archTIS Limited

All right, great. Why don't we get going? Good morning, everybody, and thank you for joining us. I'm Kurt Muffelman, and I'm joined by our CEO, Daniel Lai. Today, we'll be reviewing Arcus' fourth quarter FY2-2026 results. We really have two themes to find for this period. The sphere on acquisition has continued to fundamentally transform not only the shape but the scale of our business. and the defense momentum that's continuing to build on both sides of the Pacific with the US Department of Defense and the Australian Department of Defense, each taking significant steps forward with our technology. And as we move forward, the way that we can scale and continue to drive shareholder value, moving the business forward. So let's push it over to Dan for some opening comments.

Dan? Thanks very much, Kurt, and welcome everybody to the fourth quarter report for 2026. Before we begin, I want to address a couple of questions directly from shareholders, particularly around these four areas. On the share price, we know it hasn't reflected the business's progress, and it's just as frustrating for the board, the executive, as well as institutional and retail base of shareholders. The small-cap liquidity and uncertainty around the timing of the USDOD outcome is have weighed heavily on the company and the expectations in the market. But the catalysts for changing that are clear. Obviously we need to convert the DoD negotiations into a single dependent award. The other component of that is making sure that we guide the company towards a sustained cash neutrality and obviously ultimately to break even. Those two components We believe the catalyst for that change. And we are very confident with the DoD award that we are going to get there. So I wanted to address that first and foremost. Business, as you have said in the opening remarks there, Kurt, has been transformed, and we are a very different business to where we were 12 months ago, and I think we need to explain that a little bit better to the shareholder market and what the opportunities now are in front of us. On our growth, Our biggest opportunities run on government procurement timelines, not ours. That is the nature of government and defence, particularly when you're dealing with a defence organisation that's preoccupied globally around the world. However, we are moving closer and closer to the outcome that we are seeking and we are no longer dependent upon just a single award. We now have, with the Sphere and Acquisition, 225 customers and 12 months ago we had 60. That upsell revenue opportunity and cross-sell and partner channels that we're engaging throughout our 12 months of hard work this year are going to pay those dividends that we are seeking. Yes, there's been some churn in the student base, which was expected, but that's also indicative of a competitive growing market that is now seeing not only the customers turning to data-centric security solutions, zero trust, as well as the defence industry, but it's being acknowledged by the cyber vendors themselves, and that's what's created this competition. So we are seeing that upsurge of that market driving towards us. On performance, you know, we are not where we need to be relative to our revenue, and we understand that. You know, we've continued to cut operating expenses two quarters running. And we expect that to continue. We're still looking for that opportunity to remove waste and create synergies in the business. The bridge strike even in receivables and converting that cash, deferred revenue flowing through and holding our cost discipline. They're all critical to us achieving that. You know, a year ago, the US team consisted of three people all playing a global role. Today, with the Spheron acquisition and turning that into an Arctis entry point into a go-to market strategy, we had 30 people covering sales, pre-sales, customer success management and product engineering. In December, post the acquisition of Spheron, we identified $4.5 million in annualized savings and since then we have identified another $2.5 million which we have executed. We will continue to look for those savings, but albeit with a clear understanding that you cannot cut your way to growth. And we'll continue to walk that line. And finally, on dilution. You know, we understand that there's a time pressure, a perception of time pressure in the marketplace on cash. However, we've made a very deliberate decision back in December that we wanted to make sure that we didn't want to dilute shareholders post-tax period acquisition, and that that strategy was to use debt financing, which we believed was an economic way of making sure we didn't dilute, while we acquired time to make sure that we could close the deal with the US Department of Defense. We will continue to look at that financing and those opportunities and we have recently announced that the CVA has extended that loan and obviously they have done their due diligence on the company as well. So any capital decision will be weighed against the alternatives and strengths that we need to look at from continuing to the success of the company. But these are the real challenges of the company and we acknowledge them and we wanted to make sure that you understood that we are doing positive things about it. Why am I saying all of this? I'm saying it's from a position of confidence because we, on the inside of the company, are seeing the progress that gives us confidence that we will execute what we need to execute. So, moving on to the results of Q4. I'm not sure if that's rendered right, but we'll see. So, Annual recurring revenue closed at $14.8 million. That's up 208% on the previous comparative period. Year-to-date gross margins are still strong at 74%, a little lower than this time last year, but obviously on a much bigger sales revenue pool. We've got under annual contracted, we've got $16.6 million and we did $4.1 million total in sales across the period of the year. And 40% deferred revenue growth still on the books, which will support us going into this year, strengthening our revenue baseline. As I mentioned about cost management, we have reduced our OPEX by 11%. and that's the second consecutive quarter that we have reduced our cost base based on that identification of that $4.4 million annualised savings and the $2.4 that we're now introducing, which will continue to see us reduce that cost base. And finally, we've got momentum now in the defence industry baseline. Obviously, we have had the win within the US and European Alliance, but also within the announcement with the Australian Department of Defence, And finally, the announcement that we've got 100% or 60 out of 60 use cases which were prosecuted with the USDOD, which has now led us past that point of technical evaluation into that commercial conversation and negotiations. And with that, I'm going to hand over to Kurt to get more detail in the numbers.

Yeah, you know, I think, you know, Dan made a couple of good points in the overall summary, and they are reflected, right? If we take, you know, some of the cash issues outside of where we are from a finance standpoint, it's looking pretty strong as where we look at comparative to prior periods. So for the quarter ARR, or our annual recurring revenue, stabilized at $14.8 million. That's up 208% on the prior comparative period of $4.8. So almost $10 million of ARR growth, albeit through Spirion, but over year over year. Total revenue for the quarter was $3.5 million, and that's a 92% increase over the period. And that's in line with the same from last fiscal period. Gross margins really were strong at 74%, and that actually was 74% across the entire year. So very strong and at the top realm of where it sat. So we're managing where our cost of goods are as it relates to costs. This reflects, you know, really our continued transition away from lower margin services, equipment, and that third party, and really looking at towards the proprietary software across the products that we have today in NC Protect, Spirient, Cogency, and TDI. Total operating expenses were $5.3 million. That's almost $1 million or 11% lower than the March quarter. That's the second quarter, as Dan talked about, in reduction, reflecting the full and continued effect of cost actions implemented following the sphere on acquisition. We continue to drive that forward and look to decline in the coming quarter to better align ARR with the overall revenue and have it directly tied to how we look at cash and how we drive that towards cash flow neutrality. I think some of the other aspects is when you look at cash, you know, we had a couple things at month end that really were impactful. If you look at combined cash term deposits, which we received since the beginning of the quarter, and trade receivables, they were actually $5.8, almost $6 million, so pretty close to what our net operating expenses would be over a two-quarter period. So that was actually $2 million higher than the prior year. I think the other things to start to look at is some of the strength of the balance sheet that you'll see at the end of August with the release of our audit. But deferred revenue grew by 40% to almost $9 million. So that will actually be revenue that we'll be able to convert in 2027 without doing anything. It's just the actual ticking of the clock for annual recurring revenue. The other thing you'll see on the balance sheet is that our net assets increased to 15.6 from 5.4 over the prior period. So, again, that's all following the capital of Experian acquisition and the actual capital raising. I think some of the other things that really start to come into play as you start to look at what we do is not only are we, you know, looking at diversifying where our revenue is coming from, but diversifying, you know, the customer base itself. So FY26 delivered record contract revenue of $14.1 million. That was up 65% from last year. And if you include Spirion for the entire full year inclusion, it was $16.6 million. So that's really a strong growth period. That's almost 100% increase year over year. And as we indicated, one of the things we really push is that upsell and cross-sell. And that's emerged as really a genuine growth opportunity. Just last year alone, particularly in the second half of the year, that contributed $2.7 million across 12 separate transactions. That's essentially across zero from two years ago. So you see where we've gained $2.7 million towards our annual recurring revenue just through cross-sell and up-sell. And that's coming in and selling additional services or additional product to the existing customer base that we have today. And really what I think is also strong is we went from roughly 60 defense-heavy customers to 225 across a dozen verticals, with the top 10 concentration halving to 32%. So we're also losing our real strength or our real inability in the way that account concentration drives. And that's really looking at where, particularly for Australian defenses gone, where that's down to 17% from a total revenue standpoint. So at one point, that was as high as 65% two years ago. So now there's less retention or less, I'm sorry, less resilience on one account and spreading that risk and spreading that shifting of right of procurement over across all sorts of different accounts that are out there today. Yes, we remain focused on U.S. and Australian defense as well as NATO and coalition forces. But again, this diversification of the customer base and the de-risking of it really helps where our strategy goes going forward. So it becomes much more predictable and allows us to better operate and how we match against operating expenses as we move forward. So, as we talked about, one of the exciting things is also the Department of Defense and where we are today. So, Dan, why don't we talk a little bit about some of the strategic milestones that we hit during the quarter?