Prepared remarks
On today's call, we will be referring to the press release issued this morning that details the company's first half of fiscal year 2026 results, which can be downloaded from the company's website at arquitgroup.com. 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 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 the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to differ 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'd like to turn the call over to Andy Leaver, the company's Chief Executive Officer. Andy?
Thank you, and thank you for joining our first half of fiscal year 2026 earnings call. When we spoke in December, reflecting on fiscal year 2025, I said that 2025 has been a year of momentum in the realization of the need for enhanced cybersecurity to address the coming threat to data security posed by quantum computers at scale. Governments were taking their concerns public, some mandating road maps to enhance cryptographic postures for governmental agencies and encouraging enterprises to take action as well. I noted that from Arqit conversations with governments and enterprises, it was no longer a question of if organizations need to upgrade their cryptographic security posture, but when they will upgrade their posture. What has become clear in the first half of our current fiscal year is that when is becoming now. While that is my view based on our deep understanding of the threat, let me cite the view of some leading players in the quantum and security space. Google has been aligned with the U.S. National Institute for Standards and Technology, or NIST, timeline for migration to post-quantum cryptography, which calls for the deprecation, meaning the removal of unsafe cryptography by 2030 and complete disallowance by 2035. On March 25, Google advised that cryptographic systems migrate by 2029. Google's accelerated timeline was the result of research, which it published that demonstrated quantum computers will be able to break elliptic curve cryptography, the kind of cryptography that protects things like crypto wallets with 20x fewer qubits engaged than previously projected. That moves the timeline from 2035 to by 2029. That is a serious migration timeline compression. Also, Cloudflare, on April 7, pulled forward its advice to migrate by 2029 as well. Cloudflare's revision was based on Google's published research, but also research published by Oritomic on March 30. Oritomic concluded that by leveraging advances in high-rate quantum error-correcting codes, efficient logical instruction sets and circuit design, Shor's algorithm can be executed at cryptographically relevant scales with as few as 10,000 reconfigurable atomic qubits. That is a shockingly low estimate of the computational resources needed to crack RSA. And finally, IonQ on its May 6 earnings call, CEO Nicola D'Mathy stated, based on our public road map, we expect to achieve the logical qubit count required to challenge RSA-2048 encryption in the 2028 to 2029 window. If IonQ is correct, migration to a post-quantum security posture by 2029 may be too late. The urgency to migrate to post-quantum cryptography is heightened by two factors. Firstly, protecting your existing data against Harvest Now, Decrypt Later attacks. Any data that is stolen today, even if protected with current encryption technology, is vulnerable to exposure when a quantum computer sets to work on a later date. Any data that is sensitive or has a shelf life should be secured with post-quantum encryption now. Secondly, migrating to post-quantum cryptography involves analysis, planning and execution across the entire data and communication architecture of an organization, which requires time. If Google, Cloudflare and IonQ are correct, and we think they are, then time is of the essence. Arqit's product set is well positioned to enable an end-to-end migration to a post-quantum cryptographic security posture from assessing the current risk inherent in an organization's network architecture to implementing software-based post-quantum cryptographic solutions, which are compliant with NIST and NSA standards. Our encryption intelligence risk analysis tool gives organizations complete visibility into all encryption technologies in use across the network, automatically identifying weak points and vulnerabilities, including those susceptible to quantum attacks. This is a critical step in developing a migration strategy. Understanding why encryption is in use, where and what it is protecting allows CISOs and CTOs to scope their risk and develop a game plan to upgrade to post-quantum cryptography. Our software-based post-quantum encryption solutions allow organizations to upgrade now and protect against Harvest Now, Decrypt Later attacks when quantum computers arrive at scale. Our solutions are crypto-agile, which gives CISOs and CTOs flexibility to mix and match post-quantum algorithms and symmetric key cryptography. Being software-based and lightweight, our encryption solutions can be flexibly deployed at any level of a network architecture from servers down to small edge devices — no new hardware devices are required and it can be implemented quickly with complete deployments in as few as a couple of days. So leading industry players are now saying the time for post-quantum cryptography is here, and arguably, we have the products to meet that need. Where do we stand in capturing growing market demand for post-quantum migration? We acquired our Encryption Intelligence product in 2025 and announced commercial rollout in January of this year. We are actively directly marketing the solution to end customers; the marketing campaign targeted approximately 450 organizations in process and engagement to date has been strong. On May 18, Arqit executed its first Encryption Intelligence contract supporting PQC migration planning. On May 19, Arqit signed its first partnership agreement with a European specialist cybersecurity provider for Arqit's Encryption Intelligence solution. Feedback about the Encryption Intelligence product has been favorable, and the breadth of prospective customer engagement has been highly encouraging. The product delivers high utility for organizations, giving deep network encryption visibility and risk assessment, a critical first step for CISOs and CTOs on their PQC migration journey. Based on the pipeline of sales opportunities, we expect additional contract wins during the balance of the fiscal year. Our software-based encryption solutions led by NetworkSecure product are gaining traction. Sparkle, a Tier 1 Italian network operator, licensed our product to create a quantum-secured network as a service. It is seeing take-up of the offering, most notably with the financial institutions. This is important for several reasons. One, it demonstrates the efficacy of our encryption in a real-world use case securing critical data and communication in transit. Two, it demonstrates the applicability of our cryptographic solutions for the financial services industry, which we believe is a significant market opportunity. And three, take-up of Sparkle's network as a service offering means consumption of its volume-defined license with Arqit. We wish Sparkle much success and would welcome Sparkle's need to upsize its license. We expect that to be the case as Sparkle just yesterday announced the commercial availability of its quantum-safe interconnect, which is secured by Arqit across 20 Equinix International Business Exchange data centers in Europe, the Americas and Asia, where Equinix managed solutions are offered. Sparkle's quantum-safe Internet is now available to enterprises, carriers and hyperscalers seeking quantum-safe protection for their cross-site VPNs, hybrid infrastructure and distributed multi-cloud environments. Sparkle indicated that it expects to expand the offering across the broader Equinix ecosystem. To paraphrase Joe Crawford, VP of Equinix Managed Service, it is an innovative "integration of next-generation security directly into the environment where a dense ecosystem of customers build and scale their digital infrastructure." This is exciting for Sparkle and Arqit. In regards to other telecom network operators, recently Arqit core technology was used to deliver a quantum-secure wide-area network to help protect A&K Travel Group from the future risks presented by quantum computers, including the threat presented by Harvest Now, Decrypt Later. A&K owns a portfolio of premier travel brands, including Abercrombie & Kent, Crystal and Cox & Kings. A&K's brands provide travel adventures in more than 100 countries across the world and rely on secure global networks to keep customers, employees and travel partners connected. Arqit will now keep A&K Travel Group customers and the customers' data and communications protected from the quantum threat. Large telecommunications networks are a significant opportunity for our encryption solutions, and we're engaged in late-stage dialogue and demonstrations with several, including one in the U.S. However, our encryption solutions are broadly applicable beyond Tier 1 telecommunications networks. The lightweight software nature of our product allows deployment across all layers of the network and almost any device regardless of size or power. Our solution is also crypto-agile in that it can be mixed and matched with other cryptographic modalities, including post-quantum algorithms. The flexibility of our software encryption solutions has been manifested in our activities with defense organizations. Implementations range from securing communications on a government's defense research network to a defense contractor securing tactical control of drone platforms for a European Ministry of Defense — from large networks to small devices. It takes time to win contracts in the government and defense space. That said, we are making tangible progress. We believe a renewal and upsizing of our largest U.S. defense-related contract is imminent, further establishing a track record which we can build upon. Also on May 1, a partner which is the leading technology and innovation solution provider to the aerospace and defense industry renewed and upsized its contract with Arqit by almost 90%. Together, we bid into contracted opportunities to military organizations with a heavy emphasis on Europe. Our opportunity set in the government and defense market is the strongest it has ever been. The breadth of demonstration and bid activity is significant. We expect further progress in this key target market and expect to see further results in the second half of the fiscal year. We continue to grow our go-to-market partnerships. During the first half of the fiscal year and more recently, we've added three new partnerships to grow our opportunities in the telecommunications market and just this week signed our first partnership agreement for Arqit's Encryption Intelligence solution. Specifically, we announced a strategic collaboration with SixWind to deliver highly scalable quantum-safe encrypted virtual private network, or VPN, business services. SixWind products enable telecom service providers and enterprises to build and manage efficient, scalable, secure and sustainable networks. Secondly, a strategic collaboration with RAD to deliver a joint quantum-safe encryption solution for telcos enabling them to offer quantum-safe business services such as site-to-site and site-to-cloud VPNs as well as data center interconnect or DCI. RAD is a global leader in networking edge solutions. Further, Arqit was selected to join the Tomory portfolio as a scale-up partner, a joint venture between Vodafone Group and Technoport, Luxembourg's national tech incubator. The Tomory ecosystem brings together innovative young companies and scales their technology solutions across Vodafone's global ecosystem. Arqit is the first quantum security company to join the portfolio. And finally, on May 19 Arqit signed a partnership agreement with a European specialist cybersecurity provider for Arqit Encryption Intelligence products. Our product will be the cornerstone of strategic PQC migration activities within Financial Services. Go-to-market partnerships drive product awareness and are an important source for lead and bid generation — they are a force multiplier in the market. We expect to see revenue opportunities come through these partnerships. From my vantage point, the important factors for success are converging. Those vectors are market need, the right products and customer traction. The need to migrate to a post-quantum cryptographic security posture has significantly increased with rapid advancement in quantum computing, leading industry players are now sounding the alarm. We are no longer the modest voice raising awareness; big industry raisers are in full cry. We have the right products to enable CISOs and CTOs to understand their current cryptographic security posture and upgrade to quantum encryption. We are seeing product take-up in our key markets of telecommunications and government and defense. Circling back to my remarks from our fiscal year 2025 earnings call, the key message was that the momentum was building in the market and for the company in 2025. The first half of fiscal year 2026 has seen the continuation and amplification of momentum. We're excited about the building demand for post-quantum cryptography and we believe in the products and solutions which we offer. With continued focus and hard work, our expectations are up and to the right and momentum should continue. With that, let me turn the call over to Nick Poynton. Thank you, Nick.
Thank you, Andy. For the first half of fiscal year 2026, Arqit generated $623,000 in revenue as compared to $67,000 in revenue for the similar period in fiscal year 2025. The variance between periods resulted from revenue under a contract with a customer in the Middle East that commenced late in the first half of fiscal year 2025 and revenue under 11 contracts in the period versus 6 in the first half of fiscal year 2025. Revenue for the period represents the second consecutive reporting period of growth. With a small data set, it gives credence to Andy's comments when we reported fiscal year 2025 results that our revenue had troughed as of March 2025 and our expectation is for growth going forward. As I noted, we executed under 11 contracts in the period. For comparison, we executed under 7 for fiscal year 2025 and 2 of the 11 contracts have, or are expected to imminently renew and be upsized. Three of our 11 contracts were in the telecom sector and eight were for government, defense and enterprise organizations. Our administrative expenses equate to operating costs for those more familiar with U.S. GAAP. Administrative expenses for the first half of fiscal year 2026 rose from $20.2 million for the six months ended 31 March 2025 to $33.9 million for the six months ended 31 March 2026. The variance between periods resulted from an increase in employee-related costs and share-based compensation stemming from a higher headcount during the period, partially offset by a decrease in property costs as a result of the termination of Arqit's previous office lease arrangements and a decrease in foreign exchange expenses. Administrative expenses for the period includes a $12.7 million non-cash charge associated with share-based compensation versus an $800,000 charge for the comparable period in 2025. Operating loss for the period was $33.7 million versus a loss of $20.0 million for the first half of fiscal year 2025. The variance in operating loss between periods primarily reflects higher revenue more than offset by an increase in administrative expenses for the period. For the period, loss before tax from continuing operations was $33.1 million. For the first half of fiscal year 2025, loss before tax from continuing operations was $19.5 million. The variance between periods is primarily due to increased administrative expenses and lower finance income. As of 31 March, the company had cash and cash equivalents of $28.9 million. However, our cash balance as of 20 May was $35.9 million. In addition, there are in-the-money warrants outstanding with an exercise expiration of September 2026, which we expect will be exercised and provide approximately $13.5 million of additional liquidity to the company. On a personal note, this is my last earnings call with Arqit, as I will be stepping down as CFO at the end of the month. It has been my pleasure working with the Arqit team for the past five years and building the business, which I believe has a bright future. Rob Russell will be stepping into the CFO role. Rob is a seasoned finance executive with deep expertise spanning investment banking, private equity and SaaS scale-ups and more recently served as Chief Financial and Operating Officer at VirtualStock where he played a central role in the company's successful exit in 2025. Rob began full time as CFO on May 1, following two months working part time to ensure continuity ahead of assuming the CFO role. I'm confident that this measured transition leaves the company's financial stewardship in excellent hands. With that, I will hand the call back to Andy.
Thank you, Nick. On behalf of the company and Board, I would like to thank you for your service. You've been instrumental in building the infrastructure which every company needs to operate and succeed. It's largely the behind-the-scenes work which is critical and efficient to creating a successful organization. We wish you well in your future endeavors. Thank you again. And now I'll hand the call back to the operator for Q&A.
Questions and answers
Operator instructions: At this time, we'll open the call for questions.
Congrats on all the momentum. Maybe start off here with one for Andy. I'd just be curious your thoughts on the sense of urgency around quantum and just relating that to the slowness that it seems that we've seen in adoption currently? Any thoughts would be helpful.
Yes. Thanks, Troy, and thanks for joining the call. Appreciate the question. So I think as I mentioned in my opening comments, we are seeing obviously some of the very big players in the market, so notably Google and Cloudflare are all pulling forward their predictions of cryptographically relevant quantities becoming available. Likewise, at the same time, we've seen the estimates of the number of qubits required to break Shor's algorithm come down. Hence, the revision of those timelines coming forward. I think what's really interesting is today — which literally has happened just before our earnings call — we've seen people like the Wall Street Journal and others reporting that the U.S. government is taking an active interest in investment into quantum companies; if we are to believe it, it's in the region of $2 billion. To me, I see that as we are now looking at quantum computing being almost like national infrastructure and the strategic importance of that. At the same time, aligning that with the needs for organizations — be they defense, public sector or commercial — to actually be ready for the arrival of quantum computers, which looks like it's getting closer and closer. I believe now, and you'll see from our Encryption Intelligence tool, we now have the ability to quantify where your weaknesses are, what the threats are and what you need to do urgently to remedy some of that, but also lay out a timeline to move to a fully quantum-secure landscape in an organization. I liken it a little bit to the original build-out of the Internet. You're seeing a lot of the infrastructure providers — so we just talked about people like Equinix, infrastructure providers, telcos which are providing the cabling. The ground-up quantum security of infrastructure is happening. At the same time, defense, regulated industries and also IP-rich industries are also leaning into this thinking that they need to get going. So, as I said in my comments, I really feel like last year was the year of quantum; this is the year of quantum security.
Yes. Interesting. I agree with you on the sense of urgency and it just feels like we need to have an inflection at some point, right, for all these governments and those corporations to get quantum-ready. But what are your thoughts on the milestones that are the catalysts that we need to watch to investors in the near term here?
Can you just repeat the last bit? I missed the very last bit of the question.
Yes. The milestones that we need to kind of watch to really see when this catalyst — this inflection — is going to come in the near term? I mean I'm assuming it's just the technical milestones that continue to happen from the quantum companies. But your thoughts on the next catalyst for you guys?
Yes. I think just to comment on the quantum availability side: I don't believe that there's going to be a single day where somebody says, 'Hey, we've broken Shor's algorithm and existing encryption is broken' — that could be any time in the next two years according to what Cloudflare and Google are talking about or kind of in that time frame. I think for us, it's this recognition. A lot of people thought for a while, 'hey, this is just moving to a new form of encryption and we just kind of move on.' You think about the previous way that we're securing things with certificates. It was built for a different age. It was built for a very different level of compute power, memory, storage, et cetera. And I don't think people quite understand that it's a bigger job, especially with the amount of data that's machine-generated now. That's why we made a point about covering all the way from the core to the edge. You think about how many edge devices there are now, which are producing masses of data. I think for us, when we use Encryption Intelligence to say where do you start and how do you ensure that you are safe on the perimeter working into the core and then how do you plan to migrate the whole organization — that is the important piece. I'm not saying that my local supermarket is worried about being quantum-safe today; they will be eventually, but I think that urgency is definitely in the defense, public sector and infrastructure providers — those are the ones that are feeling it today and feeling the need to get on top of that.
All right. Makes sense. And then one other question — it's probably a multi-point question. Just on finances here. So the warrants that you just talked about, the $30 million raise, what's the share count that's going to come with that? Are there other warrants outstanding? And can you just talk about your cash position and the cash burn possibility here?
Well, let me turn to Nick first to start that question, and I'm sure Rob has some thoughts on that as well.
So I think I'll just hand over the cash part of that answer to Rob while we look at the warrant. Great. Thanks, Nick, thanks for the question, Troy. So as Nick said earlier, we closed the half year with $29 million of cash in the bank. Today, we have in excess of $35 million — that translates to more than 14 months of runway and then add on top of that the $13.5 million worth of warrants, which are heavily in the money, and they expire in September, so before the fiscal year-end. So what does all of that translate to? We feel very comfortable with our cash position. We believe it gives us more than enough cash to meet our commercial objectives, especially in a market that we believe is moving towards us for the reasons that Andy has outlined.
Just real quick — I won't miss the warrants, just jump in. So the warrants expiring in September '24, that equates to 5.4 million shares?
There are other outstanding warrants. I think these are covered in the Form 20-F in some detail. They expire over the next two years. The last one is expiring in September 2028.
Okay. Great. Good looks.
Thanks, Troy.
This concludes the question-and-answer session of today's program. I'd like to hand the program back to Andy Leaver for any further remarks.
Thank you, Jonathan. And again, thank you, everybody, on the call for joining us today. If you're listening on replay, we look forward to speaking with you again following the close of our 2026 fiscal year. Thank you.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.