Rigetti Computing, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; dollar amounts below are in millions unless noted. The March 2, 2022 SPAC business combination was accounted for as a reverse recapitalization, so historical results reflect Legacy Rigetti.
Business context
Rigetti develops superconducting quantum processors and quantum computers, offering cloud access through its QCaaS platform as well as development contracts and related services. Management said development contracts will remain the majority of revenue for at least the next several years while the company works to expand QCaaS.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.13 | $1.54 | $4.24 | $3.90 |
| Gross profit | $1.26 | $1.18 | $2.95 | $3.26 |
| Gross margin | 59.1% | 76.3% | 69.6% | 83.7% |
| Operating expenses | $26.91 | $10.85 | $52.39 | $20.62 |
| Operating loss | $(25.65) | $(9.68) | $(49.44) | $(17.36) |
| Net loss | $(9.97) | $(10.07) | $(20.44) | $(17.86) |
| Operating cash flow | Not stated separately | Not stated separately | $(35.09) | $(14.10) |
- Q2 revenue grew 39%; first-half revenue grew 9%. Cost of revenue rose faster, reducing gross margin in both comparisons.
- Research and development expense was $12.63 million in Q2 and $25.08 million year to date. General and administrative expense was $12.79 million and $24.35 million, respectively. Increases reflected expansion, public-company costs and substantial stock-based compensation.
- Q2 net loss included $16.71 million of gains from changes in the fair value of warrant and earn-out liabilities. First-half gains totaled $32.17 million, partly offset by operating losses and interest expense. These fair-value gains are non-cash and materially reduced reported net loss relative to operating loss.
- Cash was $184.02 million at June 30, versus $11.73 million at December 31, 2021. Total cash and restricted cash was $184.14 million. Management said existing cash should cover anticipated operating needs for at least 12 months under its current plan and assumptions.
- Debt principal outstanding was $32.0 million; balance-sheet debt carrying value was $29.43 million, including current and long-term portions. The secured Trinity facility bears interest at the greater of 11% or prime plus 7.5%; reported effective rates were 17.83%–23.70%. The debt is secured by substantially all company assets.
- First-half investing cash outflow was $10.64 million, primarily property and equipment. Financing cash inflow was $217.77 million, principally reflecting $225.60 million of net business-combination and PIPE proceeds, offset by transaction costs and other financing items.
Material changes and unusual items
- The business combination and PIPE financing closed in March, adding $225.6 million of net proceeds as reported in the financing details. Common shares outstanding increased substantially; 117.1 million were outstanding at June 30 and 118.2 million at August 5.
- First-half stock-based compensation was $22.52 million, including a cumulative recognition of previously deferred RSU compensation after the transaction’s liquidity condition was met. The company also paid $2.1 million in one-time employee transaction bonuses.
- Revenue remained concentrated: four customers each contributed at least 10% of first-half 2022 revenue; the largest represented 33%. Government entities accounted for 72% of first-half revenue.
- The filing disclosed an immaterial prior-quarter warrant valuation error, corrected in Q2 reporting. It also reported that the material weakness in controls over complex financial instruments remained unremediated.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is provided. Management expects continued losses and increasing R&D, sales and marketing, and general and administrative spending. It anticipates development contracts will continue to drive most revenue in the near term.
- Management identified approximately $4.0 million of anticipated revenue from contracts under negotiation with an existing government customer. Negotiations were taking longer than expected; revenue could be deferred or reduced, and costs already incurred might not be recovered if contracts are not executed.
- The filing cites technology and commercialization uncertainty, a limited operating history, customer and government-contract concentration, dependence on cloud providers and key suppliers, and competition. It notes that the deployed system had up to 80 qubits and that the roadmap’s 1,000+ qubit system was targeted for late 2025 and 4,000+ qubit system for 2027 or later; milestones may be delayed or not achieved.
- Management reported supply-chain challenges and higher component, labor and raw-material costs, linked to inflation, COVID-19 and geopolitical disruption. The duration and financial effects remain uncertain.
- Subsequent to quarter-end, Rigetti entered an optional B. Riley equity purchase agreement for up to $75 million over 24 months, subject to conditions and share limits, including a Nasdaq exchange cap of approximately 23.65 million shares unless an exception or stockholder approval applies. Sales are at the company’s discretion and may dilute shareholders.
- Management concluded disclosure controls were ineffective at June 30 because of the unremediated material weakness in review controls for complex warrant accounting. The company reported no material legal proceedings and stated ordinary-course claims were not expected to have a significant adverse effect.
Most important facts for investors to verify
- Whether the pending government contracts are executed, and whether the estimated $4.0 million is recognized, deferred or lost.
- Cash burn relative to the $184.0 million cash balance, including capital spending, debt service and management’s 12-month liquidity assumptions.
- Progress in remediating the material weakness and the reliability of subsequent warrant and other complex-instrument valuations.
- Customer concentration, government funding exposure, and the pace and economics of QCaaS growth versus development-contract revenue.
- Technical roadmap progress, supply availability and cost trends, and any use of the B. Riley facility or other financing that could increase dilution.