Arqit Quantum Inc. Q2 FY2023 earnings call

• Pivoted go-to-market strategy to use major global technology channel partners, with first revenues generated from these partnerships.
• Launched NetworkSecure and TradeSecure applications; NetworkSecure adapts PaaS for quantum safe network boundaries, TradeSecure embeds PaaS into digital assets.
• Implemented a cost reduction program eliminating 20 positions, reducing monthly budgeted operating costs to $3.2 million from $4.6 million.
• Raised $20 million in capital to support go-to-market strategy.
• Considered selling the satellite business as it requires more resources and access to government space users, with potential bidders showing interest.

For the six month period ended March 31, 2023, Arqit generated $2.6 million in revenue and other operating income. QuantumCloud revenue totaled $19,000 from two contracts: one from the NetworkSecure firewall product sold through new channel partnerships and another from a major US Government and defense contractor. Comparable period in 2022 had revenue of $12.3 million. Other operating income was $2.6 million from the ESA project. Administrative expenses were $25 million vs $26.6 million in 2022. Operating loss was $34.6 million vs $14.3 million in 2022. Revenue contribution: QuantumCloud had a modest contribution, with the channel partnership revenue being a new element.

• Momentum growing with channel partners as first revenues have increased since period end and multiple purchase orders are coming in.
• Cash runway: $41.5 million cash on hand, monthly cost of $3.2 million from July, suggesting operating cash well into 2024; monetization of satellite business could bring additional cash injection.

• Virgin Orbit bankruptcy with a $10 million claim, though no material impact on operations expected.
• Uncertainty around the sale of the satellite business, including whether a transaction will close and the resulting impact.
• Global macro conditions affecting revenue development and the pace of scaling the business.

Q: Can you give more color on when channel partners will begin to ramp revenue?

A: Channel partners announced for PaaS in December and others have generated first revenues, with momentum growing and multiple purchase orders from several partners.

Q: How is cash runway thought about given cash on hand?

A: Cash on hand is $41.5 million, recent monthly cash burn was $4.6 million, monthly cost from July is $3.2 million, suggesting operating cash well into 2024; monetization of satellite business could bring additional cash.

Q: What's the potential value of the satellite operating unit?

A: Invested ~$53 million in satellite assets, have binding contracts worth tens of millions, world-leading patents, and strong engineering team; some governments are procuring quantum satellite systems.

Q: Regarding satellite CapEx and potential dilution, how does that square up?

A: No material CapEx expected on satellite project, intention to sell the business, and current cash resources considered with reduced monthly operating costs of $3.2 million