Arqit Quantum Inc. Q2 FY2022 earnings call

• David Williams noted it's an important milestone as it's the first full period of commercial operations since NASDAQ listing in Sept 2021.
• Company generated $12.3M in revenue and other operating income. QuantumCloud revenue was $5.3M from 4 contracts, with scope expected to expand. Other operating income $7M from ESA project.
• Technology innovation: University of Surrey review confirmed Arqit's symmetric key agreement tech is zero trust and computationally secure. Fifth patent family granted, 145 additional claims submitted in 5 new patent families, total claims 1,580.
• Focus on industry segments: Defense, telecoms, financial services, IoT. Partnership with Blue Mesh to demonstrate quantum secure data comms over MQTT. Joint demo with cybersecurity vendor of quantum secure firewall.
• Value proposition: QuantumCloud can integrate into existing security architectures without ripping and replacing, compatible with AES256.

For the six months ended March 2022, Arqit generated $12.3 million in revenue and other operating income. QuantumCloud revenue totaled $5.3 million from four contracts, with the bulk from Virgin Orbit and AUCloud. Other operating income was $7 million from the ongoing project contract with the European Space Agency. QuantumCloud contributed approximately 43% of the total revenue ($5.3M out of $12.3M), and the ESA project contributed about 57% ($7M out of $12.3M).

• Nick Pointon stated costs as a percentage of revenue are expected to moderate as revenue scales.
• David Williams mentioned successful integrations with vendors should lead to monetization within months or a couple of quarters.
• David Williams noted they will continue to invest in intangible assets like the satellite.

Q: Give more color on major enterprise grade vendor reference and monetization timeline?

A: David Williams said working with major vendors is a sales channel tactic, integrations with vendors should lead to monetization within months/quarters.

Q: Where do grants flow through P&L?

A: Nick Pointon said pure government grants flow to balance sheet under non-current liabilities as trade and other payables, then amortize to P&L as offset to costs.

Q: Difference in accounting between QuantumCloud revenue and ESA revenue?

A: Nick Pointon said QuantumCloud revenue is primary line of business, ESA work is other operating income but both are revenue recognized under 5 steps, just classification differs.

Q: Operating expense growth and infrastructure for top line growth?

A: Nick Pointon said costs as percentage of revenue expected to moderate as revenue scales, have infrastructure in place, plans to expand engineering and customer fulfilment roles.

Q: Movements in balance sheet, PPE and working capital?

A: Nick Pointon said rise in PPE mainly due to right of use asset for London office (non-cash). Increase in trade receivables due to revenue and cash from warrant exercises received one week in arrears.

Q: Expectation of intangible asset capitalized expenditure in second half?

A: David Williams said they will continue to invest in the satellite line item.