Okay, so Welcome To The Sidoti Virtual Microcap Conference. Thank you for joining us today. I'm Anja Soderstrom, Senior Equity Analyst here at Sidoti. As I mentioned, next up we have Arqit Quantum. I have Tracy Mehr, the Chief Financial Strategy Officer, with me. This will be conducted as a presentation by Tracy, and that will be followed by Q&A. If you would like to submit a question, you can do so in the Q&A function at the bottom of your screen. With that, I'm happy to hand it over to you, Tracy. Welcome.
Thank you, Anja. Welcome to the Arqit presentation. On your screen, we have our traditional Safe Harbor Statement. If you would like to read it at length, you can find it in our 20F, which is filed with the SEC and was filed in December of 2024. Stepping back, our mission is to keep safe the data and communication of governments, enterprises, and individuals. How do we do that? We do that utilizing our unique patented encryption software. It protects against threats today, but increasingly important against threats that will emerge in the quantum era. When I say quantum era, what I am talking about is quantum computers. What are quantum computers? Quantum computers use the principles of quantum mechanics to process information, unlike today's classical computers. The unique element of quantum computers is that their computing power is exponentially faster than today's classical computers.
As a result of that increased speed and power, quantum computers are going to be able to address critical issues in drug discovery, material design, financial modeling, and optimizing logistics, amongst other problems that it can help solve. Unfortunately, a byproduct of the strength of quantum computers is that it presents a risk to today's encryption, which is securing data and communication. When I say encryption, I mean, for instance, RSA, which is the leading encryption in use today, which many people may be familiar with. The quantum computer, I'm sorry, the quantum future is being celebrated. The UN has designated 2025 as the International Year of Quantum Tech and Science. That is celebrating the 100-year anniversary of the discovery of quantum mechanics. It is also celebrating the benefits that are believed to be derived from quantum computers as we move forward. Last year, by the way, was the year of AI.
When will quantum computers arrive? That is a fundamental question, and very intelligent minds can disagree as to the timing. As noted, the CEO of NVIDIA famously came out and said he thought they were 20 years out, and Bill Gates countered with three to five years out. We think it's more important to look at developments in the marketplace to benchmark when the arrival of quantum computing may occur. Just yesterday, IBM announced that it expects to complete its Starling quantum computer, which is notable in that it's a fault-tolerant commercial-scale quantum computer, and they expect to complete that by 2029.
That follows on a lot of other news in the marketplace regarding developments in the quantum space by the likes of Amazon, Google, Microsoft, in the development of their respective quantum computing chips, but also developments by more upstart quantum computing companies such as Rigetti, D-Wave, or IonQ. Taken in totality, if past is prologue, developments in the tech space tend to occur faster than the pundits expect. We think that will be the case with quantum computers as well. What is the threat today of a quantum computer that may not arrive for a period of time? For this schematic, I have assumed arrival based upon IBM statements of 2029. If you have data or communication that is not quantum-resistant encrypted today, and that data is stolen, that data is at risk of being decrypted upon the arrival of a quantum computer.
If that information is stolen or harvested today, and it's not quantum-resistant, it can be decrypted tomorrow when that quantum computer arrives. However, if your data today is quantum-resistant encrypted upon the arrival of a quantum computer, you are still safe. There is an imperative for governments and enterprises to adopt quantum-resistant encryption today to protect against exposure of any information that has a shelf life in the future when a quantum computer arrives. This imperative is recognized by the U.S. government. Going back several years, National Security Memorandum 10 noted the imperative of agencies to migrate to quantum-safe cryptography. The NSA is also on board with the need to enhance today's encryption solutions. Before departing the White House, the Biden administration issued an executive order, again stressing the need to upgrade encryption.
Even on the 6th of June, the Trump administration, while abrogating much of the Biden presidential executive order, still reinforced the need for an upgrade in quantum-resistant encryption. Actually, the Biden order was beneficial to Arqit in that it did not hold government agencies to using post-quantum algorithms. It basically stated that agencies need to use certified quantum-resistant cryptography solutions, and we certainly fall under that. Encryption today uses what's called public key cryptography. It's a technology that's 40-plus years old. At the heart of public key cryptography is mathematics. The factorization of large prime numbers is used to secure a channel between endpoints. I always point to the little padlock on the bottom of the page.
When you go shopping on Amazon and you see in your browser the little padlock, that represents to you that it's a secure connection between you and Amazon or you and your bank. Unfortunately, that connection is predicated on mathematics. A quantum computer is essentially a doomsday math machine. A quantum computer can reverse engineer the factorization that's at the heart of today's public key cryptography. Some people are proposing solutions that enhance the mathematics associated with public key cryptography. The limitations there are, as I stated, a quantum computer is a doomsday math machine. You might make the math a little harder for it, but inevitably, it's going to break it. Also, enhancing the mathematics of public key cryptography has two derivative problems. One is that it creates latency in communication, which network operators don't like.
Number two, it adds computational burden to endpoints because the math is heavy, and so it requires more processing power. Quantum-safe encryption, specifically symmetric key agreement cryptography, is the type of encryption that is used today by leading governments, military organizations, and corporations. It is what's called a zero-trust architecture. The essence of it utilizes identical long random numbers. Those long random numbers, identical at endpoints, allow two endpoints to create a secure link. There is nothing for a quantum computer to reverse engineer since it is not based on mathematics. Essentially, a quantum computer would need to use brute force guessing of all the possible combinations of a 256-bit number to be able to derive the long random number used within an algorithm to create that secure channel.
Even a quantum computer will exhaust itself, essentially, trying to reverse engineer or guess, I should say, that 256-bit number. The limitation on symmetric key cryptography has been the distribution of those identical long random numbers to endpoints. Effectively, what they do today is a courier with a thumb drive, to be simplistic, flies to New York, injects a bucket of long random numbers into a server, then flies to that entity's London location, injects the same bucket of long random numbers into that server, and then those two servers in New York and London can create a secure channel because only they know those identical long random numbers. Very secure, but not a scalable business model. What Arqit has done is we have solved the limitations of the distribution with our unique architecture, and it is a heavily patented architecture.
In essence, and I'm not going to give an exhaustive tutorial on the tech because, frankly, it's well beyond my intellectual capacity. I would have to defer to my PhD colleagues. Essentially, an endpoint that wants to utilize Arqit's symmetric key agreement cryptography is provisioned initially with what's called a bootstrap key. When two endpoints want to create a secure channel, each endpoint takes its authentication information, goes out to Arqit's Symmetric Key Agreement Platform, which is cloud-based, and that authentication information is ratcheted, which means essentially transformed. The transformed authentication information is returned to each endpoint. A process occurs between those two endpoints. It's essentially a process of discovery between the two endpoints for them to determine that the ratcheted, transformed information that they received is identical.
They never tell each other what the ratcheted or transformed information is, but a series of questioning goes on between each endpoint until they understand that they have identical transformed information. At which point in time they can then use that information to create a secure channel between each entity. The key takeaway points here are: one, there's no mathematics involved in any of this, so there's nothing for a quantum computer to reverse engineer. Two, there's no distribution of keys in this process, so a malactor cannot interdict at any link in the chain and get a key, which they can then use to break the quantum-safe connection. Because there is no distribution of keys, it's really a process of discovery between endpoints to understand that they have identical information, and then they use that information to create that secure connection. Arqit hits the sweet spot for encryption.
In the top right, I talked about public key cryptography, math-based, can be broken, and will be broken with the arrival of a quantum computer. I also mentioned in the top left, PQAs, which is nothing more than public key cryptography with more onerous mathematics. Again, math can be reverse engineered, plus it's computationally heavy, plus it creates latency. There is another potential solution called quantum key distribution, which is a very secure solution, but it's a solution that is limited by geography. Quantum key distribution starts to break down beyond, let's for the sake of argument, say 300 or 400 kilometers. It is a good solution for point-to-point, let's say, between New York and Jersey City in New Jersey, but it's not a good solution for New York to London.
Arqit, being symmetric key cryptography, which cannot be reverse engineered, plus it's globally distributable, allowing endpoints anywhere in the world to create quantum-safe channels between those endpoints, it really hits that sweet spot. Use cases. Essentially, our solution can be used in any situation where data needs to be secured, whether in process, or that data needs to be secured in transit, or that data needs to be secured at rest. There are subsets under each of those use cases, and we are addressing many of those within the limitations of, you know, within our financial limitations, personnel limitations, as we are still a young, small company. Market focus, again, there are countless market opportunities, but we have narrowed our focus to defense and government and also enterprise, specifically, and most importantly, telecom network operators, critical infrastructure, and financial institutions.
We are at different stages of penetration of all of those markets, but ultimately, those are our key focus at this stage of the game. We started our journey as a company thinking we would sell directly to governments and enterprises, but quickly realized that that was going to be a challenge for us, given our scale, given the length of sales cycles, etc. We pivoted to going to market with and through leading tech and network companies. We simplified it, believing that it's easier for end users to consume our product through product and applications that they're already consuming. That was the strategy we pivoted to almost a couple of years ago now.
We are taking that approach with leading partners such as those you see on the page, in addition to others that we really have, you know, not an ability to announce at this stage. To give you an example that kind of brings together what we do and where we are, we announced a contract with a global tier-one telecom operator to provide the quantum-safe element to a network as a service. What does that all mean? It was a collaboration that brought together the fiber network of TI Sparkle, which is a global network operator. They wanted to be able to offer to their customers a quantum-safe connection. Partnering with us and Intel, Intel provides the server architecture utilizing its NetSec accelerator card. On that accelerator card is Arqit's symmetric key agreement cryptography.
Essentially, it allows, again, Sparkle's customers to sign up for a quantum-safe fiber connection. All you have to do is read any news articles these days about the concern about undersea fiber connections, whether they're being broken, but from our perspective, importantly, being tapped. A quantum-safe connection combats the tapping of fiber networks. This kind of shows our partnership with leading IT and tech and network operators, bringing together all those elements in a solution that can be sold to end customers. It also shows the business model. This is, for us, a business-to-business-to-business business model. We essentially, a vendor purchases a license from us for our software to be used by a defined number of endpoints and essentially a defined number of encrypted connections. They, in turn, sell a turnkey solution to their end customers.
As take-up from their end customers increases, the need to increase the vendor's license with Arqit goes up as well. As demand grows for the vendor's solution, so grows the need to increase our contract, our license with the vendor. Really, we are locked at the hip, our incentives are aligned, and we will grow as they grow. I did mention that one of the areas that we are focused on is data and process. This is a security issue that is going to be underappreciated by all but those individuals who are deeply embedded in the tech world. The issue is if you have data flows within different environments, cloud environment, within a data center, those data flows can be exposed to the data center operator or to the cloud provider.
What organizations, be it government and enterprise, want to do is secure those data flows so they're not exposed to the infrastructure operator, be it data center or cloud. Arqit and Intel collaborated to create the first symmetric key encrypted confidential computing solution. What that does is it allows governments and enterprises to secure their data flows within these environments. Also, you can couple that with Arqit's ability to secure data flows between environments, between a data center and a cloud, or between clouds. This is a significant area of security focus, and it's also one that represents a significant market opportunity. We are collaborating with Intel on how best to monetize this opportunity, and it's something that we hope to have more information about within the calendar year.
I did note that we are young from a revenue perspective, but we are starting to see some broadening of growth, both geographically and within the targeted vertical markets. We now have contracts in place and operational in the United states, Canada, Middle East, and the U.K. We also are seeing contract success across telecom networks, IT services, U.S. defense, European defense, and government. We focused our vertical market opportunities, and we are starting to realize on the ones that we have prioritized. We are very pleased to see that progress. What should you expect for 2025? I think the key thing is we have announced, you know, several multi-year contracts. The key is to maximize those opportunities.
We need to align our resources and the resources of the vendor through whom we have gone to market to implement and deploy those solutions to drive uptake for that solution with the vendors and customers. As uptake increases for that vendor's solution, so does the need to increase the license with Arqit. We are very focused on maximizing the opportunity within those announced contracts. We also need to take the lessons learned from those contracts, meaning from the initial engagement with that vendor through to the contract signing and then implementation of the solution in the marketplace. We need to take those best practices and apply those to the subsequent opportunities we have in our pipeline. That way, we can speed successive opportunities to market. The other thing you can see us focused on is new logos. That is critical to driving revenue for us.
We have indicated we're engaged with 10-plus major telecom operators, and we will use the blueprint from that tier-one telecom contract to drive the journey for each of those 10 operators. All of the 10 are global brand name operators, and we are in various states of engagement with those operators. With some, it's the initial test and integration activity, which is the beginning of a journey between Arqit and that prospective customer. We have others that are post-initial test and integration activity, and we're in a request for indicative terms state, so further down the journey. Lastly, we even have, you know, opportunities where we're, you know, significant opportunities where we're in final round request for proposal. While it is 10 engagements, they are in various stages of development from early to very late stage prior to contract.
It is a pipeline that is increasing, and we're very excited about. The other thing we would expect to see is U.S. and European defense opportunities come to fruition. We had previously announced a DOD, our first DOD contract on a program, a funded program of record. That contract was through our distribution partner, Carasoft. It is with a major IT vendor. We have PR for that in process. PR has been agreed between ourselves and Carasoft. We are awaiting consent from this major IT vendor to release that PR. As you can imagine, with a major IT vendor, you know, our contract is probably not the biggest thing on their plate, and being a big organization, it'll take some time for that PR to move through their process. We remain hopeful that that would get out in short order.
We also have eight systems integrators who are engaged with and/or are bidding our solution into contract opportunities. That is very exciting for us. These systems integrators range from highly specialized to global scale system integrators, all serving the defense and national security market. We are very excited about the progress that we are making there. Also, a key market focus for us is, as I noted earlier, one of them is financial institutions. We were looking to convert our first contract in that marketplace. We do have one activity going in partnership with a telecom operator for an identified financial institution trialing a solution that the financial institution is interested in. That is an opportunity or area where we hope to see some conversion and also be able to provide the investor community with more information as it comes to fruition.
Finally, as I mentioned, we want to put in place a data and process, meaning confidential compute strategy with our partner Intel and monetize that. The hope is to be able to announce a go-to-market for that solution so that the path to monetization is clear to the investor community. With that, I will pause as this is an overview, and then I will take a look at what questions there may be.
There are several questions, but we're kind of out of time. I just wanted to sort of briefly touch on your, when do you see sort of revenue start ramping for you? Can you also touch on what your balance sheet and cash burn and maybe your frequency needs?
Sure. Just, yeah, quickly. In terms of revenue, as we noted, the first half was exceedingly light on revenue. Let's be frank.
Part of the problem was the multi-year contract in AMEA, which we had previously announced, that got delayed due to issues on the part of the end customer. That commenced revenue generation right before the end of the first half. Therefore, you will see revenue from that contract in the second half. You also should expect to see revenue in the second half from our global tier-one operator. Those will be the beginning of the ramp. Given the pipeline that I see, we hopefully will continue to see a steady build of contracts upon contracts. That is how the ARR model works. If we can upsize existing contracts and bring in new logos, we should continue to see that build. Quickly to your question, we did say to the market we have approximately $24 million in cash at the end of the first half.
Our burn is $2.24 to $2.5 million per month. Suffice it to say, we are comfortable with our cash position. Obviously, we're further into the second half of the year, but I will reiterate, we remain comfortable with our cash position and are not currently looking for capital. Let me touch really quickly. There are a couple of questions here. Someone did ask, would we be reporting on a quarterly basis? We do intend to do that at a point in the future. I think it probably will not be this fiscal year, but I think it may be something that you see going into fiscal year 2026. I did mention one of the questions was signpost for the next year or two. I gave some indication of that. Someone asked about the DOD situation. I gave a little bit of color there. I touched briefly on the pay-as-we-grow model.
Primary bottlenecks, broader adoption of this. You know, that's a great question. I mean, you have to remember that anytime you're asking someone to adopt new technology, it's not a decision that's taken lightly. If you apply that to your personal life, you know, if a fiber company comes in and says, "Hey, let's replace your cable broadband," it seems like an easy decision. Then when you get down to considering it, there are many elements that need to be factored in. It is a longer decision process than, frankly, we appreciated when we started this journey. We are starting to see increased inquiry, number one. Number two, a little bit of a sense of urgency on the part of some of our target markets to have a plan and be implementing a plan to be quantum safe.
We're excited about the momentum that we see there. Obviously, we'd like it to be faster, and we'd certainly wish there was a hard stop date like Y2K to drive people to adoption. We are seeing increased need and awareness, so we're positive on that. Let me just quickly look. You touched on the cash burn. Someone mentioned the need for data center. Do we see data centers? What is the need and opportunity there? I mean, there's two needs. One, there's a need for the data center operator itself. That definitely is an opportunity for us. Obviously, though, we can't shoot at all opportunities given our scale and our financial wherewithal. There's also, as we've talked about, the need within the data center. That's what the confidential compute solution addresses, is protecting end users' data flows within a data center. It's two-tiered.
They're both opportunities. Unfortunately, we can't focus on all of them. I think I just did some speed dating through a bunch of those questions that were posted by attendees.
Yeah, that was good. We covered those as well. To the extent you have more questions, I'm sure the management team will make themselves available for you if you want to schedule a one-on-one and have a follow-up with Tracy. You can reach out to us at Sidoti or the company directly. I want to hand it over to you, Tracy, for some closing remarks before we close it down.
I just want to say I really appreciate all those who attended. We think that Arqit obviously has a very unique solution, and we have conviction that the need for our solution is increasing.
All you have to do is stay abreast of the news. As I like to say, we think we're standing on the right street corner, and we can see the parade coming down the street. We are pretty pleased. Be patient with us. We will continue to strive to drive revenue and increase shareholder value. We are available for follow-up conversations as we want to try and be as transparent and open with the market as we can be.
Okay. Great. Thank you. Thank you, everyone who participated. Have a good rest of your day.
Thank you.