archTIS Limited

All right. Why don't we get going? So welcome, everybody. Welcome to the ARCBIS Q3 FY26 quarterly update for the period ending March 2026. I'm Kurt Muckelman, and I'm joined by our CEO, Daniel Lay. During today's session, we'll provide you an update on the quarterly performance, provide an in-depth financial review, update on the USDOD opportunity, Spirion integration, and further discuss the go-forward strategy on the market focus and growth. So first, let me kick it over to Dan, and he'll get things going today as I sit here in black with a broken camera.

Yes, so apologies, everyone, for the camera. You're going to have to stare at me and preferably the slides for most of the presentation, but welcome, everybody, to the quarterly update. So let's jump into the highlights. So accelerated experience sale. So the integration is going well. We talk a little bit about this sale further down the track. In the slide deck, essentially, we've closed the global IT provider sale. That was a 60-day sale cycle. It was for $150,000, but we're starting to see that cross-LSL engagement starting to come through that pipeline, which we've been working very hard over the last six months. USDAV, custom development, fully delivered. and production ready for the DoD 365. That is excellent news for that DoD opportunity. And as it says, it's been completely delivered, validated for integration into that environment and is production ready. ARR, $15.1 million, up $231 on the previous comparative period. Revenue of $3.5 million and revenue up 143%. Available funds released this morning at $8 million, 71% gross margins, still hovering around that 74% annually, and an allied defence win, which we announced earlier in the quarter, with a military alliance between Europe and the US. You can guess who that is. That is at $1.2 million with additional options on those years. So that's very exciting for us, and we're commencing that deployment shortly. So they're the big news points for the quarter.

Kurt? I guess so. I'll take us through the financials. So, again, apologies. I got in from Australia about 90 minutes ago from a 32-hour door-to-door, and unfortunately my laptop did not reset properly for the camera. So, again, apologies. So our Q3 FY26 financials, I think we reflected a continued step change in growth and scale of the business. You know, ARR grew 231% year-on-year to $15.1 million. And we sequentially strengthened that month over month. So we saw less churn at the beginning of the month than we did at the – we saw less churn at the end of the quarter than we did at the beginning, which is really strong because, again, when we acquired Spirion, we understood the churn coming, and we kind of forecasted it during the second half of FY26. So that's coming to fruition to where we thought it would come through. Quarterly revenue rose by 143% to $3.5 million, driven almost entirely, as you can see, by licensing revenue of $3.4 million. Gross margins remain really strong at 71%, and our year-to-date stays at 74%, so we're broadly in line with the prior periods. The area that we've been working pretty hard on is operating expenses. We were $4.9 million last quarter, excluding a million dollars of one-off costs associated with experience synergies and line of credit fees that we previously mentioned in prior quarters. This is a million-dollar improvement over the prior quarter, reflecting our commitment of capital efficiency while balancing investments to support our expanded pipeline. Operating cash flow is $3.7 million, and we closed the quarter with $8 million in cash and equivalents, a solid foundation for the phase of growth that we're looking at. I think one of the interesting things we saw, though, is the current market cap sits below 2X in recurring revenue. I was talking with Dan on the board last week. I mean, let's be honest. We're a bit impatiently bullish. And I think all shareholders are at this time around the financials that, you know, we're really waiting on where is the USDOD, and we understand that, you know, that share price is tied to it. And so what we want to do is really focus on that as we go through. So, Dan, why don't we take it through where we currently stand with the USDOD and some of the other momentum opportunities.

Yeah, look, let's go through that now. The US DOD, as we mentioned, we've completed that software development. It's been validated by the US Department of Defence and it's ready to be... Well, it is production ready to be deployed. Obviously, we had that additional 1,000 likenesses which we deployed with them. The tenure of that is almost up so that we know that they're coming to an end of that process. And I guess the other aspects of that is, of course, there's been a lot of activity in the Middle East. Where those likenesses were deployed... is in Central Command and obviously Central Command plays a significant role in the war currently with Iran. So there has been some unfortunate delays with that. I think it's really important to understand that with that deal there has been constant activity on a weekly basis and that gives us great confidence that this is going to go forward and obviously there is a significant upgrade in licences to be done in the deal with the USDOD. Things that I would say for that is If that wasn't the case and we knew something about that, we obviously would have to inform the market and we haven't. We're very confident that that's going forward and the weekly activity and all the engagements suggest that it's going to happen in the near future. So we are making progress into the extent of agreeing and aligning the product future roadmap with the USDOD. So that's all good positive news moving forward which gives us confidence in that deal. Technical validation, advancing as we've talked about. There's obviously that heightened military activity that I've mentioned. But the last one there is something that I was very proud of for the company, which was that European Military Alliance. It's currently going to be deployed across 2,500 users, and that opens up access to a major ecosystem in Europe. that's a significant opportunity and it's obvious they've got a two year extension with one year options on that so for the next two years they've got a one year option on that licence and we're currently in negotiations with getting our people cleared to go and do that deployment so they're significant wins what do they all say? They all say that the opportunity there for Arctis to become the number one provider of policy-enforced data-centric security to the US and their allied partners is significant. So moving on, what else have we been up to? Well, the new cross-products development. Currently, MCProtect has now been integrated with MindBreeze, which is an AI-enabled product, doing reports and such. So we are still moving forward with the product and the future roadmap for that and development. MindBreathe is deployed across a whole range of global manufacturers. This one just happened to be with an existing customer that wanted to extend that protection and visibility into their security domains. The new customer win with Spheron, that's really important. It was with an IT provider. The really good news of that was it was a 60-day process from where to go to close that deal, which we were very happy about. And, of course, the UK Division for Global Aerospace, which we announced last year, that deployment has gone well, and they've extended that for another two years, and also that we are able then to be introduced and start to have significant conversations in different geographic domains, which has commenced. So they're all good signatures. evidence of us executing our strategy and they're all extremely positive signs market validation why now is the right time well microsoft just defined the gap so at the rsa conference recently and i'll get kurt to speak more deeply about his experience over at rsa microsoft launched zero trust for ai now when they explain their future of their um And you can go and check the blogs. This information is out there. When they discussed what that vision looked like, there was this very particular gap which has been identified. And that is extremely complementary to what Arctis is building and the future of the Arctis company. And that, of course, was attribute-based access and policy enforcement for the data layer and how to extend that across a hybrid environment. And when we had previously talked about the roadmap for our products, selling best of breed, developing the platform and extending that platform to AI, we're in a significantly sound position for that to happen. Furthermore to that, data security posture management, it was recognised as the fastest growing security category. And again, when we look at all of our major competitors out there, major providers, I should say, because they're not actually competitors, because that space is still open to us. What we're seeing there is people are now starting to take the responsibility for cybersecurity investing into that cybersecurity market, and particularly around CMMC and Zero Trust. much more significantly. We're starting to see those investments come through and we're extremely well-placed to look at that. Where are they spending their money? Platforms. And again, this ties into the strategy of us and our positions of Directive, NCProtect and, of course, Codency, but most importantly, Spirion and where we head. We now have the ability to identify... label, enforce and govern that. And as we significantly build that into a platform over the coming months, that's going to put us in a very strong position to be a value add to all of those current DSPM providers and capabilities that the customers are missing. And we're uniquely placed to do that specifically in the Microsoft environment, particularly after the work that we've been doing for the USDOD and NATO and others. Kurt, over to you for RSA. Okay.

Yeah, I think what was interesting, so RSA was earlier in March in San Francisco with 50,000 cybersecurity professionals, the largest show. And sitting down with the CrowdStrike, the Palo Altos, the Microsofts, the number of bankers that were out there, we really saw where the strategy that we're bringing to market really holds true. Again, Dan talked about zero trust for AI. We're really looking at those guardrails of where you go. So when you look at CrowdStrike, Palo Alto, Netscope, and all these others, they're looking at the security aspect of it, but they really aren't looking at it from policy. And policy is the thing that transcends all the different businesses out there and the way that you orchestrate across it. And one of the bankers that we work with, William Blair, really talked about it, and I thought one of their quotes during this session was really pertinent to where we are, where orchestration is the layer in the new center of gravity. So that's really what's making the decisions about AI is the actual orchestration layer of the policy itself. And so it's a new category that's forming. It's following within the data century policy orchestration that we're at the forefront with. And it's really piggybacking across the tailwinds of data security posture management, which Dan says is the fastest growing, and some significant investments into the businesses and into the markets themselves. So we feel that when we start to put our strategy together, you know, the tailwinds are right, but lining them up against the different horizons that we have across the next 12 to 18 months really will make an impact. I know we showed this slide last time, but, Dan, I think it's worth going through again because you can really see where we talk about some of the wins that we've had, some of the cross-sell in the U.S. DOD and Horizon 1, and how those carry across the way we're looking at it from a market perspective.

Yeah, look, defend and extend the base. These three horizons are obviously based upon McKinsey's three horizons for growth framework for those people that are aware of it. What it means is how are you going to continue to make sure that you've got growth in your business going forward and what are you planning and what are you working on simultaneously or in parallel to make sure that that growth happens. For us, defend and extend the base. stabilize that speed on customer base who have already invested in data-centric security, cross-sell, up-sell, and win new logos with the products that we already have. Make sure those products are supported to do what they need to do, but then combine those products into a platform for Horizon 2 to add additional value to those customers to make sure that they've got a single use and control plan for putting policies into and making sure that user experience is of high value to them to help reduce the complexity in an ever-increasing complex ICT world, particularly with the introduction of AI. And that horizon is really, for us, about six months away. So we're actively working on these two horizons currently. And you can see the sorts of deal sizes that equate to that. The USDOZ, which we've forecasted somewhere around about 6 million ARR and possibly 2 million in services around that contract, is one of those deals. NATO was another one of those deals for NC Protect. The Microsoft CoSell contract, and the SPHERE and Crossrail, which we've just announced that other deal. For us, then, Horizon 2, that's really about what we call trusted data integration, which is that orchestration layer and platform. And really what that means is that expansion of what we've done, and we've done a number of trials which are now going into procurement, and NEC was one of those trials that we did, UKMOD, which we've got having conversations with them, the big supply chain, regulated industries, Australian DOD, they're all looking for an answer here with this capability. And that's really critical for zero trust frameworks and how you embed zero trust into your environment. And we're seeing great opportunities pop up with that. Then the future, and this is all about AI. Now, I think that with the advent of AI and the adoption of AI, something like 13% of organisations have already seen data spills from AI. AI which they didn't know were coming because they don't know what it is in terms of a black box functionality and what data it's aggregating and taking from you and searching for. And, of course, out of that, 97% of companies that have an AI breach, according to IBM, have been because they haven't put proper access controls in place. Now, that says that there's a real opportunity for us to play in securing AI and integrating all of those other cybersecurity controls for early visibility, reaction, and so forth. And I think that that is really, really important. So we're executing on those three horizons currently and in parallel.

And I think that, you know, you mentioned Microsoft had a big play at RSA, and when you talk about those three horizons, they continue to validate the AI market and where we're taking it. And I know we're spending pretty significant time on this webinar around AI today, But when you look at where we're going, when you look at where the market's going, this is where we need to be. This is where we're going to get our multiplier from a shareholder valuation perspective. So do you want to talk a little bit about kind of the Microsoft effect on that?

Yeah, look, I think it's really about the early adoption there. One, Microsoft from a marketing perspective always sets the marketplace. They're a marketing machine. Obviously, you've got Google and you've got the other hyperscalers as well and the big open AI providers. But really, they still control the majority of the market and incumbent in the majority of enterprises. And therefore, their validation is important. The gap that they've left us is a really strong gap for us to play in. And just constantly validating that to us, that the strategy that we've set is an extremely strong play for growth. And I don't mean 30% or anything like that. I mean, if we can get this right and execute this and expand into that US off the back of the USDOD deal, the growth of this company, it's got great potential. So I'm going to simplify this for those people out there in the audience that are not technical. And what does this look like? It's really quite simple, and I've tried to get this slide to simply give you a concept of what the opportunity is. Arctis must provide the policy enforcement layer for the zero trust data. That means... becoming enforcement and proactive about what we do because things like Claude Mythos and others are now being able to map vulnerability so quickly and then be able to be tasked to execute against those vulnerabilities is really accelerating this space. And therefore, protecting the data layer is becoming absolutely critical. It's now mandated, as we have said on numerous occasions, and organisations are slow to move to get that on, but we're starting to see that real significant growth. So turning data into discovery, classification, and real-time enforceable access policy decisions. We have multiple vendors across identity, devices, networks, application and workspaces in that zero trust framework. We have very, very few in data. And if you go down that stack about what glues that framework together, visibility and analytics, automation and orchestration and governance, that's the space that Arctis is already leading in and can really own. And that's really where we go from TDI integrating with NC-Protect and Spherion, and also then being able to extend that as a DSPO tool, which then integrates into all the products in identity, devices, networks, and complements them and doesn't necessarily compete against them. And that gives us a very clear product roadmap, and it gives us, if it doesn't contribute to that, we don't build it, and that's all we sell. So that's where we see ourselves in the marketplace. Cross-platform control plane, what does that look like? Well, TDI integrated with NC Protection Sphere, and as I mentioned, can connect to and extend Microsoft Azure, NCaaS, all of those different capabilities. It can be multi-cloud. It can send it into AWS GCP, whether it's on-premise. It can take those DSP vendors and IAM vendors, integrate all of that, and then control from a unified policy across all platforms. real-time access control, governance-compliant and continuous audit and observability. And again, we're now seeing people talking about this. It's not just us marketing it. We're seeing all of the big providers starting to market this way, that they're behind the ball, and we know that we're in a position of strength, and we think we can springboard off a couple of big deals and really charge into that market for high growth returns.

So, over to you, Kurt, on the revenue, making that... Yeah, so we talk about theory and we talk about where we want to take the business, but we really want to look at where the revenue is sitting and where it's going to sit. And we break it out, our revenue streams, into three different components. So, we look at ESPO across platforms. So, whether it's across... working with Five Eyes, Arcus, what have you. They're large, very recurring, sticky, where they're using multiple customer clouds, doing a hybrid environment, what have you. Microsoft will never be in this area and has stepped back from it. So we're trying to be that middle layer of the combination of information across the policy for all aspects of it. The second one is across ABAC to AI agents and governance guardrails, which Dan talked about, where we are today, tying back into some of the Microsoft components, looking at what we're doing with mind reads, looking at the conversations we've had with the CrowdStrike, the Palo Altos, and the others that are out there today. Big market, a lot of competition, but we feel that ABAC with those guardrails is the right place to be that can help differentiate us. And then lastly, again, we're all waiting on where the U.S. DOD is. There are other aspects of that out there because that's not the only one that we're tracking. And so when we look at where these areas go, we have active immediate pipeline opportunity across all three revenue threads that we're looking at and how to drive that back into the vision that Dan's bringing into the business, the strategy behind the product development, and the way that we can scale across integrations and components with large technology vendors. that actually will bring us into more of a valued situation as we go forward. So that's where we see the revenue, but it really comes down to where we're going to execute across the next 30 days. So, Dan, if you can bring that home, and then we'll turn it over to questions.

Yeah, absolutely. Obviously, all the focus right now is on converting that USDOD engagement. Obviously there's an expectation in the market and again I reiterate our level of confidence in executing that but it's something once we have done that I think you're going to see a significant change not only in the perspective of the company but the share price and other things. For us that gives us the reference ability in the US to really drive into that marketplace Obviously it's not the only deal we are highly focused on and we have some significant deals in the pipeline to close over the next 60 to 90 days and I think that's only good news for investors. We need to drive to continue those cost efficiencies. Yes, we are critically aware of the cost structure and expenditure and we monitor that on a monthly basis. We've already found significant synergies with the acquisition of Spherion and we understand that there has been some churn in their customer base but obviously we are managing and monitoring that as well and we believe that we have stabilised that churn and so it's starting to turn that around and that's not unexpected. That's something that happens when you acquire companies. Until you get the company and can go through all the closets and pull out all the skeletons, you don't really know that from a due diligence process. Yes, you do the best you can with the due diligence process but some things happen after the fact of the acquisition and we are certainly working very hard on that. I'm not worried about it. As I said, it is expected and some of it was forecasted. And it's not the only reason we acquired Spheron. Let's be clear. I want to make sure that everyone understands we did not just buy it for Spheron ARR and growth. We bought it to launch into the US marketplace. And the quality of some of the people in that company is exemplary. They're very good. But we have got an eye on cost. Expand US operational focus. Obviously, that's where we need to be. The high growth market in the globe at the moment is the U.S. We need to grow in that U.S. market. Advanced delivery of core product capabilities and Azure and functions, it's a very dynamic market at the moment. Do we have a play with AI or are we threatened by AI? No, we have an opportunity with AI. And, you know, we have an opportunity also to enhance our productivity inside the company and also drive cost efficiencies by adopting AI into the company. We are using it. Our coders are using it. We are evaluating product code against it. We are embedding it into our products. They're the focus over the next 60 days. And I don't think there's anything there that would be unexpected to the shareholders. So let's get to the questions because I'm quite sure that although we've covered a lot of strategy and where we're heading, I think that a lot of shareholders out there have questions about how we're going in terms of cost and concerns about runway and all sorts of other things. So let's jump onto those questions, Kurt.

Yeah, Dan, I think the first thing is, again, I apologize for the audio and video of this. I understand from some people they're getting echoes through that that's coming through my computer. So, again, apologies. I'm not sure why that's taking place, so I'll be a little bit quieter and let Dan drive this forward. First one is, can you quantify what dollar amounts of cost efficiencies can be attained? You're coming off of $4.9 million of operating costs this quarter. What do you expect going forward, and how can that be positioned to tie that with ARR?

Look, again, this is a real balance of the company waiting for some, you know, I guess, opportunities to drop that are going to be significantly transformative for the company and balancing that growth with that cost. So we are constantly monitoring that. Obviously, we're also had now... and integration and we've had a really good look at those people and what they're contributing and how we wish to structure the company moving forward. So look, I think that there's another probably couple of million in terms of synergies that could be looked at in terms of the company. But we need to make sure that we are surgical about those cuts and not completely blunt about it the way that we do that because we have to be in a position for what we are expecting is growth.

Yeah, I think we have to continue to look at where the ARR goes as well, right? We have to balance where ARR is today, where we see it going in the future. We want to make sure that we are in a positive cash flow sooner than later, which we've always said. We knew it was going to take a couple of quarters to flush through the synergies from Spirion, which we're doing, and I think we're coming back towards that by the end of the fiscal year, which is June 30th. So I think we'll be in a better place there.

I think that, as you highlighted, there's some one-off costs there that have now been flushed through the system as well.

Yep, exactly. So that will improve our operating as we get there. Can you talk about, there's been obviously some drop in ARR, generally considered from the Spirian line. Can you talk about why that drop of ARR is taking place?

Yeah, I can. The Sphero product was out in the market. It was a leading product, best-of-breed product. What do I mean by that? It was doing 98.5% accuracy, which is deterministic, not probabilistic, which is what AI does in terms of those things. So for its customer base, it's an outlier. It does hybrid. You get the vendors coming in saying, we can do this, such as Microsoft. You know, we've got Purview. We can do the Discovery. We can do the later... And as we have said previously, when economics gets tight, people want to consolidate those costs and look at a vendor to do everything. And if they can say they can do everything, they'll go through a process of discovering that they can't. But that means that you'll probably move on from that smaller best of breed, which is much harder to defend. Now, that is part of the reason that we are moving to a platform space. because we can then offer many more services combined in one product rather than the best-of-breed product. Now, I would suggest that most of those churn customers, which have happened over the previous two quarters, were specifically already preparing to disengage with the company as we were going through that procurement, which is why we knew they were at risk. We didn't know exactly where they were. We had some conversations with the company about those, And that was actually priced into the company cost. As I said, you don't buy a company at 0.9 of its ARR. There isn't going to be some churn in that company. However, 0.9 still to acquire that ARR that we have is still a very good buy. And again, it's not the only reason that we acquired that company. And I think that the potential value of that company isn't just in the product, but it's actually more an ability now to execute and enter the US market with our products. That probably goes to another question there about, well, how is your cross-sell and up-sell going? Well, it takes a little bit of time to get all the... products into the right place, and particularly the sales team, the marketing material, and we have done that. And the news of that first review and sale on New Logo is an example of us executing against that strategy. It was never going to happen overnight. It was never going to be a month. It was never going to be three months. It's something that takes a lot of work to get the teams to understand how all the products fit together and take that to market. We've done a lot of NC Protect demonstrations to the existing customer base, and we are expecting the results to come through.

Kurt? All right. Let me see. On the product side, I think you addressed it, but maybe you just want to touch on it a little more. Have you considered merging all products into one brand or one platform?

Was that question... done by the chair or who asked that question? Yes, of course we have and the answer is absolutely we will. Again, you know, the merger, the acquisition of Spirion, we're going through that process, the rebranding strategy has been already determined and we will move into restructuring all the branding as we move forward in the company. So you can expect further news on that. Great question. Yes, we have. Yes, we are, and we're active on it currently.

There must be a new shareholder here. What percentage do management own of the outstanding shares? And I would still say that, you know, from day one, Dan and I are both top five shareholders within the organization, so our Long-term shareholder value is tied directly to where the company goes. We need to make sure that we drive this forward for shareholder value and make sure that we drive every component out of the business we can to see that in shareholder value. I believe to date, I am speaking for myself, but I have never sold a share of the company. And so what I brought in through acquisition, what we brought in through parts of components of our compensation, as well as participating in the various capital raises that are out there, I don't believe Dan or I have sold any shares. Dan, do you just want to confirm that?

Yeah, I haven't sold a single share. So I'm as eager as everybody else for a return.

Great. So last question we'll hit about moving towards the US. Will you ever move the head office of AR9 to the US?

I hope that our success forces us to. How's that for an answer? Look, obviously, we obviously want to crack that market. That's what we're investing in. We didn't do this lightly. We considered all the different angles and the risk. But if you're going to go and play with the big boys, you've got to be where the big boys are and where that growth market is And a good example of that is just the SME market in the US is staggering compared to the market here in Australia. So we have opportunities there. There's a couple of other questions I might just answer, Kurt, while we've got the time and space. And I know we're on the half an hour, but someone mentioned the 8 million loan facilities mature within the next nine months. Any commentary and comfort around that? Obviously, we took the decision that where the share price was, and we did have an institution move some shares and sell out. That did put downward pressure on the market, on the share price. We believe that they've been exited now, so we're thinking that we'll get a little bit of a bump back there, but that's the market. But obviously, when we took out that debt facility, we are confident and we still are confident that this deal will execute within the timeframe and we are comfortable. So I wanted to answer that question directly, and I think that's about it, mate, unless there's any other screaming questions from you.

No, I think that is it. I had a couple of questions that were duplicated. All right, great. Why don't you give a quick summary, and then we'll wrap it up.

Yeah, no, look, that's it from me. Like I said... The keynotes there are we are progressing not as fast as we would like and probably not as fast as you would like. The outlook is good. We are confident. We are seeing the right activity and the right conversations are occurring and we still believe that the company is going to return significant shareholder value and we'll be very excited to make those announcements as they come through.

All right, great. We will end on that. Thank you very much, and we will be putting this up as a recording in the coming days through our Clearinghouse Atomic. Thank you, and have a good weekend coming up. Thank you. Thank you, everyone.