Arqit Quantum Inc. Q2 FY2024 earnings call

• Revenue for the first half was $0.1 million, but conviction in the business trajectory is high due to numerous customer engagements. - Contracts announced post year-end are starting to bear fruit. Sales cycles are shortening. - Engaged with about a dozen large-scale telecoms operators, with three additional major telcos launching initial test installations of Arqit's SKA products. - Established reseller/partnership arrangements in government, defense, and enterprise markets, and enhanced business development in trade finance. - Collaborated with Intel to integrate the platform into Intel Xeon-based servers. - Technology received external validation from GSMA and Mobile World Congress, and SKA platform meets NSA requirements. - Administrative expenses decreased from $25.4 million in fiscal year 2023 to $16.8 million in the first half of 2024 due to headcount reductions and attrition.

For the six-month period ended 31 March 2024, Arqit generated revenue of $119,000. This is in contrast to $19,000 in the comparable period of fiscal year 2023. Revenue was derived from the sale of Arqit's symmetric key agreement platform, network secure firewall products, and professional services. The symmetric key agreement platform was a key contributor to the revenue, with contract renewals and expansions showing a solid performance during the first half, including a 100% renewal rate of expiring contracts.

• Focused on revenue generation from new government contracts, live telco business, and RFPs involving OEM partners. - Expect revenue from the newly announced seven-figure multi-year contract in EMEA to materialize in the current half year. - Anticipate revenues from live telco business and RFPs with defense prime contractors during the current half year. - The enterprise market is expected to evolve with relationships with telcos being an avenue to address it. - Cost reduction initiatives are in place, and there's potential for operating leverage as revenues scale in the second half.

• Risk of not converting opportunities into cash as expected. - Competition in the quantum-safe encryption market could impact market share. - Uncertainties in the full rollout and commercialization of products like the SKA Private Instance product.

Q: On the award announced in the Middle East, could you give more color on timing from here through the end of fiscal 2024 and if revenue could be seen this fiscal year? And what's the immediate opportunity in that region?

A: The EMEA region contract is a multi-year seven-figure contract, and first revenues are anticipated during the current half year. There are other contracts and initial tests with telecoms companies that are likely to result in revenues in a similar timeframe. The business development in EMEA is expected to yield results in several countries, and the work with Intel has global reach.

Q: Can you talk about the qualitative feedback from partners on the product?

A: Feedback is that the product is incredibly easy to use, quick to deploy, very stable with 100% uptime on recent contracts. It's fully secure against quantum attack, hardens existing networks, and integrates easily with partners like Intel, Fortinet, and Juniper with no performance burden unlike competitors.

Q: As revenues start to scale, how quickly may you need to add back to cost infrastructure to support growth?

A: Cost cuts have been in exiting the satellite business and scaling back software investment. During the remaining part of the year, pre and post sales engineering resources are adequate. Additions in customer support and service may occur into the next financial year, but they would be modest and low cost