RIGETTI COMPUTING, INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations section should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-Q. This discussion and analysis contains
forward-looking statements, such as statements of our plans, objectives,
expectations and intentions. Any statements that are not statements of
historical fact are forward-looking statements. When used, the words "believe,"
"plan," "intend," "anticipate," "target," "estimate," "expect," "will,"
"continue," "project," and the like, and/or future tense or conditional
constructions ("will," "may," "could," "should," etc.), or similar expressions,
identify certain of these forward-looking statements. These forward-looking
statements are subject to risks and uncertainties, including those we describe
under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q that
could cause actual results or events to differ materially from those expressed
or implied by the forward-looking statements. Our actual results and the timing
of events could differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors.
For purposes of this discussion, "Rigetti," "the Company," "we," "us" or "our"
refer to
Restatement of Previously Issued Financial Statements
As discussed in Note 1, Restatement of Condensed Consolidated Financial Statements and Immaterial Correction of Prior-Period Errors, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we are restating our consolidated financial statements and related financial information for the quarters endedMarch 31, 2022 andJune 30, 2022 . Overview OnMarch 2, 2022 (the "Closing Date"), we consummated the transactions contemplated by that certain Agreement and Plan of Merger dated as ofOctober 6, 2021 , as amended onDecember 23, 2021 andJanuary 10, 2022 (as amended, the "Merger Agreement"), by and amongSupernova Partners Acquisition Company II, Ltd. , aCayman Islands exempted company ("Supernova"),Supernova Merger Sub, Inc. , aDelaware corporation and a direct wholly owned subsidiary of Supernova (the "First Merger Sub"),Supernova Romeo Merger Sub, LLC , aDelaware limited liability company and a direct wholly owned subsidiary of Supernova (the "Second Merger Sub"), andRigetti Holdings, Inc. , aDelaware corporation ("Legacy Rigetti"). As contemplated by the Merger Agreement, onMarch 1, 2022 Supernova was domesticated as aDelaware corporation and changed its name to "Rigetti Computing, Inc. " (the "Domestication"). On the Closing Date, (i) First Merger Sub merged with and into Legacy Rigetti, the separate corporate existence of First Merger Sub ceased and Legacy Rigetti survived as a wholly owned subsidiary ofRigetti Computing, Inc. (the "Surviving Corporation" and, such merger, the "First Merger"), and (ii) immediately following the First Merger, theSurviving Corporation merged with and into the Second Merger Sub, the separate corporate existence of theSurviving Corporation ceased and Second Merger Sub survived as a wholly owned subsidiary ofRigetti Computing, Inc. and changed its name to "Rigetti Intermediate LLC " (such merger transaction, the "Second Merger" and, together with the First Merger, the "Merger", and, collectively with the Domestication, the "PIPE Financing" (as defined below) and the other transactions contemplated by the Merger Agreement, the "Business Combination"). The closing of the Business Combination is herein referred to as "the Closing." We build quantum computers and the superconducting quantum processors that power them. We believe quantum computing represents one of the most transformative emerging capabilities in the world today. By leveraging quantum mechanics, we believe our quantum computers process information in fundamentally new, more powerful ways than classical computers. When scaled, it is anticipated that these systems will be poised to solve problems of staggering computational complexity at unprecedented speed. 42
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With the goal of unlocking this opportunity, we have developed the world's first
multi-chip quantum processor for scalable quantum computing systems. We believe
that this patented and patent pending, modular chip architecture is the building
block for new generations of quantum processors that we expect to achieve a
clear advantage over classical computers.
Our long-term business model centers on revenue generated from quantum computing
systems made accessible via the cloud in the form of Quantum Computing as a
Service ("QCaaS") products. However, the substantial majority of our revenues is
derived from development contracts, and we anticipate this to persist over at
least the next several years as we work to ramp up our QCaaS business.
Additionally, we are working to further develop a revenue stream and forging
important customer relationships by entering into technology development
contracts with various partners.
We are a vertically integrated company. We own and operate Fab-1, a dedicated
and integrated laboratory and manufacturing facility, through which we own the
means of producing our breakthrough multi-chip quantum processor technology. We
leverage our chips through a full-stack product development approach, from
quantum chip design and manufacturing through cloud delivery. We believe this
full-stack development approach offers both the fastest and lowest risk path to
building commercially valuable quantum computers.
We have been generating revenue since 2018 through partnerships with government
agencies and commercial organizations; however, we have not yet generated
profits. We have incurred significant operating losses since inception. Our net
losses were $18.8 million and $9.8 million for the three months ended
September 30, 2022 and September 30, 2021 , respectively, and $48.6 million and
$27.6 million for the nine months ended September 30, 2022 and September 30,2021
respectively. As we expect to continue to invest in research and development
infrastructure, we expect to continue to incur additional losses for the
foreseeable future in line with our long-term business strategy. As of
September 30, 2022 , we had an accumulated deficit of $255.8 million .
The Business Combination and PIPE Financing
OnOctober 6, 2021 , SNII entered into the Merger Agreement by and among Supernova, First Merger Sub, Second Merger Sub, and Legacy Rigetti. OnMarch 2, 2022 , the Business Combination was consummated. While the legal acquirer in the Merger Agreement was Supernova, for financial accounting and reporting purposes underUnited States generally accepted accounting principles ("U.S. GAAP"), Rigetti was the accounting acquirer and the Merger was accounted for as a "reverse recapitalization." A reverse recapitalization does not result in a new basis of accounting, and financial statements of Rigetti represent the continuation of the financial statements of Legacy Rigetti in many respects. Under this method of accounting, Supernova was treated as the "acquired" company for financial reporting purposes. For accounting purposes, Rigetti was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Rigetti (i.e., a capital transaction involving the issuance of stock by Supernova for the stock of Rigetti). As a result of the Business Combination, all of the shares of Legacy Rigetti Common Stock outstanding immediately prior to the Closing (including Legacy Rigetti Common Stock resulting from the Legacy Rigetti preferred stock conversion) were converted into the right to receive an aggregate of 78,959,579 shares of our Common Stock, par value$0.0001 per share ("Common Stock"). Additionally, each issued and outstanding share of Supernova Class A and Class B Common Stock held by Supernova automatically converted to 20,209,462 shares of Common Stock (of which 3,059,273 shares are subject to vesting under certain conditions). Upon consummation of the Business Combination, the most significant change in our reported financial position and results of operations was an increase in cash of$205.0 million (as compared to Rigetti's balance sheet atDecember 31, 2021 ), including$225.6 million of proceeds from the Business Combination and PIPE Financing net against transaction costs incurred by us of$20.65 million . Additional direct and incremental transaction costs were also incurred by Rigetti in connection with the Business Combination. Generally, costs (e.g., SPAC shares) are recorded as a reduction to additional paid-in capital. Costs allocated to liability-classified instruments that are subsequently measured at fair value through earnings (e.g., certain SPAC warrants) are expensed. Rigetti's transaction costs totaled$20.65 million , of which$19.75 million was allocated to equity-classified instruments and recorded as a reduction to additional paid-in capital, and the remaining$0.9 million was allocated to liability-classified instruments that are subsequently measured at fair value through earnings and recognized as expense in the condensed consolidated statements of operations during the nine months endedSeptember 30, 2022 . As a result of the Business Combination, we became subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, and listing standards of the Nasdaq Capital Market, which will necessitate us to hire additional personnel and implement procedures and processes to address such public company requirements. We expect to incur additional ongoing expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, and additional internal and external accounting, legal and administrative resources. 43
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Our future results of consolidated operations and financial position may not be comparable to historical results as a result of the Business Combination.
COVID-19 Update and Other Events
The COVID-19 pandemic and impacts resulting therefrom, including with respect to macroeconomic conditions and supply related issues, continue to evolve and we intend to continue to monitor it closely. The evolution of the virus is unpredictable and any resurgence may slow down our ability to develop our quantum computing products and related services. The COVID-19 pandemic has limited and could further limit the ability of suppliers and business partners to perform, including third-party suppliers' ability to provide components, services and materials. We have experienced and may experience further increases in the cost of raw materials. Following the recent invasion ofUkraine byRussia , theU.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion,the United States ,United Kingdom andEuropean Union , along with others, imposed significant new sanctions and export controls againstRussia , Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed onRussia and possible future punitive measures that may be implemented, as well as the counter measures imposed byRussia , in addition to the ongoing military conflict betweenUkraine andRussia , remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in bothEurope and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing conflict betweenUkraine andRussia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. During the three and nine months endedSeptember 30, 2022 , we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic and the general disruptions resulting from the ongoing conflict betweenUkraine andRussia and related sanctions, as well as increases in costs of component parts, labor and raw materials, which we largely attribute to rising inflation and high demand as a result of restricted supply. We expect these increased costs to remain high as the COVID-19 pandemic, theUkraine -Russia conflict and their respective effects persist. As global economic conditions recover from the COVID-19 pandemic, theUkraine -Russia conflict and the related sanctions, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, rising inflation and interest rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic events, or any similar negative economic condition. In addition, global economic conditions have been worsening, with disruptions to, and volatility and uncertainty in, the credit and financial markets in theU.S. and worldwide resulting from the effects of COVID-19 and increases in inflation and interest rates. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and other efforts. However, like many other companies, we are taking actions to monitor our operations to account for the increases in cost of capital. Specifically, this includes efforts to enhance our operational efficiency, maximize our R&D spend through strategic collaborations, and being highly selective in hiring top-tier talent. Impacts of the COVID-19 pandemic, geopolitical, and macroeconomic conditions, some of which we have already experienced, include those described throughout the "Risk Factors" included in this Quarterly Report on Form 10-Q, including the risk factor titled "We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, its various strains or future pandemics" and "Unfavorable conditions in our industry or the global economy, could limit our ability to grow our business and negatively affect our results of operations." 44
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Change in Fiscal Year
InOctober 2021 , our board of directors approved a change to our fiscal year-end fromJanuary 31 to December 31 , effectiveDecember 31, 2021 . We believe the year-end change is important and useful to our financial statement users to allow for increased comparability with our industry peers. As a result of this change, our fiscal year now begins onJanuary 1 and ends onDecember 31 of each year, starting onJanuary 1, 2022 . Year-over-year quarterly financial data has been and will continue to be recast to be comparative with the new fiscal quarter ends in the new fiscal year.
Key Components of Results of Operations
Revenue
We generate revenue through our development contracts, as well as from our QCaaS offerings and other services including training and provision of quantum computing components. Development contracts are generally multi-year, non-recurring arrangements pursuant to which we provide professional services regarding collaborative research in practical applications of quantum computing to technology and business problems within the customer's industry or organization and assists the customer in developing quantum algorithms and applications to assist customers in areas of business interest. QCaaS revenue is recognized on a ratable basis over the contract term or on a usage basis, which generally ranges from three months to two years. Revenue related to development contracts and other services is recognized as the related milestones are completed or over time, as the work required to complete these milestones is completed. Revenue related to the sale of custom quantum computing components is recognized at a point in time upon acceptance by the customer.
Cost of Revenue
Cost of revenue consists primarily of all direct and indirect cost associated with providing QCaaS offerings and development contracts and other services, including employee salaries and employee related costs, including compensation, bonuses, employee taxes and benefit costs of program management and personnel associated with the delivery of goods and services to customers and sub-contract costs for work performed by third parties. Cost of revenue also includes an allocation of facility costs, depreciation and amortization directly related to providing the QCaaS offerings and development contracts and other services. We expect cost of revenue to increase as we continue to expand on our operations, enhance our service offerings and expand our customer base.
Operating Expenses
Our operating expenses consist of sales and marketing, general and administrative and research and development expenses.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses include compensation, employee benefits, stock-based compensation, outside consultant fees, allocation of facility costs, depreciation and amortization, materials and components purchased for research and development. We expect research and development expenses to increase as we invest in the enhancement of our product offerings. We do not currently capitalize any research and development expenditures.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation including stock-based compensation, employee benefits of sales and marketing employees, outside consultants' fees, travel and marketing and promotion costs. We expect selling and marketing expenses to increase as we continue to expand on our operations, enhance our service offerings, expand our customer base, and implement new marketing strategies.
General and Administrative
General and administrative expenses include compensation, employee benefits,
stock-based compensation, legal, insurance, finance administration and human
resources, an allocation of facility costs (including leases), bad debt costs,
professional service fees, and an allocation of other general overhead costs
including depreciation and amortization to support our operations, which consist
of operations other than associated with providing QCaaS offerings and
development contracts and other services. We expect our general and
administrative expenses to increase as we continue to grow our business. We also
expect to incur additional expenses as a result of operating as a public
company.
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Provision for Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have recorded a full valuation allowance against our deferred tax assets. Results of Operations
Three and Nine Months Ended
The following tables set forth our results of operations for the periods
indicated:
Three Months Ended Nine Months Ended
September 30, 2022 versus 2021 September 30, 2022 versus 2021
2022 2021 $ Change % Change 2022 2021 $ Change % Change
( In thousands) ( In thousands)
Revenue: $ 2,804 $ 2,919 $ (115 ) -4 % $ 7,042 $ 6,818 $ 224 3 %
Cost of revenue 776 446 330 74 % 2,063 1,083 980 90 %
Total gross profit 2,028 2,473 (445 ) -18 % 4,979 5,735 (756 ) -13 %
Operating expenses:
Research and development 17,365 7,484 9,881 132 % 44,040 21,915 22,125 101 %
Sales and marketing 1,960 782 1,178 151 % 4,922 1,738 3,184 183 %
General and administrative 14,027 3,376 10,651 315 % 38,371 8,608 29,763 346 %
Total operating expenses 33,352 11,642 21,710 186 % 87,333 32,261 55,072 171 %
Loss from operations (31,324 ) (9,169 ) (22,155 ) 242 % (82,354 ) (26,526 ) (55,828 ) 210 %
Other (expense) income, net:
Interest expense (1,436 ) (589 ) (847 ) 144 % (3,811 ) (1,077 ) (2,734 ) 254 %
Interest income 1,042 2 1,040 nm 1,172 9 1,163 nm
Change in fair value of derivative
warrant liabilities 8,103 - 8,103 nm 19,853 - 19,853 nm
Change in fair value of earn-out
liability 4,860 - 4,860 nm 17,418 - 17,418 nm
Transaction cost - - - nm (927 ) - (927 ) nm
Other income - - - nm - (23 ) 23 -100 %
Total other income (expense), net 12,569 (587 ) 13,156 33,705 (1,091 ) 34,796
Net loss before provision for income
taxes (18,755 ) (9,756 ) (8,999 ) (48,649 ) (27,617 ) (21,032 )
Provision for income taxes - - - - - -
Net loss $ (18,755 ) $ (9,756 ) $ (8,999 ) $ (48,649 ) $ (27,617 ) $ (21,032 )
Revenue
Revenue decreased $0.1 million , or 4%, to $2.8 million for the three months
ended September 30, 2022 , down from $2.9 million for the three months ended
September 30, 2021 . The period over period change is attributable to a decrease
in revenue of $2.0 million due to the completion of phase 1 of two government
revenue contracts prior to July 2022 , offset by a total $1.9 million increase in
revenue from commencing phase 2 of a large government agency project of
$0.4 million , a new fiscal year 2022 government agency project of $0.2 million ,
QCaaS usage from customers of $1.0 million , and revenue from other projects of
$0.3 million during the three months ended September 30, 2022 .
Revenue increased $0.2 million , or 3%, to $7.0 million for the nine months ended
September 30, 2022 , up from $6.8 million for the nine months ended September 30,
2021 . The period over period increase was primarily attributable to an increase
in revenue of $0.9 million due to the start of two new government contracts,
increase in revenue due to the expansion in scope of one U.S. commercial project
of $0.4 million , increase in revenue for other projects for a total of
$0.1 million , offset by a $0.6 million decrease in revenue related to a U.K.
government agency project in the nine months ended September 30, 2022 , and a
$0.7 million decrease in revenue due to the delay in certain anticipated work on
a U.S. government project initially expected to take place in the third quarter
of 2022 and now expected to take place in fiscal year 2023.
These development contracts are fixed price milestone or cost share-based
contracts and the timing and amounts of revenue recognized in each quarter will
therefore vary based on the delivery of the associated milestones and/ or the
work performed. We expect to continue to generate the majority of our revenue
from development contracts over at least the next several years and that revenue
will be variable in timing and size as we work to ramp up our QCaaS business for
the longer term. In addition, as previously disclosed, we are negotiating
contracts with a government entity that is also an existing customer and the
contracting process has
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taken longer than anticipated. Accordingly, there is a risk that some of the$4.0 million revenue we anticipate from these contracts would be deferred to later fiscal periods after the 2022 fiscal year if the contract negotiations are not completed, the contracts are not executed and we are unable to invoice for the full amount in 2022. Moreover, if negotiations result in contract terms that are less favorable than we anticipated, the total expected value of these contracts could decrease. Additionally, a portion of such anticipated revenue relates to work that has already been performed and costs that have already been incurred. While we have made progress in the negotiation and expect to complete the negotiation prior to the current fiscal year end, we cannot assure the execution of these contracts or receipt of payment by the end of the fiscal year. If the contracts are not ultimately executed, it would likely be very difficult to realize the expected revenue from this government entity and we may be unable to recoup all or a portion of costs already incurred.
Cost of Revenue
Cost of revenue increased by$0.3 million , or 74%, to$0.8 million for the three months endedSeptember 30, 2022 , as compared to$0.4 million for the three months endedSeptember 30, 2021 . The increase was mainly attributable to an increase in subcontractor costs of$0.3 million associated with specific projects and collaborative development contract services work with government agencies. Cost of revenue increased by$1.0 million , or 90%, to$2.1 million for the nine months endedSeptember 30, 2022 , as compared to$1.1 million for the nine months endedSeptember 30, 2021 . The increase was mainly attributable to an increase in employee-related costs of$0.2 million and subcontractor costs of$0.8 million associated with specific projects and collaborative development contract services work with government agencies. We expect these costs to increase as we expand headcount and increase third party subcontractor costs related to our collaborative development contract services work with government agencies. In addition, we have incurred and may continue to incur increased costs associated with equipment, system components and labor due to current global economic conditions, including inflation, labor shortages and supply conditions.
Operating Expenses
Research and Development Expenses
Research and development expenses increased by
• a $7.5 million increase in employee related costs in the three months
ended September 30, 2022 , due to an increase in headcount and related
wage costs of $1.8 million , and a $5.7 million increase in stockcompensation expense which includes annual refresh grants of restricted
stock to employees of $4.6 million .
• a $2.4 million increase associated with the continued and expanded
investment in research and development efforts, including a $1.5 million
increase in software subscription and material costs, a $0.4 million increase in rent and utilities related to expansion of facilities, and a
expenditures.
Research and development expenses increased by
• a one-time correction during the nine months ended September 30, 2022
representing estimated electrical utility fees for a portion of the
electrical usage at our Berkeley facility from February 2019 to
December 30, 2021 , which was an out-of-period adjustment. We have
cumulatively recorded an accrual of $1.5 million for the three months
ended March 31, 2022 , and an additional $0.1 million to accrue for the
three months ended
expenses, see Note 1 to our unaudited condensed consolidated financial
statements for the nine-month period ended
elsewhere in this Quarterly Report on Form 10-Q. The actual amount of
fees that we may be required to pay to our electricity provider and any
related costs, expenses or penalties may be higher or more significant
than the estimates described above.
• a
ended
wage costs of
expense, which includes annual refresh grants of restricted stock to
employees in the three months ended
one-time cumulative recognition of previously deferred stock compensation
expense of
condition with respect to outstanding stock units recognized as a result
of the close of the Business Combination in March 2022 ; and
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• a
investment in research and development efforts, including a
increase in software subscription and material costs, a
increase in rent and utilities, and a
depreciation.
We expect research and development expenses to increase as we continue to invest in the enhancement of our product offerings, including with respect to the cost of building QPU fridges, quantum chip fabrication costs, expansion of facilities and general salaries and wages. In addition, we have incurred, and expect to continue to incur, increased research and development expenses due to increasing costs of labor, including expenses associated with stock compensation in order to attract and retain qualified personnel, including in connection with our search for a new president and chief executive officer; equipment and component costs impacted by the current macroeconomic environment including supply chain constraints; and labor shortages.
Sales and Marketing Expenses
Sales and marketing increased by$1.2 million , or 151%, to$2.0 million for the three months endedSeptember 30, 2022 , from$0.8 million for the three months endedSeptember 30, 2021 . The increase was primarily driven by a$0.9 million increase in stock compensation and a$0.3 million increase in consultant and other spending on sales and development activities for the purpose of customer growth and acquisition. Sales and marketing increased$3.2 million , or 183%, to$4.9 million for the nine months endedSeptember 30, 2022 , from$1.7 million for the nine months endedSeptember 30, 2021 . The increase was primarily driven by a$0.9 million increase in employee related costs, a$1.5 million increase in stock compensation of which$0.4 million was related to the satisfaction of the liquidity condition with respect to outstanding stock units recognized as a result of the close of the Business Combination inMarch 2022 , and a$0.8 million increase in consultant and other spending on sales and development activities for the purpose of customer growth and acquisition. We expect selling and marketing expenses to increase as we seek to expand and enhance our service offerings as well as expand our operations and customer base globally. In addition, we anticipate implementing new marketing strategies with respect to customer acquisition efforts and product marketing campaigns as our technology and product offerings expand.
General and Administrative Expenses
General and administrative expenses increased by
• a
public reporting requirements, investor relation costs and other software
acquisition costs;
• a $0.9 million increase in employee related costs as a result ofoperating as a public company, including higher executive salaries and
increased headcount-related wages to build and upgrade the resources to
operate as a public company and to build out our information security
team;
• a $8.0 million increase in RSU, grants, and stock compensation expense;
• a $0.7 million increase in other costs including directors' and officers'insurance and other office expenses attributable to a return to in-office
work; and
• a $0.1 million increase in depreciation
These costs were partially offset by the gain in change in fair value of our
Forward Warrant Agreement of $0.4 million which was entered into with Ampere as
part of our strategic collaboration agreement.
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General and administrative expenses increased by$29.8 million , or 346%, to$38.4 million for the nine months endedSeptember 30, 2022 , from$8.6 million for the nine months endedSeptember 30, 2021 . The increase was attributable to: • a$25.0 million increase in stock compensation expense; which includes a one-time cumulative recognition of previously deferred stock compensation expense of$6.9 million related to the satisfaction of the
liquidity condition with respect to outstanding stock units recognized as
a result of the closing of the Business Combination;
• a
public reporting requirements, investor relation costs and other software
acquisition costs;
• a $2.9 million increase in employee related costs as a result ofoperating as a public company, including higher executive salaries and
increased headcount-related wages to build and upgrade the resources to
operate as a public company and to build out our information security
team;
• One-time transaction bonuses awarded to employees in recognition of the
closing of the Business Combination and associated taxes of
and
• a
insurance and other office expenses attributable to return to office
work.
These costs were partially offset by the gain in change in fair value of our
Forward Warrant Agreement of $5.5 million which was entered into with Ampere as
part of our strategic collaboration agreement.
We expect general and administrative expenses to increase as we operate as a public company.
Other Income (Expense), net Interest Expense Interest expense was$1.4 million and$0.6 million for the three months endedSeptember 30, 2022 and 2021, respectively. Interest expense was$3.8 million and$1.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in expense was a result of the Loan Agreement we entered into with Trinity Capital Inc. ("Trinity") inMarch 2021 (as amended from time to time, the "Loan Agreement"). The period over period increase was a combination of theFederal Reserve increasing interest rates in response to inflation and a longer interest period during the three and nine months endedSeptember 2022 . For the three months and nine months endedSeptember 30, 2022 , interest expense was based on the overall borrowings under the Loan Agreement of$32.0 million for a three-month and nine-month interest period with higher interest rates, while for the same period in 2021, interest expense was based on borrowings under the Loan Agreement within a range of$12.0 to$20.0 million for a shorter interest period of six months and 10 days based on lower interest rates.
Interest Income
Interest income was$1.0 million and$2 thousand for the three months endedSeptember 30, 2022 and 2021, respectively. Interest income was$1.2 million and$9 thousand for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in interest income was a result of the available-for-sales investments we hold and the increase in interest rates on deposits due toFederal Reserve rate increases. As ofSeptember 30, 2022 , investment securities in our Trust Account consisted of$33.0 million in money market funds,$57.7 million inUnited States Treasury securities,$3.6 million in corporate bonds and$25.9 million in commercial paper. We earned interest on such investments. We did not hold available-for-sales investments and did not earn interest on such investments during the three and nine months endedSeptember 30, 2021 .
Change in Fair Value of Warrant Liabilities
A discussion of change in fair value of warranty liabilities is included in Note 10 to our unaudited condensed consolidated financial statements for the nine-month period endedSeptember 30, 2022 , included elsewhere in this Quarterly Report on Form 10-Q. 49
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Change in Fair Value of Earn-out Liability
A discussion of change in fair value of earn-out liability is included in Note 2, Sponsor Earn-Out Liability, to our unaudited condensed consolidated financial statements for the nine-month period endedSeptember 30, 2022 , included elsewhere in this Quarterly Report on Form 10-Q.
Transaction Costs
Transaction costs arose from the Business Combination allocated to liability-classified instruments that are subsequently measured at fair value through earnings must be expensed as incurred. We incurred total transaction costs of$0.9 million allocated to liability-classified instruments for the nine-month period endedSeptember 30, 2022 . We did not incur any transaction costs for the comparable nine months endedSeptember 30, 2021 . We did not incur any transaction costs as part of the results of operations for the three months endedSeptember 30, 2022 andSeptember 30, 2021 .
Liquidity and Capital Resources
We have incurred net losses since inception, and experienced negative cash flows from operations. Prior to the Business Combination, we financed our operations primarily through the issuance of preferred stock, warrants, convertible notes, venture backed debt and revenues. During the nine months endedSeptember 30, 2022 , we incurred net losses of$48.6 million . As ofSeptember 30, 2022 , we had an accumulated deficit of$255.8 million , and we expect to incur additional losses and higher operating expenses for the foreseeable future in line with our long-term business and investment strategy. In connection with the closing of the Business Combination onMarch 2, 2022 , we received a total of$225.6 million from the Business Combination andPIPE Investment , net against transaction costs incurred by us. We believe that our existing cash and cash equivalents, including net proceeds from the Business Combination, should be sufficient to meet our anticipated operating cash needs for at least the next 12 months based on our current business plan and expectations and assumptions considering current macroeconomic conditions. We have based these estimates on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, and future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q. Global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in theU.S. and worldwide resulting from the effects of COVID-19 and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or other efforts. A recession or additional market corrections resulting from the impact of the evolving effects of the COVID-19 pandemic could materially affect our business and the value of our securities. Our short-term cash requirements include capital expenditures for materials and components for research and development and quantum computing fridges; working capital requirements; and strategic collaborative arrangements and investments. Our long-term requirements include expenditures for the planned expansion of our quantum chip fabrication facility; planned development of multiple generations of quantum processors; and anticipated additional investments to scale our QCaaS offering. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from sales of our development contracts and other services, including our QCaaS offering, we expect to finance our cash needs primarily through our Loan Agreement with Trinity, our arrangements with Ampere, our committed equity financing withB. Riley , and other equity or debt financings or other capital sources, including development contract revenue with government agencies and strategic partnerships. To the extent that we raise additional capital through the sale of equity or convertible debt securities, including through the use of our committed equity financing withB. Riley , the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our quantum computing development efforts. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled "Risk Factors" included in this Quarterly Report on Form 10-Q. 50
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In addition, actual sales, if any, of shares of our Common Stock toB. Riley pursuant to the committed equity financing will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our Common Stock and determinations by us as to appropriate sources of funding for our business and operations. We cannot guarantee the extent to which we may utilize the committed equity financing.
Loan and Security Agreement
OnMarch 10, 2021 , we entered into the Loan Agreement with Trinity for term loans with a principal amount of$12.0 million , bearing an interest rate of the greater of 7.5% plus the prime rate published by theWall Street Journal or 11.0%. In addition, we are required to pay a final payment fee equal to 2.75% of the aggregate amount of all term loan advances. The term loans under the Loan Agreement are secured by all of our assets. The Loan Agreement contains customary representations, warranties and covenants, but does not include any financial covenants. The negative covenants include restrictions on the ability to incur indebtedness, pay dividends, execute fundamental change transactions, and other specified actions. In connection with entry into the Loan Agreement, we issued a warrant to purchase our shares of Common Stock to Trinity. The Guarantor of the loan isRigetti Holdings, Inc. and the loan is secured by substantially all of our assets. OnMay 18, 2021 , we entered into a first amendment to the Loan Agreement, which modified certain financial covenants, including an additional good faith deposit of$20,000 and adding a tranche B to the Loan Agreement in an aggregate amount of$15.0 million , consisting of two advances of$8.0 million and$7.0 million each. In connection with such amendment, the maturity date was modified to be the date equal to 48 months from the first payment date of each specific cash advance. In connection with such amendment, we cancelled the initial warrants and issued a warrant to purchase 995,099 shares of our Common Stock. OnOctober 21, 2021 , we entered into a second amendment to the Loan Agreement, which modified the date requiring us to deliver evidence of completion of the PIPE transaction and execution of a definitive merger agreement with a special purpose acquisition company toOctober 31, 2021 . Pursuant to the second amendment, the maturity date was modified to be the date equal to 48 months from the first payment date of each specific cash advance. Subject to an interest only period of 18 months following each specific cash advance date, the term loan incurs interest at the greater of a variable interest rate based on prime rate or 11% per annum, payable monthly. Interest-only payments are due monthly immediately following an advance for a period of 18 months and, beginning on the 19th month, principal and interest payments are due monthly. InJanuary 2022 , we entered into the third amendment to the Loan Agreement to increase the debt commitment by$5.0 million to$32.0 million . The amendment allows us to draw an additional$5.0 million immediately with an additional$8.0 million to be drawn at the sole discretion of the lender. We drew the additional$5.0 million upon signing the amendment. Other modifications per the amendment included an extension of the requirement to raise an additional$75.0 million of equity and a defined exit fee for the additional$5.0 million to be at 20% of the advanced funds under the amendment. In conjunction with the amendment, we also guaranteed payment of all monetary amounts owed and performance of all covenants, obligations and liabilities. As ofSeptember 30, 2022 , the total principal amount outstanding under the Loan Agreement was approximately$32.0 million . We use borrowings under the Loan Agreement for working capital purposes.
The Loan Agreement is secured by a first-priority security interest in substantially all of our assets. As of the date of this Quarterly Report on Form 10-Q, we are in compliance with all covenants under the Loan Agreement.
Our cash commitments as ofSeptember 30, 2022 were primarily as follows (in thousands): Total Short-Term Long-Term (in thousands) Financing obligations$ 32,000 $ 5,974 $ 26,026 Operating lease obligations 9,660 1,317 8,343 Total$ 41,660 $ 7,291 $ 34,369 Financing obligations consist of payments related to the Loan and Security Agreement. Operating lease obligations consist of obligations under non-cancelable operating leases for our offices and facilities. The cash requirements in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. 51
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