Arqit Quantum Inc. Q2 FY2025 earnings call

• Arqit has developed transformational quantum encryption technology to address weaknesses in current encryption, with a focus on symmetric key agreement software for large enterprises and government customers.
• Made progress in product development, market penetration (telecom and defense sectors), sales pipeline growth, and cost control.
• Signed a three-year contract with a tier-one telecom network operator for Arqit Network Secure, with end-user demand already evident.
• Secured a DoD contract for its symmetric key agreement software, a significant breakthrough.
• Collaborated with Intel on confidential computing, enhancing data security in cloud and AI environments.
• Focus on cost control, with disciplined headcount and expense management.
• Upcoming focus on converting test and evaluation engagements to licenses, end-to-end test evaluation collaboration, and continued cost control.

For the first half of fiscal year 2025, Arqit Quantum Inc. generated $67,000 in revenue, down from $119,000 in the comparable period of 2024. Revenue from the Arqit SKA platform as a service and Arqit Network Secure products totaled $52,400, and professional services and maintenance revenue was $14,500. Administrative expenses for the first half of fiscal year 2025 were $18 million, up from $16.8 million in the comparable period of 2024. Operating loss for the period was $17.8 million, compared to a loss of $16.6 million in the first half of fiscal year 2024. As of March 31, 2025, the company had cash and cash equivalents of $24.8 million.

• Revenue is expected to ramp as the market moves towards Arqit's encryption software.
• Key focus for the balance of the fiscal year is converting concluded test and evaluation engagements into licenses, particularly in the telecom network space.
• Expect cycle times to compress for opportunities with large network operators.
• Cost control remains a priority.

• Delays in revenue recognition due to end customer delays in commencing activity under multiyear contracts.
• Impact of transition from enterprise sales to SaaS sales on revenue recognition.
• Foreign exchange fluctuations affecting administrative expenses.

Q: Were the deals that closed at or near the end of the fiscal period generating revenue today and what's the duration of the contracts?

A: The tier-one network operators contract is 3 years with initial size minimizing risk and expected to grow; the DoD contract is 1 year with potential for extension upon successful completion.

Q: What type of salespeople are being hired and how long does it take to get them up to speed?

A: Early salespeople proved out use cases; now hiring commercially available salespeople with industry knowledge in verticals like telco and defense; first-of-type operators figure out use cases and compliance, then others with deep vertical knowledge; sales cycles are starting to compress as blueprints are established.

Q: How should investors think about monetization of the Intel partnership on confidential computing?

A: Intel is a great partner, enabling large enterprises and defense to use existing cloud and AI investments while protecting from quantum threat; running in Intel's TDX enclave makes it easy to consume and well-positioned for protection.

Q: Do you expect an increase in OpEx to support new contracts and what's the operating leverage outlook?

A: Headcount is down materially, currently sufficiently staffed for near term with a few budgeted open positions; no plans for meaningful headcount growth; trailing monthly cash burn is around $2.2 to $2.4 million and expected to stay at that level for some time.