Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. 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,” “forecast,” “goal,” “should,” “could,” “would,” “potential,” 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 described under “Cautionary Note Regarding Forward-Looking Statements”, “Risk Factors” and elsewhere in this Annual Report on Form 10-K 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 Rigetti Computing, Inc. and its subsidiaries unless the context otherwise requires.
Overview
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.
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 sales of quantum processing units (QPUs) and 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 are derived from development contracts, and we anticipate this market opportunity will continue to represent an important source of revenue for at least the next several years as we work to ramp up sales of QPUs and 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 operate Fab-1, a wafer fabrication facility dedicated to prototyping and producing our quantum processors. Through Fab-1, we own the means of production of 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 $201.0 million and $75.1 million for the years ended December 31, 2024 and December 31, 2023, respectively. We expect to continue to incur additional losses for the foreseeable future as we invest in research and development and infrastructure in line with our long-term business strategy. As of December 31, 2024, we had an accumulated deficit of $554.7 million. We believe that our existing cash, cash equivalents and marketable securities should be sufficient to meet our anticipated operating cash needs for at least the next three years and possibly longer based on our current business plan, and expectations and assumptions considering current macroeconomic conditions. Our operating plan may change because of factors currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financing or other sources, such as strategic collaborations or other transactions. In addition, we may seek additional capital even if we believe that we have sufficient funds for current or future operating plans.
Key achievements include the launch of our 84-qubit Ankaa-3 system, our newest flagship quantum computer featuring an extensive hardware redesign. We also achieved major two-qubit gate fidelity milestones with Ankaa-3: successfully halving error rates in 2024 to achieve a 99.0% median two-qubit iSWAP gate fidelity, as well as demonstrating a 99.5% median two-qubit fidelity with fSim gates.
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In 2025, we plan to introduce the next generation of our modular system architecture, while aiming to continue to increase fidelities. By mid-year 2025, we expect to release a 36-qubit system based on four 9-qubit chips tiled together, with a targeted 2x reduction in error rates from our error rates achieved at the end of 2024. By the end of 2025, we expect to release a system with over 100 qubits with a targeted 2x reduction in error rates from our error rates achieved at the end of 2024.
We believe that we will be able to achieve our plans for 2025 described above and elsewhere in this Annual Report on Form 10-K; however, we face various risks and uncertainties relating to our business that could cause actual results to differ materially from our expectations stated herein. This Annual Report on Form 10-K, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction beginning in February 2023 to focus the organization and our resources on nearer-term strategic priorities and our efforts to achieve narrow quantum advantage.
The reduction in the workforce impacted approximately 50 employees or 28% of our then workforce. We began implementing activities with respect to the revised business plan and reduction in workforce in February 2023. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance. We incurred a $1.0 million restructuring charge in the three months ended March 31, 2023, for severance payments and temporary healthcare coverage for effected employees. In addition to the restructuring charge, we also incurred $1.0 million of expenses for contractual severance benefits related to executive officers of the Company that were terminated in the three months ended March 31, 2023.
Quanta Collaboration Agreement
In February 2025, our wholly-owned subsidiary, Rigetti Sub, entered into the Collaboration Agreement with Quanta, whereby the parties may enter into written statements of work from time to time pursuant to which Quanta will develop Covered Components listed in such statement of work that meet the specifications and requirements provided by Rigetti Sub. “Covered Components” may include control systems, dilution refrigerators, flexible cables, and select other non-QPU components suitable for Rigetti Sub’s quantum computing products. No statements of work were entered into by the parties in connection with the entry into the Collaboration Agreement. In addition, the parties have each agreed to invest at least $250 million over the next five years in the field of quantum computing (and Quanta’s investment will be towards personnel and capital expenditures for developing products and services and manufacturing capability in furtherance of the Rigetti Sub product roadmap). In connection with the Collaboration Agreement, on February 27, 2025, we entered into a Securities Purchase Agreement with Quanta, pursuant to which we agreed to sell and issue to Quanta in a private placement transaction 3,020,412 shares of our Common Stock at a price per share of approximately $11.59, for an aggregate value of approximately $35.0 million. The closing of the private placement transaction is subject to regulatory clearance.
Macroeconomic Considerations
Results of our operations have varied and may continue to vary based on the impact of changes in the domestic or global economy. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, inflation, interest rates, financial and credit market fluctuations, international trade relations and tariffs, pandemics, political turmoil, natural catastrophes, warfare, and terrorist attacks in the United States or elsewhere, could negatively affect our business, including progress toward the development of quantum computing. 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. If these conditions persist and deepen, we could experience an inability to access additional capital if needed, or our liquidity could otherwise be impacted, and the trading price of our Common Stock could decline.
For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled “Risk Factors,” including the risk factor titled “ Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations.”
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Key Components of Results of Operations
Revenue
We generate revenue through our development contracts, as well as from our sales of QPUs, and 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.
Cost of Revenue
Cost of revenue consists primarily of all direct and indirect costs associated with sales of QPUs, QCaaS offerings and development contracts and other services, including materials, employee costs for 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 the development contracts and QCaaS offerings and other services.
Operating Expenses
Our operating expenses primarily consist of research and development, and selling, general and administrative expenses.
Research and Development
Research and development expenses include compensation, employee benefits, stock-based compensation, outside consultant fees, facility costs, depreciation and amortization, materials and components purchased for research and development. We expect research and development expenses to increase as we continue to invest in quantum computing and the superconducting quantum processors needed for quantum computers. We do not currently capitalize any research and development expenditures. Research and development costs are expensed as incurred.
Selling, General and Administrative
Selling, general and administrative expenses include compensation, employee benefits, stock-based compensation, insurance, facility costs, professional service fees, and other general overhead costs other than those associated with sales of QPUs and providing development contracts, QCaaS offerings and other services. We expect selling, general and administrative expenses to increase as we grow our business, particularly to the extent we achieve narrow and broad quantum advantage, and subsequently enhance our product and service offerings, expand our customer base, and implement new marketing strategies.
Restructuring
In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction in order to focus the organization and its resources on nearer-term strategic priorities. The reduction in the workforce impacted approximately 50 employees or approximately 28% of our then workforce. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance.
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.
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Results of Operations
Comparison of the years ended December 31, 2024 and 2023
The following tables set forth our results of operations for the years indicated (in thousands):
Year Ended
December 31,
2024 vs. 2023
2024
2023
$ Change
% Change
Revenue
$
10,790
$
12,008
$
(1,218)
(10)
%
Cost of revenue
5,093
2,800
2,293
82
%
Total gross profit
5,697
9,208
(3,511)
(38)
%
Operating expenses:
Research and development
49,750
52,768
(3,018)
(6)
%
Selling, general and administrative
24,457
27,744
(3,287)
(12)
%
Restructuring
—
991
(991)
NM
Total operating expenses
74,207
81,503
(7,296)
(9)
%
Loss from operations
(68,510)
(72,295)
3,785
(5)
%
Other income (expense), net
Interest expense
(3,255)
(5,779)
2,524
(44)
%
Interest income
5,113
5,076
37
1
%
Change in fair value of derivative warrant liabilities
(90,168)
(1,160)
(89,008)
NM
Change in fair value of earn-out liabilities
(43,742)
(949)
(42,793)
NM
Loss on extinguishment of debt
(426)
—
(426)
NM
Total other expense, net
(132,478)
(2,812)
(129,666)
4,611
%
Net loss before provision for income taxes
(200,988)
(75,107)
(125,881)
168
%
Provision for income taxes
—
—
—
Net loss
$
(200,988)
$
(75,107)
$
(125,881)
*NM - Not Meaningful
Revenue
Revenue decreased by $1.2 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023. The decrease was primarily due to a $2.0 million reduction in QCaaS revenue for the year ended December 31, 2024, offset in part by higher revenue from development contracts and sales of QPUs.
Our development contracts are typically fixed price milestone or cost share-based contracts and the timing and amounts of revenue recognized in any given period will vary significantly based on the delivery of the associated milestones and/or the work performed. The timing and delivery of sales of QPUs and QCaaS will also vary and impact revenue in any given quarterly or annual period. Revenue is expected to vary in terms of timing and size, resulting in significant fluctuations in revenue levels in future periods.
For the next few years, we expect much of our revenue to be generated from development contracts and anticipated sales of on-premises QPUs.
Cost of Revenue
Cost of revenue increased by $2.3 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023. The increase in cost of revenue was primarily due to a change in the composition of our revenue and variability in the pricing and terms of our development contracts. During the year ended December 31, 2024, we entered into a new contract to deliver a 24-qubit quantum computing system having higher costs and a lower gross margin profile than most of our other contracts. The increase in cost of revenue resulting from the unfavorable mix was partially offset by the impact of lower revenue.
We expect that cost of revenue and total gross profit as a percentage of revenue will vary in future quarterly and annual periods due to changes in the composition of our revenue and variability in the pricing and terms of our development contracts.
Operating Expenses
Research and Development
Research and development expenses decreased by $3.0 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023.
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The decrease in research and development expenses for the year ended December 31, 2024, when compared to the year ended December 31, 2023, was largely due to a $0.9 million decrease in salaries and employee related costs due to our February 2023 restructuring and because more engineering time was used to deliver revenue, and a $2.8 million decrease in IT costs due to systems rationalization, offset in part by a $0.8 million increase in bonus expenses. All other research and development costs decreased by a cumulative $0.1 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023.
We anticipate that R&D expenditures will grow in the future as we continue to focus on our technology roadmap and long-term goal of achieving broad quantum advantage.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $3.3 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023.
The decrease for the year ended December 31, 2024, when compared to the year ended December 31, 2023, was primarily due to $2.2 million of expense recognized in the year ended December 31, 2023 for the forward agreement with Ampere Computing and a $0.8 million impairment charge recognized in the year ended December 31, 2023 for deferred offering costs. Costs related to accounting services and public company compliance decreased by $1.2 million during the year ended December 31, 2024, because many of these activities were either performed more efficiently or have been brought in-house. These decreases were partially offset by a $1.1 million increase in stock-based compensation expenses for the year ended December 31, 2024. Stock compensation expenses were favorably impacted during the year ended December 31, 2023 due to forfeitures resulting from the February 2023 restructuring. All other expenses decreased by a cumulative $0.2 million for year ended December 31, 2024, when compared to the year ended December 31, 2023.
We expect selling, general and administrative expenses to increase over the longer term, particularly after we potentially achieve quantum advantage, and plan to subsequently enhance our sales and service offerings, expand our customer base, and implement new marketing strategies.
Restructuring
In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction in order to focus the organization and our resources on nearer-term strategic priorities. The reduction in the workforce impacted approximately 50 employees or approximately 28% of our then workforce. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance.
We began implementing activities with respect to our revised business plan, updated technology roadmap and reduction in workforce in February 2023, resulting in a $1.0 million restructuring charge for the year ended December 31, 2023. No further restructuring charges related to this action are expected.
Other Income (Expense), net
Interest Expense
Our outstanding debt with Trinity Capital, Inc., which we repaid in full in December 2024, carried a variable rate of interest. Interest expenses decreased by $2.5 million for the year ended December 31, 2024, when compared to the year ended December 31, 2023. The reduction in interest expense was due to regular principal repayments throughout the year and prepayment of the remaining outstanding principal balance in December 2024.
A discussion regarding the prepayment of our outstanding debt with Trinity Capital Inc. is included in Note 8 to our consolidated financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report on Form 10-K.
Interest Income
Interest income remained consistent at $5.1 million for each of the years ended December 31, 2024 and December 31, 2023. Slight changes in interest income during the years ended December 31, 2024 and December 31, 2023 were due to fluctuations in the balances of our invested cash and available-for-sale investments and rates of interest earned on our investments.
Change in Fair Value of Warrant Liabilities
A discussion of the change in the fair value of warrant liabilities is included in Note 9 to our consolidated financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report on Form 10-K.
The change in fair value of warrant liabilities for the year ended December 31, 2024 was a loss of $90.2 million, compared to a loss of $1.2 million for the year ended December 31, 2023. The increase in loss for the year ended December 31, 2024 was primarily due to the change in our stock price and related share price volatility.
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Change in Fair Value of Earn-Out Liabilities
A discussion of the change in the fair value of the earn-out liabilities is included in Note 10 to our consolidated financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report on Form 10-K.
The change in fair value of our earn-out liabilities for the year ended December 31, 2024 was a loss of $43.7 million, compared a loss of $0.9 million for the year ended December 31, 2023. The increase in loss for the year ended December 31, 2024 was primarily due to the change in our stock price and related share price volatility.
Loss on Extinguishment of Debt
On December 9, 2024, we prepaid in full all amounts owed under our Amended Loan Agreement with Trinity Capital Inc. We prepaid an aggregate of $9.5 million in outstanding principal balance, final payment fees of $0.9 million, plus accrued interest and a prepayment premium aggregating $0.1 million. During the year ended December 31, 2024, the Company recorded a $0.4 million loss on the prepayment and extinguishment of the outstanding principal balance owed under the Amended Loan Agreement.
Provision for Income Taxes
We did not record income tax expense during the years ended December 31, 2024 or December 31, 2023 due to the Company’s loss position and full valuation allowance.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since inception. Historically, we financed our operations primarily through the sale and issuance of common stock preferred stock, warrants, convertible notes, debt and revenues. During the years ended December 31, 2024 and December 31, 2023, we incurred net losses of $201.0 million and $75.1 million, respectively. As of December 31, 2024, we had an accumulated deficit of $554.7 million, and we expect to incur additional losses for the foreseeable future.
On November 27, 2024, we closed securities purchase agreements with two institutional investors pursuant to which we received net proceeds of $96.0 million from the sale of 50,000,000 shares of our common stock. On March 14, 2024, we entered into an At-the-Market Sales Agreement (the “ATM Agreement”) with B. Riley Securities, Inc. (“B. Riley”) and Needham & Company, LLC, pursuant to which we could offer and sell shares of our common stock from time to time having an aggregate offering price of up to $100 million. During the year ended December 31, 2024, we received net proceeds of $97.5 million from the sale of 68,809,485 shares of our common stock pursuant to the ATM Agreement.
In addition, on August 11, 2022, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley, pursuant to which we had the right to sell shares of our common stock in an aggregate amount up to the lesser of (i) $75 million and (ii) an amount not to exceed 23,648,889 shares of our common stock, subject to certain limitations and conditions.
We received net proceeds of $12.8 million in 2024 and $20.5 million in 2023 from the sale of the maximum 23,648,889 shares of our common stock (inclusive of 171,008 shares issued to B. Riley in 2022 as consideration for the Purchase Agreement) pursuant to the Purchase Agreement. There are no remaining shares available for sale under the Purchase Agreement, and the Purchase Agreement has terminated.
We believe that our existing balances of cash, cash equivalents and available-for-sale investments should be sufficient to meet our anticipated operating cash needs for at least the next three years based on our current business plan, and expectations and assumptions considering current macroeconomic conditions. Our operating plan may change because of factors currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or other transactions. In addition, we may seek additional capital even if we believe that we have sufficient funds for current or future operating plans. 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 Annual Report on Form 10-K. If we are unable to raise capital when needed and on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or other efforts. A recession or market corrections resulting from the impact of macroeconomic conditions could materially affect our business and the value of our securities.
Our cash requirements include employee-related costs such as salaries and benefits; materials and components for research and development; working capital requirements; capital expenditures for our quantum chip fabrication facility; quantum computing refrigerators and other requirements; planned development of multiple generations of quantum processors; anticipated investments to scale our operations in the future; and strategic collaborative arrangements and investments.
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We will require a significant amount of cash for expenditure as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from sales of QPUs, our development contracts and other services, including our QCaaS offering, we expect to finance our cash needs primarily through our existing cash, cash equivalents and available-for-sale investments, potential securities financings or other capital sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, 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 and on attractive terms, 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 described in the section titled “Risk Factors” in this Annual Report on Form 10-K.
Cash Flows Used in Operating Activities
Our cash flows from operating activities are significantly affected by our ability to achieve significant growth to offset expenditures related to research and development, and selling, general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.
Net cash used in operating activities during the year ended December 31, 2024 was $50.6 million, primarily resulting from our net loss of $201.0 million, partially offset by non-cash expenses totaling $153.4 million. Changes in operating assets and liabilities had a $3.1 million unfavorable impact on net cash used in operating activities for the year ended December 31, 2024.
Net cash used in operating activities during the year ended December 31, 2023 was $50.6 million, primarily resulting from our net loss of $75.1 million, partially offset by non-cash expenses totaling $25.0 million. Changes in operating assets and liabilities had a minimal impact on net cash used in operating activities for the year ended December 31, 2023.
Cash used in operating activities during the year ended December 31, 2024 of $50.6 million was virtually unchanged when compared to the year ended December 31, 2023. Our net loss increased by $125.9 million to $201.0 million during the year ended December 31, 2024. Non-cash charges impacting our net loss increased by $128.4 million to $153.4 million during the year ended December 31, 2024, from $25.0 million during the year ended December 31, 2023. Changes in operating assets and liabilities had a $2.6 million unfavorable impact on the change in cash used in operating activities during the year ended December 31, 2024, compared to the year ended December 31, 2023.
Cash Flows (Used in) Provided by Investing Activities
Cash used in investing activities during the year ended December 31 2024 totaled $78.4 million, resulting from $224.8 million of purchases of available-for-sale securities and $11.1 million of purchases of property and equipment, offset in part by $157.5 million of maturities of available-for-sale securities.
Cash provided by investing activities during the year ended December 31 2023 totaled $0.8 million, resulting from $119.1 million of maturities of available-for-sale securities, offset in part by $9.1 million of purchases of property and equipment and $109.3 million of purchases of available-for-sale securities.
Investments in property and equipment relate primarily to process computing equipment, quantum computing refrigerators, and development tools for our chip fabrication facility.
Net cash provided by investing activities during the year ended December 31, 2024 decreased by $79.1 million when compared to the year ended December 31, 2023, due to higher purchases of available-for-sale securities and property and equipment, offset in part by higher maturities of available-for-sale securities.
Cash Flows Provided by Financing Activities
Cash provided by financing activities during the year ended December 31 , 2024 totaled $175.5 million, reflecting proceeds of $12.8 million, net of commissions, from the sale of 10.1 million shares of common stock to B. Riley through our prior Purchase Agreement with B. Riley, proceeds of $97.5 million, net of commissions, from the sale of 68.8 million shares of common stock under our ATM Agreement, proceeds of $96.0 million, net of commissions, from the sale of 50.0 million shares of common stock through a registered direct offering and proceeds of $0.6 million from the exercise of stock options and warrants.
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The favorable impact from the various stock offerings was offset in part by principal repayments and prepayment and final payment fees of $23.3 million under the loan agreement we had with Trinity Capital Inc., net payments of $6.3 million for tax withholdings from sell-to-cover for equity award transactions and payments of $1.8 million for offering costs. In connection with the repayments, prepayment and final payment fees under the loan agreement, we terminated the loan agreement.
Cash provided by financing activities during the year ended December 31 , 2023 totaled $13.2 million, reflecting $20.5 million of proceeds, net of commissions, from the sale of 13.4 million shares of common stock to B. Riley through our prior Purchase Agreement with B. Riley, and proceeds of $1.1 million from the exercise of stock options and warrants, offset in part by principal repayments of $8.3 million under the loan agreement with Trinity Capital Inc. and payments of $0.1 million for offering costs.
Net cash provided by financing activities during the year ended December 31 , 2024 increased by $162.2 million when compared to the year ended December 31 , 2023, largely due to an increase in sales of common stock under the ATM Agreement and registered direct offerings and sales of shares to B Riley, net of commissions and offering costs, offset in part by higher principal repayments and prepayment and final payment fees under the loan agreement with Trinity Capital, Inc. and net payments of tax withholdings for sell-to-cover equity award transactions. We expect to continue to finance our cash needs primarily through cash, cash equivalents and available-for-sale investments, potential securities financings or other capital sources.
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with GAAP.
Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions that affect revenue and expenses during the reporting periods.
Our estimates are based on historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
While our significant accounting policies are described in the Notes to our consolidated financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report on Form 10-K, we believe the following critical accounting estimates are most important to understanding and evaluating our reported financial results.
Public Warrants and Private Warrants
As of December 31 2024, there were 13,074,972 Warrants outstanding, consisting of 1,992,102 Private Warrants and 11,082,870 Public Warrants. Each whole warrant entitles the holder to purchase one share of our Common Stock at a price of $11.50 per share, subject to adjustments and will expire on March 2, 2027 at 5:00 p.m., New York City time or earlier upon redemption or liquidation.
The Private Warrants do not meet the derivative scope exception and are accounted for as derivative liabilities. Specifically, the Private Warrants contain provisions that cause the settlement amounts to be dependent upon the characteristics of the holder of the warrant which is not an input into the pricing of a fixed-for-fixed option on equity shares. Therefore, the Private Warrants are not considered indexed to our stock and should be classified as a liability.
Since the Private Warrants meet the definition of a derivative, we recorded the Private Warrants as liabilities in the consolidated balance sheet at fair value upon the closing of the Business Combination (described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K), with subsequent changes in the fair value recognized in the consolidated statements of operations at each reporting date. The fair value of the Private Warrants was measured using the Black-Scholes option-pricing model at each measurement date.
The Public Warrants also fail to meet the indexation guidance in ASC 815 and are accounted for as liabilities as the Public Warrants include a provision whereby in a scenario in which there is not an effective registration statement, the warrant holders have a cap, 0.361 shares of Common Stock per warrant (subject to adjustment), on the issuable number of shares in a cashless exercise. Subsequent to the separate listing and trading of the Public Warrants, the fair value of the Public Warrants has been measured based on the observable listed prices for such warrants and the fair value of the Private Warrants are measured using the Black-Scholes option-pricing model.
On the consummation of the Business Combination, we recorded a liability related to the Private Warrants of $9.6 million, with an offsetting entry to additional paid-in capital . There are a number of variables impacting the Black-Scholes option-pricing model used to value the derivative liability for the Private Warrants. The most impactful variable is the price of our Common Stock. The derivative liability for the Private Warrants will correspondingly increase or decrease as the price of our Common Stock increases or decreases.
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As of December 31, 2024 and December 31, 2023 the fair value of the derivative liability for the Private Warrants was $22.8 million and $1.6 million, respectively, with the change in the fair value of the derivative warrant liabilities recorded in the consolidated statements of operations each reporting period.
Similarly, on the consummation of the Business Combination, we recorded a liability related to the Public Warrants of $16.3 million, with an offsetting entry to additional paid-in capital. As of December 31, 2024 and December 31, 2023 the fair value of the derivative liability for the Public Warrants was $70.3 million and $1.3 million, respectively, with the change in the fair value of the derivative warrant liabilities recorded in the consolidated statements of operations each reporting period.
Earn-Out Liabilities
On March 2, 2022 (the “Closing Date”), a merger transaction between Rigetti Holdings, Inc. (“Legacy Rigetti”) and Supernova Partners Acquisition Company II, Ltd. (“SNII”) was completed (the “Business Combination”). Upon the closing of the Business Combination, SNII, Supernova Partners II, LLC and SNII’s directors and officers (collectively the “Sponsor Holders”) subjected certain shares of our Common Stock that they own ( the “Sponsor Vesting Shares”) to forfeiture and vesting as of the Closing if thresholds related to the weighted average price of our Common Stock are not met for the duration of various specified consecutive day trading periods during the five-year period following the Closing (the “Earn-out Triggering Events”). Any such shares held by the Sponsor Holders that remain unvested after the fifth anniversary of the closing of the Business Combination will be forfeited. The price thresholds for vesting under the sponsor support agreement are $12.50 and $15.00.
The Sponsor Vesting Shares are accounted for as liability classified instruments because the Earn-Out Triggering Events that determine the number of Sponsor Vesting Shares to be earned back by the Sponsor Holders include outcomes that are not solely indexed to our Common Stock.
The aggregate fair value of the Sponsor Vesting Shares at the time of the closing of the Business Combination was estimated using a Monte Carlo simulation model and was determined to be $20.4 million. There are a number of variables impacting the Monte Carlo simulation model used to value the Earn-Out liability. The most impactful variable is the price of our Common Stock. The Earn-out liability will correspondingly increase or decrease as the price of our Common Stock increases or decreases. As of December 31, 2024, the Earn-Out Triggering Events were not achieved for any of the Sponsor Vesting Shares. As of December 31, 2024 and December 31, 2023, the fair value of the earn-out liabilities was $45.9 million and $2.2 million, respectively, with the change in the fair value of the earn-out liabilities recorded in the consolidated statements of operations each reporting period.
The $12.50 vesting condition for 2,479,000 shares of Common Stock held by the Sponsor Holders was satisfied in February 2025.
Revenue Recognition
Revenue consists primarily of our contracts that provide access to Rigetti quantum computing systems, collaborative research services, professional services, and the sale of QPUs and custom quantum computing components. Access to Rigetti quantum computing systems can be purchased as a quantum computing subscription, or on a usage basis for a specified quantity of hours. Revenue related to subscription-based access to Rigetti quantum computing systems (i.e., quantum computing subscriptions) is recognized on a ratable basis over the subscription term, which can range from monthly to two years. Revenue related to usage-based access to Rigetti quantum computing systems is recognized over time as the systems are accessed using an output method based on compute credit hours expended. Revenue related to collaborative research services and professional services is recognized over time based on completed milestones or hours or costs incurred as appropriate. Revenue for partially completed milestones deemed probable of being met is recognized using an input measure based on actual labor hours incurred to date relative to total estimated labor hours needed to complete the milestone. Revenue related to cost share contracts is recognized as the reimbursable costs are incurred.
For fixed price milestone-based contracts, revenue is recognized based on the input measure explained above as control is expected to transfer over the time period a milestone is completed. Revenue related to the sale of QPUs and custom quantum computing components is recognized at a point in time, and upon customer acceptance for custom quantum computing components.
Our fixed fee development contracts vary in term from one to five years, with the majority of such contracts having a term of six months to two years. When establishing the pricing for our fixed fee arrangements, we determine the pricing based on estimated costs to complete and expected margins taking into account the scope of work outlined within the contract being evaluated and our historical experience with similar services and contracts. Actual costs incurred over the period in which these contracts are fulfilled could vary from these estimates and therefore, these estimates are subject to uncertainty. On a quarterly basis, management reviews the progress with respect to each contract and its related milestones and evaluates whether any changes in estimates exist. As a result of the quarterly reviews, revisions in the estimated effort to complete the contract are reflected in the period in which the change is identified.
These revisions may impact the overall progress related to transfer of control and therefore result in either increases or decreases in revenues as well as increases or decreases in fulfillment costs and contract margins. In accordance with ASC No. 250, Accounting
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Changes and Error Corrections, any changes in estimates are reflected in our consolidated statements of operations in the period in which the circumstances that give rise to the revision become known to management. To date, we have not experienced any changes in estimates that have had a material impact on our results from operations or financial position.
When our contracts with customers contain multiple performance obligations, the transaction price is allocated on a relative standalone selling price basis to each performance obligation. We typically determine standalone selling price based on observable selling prices of our products and services. In instances where standalone selling price is not directly observable, standalone selling price is determined using information that may include market conditions and other observable inputs. Stand-alone selling price is typically established as a range. In situations in which the stated contract price for a performance obligation is outside of the applicable standalone selling price range and has a different pattern of transfer to the customer than the other performance obligations in the contract, we will reallocate the total transaction price to each performance obligation based on the relative standalone selling price of each.
The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the transaction price, which includes fixed consideration and estimates of variable consideration. The amount of variable consideration included in the transaction price is constrained and is included only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Our contracts with customers may include renewal, upgrade rights or other options at fixed prices. Determining whether such options are considered distinct performance obligations that provide the customer with a material right and therefore should be accounted for separately requires significant judgment. Judgment is required to determine the standalone selling price for each renewal option to determine whether the renewal pricing is reflective of standalone selling price or is reflective of a discount that would provide the customer with a material right. Based on our assessment of standalone selling prices, we determined that certain of the Company’s sales contracts for the Novera QPU contain material upgrade rights which have been deferred.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 of our consolidated financial statements for the year ended December 31, 2024 included elsewhere in this Annual Report on Form 10-K.
Emerging Growth Company and Smaller Reporting Company Status
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Following the Business Combination (described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K), we still qualify as an emerging growth company and plan to take advantage of the extended transition period that emerging growth company status permits. During the extended transition period, it may be difficult or impossible to compare our financial results with the financial results of another public company that complies with public company effective dates for accounting standard updates because of the potential differences in accounting standards used.
We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.