, including $10.8 million current principal; the balance-sheet current debt carrying amount, net of discount, was $9.7 million. Debt bears variable interest, and Q1 interest expense was $1.5 million. Total stated financing and operating lease obligations, including estimated cash interest, were $44.7 million.
Changes and unusual items
- Revenue rose modestly, while management said quarterly revenue may fluctuate with contract milestones and work performed; it expects development contracts to remain the majority of revenue for the next few years.
- Operating expenses fell 12.1%, chiefly reflecting lower stock-based compensation and other costs versus Q1 2022, which included business-combination-related compensation and transaction items. Net loss nevertheless increased, in part because Q1 2022 included gains from changes in fair value of warrant and earn-out liabilities; Q1 2023 recorded losses on those revaluations.
- Q1 2023 included a $1.0 million restructuring charge and an additional $1.0 million of contractual executive severance expense. The workforce reduction affected approximately 50 employees, or 28% of the workforce.
- A $0.7 million impairment charge was recorded for deferred offering costs tied to the B. Riley equity purchase agreement after the share price remained below its $1.00 purchase condition.
- Revenue concentration was high: three customers accounted for 51%, 23% and 18% of Q1 revenue; government entities represented 82.1%. One customer represented 91% of accounts receivable at quarter-end.
Outlook, risks and contingencies
Management believes cash, cash equivalents and investments should fund anticipated operating needs for at least 12 months from issuance of the financial statements. It expects to need additional capital by late 2024 or early 2025; financing availability and terms are uncertain. Failure to raise funds could require delaying or reducing research and development.
Following its February strategy update, Rigetti said it would focus on improving its internally deployed Ankaa-1 84-qubit system, with stated goals of at least 98% two-qubit gate fidelity for Ankaa-1 and 99% for the anticipated Ankaa-2. It plans to pursue a 336-qubit Lyra system if performance targets are achieved. External Ankaa-1 availability was anticipated for select customers, but the filing gives no firm launch dates. Management warned revenue could decline in the near term as the company aligns with its revised strategy.
The B. Riley facility permits up to $75 million of purchases, subject to conditions including a share price of at least $1.00; the company reported its share price had traded below that threshold for an extended period. The company also disclosed a current Nasdaq listing deficiency and uncertainty about regaining compliance. Its debt is secured by substantially all assets; Rigetti reported compliance with loan covenants at the filing date.
Disclosure controls were not effective at March 31, 2023. Material weaknesses remain in accounting for complex financial instruments and in the financial close and reporting process; prior-period financial statements were restated for errors. Management is implementing remediation, but has not established that controls have operated effectively for a sufficient period. The company reported no material pending legal proceedings and no income tax expense for the quarter.
Important facts for investors to verify
- Whether the stated 12-month liquidity expectation and late-2024/early-2025 capital need remain valid, given quarterly operating cash use and investment in equipment.
- Progress, timing and customer availability of Ankaa-1 and Ankaa-2, and whether the stated gate-fidelity targets are achieved.
- Whether the share price permits use of the B. Riley facility and whether Rigetti regains Nasdaq listing compliance.
- Remediation and testing of internal-control weaknesses, including any further corrections or restatements.
- Customer and government revenue concentration, contract milestones, and repayment requirements for secured variable-rate debt.
- Potential dilution: 17.1 million warrants and 17.8 million outstanding options and restricted stock units were disclosed at March 31, 2023; additional shares may be issued under equity plans or financing arrangements.