Arqit Quantum (ARQQ) 14 Dec 222022 Q4 Earnings call transcript

Good day and welcome to Arqit's 2022 Fiscal Year Earnings Conference Call. On today's call, we will be referring to the 20-F and press release filed this morning that details the company's full fiscal year-end 2022 results, which can be downloaded from the company's website at arqit.uk. At the end of the company's prepared remarks, there will be a question-and-answer period for selected equity research analyst. [Operator Instructions] Finally, a recording of the call will be available on the Investors section of the company's website later today. Please note that this webcast includes forward-looking statements, statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions are forward-looking statements and are based on assumptions and beliefs as of today. filings to disclaimers Safe release, specific contained as those the our you factors statements, as in risk encourages and described to in other Securities differ cause and in company's or factors company that review which statements. actual Harbor the risk well Exchange may The Commission, the results identifies events with forward-looking today's from press materially forward-looking not does update to statements after undertake webcast. any company The or this publicly revise on call, it that discussing notes financial information. be also non-IFRS company The this may The supplement company or accordance Financial as is IFRS. providing that Standards to with information a Reporting in information prepared International

You can David? turn over and to reconciliation company's the tables Officer. the find provided company's Chief David in Executive Williams, the to call the release. a Founder, I'll of metrics today's Chairman IFRS now, in these reported results earnings reconciliation And

year to welcome Arqit's and Hello results fiscal conference call. XXXX

to recent great and missed. a Yeomans. patents Before and would for for early of He moment discussing of colleague his and warmth Co-Founder, ethics reflect our foundational Arqit. the like was on friend, was of responsible amount I performance, intelligence, Andrew Arqit's daily Andrew passing

Arqit. honor word year which by the achievements We he operation. life an commercial for of is seeking fulfill saw to his will Arqit's and first fiscal in Promise appropriate promise full

operating and the to period For ending $XX,XXX fiscal September generated $XX income, compared other year. the XX, in revenue we million XXXX for prior

partners technology week of business. us and the pay model in channel access customer picture Arqit announcing technology, strides large not the great for strategy, which made our global does alone go-to-market bases. hyperscale to appropriate which generation and revenue this has we promise, our However, see give the validate three business

key said, factor. GCHQ license the platform-as-a-service. implementation technology partners. leading sales also time fullness major the generate was in our product strategy that that accelerated the University consume vendors. and purchasing to And on short-term proof May, interest of products our technology security channel would and through launch of therefore largely focused end go-to-market want to a direct enterprise and architecture that often implement. our the it's Arqit's ease are easy already to the product. to part through of that is be decision I in We've deliver a We urged services success. keys May, learned customers the stated cloud-based company The now of we cryptography. organizations the is we solution. built in all believe now Also House quantum I AWS, zero the scale. and customers on White call, only the believe trusted that product In can We're to of consume the House world White fulfilled want we requirements Arqit are to Agency in can of that National As the others. a at of hyperscale Arqit's the understanding channel; symmetric XXXX transitioned the prepare post this other Arqit the Fortinet through partners. and deliver result, trust and how to symmetric ready our global expected leading be of accredited Customers Dell, followed year, products we by half the May year cloud access to recommended to pathway that our assurance stated improving by agreement technology a have strategies by buy that was those market of three its Security earnings in in Surrey

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the product Fortinet on integrated has be for websites. all launched global the customers is proposition joint and company's both to found

consistently than than has shipped Fortinet a as consecutive share. appliances have other more vendor nine to security for any market and reported greater years XX%

easy Arqit users, the makes it decision Fortigate of the For our existing particularly the purchasing customer base, software end and implementation and large seamless.

customer integration we will is product a of to differentiator, unit sales help our hope retention. and potential the Fortinet, which For drive growth them further

service potential to with future cloud Fortinet's us the annual AWS The protect global with and large a access For a base, customer implement quantum of threat. Amazon AWS announced to customers will storage very share of SX, the of to and $XX and Leverage is data as largest market. result the their XX%, with is expected partnership QuantumCloud global SX our Arqit, global is sales The market AWS Arqit greater to presents a against billion integration than recurring today to organization integration integration base Similarly, customers. attacks the massive Services reportedly revenue. an purchase upgrade. with provider against and easy that's and an products SX QuantumCloud QuantumCloud installed the of Amazon new object service. provides cloud-based global Web Fortinet's allow in

initiatives it AWS potential marketing reach beginning. and with joint greatly customer us For accelerates are

the and this a moment its TraxPay's contract supply order about market. these a it Defense believe that trust partner Federal the strategic believe expect others partnering financing We with via and which and their for bringing hyperscale TraxPay, quantum the federal Financial a and immediate of and such additional of Bank, integrate important in solutions these Dell We excited the partnerships and into more Dell presents which several channel to potentially very are and other business to also available range signed chain has Two pursuing, we leader chain Department transformational available Nord Deutsche access business customers. for be product within the relationships this other gain a solution sales Bank, represents fulfillment efficiently that Department conduct as opportunities We We're financing instruments business doing with opportunity This LB, a We supply with of Defense partnership globally. TraxPay teams. Technologies broader we activities see initially consummation is DZ prioritization that Department Arqit. across to maintain will agreement directly system technical Dell's fantastic this into company. forward available Arqit's years in week scale finance demonstrating institutions secure. enabling which Arqit legalize is and government's to mission digital Arqit Deployed solution products by U.S. through and with about alternatives, our securely. beyond asset made described deliver that joint This is has announced as us exchange, Dell to is the take We a Without or accelerate where XXXX. companies. significant over opens We excited date made with go-to-market believe will initiatives trillion than recently importance finance provide of digital very additional of supply platform such service acceleration relationships announced strategy, private traction the be also that such safe finance digital the proof. digital $XX is has security. chain now, the assets digital proof digital a of financial proof, of comply Arqit's for to with broadly chain should leading is market manage no to experimenting customers in namely published jurisdictions distributed Other date. opportunity the services upcoming tamper transformation legislation be the for variable. legislation, to which QuantumCloud Only supply with ledger transferable adoption transformation ledger advancements. finance. digital processed electronic it asset secure will world the the paper-based digital but billion referenceable be around trade such to requirements global technology, quantum the finance unique and We are of to secure by technology assets. promissory provably in the must bill, security chain proof. pass €XX enabling transferable believe U.K. of driving bank trade bills company the more easier passed which up in is in note in electronic users the documents. that digital market, the trade world potential We're can likely tamper that at trade documents market, that only Arqit What with this have supply notes

expected year solution government U.S. current XXXX, fiscal been has requirements. those delighted months of but also selected are has a programs to what in represents record partnership But contracts of government resolution potential is beginnings technical the our be contracts contractors budget important Software There our contracting of commercial programs The of channel States very by marketplace. technology in success record. rewarded as been set and United technology validation Dell built and for by operational we headwinds to two the the us Arqit and in continuing for other by just of important these effort result be that signed as and into and fiscal part of teams we Finally defense headwinds, departments. government U.S. year. were our this the market, billing contracts. up Participation the are future international despite opportunity potential important in in prime These these believe of the within the slipped

delivery as ago agreement of datacenters go-to-market a of acceleration in delivering not interest The associated a background process parties. of under encryption key of as systems concluded we ground construction in under the that financial additional this Therefore, this to using stack. or randomness with strong system profile are the year innovation, to changes no strategy, of endpoints. datacenters. satellite Arqit commenced the endpoint part announced do is as at satellite innovation symmetric keys agent as of Arqit we is work this. multiple terrestrial earlier the to satisfied the press release with created complete a on replicated of proof and We've published to technology satellite our security lightweight with our requires The sometime require longer The our randomness follows. company. us the We our our security that, in technology of the the the terrestrial developed addition method method. as software replicated method to in we resulting a that today satellites conversations of of partial result sell implications separate In in

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expect sale through the to effect positive a We technology these will costs portion changes satellite of recouped currently the strategy, result future capitalized under with results in construction. our a on planned satellite of

of has licensing these new We've been satellites use European are of related these has recognize security is symmetric that and new capital takeaway that projects infrastructure, most achieved focusing selling hardware keys key that, benefits negative The from on benefits potentially created from The significant changes our with under. revenues elimination We technology model financial the of of its software by are these world incomes our IP a the that. security partnerships future and removes quantum our a the validated stepping completed software. and product the that expenditures with its which platform-as-a-service. core satellite just generated which of have believe no perspective. by changes NDA. simplify the infrastructure. away and proof, a our These Additional the contract agreement on through stronger significant impact important endpoints business wants under beyond The key in simpler demonstrating technology of the under announced Arqit's our validated own the Arqit Agency shared now believe customers and construction with continue to symmetric with cryptographic encryption. course, recently our of Space software security, validation as delivers our intends doubt, We operating experts agreement needs there to we leading perform part And a technology. and satellite offering. and further It's that satellite CapEx. associated of

merely promise our having However, by fulfilled is great and technology not people.

focused Arqit Nick promises a Our these our a that our The faster to hands getting turn by the on offers let product financials. call secure on and the difficulty] the CFO fulfilled Pointon, which represent. to our me of [technical over pathway our Nick? fulfilling to their into acceleration strategy customers opportunities few remarks go-to-market of partnerships With maximizing data. for

commenced and the the only financial year year not comparable Therefore, We David. fiscal results with generating across began the you, commercialization may XXXX. our of half be of Thank comparison meaningful period XXXX metrics. XXXX in revenues our fiscal in late fiscal all second year

September and QuantumCloud operating period contracts million other XX, activities. the XXXX, from generated in For month $XX new revenue ended and XX income other we

generated Our QuantumCloud for Orbit The contracts of the with contracts. revenue generated revenue five $X.X Virgin by totaled and period was the million by bulk AUCloud. QuantumCloud

the our our realize for enterprise year. marketing the direct sales license noted, our of David the half operating relationships, in of As Other impacted announced effort to and fiscal income activity reorientation partner contract much $XX.X strategy, sales of million fiscal our to channel we other Agency. income. shift with future going in the Space the perform Despite contract from of with ESA, project continue expect realizing ongoing forward European under our operating year technology Arqit's second announced to resulted

Our administrative for more with operating those equates familiar costs U.S. expenses GAAP. to

$XX.X $XX.X for infrastructure versus The million in For million post NASDAQ our listing expenses material reflect expenses significant growth XXXX. in administrative year operating personnel. increase the period our and costs was fiscal

million for charge the $XX.X share-based of reflects compensation. non-cash Additionally, increase

focus growth with our XX operating grew have of the it of at XXX key fiscal employee and on from a revenue initiatives. align end Since fiscal and partner Our of year, the headcount to review the period. base budgeted the undertaken we cost XXXX to beginning

As budgeted fiscal reduced year a fiscal reduced And no headcount more have kept by than have by XXXX XXX costs cost at XXXX we provisionally of X%. In result, budgeted employees. we year XX%. non-employee for have total,

activities, Operating XXXX. certain loss our the for we addition, loss accrue and In to for $XX.X year are key priority support partner the at elimination year fiscal the high or reallocation from a million not initiatives million versus of reduction will time. deemed which benefits employees $XXX.X from deferral was of costs of fiscal this

reminder, the for a million. with a our generated $XX.X tax a associated XXXX profit $XXX.X transaction with acquisition loss before Centricus. As reverse expense million operating included We of fiscal year

$XX.X -- However, operating before charge million we've managements' once generated an loss from adjusted performance warrant deducted profit reflects from of profit in before before non-cash is which business underlying in tax tax sorry the view tax. value

were $XX.X to note finance universal filed supplement. represent period balance as sound with to warrants of the -- in million. filings With of of fiscal X,XXX,XXX that, balance We an exercised we period, proceeds in the turn today a the call million Please ended XXXX. During with a corporate housekeeping $XX cash cash The have company Arqit registration versus financial future. providing that sorry million fiscal I'll statement and matters the flexibility cash of year-end the shelf back David. ATM $XX prospectus

XXXX to has success. The fiscal year commercial our and in Nick. a of Thanks, created innovators activities pioneering engineers, incredible of offices team pathway

understand on that customers consume assurance And reach our channels advertised. must yards hyperscale now now to delivers as this better Securing execution to XXXX. that the we future. achieved want of optimistic customers. user have our through our We knowledge, how product fiscal with hard which in have end products. We year have focus We're and pleased all for are we in we the

the to for operator call over now I hand the So back Q&A.

with [Operator H.C. question comes the Scott line Wainwright. Instructions] from of Our first Buck

Your line is now open.

one, revenue? Thank think should my Hi, these good about David, you we morning the channel to taking partnerships guys. converting questions. for first how

Scott. Hi,

base the digit that as perhaps each the customer They So unit upgrade an entire to making increases will understand. base the are cost. cost single the Fortinet software percentage in individual project global easy most our customer to is available

a of price base. that Capital it simple the customer of So are with metrics to volume and host larger through hoping times joint will module price we rates And volume we're of have and against commenced the be and we the very becomes start straightforward. to bases penetration AWS They is those existing in future. picture quite you very customer Day, can which likely in build a cohort Markets times Fortinet's similar. of future the marketing to near again specific customers, penetration a walking

in published a our fact, cloud on British website. pricing We government have,

So out is Arqit the portal, for trade pricing now of users that there.

without come like got is These represents easier this times our to costs. With becoming focused we're smaller with now that, enormous fulfill greatly I've already reach medium is projects, in those more once have an but working and globally business accredited users penetration certified potential current each pretty increase Arqit will defense But expect and a in significant some that rapid long-term, and we record the on So customers we're are opinion said the very price significant our volume organizations is much with there two on fairly enormous plan by direct over take and and come Dell, number sales government hope projects calculate. one year in XX% of XX% to billings. and up. of see to of a marketing those to programs government tickets. to the to the be product likely range,

an the customers to defense license recurring orientation, an business. will annual whereas things like and those revenue Fortinet have startup So have will continue AWS enterprise

that hard working signing of are couple on business. to We style other a channel hyperscale of partners

provided Great. sales how product scale? that of And is begin helpful. education should partners? I'm That's to how curious, we very already you've those what about, level the the think channels

world been and the Similarly, teams a being the product, targeting how is are already bases. see is customer it jurisdictions last partner list portal. months now does, of the been educated with have very directly Fortinet's jointly of integration know to in proposed already on it's We've a currently can and their and on working the there in into sell couple in know proposition you customers there various number around of joint salespeople in Well, the Dell website we're it and what of departments representations this AWS that those actively Fortinet's

But distribution more to the pipeline. the through to to coming is starting So sales and slightly in do channels. that there see begun teams prospects work we're and still has educate earnest work

any partners? that great. of channel additional your partnership restrict any meaningfully would in these is sign exclusivity ability to And contracts there That's arrangements

No, we've partner engaged in exclusive whatsoever. no conditions

doing large bit you're that far about ask that's And then we contributor? a little how and I'm curious, market. on I a out a Great. are Okay. obviously, work side finance wanted the revenue the trade meaningful becoming to from

We going expect the to launch through using project We we begun next year. current government, initially around product particular very large partner, even service before go about encountered the year one to build actually during passage legislation to that of our first spring but past. global revenues already, based on the on because full legislation plan half who wants start planning one we've the was to

single created, said, some that bank not single haven't been But risk product improves customers the very It we product that of way security. peculiar has the yes. the for the it it the in a to invoice. just pitched customer the the We no said reduces that cyber vendor into finances potential who has cash the and advantages, product flow its pitched for potential has yet. Every

So win, it's really a win.

expecting year. market. we're It's in billings, some very global current certainly a So large the financial

services about we've convinced as organization with very can this for about go finance already styles example. of where using such financial really in also that. insurance other actually product areas we now. I'm talking started I'm So But other of optimistic

banks rocky services in of safe, road unregulated But digital clear very of that result having have has now we've some interesting very Although, is market experience assets areas a regulated had as are as no a the blockchain if adopting at financial the they seems spaces. we're and quantum services that long-term industry perhaps the result it a seen conversations financial in scale all technologies transformation realize, as not future.

And customers makes potential macro seeing then for among of uncertainty? one last me, given a of of the sense. rising hesitancy kind David, ton that any just level Now you're

of the a resolution, is create course the particular recently continuing harder any need that U.S. is, And than it to improve No, Defense But everybody effect other there expect bit. those budgets for upgrade all some necessarily a said encryption. see being urgently it in we're seeing I the affecting spoken see year that's that to Department, as to that, there, wouldn't surveys We've now applied uncertainty, that ourselves we've to macro every east to aware are to and encryption. makes of the has budgets which don't departments ago. its what I are their done and organization knows of new

as almost prepare not in House it's market, starting for problems. a was only at though been demanded experiencing that So all we're starting the It We're transformation. mature in has zero. organizations crypto which May White

which this very growing a to So we base is low market expecting are and dramatically. a it accelerate is from

particularly I relevant think So don't for us. effect macro a is

Okay. I Great. morning, appreciate guys. Thank you. your time this

Thanks.

[Operator line Instructions] Northland Choksi of Nihal comes from Our the Capital with question Markets. next

line open. Your is now

Yes. for taking you call. Thank my

started? And how $XXX that pipeline ago? million of AWS relationship few long Dell, would where they months So part

good in first definitely about relationships XX months The Yes, question. ago. iterations began their

companies projects the we this was able validation uniquely definitely published the to up a Software came that April that's expectations the hopes secure. assurance, to come Center Excellence. amongst GCHQ zero got I the So, And we market the are however, those security generate that by did we before probably keys that year. from those producers backed all world, engagement accelerate were fact would say, doing of Arqit We would that course, when of companies in and that fruition. that accredited proof to we which independent organization and in trust is had

providence lot and their a own PA our assessment. quite Consulting friends did carried at So also it of

degree validation us customers actually to the NDA these into placed customers helped under of faster. those much educate independent that of So hands

Arqit other But found months away. with or had noticeably those simply things didn't I and since ago a experts and think And perhaps hyperscale or entrenched into vendors, views experts of have as engagements May first have quickly we accelerated Dr. Childe had this. at skepticism understand Daniel proof number the meetings. opinions when their so very we place the time Barry such six or of really happening when may Shiu, deploy Dr. we different are who that those small very about goes hands Similar June we when

feel optimistic will I that, use So corporations of there a financial result year. the a as to number products our up signing during current large be other

So companies most pipeline were at the yes, those in in beginning, accelerated they've last the but certainly our six months.

Understood. Where they $XXX pipeline actually you the roadshow? part of of that that stack sort from started million guys

companies we companies of to those All we certainly pipeline and business generate do on revenue. to was of the that where wish expect hope with

your what of each And -- the value $XXX changed those is for of since citing initial Understood. XXX pipeline pipeline? of that million that understanding

has. able those few the high last level companies the months most of to engage been a We've opportunity. Yes. of in with about It very the certainly over detail nature

can that trade We we can of imagine volume very likely we the those with understand pricing. specific So we do have companies.

their we installed want able planning large example, we to gain Fortinet which partners what are we'll with like the Fortinet very likely For sell of it a know product, have about detailed base, buy to to to our for. customers do are access

rather detailed to coming volume build real price penetration able an facts from extrapolation. views than of and our now based own partnership discussions we're So on times world

more I how of we So, yes, detailed have to that's view pay think a likely out.

I better and have medium that sign XXXX the better got I result we've that partners would we until confidence. a hyperscale as visibility of it, didn't of I've given done term that, this I expect feel business Given already that

times that volume on price you from from months times and changed Got it. have that and ago? equation that months how XX what price the volume Breaking XX ago confidence is, volume greater down price has now detail change

an style Well, fixed produce imagining a didn't well When ARR were weren't ARR licenses information. enterprise revenue to started the have back we of think annual an understood relatively to belief go of it's style business It's we a price, the we style have that to just revenue that were a so, of and and prices selling license, I a definitely channel year if an expect farm because tend to at is have recurring a couple license. fixed set that amount away have And we success that Arqit. vendors. that company be didn't -- my to or money. point, modest we with doing you giving enterprise hyperscale of like thought advantage half for of we'd years, be We with into a is financial enterprise with you we outcomes to opinion ARR's the of for faster of generate an larger base large superior in sold business product being business. enterprise long-term very of medium the that very, my likely able better style revenues license customer to the in originally It's as

our feels go-to-market feels this an to and result. acceleration So, confidence me of strategy like a it like my is as higher

Great.

ARR on fiscal does year it what for XXXX the for actually fiscal QuantumCloud million exit of year to $X had you XXXX, So ARR?

that published number. haven't We

in can looking stat. deeper think we we're give Day, which that granularity early So when to the do I year. and Markets We'll Capital the new I you some try don't give you organize

it. Got

in other than sell educating sales do that the Arqit Arqit just these Dell, to AWS, Okay. then Fortinet the to team? to you needs What Solution? to -- Solution do doing the teams education sales partners and order of customers Arqit of what's Arqit beyond to expect adopt be the And is what going drive

own have educating. the we and what are customer. But educate I customers, our experts channel. in bids And exhibitions last our doing that large six And been what in we that cases, those support in partnership that's ARR organizations companies. to visiting those end to for myself, majority of technical the perhaps the six and style some weeks, with organizations very with to in involved large doing in means events direct means large And contracts. typically very that presenting visiting vast So I've of large conferences and I've the business, been is partners think where countries the

to we are vendors these channels distribution hyperscale the the that have Finally, all sure educated. of make of

research. and jurisdictions do have on queries with Making on Europe with people that about really employed in channels supporting ground ground and in that Singapore, with deal it's So Australia, Middle-East, white we North in sure several have marketing can sales America. in we collaterals information now with the the in salespeople the papers, the and

and This directly certainly the buy So, large But customers typically and for make is are required. fulfilled cloud buy the box key account product in of the a those this to supporting ultimately, being marketplace, simply a payments when Fortinet pick and salespeople able sale. AWS, as vendors the managers a is software.

to sales, educated, to channel simple having So expect account fulfillment. revenues by overtime, with there is be some but we be online managers management driven

Got it.

Okay. here. quick more couple A questions

back QuantumCloud. going were that a that to that Is perpetual? effectively to $X million is is subscription actually of Or licenses all revenue? enterprise -- going be some Just all the

It's license mainly enterprise revenue.

licenses are pay expecting of continue to Some those and renew and more. we

Okay.

license is a it So be enterprise when just clear, you perpetual to is arrangement? term say or revenue, that based

Yes, license But utilization. will licenses a bounded enterprise typically with term some of begin find range enterprise an also is tightly that you based. what customers at

and or one their expanded for of hopefully enterprise and the certain a a keys. And license to the number market, in needs more. use the the grants range limited customer might license buy of for endpoint to So service rights that limited devices a a activity example, the in segment say, certain

finally burn what it? then current do you it. million this that your And to Got cash be range rate? What's And morning. Yes. ATM announced is price this share expect utilizing $XX you

told utilizing we the document, statistics something us that bank when put did be think was exploration of soon. SPAC to trading. any to do the don't don't anytime year I that which first our in We expect we of our

that I do. that was think thing planned always course of ordinary business So something to an it was was

that. thought more any given haven't than we So,

rate. burn cash And

Not a published statistics.

I'm that give greater any think one. I can sure granularity you I not on

you. Congratulations Great. announced these and partnerships indeed are have you Thank significant. on Okay. they

Thanks you your and for questions. following Nihal thank for

We have no further questions at this time.

will over I Now, to the closing call turn David? David Williams remarks. back for

look as your our business We has been XXXX you. to in commercially and appreciate far year in in with which and It's imagined. technically shareholders. you. company Thank really we the a forward your than we and investors fellow interest developed faster and again interesting support our model analysts Thank speaking

today's conference. concludes for Thank This gentlemen. and ladies you, you Thank participating.

disconnect. now may You