Business context and reporting period
Arqit Quantum Inc. filed an audited annual report on Form 20-F for the fiscal year ended September 30, 2023. This is a full-year filing, not a standalone 2023 Q4 report. The Cayman Islands-incorporated company develops and commercializes QuantumCloud, a cybersecurity platform for creating symmetric encryption keys. Financial statements are prepared under IFRS in U.S. dollars.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $0.640 million | $7.212 million |
| Operating loss | $84.444 million | $63.765 million |
| Loss/profit before tax | $(74.049) million | $53.408 million |
| Net loss/profit | $(70.393) million | $65.075 million |
| Operating cash flow | $(32.825) million | $(26.719) million |
| Investing cash flow | $(16.082) million | $(24.432) million |
| Financing cash flow | $44.853 million | $22.176 million |
| Cash and cash equivalents at year-end | $44.455 million | $48.966 million |
- Revenue fell 91%, which management attributed to the time needed to generate sales through channel partners after shifting away from a primarily enterprise-license model.
- FY2023 included a $12.335 million impairment of receivables and contract assets related to Virgin Orbit’s bankruptcy, and a $17.601 million impairment of satellite assets.
- Gross margin is not clearly provided in the filing. Management expects favorable unit economics at scale, but says margins depend on adoption, order volumes and pricing.
- At September 30, 2023, total assets were $99.785 million and total liabilities were $33.132 million. Current assets were $86.349 million, including $38.677 million of assets held for sale; current liabilities were $26.818 million.
- The company reported no bank borrowings at year-end. Lease liabilities totaled $8.402 million; trade and other payables totaled $18.831 million. The separate warrant liability was $6,000.
- Basic loss per share was $0.5354 for FY2023, versus earnings per share of $0.5371 in FY2022. FY2022 earnings included a $117.394 million non-cash gain from changes in warrant fair value; FY2023 recorded a $10.638 million gain.
Material changes versus the prior year
- Revenue contracted sharply as the channel-partner sales model was being established.
- Administrative expenses decreased 22% to $55.201 million, partly reflecting lower share-based compensation and a foreign-exchange benefit, but the reduction was more than offset by the new impairments and lower revenue.
- Satellite assets were moved to held-for-sale classification after Arqit removed satellites from the core QuantumCloud offering. The company recognized the impairment and is pursuing a sale or other monetization; no transaction was assured.
- Cash declined by $4.511 million year over year. Financing inflows included proceeds from the ATM program and registered direct offerings.
- Shares outstanding increased to 163,554,269 at year-end. The 2023 offerings issued shares and substantial numbers of warrants, creating potential dilution.
Outlook, commentary and risks
- Management stated that year-end cash was expected to fund operations for at least the next 12 months from the filing date, while also warning that additional capital would be needed to continue developing and commercializing the business. The filing provides no specific revenue, earnings or cash-flow guidance.
- Arqit is prioritizing platform-as-a-service sales, standardized products and channel partners. The company remains early in commercialization, and partner relationships may take longer than expected to produce material recurring revenue.
- Key risks include continued losses and cash burn, uncertain product adoption, dependence on channel partners and third-party cloud and fiber infrastructure, cybersecurity and product reliability, competition, and the need for further capital.
- The satellite sale process carries uncertainty; failure to monetize the assets could result in further impairment, write-offs or contract breakage fees. The filing identifies satellite classification and recoverability as a critical audit matter.
- On October 19, 2023, Nasdaq notified Arqit that its share price had been below the $1 minimum bid requirement for 30 consecutive business days. The company faced a compliance period and potential delisting if it did not regain compliance.
- Arqit disclosed putative securities class actions in federal and New York state courts and said it could not estimate any possible loss. It was also cooperating with an SEC fact-finding inquiry relating to the business combination.
- Management reported that material weaknesses in internal controls identified for FY2022 were remediated by September 30, 2023; management concluded disclosure controls were effective. The auditor did not attest to internal-control effectiveness because Arqit qualified as an emerging growth company.
- The auditor issued an unmodified opinion on the IFRS financial statements. The filing says no dividend is anticipated in the foreseeable future.
Important facts for investors to verify
- Subsequent filings and results for actual QuantumCloud sales, recurring revenue, customer renewals and conversion of channel partnerships into cash receipts.
- Cash runway, operating cash burn and the timing and terms of any additional financing, including potential dilution from outstanding warrants and equity awards.
- Progress and realizable proceeds from the satellite-division disposal, including any further impairment or construction-contract costs.
- Resolution and potential financial exposure from the securities litigation and SEC inquiry.
- Nasdaq minimum-bid compliance status and any subsequent listing actions.
- Whether internal-control remediation remains effective and whether future reporting includes any new control deficiencies.