Arqit Quantum Inc. (Nasdaq: ARQQ, ARQQW) (“Arqit”), a leader in
quantum safe encryption, today announced its operational and
financial results for the six months ended 31 March 2024.
Recent Operational
Highlights
- Arqit sells
Symmetric Key Agreement (“SKA”) software enabling quantum safe
encryption. The company has re-branded its flagship product from
QuantumCloud™ to SKA Platform™ to more precisely reflect its
offering which no longer contains any hardware or quantum effects –
it is a pure software tech stack which runs in the cloud.
- During the first
half of fiscal year 2024, nine existing customers renewed or
increased commitments to buy Arqit software under existing
contracts. All customer contracts maturing during the period were
renewed or extended.
- Several
transactions that were expected to bill in the period slipped into
the second half of the fiscal year. Following the end of the first
half of the fiscal year, Arqit entered into several new
transactions and contract expansions that are expected to result in
revenue recognised during the second half of the fiscal year.
- After the period
end we were notified of the award, following a competition, of a
seven figure multi-year contract with a government customer in the
EMEA region, our first such contract.
- Three new major
telcos operators agreed to or launched initial test installations
and several others are in planning, suggesting market adoption is
now accelerating.
- In April, Arqit
announced that an integration of its software with Intel for
out-of-the-box post-quantum cryptography solutions using Arqit’s
SKA Platform™ running on
Intel Xeon Scalable processors. Arqit believes
it represents the world’s first quantum-safe, 1.89 Tb IPsec
solution. The product is currently available for sale and joint
commercial efforts are underway. Arqit views this as a very
significant milestone and a key differentiator against
competition.
- Arqit’s
TradeSecure™ offering which provides a symmetric key agreement
solution for digital assets, specifically trade finance documents,
announced in April 2024 additional partners to bring Arqit
TradeSecure™ to market:
- Lux Kapitalmarkt
Management AG (LuxAG) has entered into a partnership with Arqit and
TraxPay to invest in digital negotiable instruments. This
partnership will help to facilitate liquidity in the supply chain
finance market.
- Vayana
TradeXchange’s marketplace for global trade finance will use Arqit
TradeSecure™ technology to transform international supply chains.
Vayana TradeXchange is part of Vayana Group, one of India’s
largest regulated networks for domestic supply chain finance.
- Following the
launch of our TradeSecure™ product with supply chain platforms and
credit funds signing agreements to provide vendor financing, a
number of transactions are currently under negotiation.
- Telecom Italia
Sparkle announced the successful completion of a quantum-safe VPN
test, preliminary to a large-scale commercial launch. TI Sparkle is
one of the largest Tier 1 Internet providers in the world. It owns
and manages a network of more than 600,000 km of fibre.
- Arqit announced
one additional OEM relationship (Intel) bringing total OEM partners
or relationships to three; and announced additional reseller
relationships with Phalanx, Total Computers, LuxAG and Vayana
TradeXchange bringing total reseller relationships to 12. Arqit
also has four distributor relationships.
- During the
period, Arqit made significant progress in generating positive
evaluation of its technology by major government organisations
which are influential in the development and adoption of
technological standards, particularly for cyber security. Arqit
expects to report more fully on this in future periods.
- During this
period, Arqit announced that Arqit’s SKA Platform™ meets the
National Security Agency (NSA) Commercial Solutions for Classified
(CSfC) Symmetric Key Management Requirements Annex V2.0 and uses an
NSA approved Key Generation Solution (KGS) to generate and manage
pre-shared keys. The SKA Platform has been integrated into
NIAP validated CSfC components which deliver a significant
competitive advantage for national security systems. As such,
there is a growing interest from OEM partners and telcos for
incorporation into government contracts. Arqit is positively
engaged with a number of national security and cyber agencies.
- Arqit won two
Global Mobility awards at Mobile World Congress in February 2024.
The company took home the top honour in the CTO Choice: Outstanding
Mobile Technology Award category, which was voted on by CTO’s
across the industry, including those from the world’s major mobile
phone companies. The award was for a secure 5G solution that was
developed in collaboration between Arqit, Hewlett Packard Aruba and
Ampliphae. The collaboration also won the award for Best Mobile
Security Solution.
- During the first
half of fiscal 2024, after a comprehensive sale process failed to
result in a transaction for its satellite division, Arqit
discontinued its satellite construction program. All costs
associated with the program have been eliminated, and assets and
liabilities related to the program have been classified as
discontinued operations. There is no longer any hardware element to
Arqit’s activities – the company is solely focused on selling its
SKA Software.
- In April, Arqit
was informed by Nasdaq that it was eligible for an additional 180
day period in order to regain compliance with Nasdaq minimum bid
price requirements.
- In May 2024,
Arqit commenced a cost reduction initiative across all business
functions which will include the elimination of significant
headcount. These cost reduction actions have begun in accordance
with local laws in each of the relevant jurisdictions. Pro forma
for the cost reduction initiative, Arqit will have 81 employees as
compared to 125 at the end of the reporting period. In addition,
the company has undertaken actions to rationalize its office space
to further reduce costs. These cost reduction initiatives are
expected to result in a 40% decrease in monthly budgeted operating
costs to approximately $1.8 million commencing July from previously
budgeted monthly operating costs of approximately $3.0 million. As
of 31 March 2024, Arqit had $21.3 million of cash and cash
equivalents.
- In December
2022, Arqit established an at-the-market equity offering program
(the “ATM Program”) pursuant to which it may issue and sell
ordinary shares with an aggregate offering amount of up to $50.0
million. Effective 15 April 2024, Arqit amended its ATM Program
reducing the aggregate offering amount to $29.0 million. As a
result, the remaining balance available for issuance, net of
amounts issued in previous periods, is $17.5 million. Arqit did not
issue any shares under the ATM Program during the first half of
fiscal year 2024.
- After the close
of the fiscal period, $0.9 million in gross proceeds from an equity
subscription from D2BW Limited, an entity controlled by Arqit’s
founders, was received.
Management Commentary
There is increasing market awareness of the need
for Post Quantum Cryptography by cyber security technology vendors
and customers. Arqit’s technology has been selected by several
important OEM partners and customers and has been well received in
on-going government evaluations. Important new industry voices are
amplifying the suitability of Arqit’s Symmetric Key Agreement
Platform:
- In May, Intel
published a detailed white paper describing the technical merits of
the integration of Arqit SKA technology with Intel processers to
address the store now, decrypt later threat and launched commercial
sale of the integration.
- In May,
Industrial Data Corporation, in partnership with Arqit,
independently reviewed and published a research note describing the
positive merits of Arqit’s products.
- In February, the
GSMA conference publisher released a paper describing the need for
and suitability of Arqit’s products for the mobile phone
industry.
- In May 2022, the
NSA/NIAP mandated that all providers of VPNs working under NSA
Commercial Solutions for Classified accreditation must incorporate
an industry standard called RFC8784 which describes a method for
injecting Symmetric Keys into VPNs. Arqit believes it has the only
cloud software method capable of meeting this requirement with
provable security and Zero Trust Network Architecture.
Independent market research suggests that around
a third of respondents are actively implementing post-quantum
cryptography or are planning to do so in the next twelve months.
Although the pace of market adoption has lagged our expectations,
the traction we are seeing in defence and telcos is supportive of
this research.
As a result of growing market adoption and
improving customer engagement, Arqit expects to begin generating
more significant and consistent revenues by the end of the first
half of the 2025 fiscal year.
The imperative for stronger encryption emanating
from organizations such as The White House and NSA is resonating
with the marketplace. The benefits of symmetric key agreement
encryption versus alternative methods of enhanced encryption are
being recognized as well. Increased market awareness and
recognition of the efficacy of SKA are favourable to prospective
demand for Arqit SKA Platform™.
Arqit’s collaboration with Intel and awarding of
the CTO Choice: Outstanding Mobile Technology Award at the Mobile
World Congress support our belief in the prospective demand for
Arqit SKA Platform™. Initial discussion to public announcement of
integration with Intel Xeon Scalable processors occurred
in less than three months – which Arqit believes demonstrates
belief and intent by a market leader in chip technology in the need
for and the efficacy of Arqit SKA Platform™.
As previously announced, Arqit is focusing its
resources on delivering its applications NetworkSecure™,
TradeSecure™ and WalletSecure™. The end customers for these
products are broadly governments, network operators (e.g. telcos)
and financial institutions. Each end customer base is of scale and
financial wherewithal. However, these organizations also are
deliberate in matters of adopting new technology solutions. Our
revenue generation for the first half of fiscal 2024 is not
reflective of the depth and breadth of engagements which Arqit has
with numerous potential end customers. Several expected upgrades to
existing contracts and several expected new contracts, all
meaningful to revenue growth, which were expected in the period
slipped into the second half of the fiscal year. We take comfort
from the renewal of all contracts that were due to expire during
the period and increased commitments by several of our existing
customers.
Arqit continues to focus on minimizing its cost
structure as we work toward increased revenue generation. The
additional cost reduction initiatives commenced in early May
reflects management’s commitment to taking necessary measures to
give Arqit the runway to succeed.
Commenting, David Williams, Arqit Founder,
Chairman and Chief Executive Officer said: “While revenue
generation lagged our expectations, Arqit has made significant
progress in the period in making new installations with government,
telcos and financial services customers. Conversion of these
engagements to significant revenue is our relentless focus.
We see additional opportunities for end
customers to consume our product through our collaboration with
Intel. We are excited about this recent development which builds
upon our other OEM integrations, distribution and reseller
relationships.
My conviction in the prospects for Arqit remains
high. The purchase of shares by D2BW Limited, an entity I own along
with my co-founder, David Bestwick, in April reflects our
conviction that Arqit’s SKA Platform™ is the solution for stronger,
simpler encryption.”
First Half of Fiscal Year 2024 Financial
Highlights
The following is a summary of Arqit’s operating
results for the six month period ended 31 March 2024. Comparison is
made, where applicable, to the comparable period ended 31 March
2023.
- Generated $119
thousand in Revenue for the first half of fiscal year 2024 as
compared to $19 thousand for the comparable period in 2023.
- Arqit generated
Revenue during the period from Arqit SKA (PaaS)™, Arqit
NetworkSecureTM (firewall) and professional services. Nine
customers during the period increased or renewed existing
contracts. All contracts due to expire during the period were
renewed. No contracts were terminated. Arqit executed on three
contracts for Arqit SKA (PaaS)™, four contracts for Arqit
NetworkSecureTM and four contracts for professional services.
- Arqit’s SKA
Private Instance product involves the sale of an initial
Integration License which allows customers to set up the platform.
The full commercial use of that platform results in new revenues
from the sale of end point license bundles which are then
expected to become recurring after the initial Integration License
period. Arqit sold two such licenses in the fiscal period ending 30
September 2023. Arqit expected to generate new Integration License
sales in the period ending 31 March 2024 but these sales
opportunities slipped into the second half of the fiscal year.
- For the
comparable period in 2023, Arqit SKA Platform™ Revenue totalled $19
thousand from two contracts.
- Administrative
Expenses1 for the period were $16.8 million versus $25.4 million
for the comparable period in 2023. Lower employee costs resulting
from headcount reduction and attrition were the primary drivers of
lower Administrative Expenses. Arqit ended the period with
headcount of 125 employees versus 170 at 31 March 2023. Pro forma
for cost reduction activities initiated after the close of the
financial period, Arqit’s pro forma headcount will be 81.
Administrative expense for the period includes a $293 thousand
non-cash credit for share based compensation versus a $8.3 million
non-cash charge for the comparable period in 2023.
- Operating loss
for the period was $16.6 million versus a loss of $25.4 million for
the first half of fiscal year 2023. The variance in operating loss
between periods primarily reflects lower Administrative Expenses
resulting from cost actions.
- Loss before tax
was $16.1 million. Adjusted loss before tax was $16.1 million2
which in management’s view reflects the underlying business
performance once the non-cash change in warrant value is deducted
from loss before tax. For the comparable period in fiscal year
2023, profit before tax was $12.6 million and adjusted loss before
tax was $34.7m million. The variance between periods is primarily
due to the change in fair value of warrants and cost actions.
- During the six
months ended March 31, 2024, Arqit determined that its satellite
assets were no longer considered as “held for sale”. As a result,
the satellite assets have been fully impaired, and an impairment
loss was recognized as part of “loss from discontinued operations,
net of tax” for the six months ended March 31, 2024.
- Arqit ended the
first half of fiscal 2024 with a cash and cash equivalents of $21.3
million versus a cash balance of $44.5 million as of Arqit’s 30
September 2023 fiscal year end.
- During the
period 4,481,825 restricted share units were granted under Arqit’s
equity incentive plan. A total of 10,280,849 restricted share units
and 8,004,817 options, have been granted to employees, officers and
directors under the plan to date.
________________________1 Administrative expenses are equivalent
to operating expenses.2 Adjusted loss before tax is a non-IFRS
measure. For a discussion of this measure, how its calculated and a
reconciliation to the most comparable measure calculated in
accordance with IFRS, please see “Use of Non-IFRS Financial
Measures” below.
Conference Call Information
Arqit will host a conference call at 11:00 a.m.
ET / 8:00 a.m. PT on 20 May 2024 with the Company’s Founder,
Chairman and CEO, David Williams, and CFO, Nick Pointon. A live
webcast of the call will be available on the “News & Events”
page of the Company’s website at ir.arqit.uk. To access the call by
phone, please go to this link (registration link) and you will be
provided with dial in details. To avoid delays, we encourage
participants to dial into the conference call fifteen minutes ahead
of the scheduled start time. A replay of the webcast will also be
available for a limited time at ir.arqit.uk.
About Arqit
Arqit Quantum Inc. (Nasdaq: ARQQ, ARQQW) (Arqit)
supplies a unique encryption software service which makes the
communications links of any networked device, cloud machine or data
at rest secure against both current and future forms of attack on
encryption – even from a quantum computer. Compatible with NSA CSfC
Components and meeting the demands of NSA CSfC Symmetric Key
Management Requirements Annexe 1.2. and RFC 8784, Arqit’s Symmetric
Key Agreement Platform uses a lightweight software agent that
allows end point devices to create encryption keys locally in
partnership with any number of other devices. The keys are
computationally secure and facilitate Zero Trust Network Access. It
can create limitless volumes of keys with any group size and
refresh rate and can regulate the secure entrance and exit of a
device in a group. The agent is lightweight and will thus run on
the smallest of end point devices. The product sits within a
growing portfolio of granted patents. It also works in a standards
compliant manner which does not oblige customers to make a
disruptive rip and replace of their technology. Arqit is winner of
two GSMA Global Mobile Awards, The Best Mobile Security Solution
and The CTO Choice Award for Outstanding Mobile Technology, at
Mobile World Congress 2024, recognised for groundbreaking
innovation at the 2023 Institution of Engineering and Technology
Awards and winner of the National Cyber Awards’ Innovation in Cyber
Award and the Cyber Security Awards’ Cyber Security Software
Company of the Year Award. Arqit is ISO 27001 Standard
certified. www.arqit.uk
Media relations enquiries:
Arqit: pr@arqit.uk
Investor relations
enquiries:
Arqit:
investorrelations@arqit.uk
Gateway:
arqit@gateway-grp.com
Use of Non-IFRS Financial Measures
Arqit presents adjusted loss before tax, which
is a financial measure not calculated in accordance with IFRS.
Although Arqit's management uses this measure as an aid in
monitoring Arqit's on-going financial performance, investors should
consider adjusted loss before tax in addition to, and not as a
substitute for, or superior to, financial performance measures
prepared in accordance with IFRS. Adjusted loss before tax is
defined as loss before tax excluding change in fair value of
warrants, which is non-cash. There are limitations associated with
the use of non-IFRS financial measures, including that such
measures may not be comparable to similarly titled measures used by
other companies due to potential differences among calculation
methodologies. There can be no assurance whether (i) items excluded
from the non-IFRS financial measures will occur in the future, or
(ii) there will be cash costs associated with items excluded from
the non-IFRS financial measures. Arqit compensates for these
limitations by using adjusted loss before tax as a supplement to
IFRS loss before tax and by providing the reconciliation for
adjusted loss before tax to IFRS loss before tax, as the most
comparable IFRS financial measure.
IFRS and Non-IFRS loss before tax
Arqit presents its consolidated statement of
comprehensive income according to IFRS and in line with SEC
guidance. Consequently, the changes in warrant values are included
within that statement in arriving at loss before tax. The changes
in warrant values are non-cash. After this adjustment is made to
Arqit’s IFRS loss before tax of $16.1 million, Arqit’s non-IFRS
adjusted loss before tax is $16.1 million, as shown in the
reconciliation table below.
|
Six month periodended 31
March2024$’000 |
Six month periodended 31
March2023$’000 |
Loss before tax on an IFRS basis |
$ |
(16,105 |
) |
$ |
(21,836 |
) |
Change in fair value of warrants |
$1 |
|
$(12,910 |
) |
Adjusted loss before tax |
$ |
(16,104 |
) |
$ |
(34,746 |
) |
The change in fair value of warrants arises as
IFRS requires our outstanding warrants to be carried at fair value
within liabilities with the change in value from one reporting date
to the next being reflected against profit or loss in the period.
It is non-cash and will cease when the warrants are exercised, are
redeemed, or expire.
Other Accounting Information
As of 31 March 2024, we had $26.5 million of
total liabilities, $8 thousand of which related to our outstanding
warrants, which are classified as liabilities rather than equity
according to IFRS and SEC guidance. The warrant liability
amount reflected in our consolidated statement of financial
position is calculated as the fair value of the warrants as of 31
March 2024. Our liabilities other than warrant liabilities
were $26.5 million, and we had total assets of $41.8 million
including cash of $23.3 million.
Caution About Forward-Looking
Statements
This communication includes forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of
historical facts, may be forward-looking statements. These
forward-looking statements are based on Arqit’s expectations and
beliefs concerning future events and involve risks and
uncertainties that may cause actual results to differ materially
from current expectations. These factors are difficult to predict
accurately and may be beyond Arqit’s control. Forward-looking
statements in this communication or elsewhere speak only as of the
date made. New uncertainties and risks arise from time to time, and
it is impossible for Arqit to predict these events or how they may
affect it. Except as required by law, Arqit does not have any duty
to, and does not intend to, update or revise the forward-looking
statements in this communication or elsewhere after the date this
communication is issued. In light of these risks and uncertainties,
investors should keep in mind that results, events or developments
discussed in any forward-looking statement made in this
communication may not occur. Uncertainties and risk factors that
could affect Arqit’s future performance and cause results to differ
from the forward-looking statements in this release include, but
are not limited to: (i) the outcome of any legal proceedings that
may be instituted against the Arqit, (ii) the ability to maintain
the listing of Arqit’s securities on a national securities
exchange, (iii) changes in the competitive and regulated industries
in which Arqit operates, variations in operating performance across
competitors and changes in laws and regulations affecting Arqit’s
business, (iv) the ability to implement business plans, forecasts,
and other expectations, and identify and realise additional
opportunities, (v) the potential inability of Arqit to successfully
deliver its operational technology, (vi) the risk of interruption
or failure of Arqit’s information technology and communications
system, (vii) the enforceability of Arqit’s intellectual property,
and (viii) other risks and uncertainties set forth in the sections
entitled “Risk Factors” and “Cautionary Note Regarding
Forward-Looking Statements” in Arqit’s annual report on Form 20-F
(the “Form 20-F”), filed with the U.S. Securities and Exchange
Commission (the “SEC”) on 21 November 2023 and in subsequent
filings with the SEC. While the list of factors discussed above and
in the Form 20-F and other SEC filings are considered
representative, no such list should be considered to be a complete
statement of all potential risks and uncertainties. Unlisted
factors may present significant additional obstacles to the
realisation of forward-looking statements.
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