Arqit Quantum Inc. Q4 FY2023 earnings call

• Strategic pivot in December 2022 to focus on software product sold via channel partners, with 15 channel partners now, up from 5 initially.
• Progress in productization of specialized applications: Arqit NetworkSecure embedded in Juniper and Fortinet firewalls with first sales executed; Arqit TradeSecure benefiting from regulatory progress; Arqit WalletSecure to be offered by a major financial services company.
• Growth in channel partnerships, with revenue from 6 channel partners in 2023 compared to 2 channels in H1 2023.
• Reclassification of satellite-related assets as discontinued operations according to IFRS 5.

For the 12-month period ended 30th September 2023, Arqit generated $5.6 million in revenue and other operating income from discontinued operations. Revenue from the QuantumCloud product totaled $639,968 generated by 7 contracts through 6 different channel partners. In 2022, discontinued operations revenue was $20.0 million, with $7.2 million from QuantumCloud product and $12.8 million from the ESA contract. The revenue from symmetric key agreement products in 2022 was highly concentrated, with 65% from a direct enterprise license contract with Virgin Orbit. Administrative expenses in 2023 were $55.2 million vs $71.0 million in 2022, driven by lower share-based compensation and foreign exchange loss.

• Expect inflection point in fiscal 2024 as channel partners' sales initiatives mature.
• Confidence in channel partnerships' scale and maturity to get towards cash flow breakeven within a modest time period, with current cash balance providing sufficient runway.
• Hopeful about announcements of new partnerships with large technology companies in the short term.

• Discussions regarding satellite asset monetization are ongoing but no assurance of transaction consummation.
• Channel partnerships take considerable time to become productive, so revenue growth from channels is at an early stage.
• Future other operating income from ESA contract is uncertain.

Q: How are you thinking about the anticipated ramp in revenue in '24 as these relationships mature versus your current cash balance? Do you have enough runway to get you at least meaningfully closer towards the operating breakeven?

A: We have confidence that the scale of our channel partnerships and their increasing maturity offers the ability to get towards cash flow breakeven within a relatively modest time period, and our current cash balance gives us a degree of comfort.

Q: Are you still having meaningful discussions with other potential partners? Could we see announcements over the next few months on that end?

A: Yes, we are working with several very large technology companies with detailed software integration work in progress and go-to-market strategies under discussion, hopeful of short-term announcements.

Q: On the satellite business, are there other potential strategic opportunities besides just an outright sale that could help you at least partially monetize those assets?

A: We are working with a number of potential partners interested in cooperating to monetize the satellite technology, though no certainty of deals, but working towards an elegant outcome for the project.