Rigetti Computing, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; comparative periods are the three and six months ended June 30, 2022. Amounts below are in U.S. dollars unless noted.
Business context
Rigetti develops superconducting quantum computers and processors and provides cloud access through its Quantum Computing as a Service platform. Revenue remains primarily from development contracts, research and professional services, and system access. Management expects development contracts to remain an important revenue source for the next several years.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $3.3 million | $2.1 million | $5.5 million | $4.2 million |
| Gross profit | $2.7 million | $1.3 million | $4.4 million | $3.0 million |
| Gross margin | 82% | 59% | 80% | 70% |
| Operating loss | ($16.2 million) | ($25.8 million) | ($38.3 million) | ($51.0 million) |
| Net loss | ($17.0 million) | ($12.3 million) | ($40.3 million) | ($29.9 million) |
| Net loss per share | ($0.13) | ($0.11) | ($0.32) | ($0.36) |
- Revenue rose 56% in Q2 and 30% for the six-month period. Management attributes the changes to timing and variability in development-contract milestones; quarterly revenue may fluctuate significantly.
- Q2 gross margin improved, but management cautions that margins vary with contract pricing, terms, and delivery costs.
- Research and development expense was $13.2 million in Q2 and $26.9 million for the six months. Selling, general and administrative expense fell 60% in Q2 and 46% for the six months, primarily reflecting lower stock compensation and, in part, reduced staffing.
- Six-month operating cash outflow was $33.6 million, versus $35.1 million in 2022. Investing cash outflow was $2.8 million; financing provided $0.3 million.
- At June 30, cash and cash equivalents were $21.7 million and short-term available-for-sale investments were $83.8 million, totaling $105.5 million. Combined cash and investments were down from $142.8 million at December 31, 2022.
- Total debt principal was $27.9 million, including $11.7 million scheduled as current principal. The debt is secured by substantially all company assets and has variable interest rates; the company reported covenant compliance.
- Total current assets were $117.5 million and current liabilities were $21.4 million. Total liabilities were $49.2 million.
Material changes and unusual items
- In February 2023, Rigetti announced a revised strategy and technology roadmap and reduced its workforce by about 50 employees, or 28%. It recorded a $1.0 million restructuring charge and a separate $1.0 million of executive contractual severance expense in the first half.
- Q2 net loss increased year over year despite improved operating results, as 2022 included substantial gains from revaluing warrant and earn-out liabilities. In 2023, those fair-value changes were small expenses for the quarter; the six-month period included $0.9 million of warrant-liability expense and $0.6 million of earn-out-liability expense.
- Six-month stock-based compensation was $5.1 million, compared with $22.5 million in 2022, contributing to lower reported operating expenses.
- Rigetti sold 1.9 million shares to B. Riley under its purchase agreement for $2.3 million net proceeds during the first half. The facility is subject to conditions, including a share-price threshold of $1.00.
- Government entities accounted for 75.4% of Q2 revenue and 78.1% of first-half revenue. A single customer represented 65% of accounts receivable at June 30.
Outlook, risks, and contingencies
- Management believes cash and available-for-sale investments should fund anticipated operating needs for at least 12 months from issuance of the statements. It expects to need additional capital by late 2024 or early 2025; financing availability and terms are not assured. Failure to raise funds could require reductions or delays in research and development.
- Rigetti externally launched its Ankaa-1 84-qubit system to one select customer for error-correction research. It is working toward at least 98% two-qubit gate fidelity for Ankaa-1 and at least 99% for the anticipated Ankaa-2 system; a planned 336-qubit Lyra system depends on achieving these milestones. These are plans, not guarantees.
- The company has a history of losses and expects continued losses. Key risks include technology and commercialization execution, competition, dependence on a limited number of customers and public-sector contracts, supplier and cloud-provider reliance, macroeconomic conditions, and potential dilution from future financing.
- Disclosure controls and procedures were assessed as ineffective at June 30, 2023 because of continuing material weaknesses in controls over complex financial instruments and the financial close and reporting process. The company reported that prior-period financial statements for 2022 had been restated for errors. Remediation efforts are ongoing and have not yet been demonstrated effective.
- Management said ordinary-course legal proceedings are not expected to have a significant adverse effect; the filing reports no material legal proceeding. The company also disclosed that no income tax expense was recorded, with deferred tax assets fully offset by a valuation allowance.
Important facts for investors to verify
- Whether operating cash use and the $105.5 million cash-and-investment balance remain consistent with management’s 12-month liquidity assessment and late-2024/early-2025 financing expectation.
- Progress against Ankaa-1 and Ankaa-2 performance targets, customer adoption beyond the select Ankaa-1 customer, and the timing and feasibility of the planned Lyra system.
- Revenue durability and concentration: development-contract timing, government exposure, major-customer dependence, and collection of receivables.
- Debt service, variable-rate interest costs, and the conditions and remaining capacity of the B. Riley share-purchase agreement, including potential dilution.
- Whether remediation controls operate effectively for a sufficient period, given the disclosed material weaknesses and prior-period restatements.