Arqit Quantum Inc.

Thank you for standing by. On today's call, we will be referring to the press release issued this morning that details the company's first half fiscal year 2025 results, which can be downloaded from the company's website at archit.uk. At the end of the company's prepared remarks, there will be a question and answer period for selected equity research analysts. Please note that those selected equity research analysts that would like to ask a question in the Q&A session will need to dial into the call rather than joining through the webcast link. Finally, a recording of the call will be available on the investor 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. The company encourages you to review the safe harbor statements, risk factors, and other disclaimers contained in today's press release, as well as in the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events different materially, from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this webcast. And now, I'll turn the call over to Andy Lieber, the company's Chief Executive Officer. Andy?

Thank you, and thank you for joining our first half of fiscal year 2025 earnings calls. I'm pleased by Arquette's performance for the first half of fiscal year 2025 and by recently announced developments in the business. If one looks at our results solely through the lens of first half revenue, my comment may leave you slightly confused. But please bear with me for a moment. Arquette has developed a transformational technology for addressing significant weaknesses in today's encryption technology. Weaknesses which will be magnified by the arrival of quantum computing. We believe that our symmetric key agreement encryption software is the most secure, standards compliant, and implementation flexible solution to meet the threat to data and communications. We are building a company to deliver our technology to sophisticated large enterprises and government customers. This is an ambitious objective, one with significant obstacles to overcome and timelines which often seem elastic. However, I am pleased that we're making significant progress towards realizing our objective. Circling back to our first half performance of recent announcements, I'm delighted because ARCA has made significant progress in product development, penetration of key identified markets, sales pipeline growth, shifting business model, and cost and business process discipline. Tangible progress along all of these vectors are additional courses of break which build towards long-term success. Before I discuss Archit's performance for the first half, let me briefly outline the market environment for our symmetric key agreement encryption software. The current weaknesses of today's public key cryptography, which safeguards much of the world's data, remain largely unmitigated. The pace of investment in and the development of quantum computers, which pose an existential threat to current encryption, is accelerating. Google, Amazon, and Microsoft all announced quantum computing chips during the last six months. Last week, Continuum, which is majority owned by Honeywell, signed a $1 billion deal with Qatar, which furthers developments of its quantum computing technology. And this week, D-Wave announced its 4,400 qubit sixth generation quantum computer, a major loop forwarding capability which surprised the financial market. There is little doubt that quantum computing at scale, known as Q-Day, is coming. When Q-Day arises, uncertain, but I predict it will be sooner than most expect, given the players developing the technology and the vast sums being invested. And when it does, data that has not been safeguarded with quantum safe encryption is at risk, as quantum computers will render existing public key cryptography obsolete. Awareness of the need to upgrade to post-quantum cryptography is growing and the call to action increasingly urgent. Last week, Japan's financial services agency instructed Japanese banks to take immediate action to begin shifting to post-quantum cryptography. This is just the latest example of influential government bodies, including the White House and the NSA, sounding the alarm. ARKIT was early in identifying the risk of current cryptography. and early in identifying a market opportunity for a solution. We've developed symmetric key cryptography software, which is quantum safe and easily adopted as it is compliant with many of the most widely used communication standards. Put simply, we as a company have heavily invested in the right products for the current quantum threat at the right time. We feel uniquely positioned to take on the coming threats in the commercial, federal, and defense sectors. The market for our product keeps moving towards us. We're beginning to feel the market bow wave pushing us forwards and is evident in our recent developments and prospective customer interactions. We talked much about our collaboration with a leading tier one telecom network operator during our fiscal year 2024 results. Our partner integrated our ArcIT network secure encryption product into its network as a service and announced in 2024, it will be rolling the product out to market. Importantly, shortly before the close of our first half, to enable commercial rollout, The network operator signed a three-year contract licensing NetworkSecure for resale to its end customers as part of its network as a service offering. ARCHIT NetworkSecure enhances and differentiates its offering. It sees a market need which we can address. The signing was the culmination of a 14-month journey from testing to business care development to go-to-market strategizing. The contract highlights a number of important points. One, Our focused targeting of large-value vertical markets, particularly telecom networks and government defense, was the right decision. Two, our shift to a go-to-market strategy through leading hardware and technology vendors and network operators is the correct approach. Integrating with and enhancing products and services which end users already consume is an easier sell, and our partners are a field Salesforce multiplier. Three, Our shift to a subscription licensing model properly aligns our interests with those of our customers. Our arrangement with a network operator is a B2B2B model. The initial license is for a defined amount of capacity of our products and can grow as end customer demand increases. This style of contract encourages the initial commitment to our product by our customer and a pay-as-you-grow approach as end customers take up the offering. Our customers succeed, we succeed. Our interests are aligned. Four, and most importantly, there is end-user demand. The network operator is already engaged with three significant end-user customers for its network as a service, secure by ARCHIT, network secure. I expect that book of business will continue to grow, and we will be scaling up the contract to meet demand. And a final thought on this contract. It was a 14-month journey from a standing start to a signed contract. It's a blueprint which we are replicating with a significant number of other large brand name network operators with whom we are engaged. We expect cycle times to compress for these opportunities. In addition to the telecom network vertical market, the defense sector is another key market on which we are focused. Cybersecurity is a critical focus for defense and intelligence organizations. The battlefield, from the warfighter to drones and finally command and control, is increasingly being digitalized. The digital battlefield requires the highest levels of data security. We have spent significant time and resources in our effort to penetrate the defense market. Shortly before the close of our first half, we signed a contract which has ARCIT symmetric key agreement software embedded into a solution sold to the U.S. Department of Defense for a funded program of record. This is our first win with the DoD. The solution is in partnership with perhaps the largest IT vendor to the DoD and was sold through one of our established government sales channels. More details will be forthcoming. The importance of this contract win cannot be underestimated. It is a significant break in building the future success of the company. The contract confirms our technology is compliant with the National Security Agency's Commercial Solution for Classified Programme. Compliance with the program is critical to being considered for such contracts. Being able to reference this contract and the DoD program of record makes the pursuit of additional DoD opportunities easier, as well as proves our bona fide to other military organizations around the world. We have our foot now in the door of the large DoD market. It has taken longer than we expected to get to this point. We have arrived and will push to capitalize on this success with additional defense contract wins. An additional area of tangible success has been the continued development of further applications and use cases for our symmetric key agreement and encryption software. Currently, our sales and contract activity is focused largely on our ARCHIT network secure product, which enables quantum secure VPN connectivity, effectively securing data in transit. Ultimately, we want to develop applications of our core technology for securing data in transit, data in process, and data at rest. Perhaps the most exciting application development has been in securing data in process, otherwise known as confidential computing. Confidential computing protects data by encrypting it while it is being processed by a computer, which is particularly important when processing sensitive data on shared infrastructure like a public cloud. For instance, confidential computing would allow AI to train and run on sensitive data without exposing the data to cloud providers, systems administrators, or data center hosts. We announced in collaboration with Intel the integration of ArcGIS Network Secure running inside a trusted domain enclave created by Intel TDX. What this means is that together with Intel, ArcGIS can protect both data, both on the cloud server and while it's moving between cloud servers in a way that makes it completely hidden from any would-be hackers, as well as the hosting provider themselves. It provides data sovereignty across domains as information is processed, moved through data centers, and sent to or from cloud repositories. Confidential computing is a focus for large enterprises and is a significant addressable market with use cases that include AI training and inference, processing of regulated data, and the enforcement of zero trust. Our collaboration with Intel delivers a highly secure, differentiated solution to the market. The collaboration takes ARCIT a significant step closer to having additional applications for data in transit, process, and at rest. This is our third collaboration with Intel. We now have joint efforts across secure mobile communications, confidential computing, and server technology. ARCIT is working jointly with Intel on further developments of these integrated technologies and go-to-market strategies. We are excited about where our efforts with Intel may lead. We stated on our fiscal year 2024 earnings call that focus was an important watchword for fiscal year 2025. One area of focus has been cost control, be it headcount, infrastructure, real estate, or travel. Nick Point and our CFO will touch on these shortly. We've been disciplined doing more with less and yet making substantial progress. Our performance compared to the budgeted cost has been strong. I'm pleased by the discipline we have exercised and will continue to do so going forward. Despite positive momentum in the market's understanding of our proposition and product adoption, some revenues were slower to be recognized and expected. We previously announced a multi-year contract with seven-figure total contract value for a customer in the Middle East. Revenue under the contract was expected to commence in early 2025. Due to unforeseen delays on part of the end customer, revenue did not commence until very late in March, just before the close of the financial period. As our contract base is still modest, and not able to readily absorb changes in timing, any unforeseen delays in contracts closing or revenue recognition can have an adverse effect on our results. Fortunately, the full terms of our Middle East contract remain in effect, and we expect to be recognizing revenue during second half. I'm pleased with the progress we've made since the beginning of the first half of fiscal year 2025, with contractual wins in our two key vertical markets, telecom networking and defense, with additional visible opportunities to come. We have paying customers in the US, Europe, and the Middle East. We have exciting developments regarding additional applications in mobile communications and confidential computing, plus others that I have not yet discussed. We remain disciplined in our cost control and internal processes. For the balance of this fiscal year, the key focus points for the company will be conversion of concluded test and evaluation engagements into licenses. I see near-term opportunities, particularly in the telecom network space. Also, the commencement and hopefully completion of an end-to-end test and evaluation collaboration, which brings together a leading data center operator, leading telecom network operator, an AI company, and leading network and server technology vendors. Finally, cost control will remain a priority. We have laid many additional courses of brick to support our success going forward. Our progress is being recognized in the marketplace, and brand and product awareness is driving sales inquiries. The level of foot traffic at our stand at the recent RSA cybersecurity conference and the sales leads generated were substantial, higher than we've experienced at prior conferences. The positive inquiry generated from leading IT vendors and network operators resulting from our tech and contract and partnership announcements was exciting. The sales leads generated created grounds for continued and increased optimism for the company's prospects. I believe revenue will ramp. Our encryption software is proven and unique. The market is moving towards us. We are well positioned to meet the rapidly growing quantum threat and address the resulting market opportunity. Thank you. Before I turn over the floor to Nick to discuss the financials, a quick housekeeping note. As of May 20th, Nick has stepped down from the board of directors. I have joined the board in his stead. I and the board want to thank Nick for his service on the board during these formative years of the company. He will continue in his role as our Chief Financial Officer. With that, now over to you, Nick. Thank you, Andy.

For the first half of fiscal year 2025, ARCIT generated $67,000 in revenue as compared to $119,000 in revenue for the comparable period in 2024. As discussed earlier, Revenue for the first half of the fiscal period was adversely affected due to end customer delays in commencing activity under a previously announced multi-year contract in the EMEA region. The variance between periods was also due to less revenue being recognized under customer contracts as Arquette continues to transition from primarily enterprise sales, for which revenue is recognized up front, to sales through channel partners, for which revenue is recognized over time as services are provided under the contract. Going forward, we expect less further impact from the transition from enterprise sales to SaaS sales as the shift is now largely complete. Revenue from the ArcIT SKA platform as a service and ArcIT network secure products totaled $52,400. Professional services and maintenance revenue in support of contract activity was $14,500 for the period. For the comparable period in fiscal year 2024, ARCHIT SKA Platform as a Service and ARCHIT Network Secure Contract revenue totalled $65,000, and Professional Services and Maintenance in support of contracts activity was $54,000. ARCHIT SKA Platform revenue for the period was generated from contracts with six customers. For the six months ended 31 March 2024, The revenue was generated for contracts with nine customers. Four contracts represent a license for SKA Platform as a Service. Two such contracts represent multi-year recurring revenue contracts, specifically our contract in EMEA and our contract with a Tier 1 telecom network operator. We began recognizing revenue under both contracts immediately before the close of the first half period. Two of our six revenue generating contracts were for R-Kit network secure licenses. Two contracts for R-Kit SKA platform as a service are professional services and maintenance contracts attached to them. It is our expectation that future SKA platform as a service contracts will similarly have professional services and maintenance contracts attached. Our administrative expenses equate to operating costs for those more familiar with US GAAP. Administrative expenses for the first half of fiscal year 2025 were $18 million versus $16.8 million for the comparable period in fiscal year 2024. The variance between periods was due to a lower headcount resulting in lower staff expenses and share-based compensation. and a reduction in property costs as a result of the termination of Arquette's previous office lease arrangement, being more than offset by unfavorable changes in foreign exchange. Arquette's headcount as of 31 March 2025 was 72 employees, as compared to 125 as of 31 March 2024. Administrative expenses for the period include a $1.3 million credit for a non-executive cash charge associated with share-based compensation versus the $293,000 credit for the comparable period in 2024. Operating loss for the period was $17.8 million versus a loss of $16.6 million for the first half of fiscal year 2024. The variance in operating loss between the periods primarily reflects lower revenue and an increase in administrative expenses for the period. For the period, loss before tax from continuing operations was $17.2 million. For the first half of fiscal year 2024, loss before tax from continuing operations was $16.1 million. The variance between periods is primarily due to lower revenue, increased administrative expenses, lower finance income offset by lower finance costs. As of 31 March 2025, the company had cash and cash equivalents to hand, of $24.8 million. And with that, I turn the call back to Andy.