Arqit Quantum Inc. — FY2022 Form 20-F
Reporting period: Fiscal year ended September 30, 2022. This is an annual filing, not a standalone 2022 fourth-quarter report; quarterly results are not provided in the filing text summarized here. Financial statements are prepared under IFRS in U.S. dollars.
Business context
Arqit develops QuantumCloud, a cybersecurity platform intended to create symmetric encryption keys for connected devices and cloud systems. The company remains early in commercialization and is shifting toward platform-as-a-service sales through channel partners, including Fortinet, Dell, AWS and TraxPay. Its reported customer base included government and commercial organizations; revenue came from five customers, with two each accounting for more than 10% of revenue.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $7.212 million | $0.048 million |
| Other operating income, primarily ESA project income | $12.843 million | $0 |
| Administrative expenses | $72.153 million | $14.559 million |
| Operating loss | $52.098 million | $172.561 million |
| Change in fair value of warrants | $117.394 million gain | $98.090 million loss |
| Net profit/(loss) | $65.075 million | $(271.729) million |
| Operating cash flow | $(26.916) million | $(24.035) million |
| Investing cash flow | $(24.432) million | $(9.305) million |
| Cash and cash equivalents at year-end | $48.966 million | $86.966 million |
- Profit quality: FY2022 net profit was driven by the $117.394 million non-cash warrant remeasurement gain, not operating profitability. The company recorded an operating loss of $52.098 million.
- Margins: The filing text does not provide a clear gross-margin figure. Management said scale could support high margins, but this depends on adoption, order volumes and pricing.
- Balance sheet and liquidity: Total assets were $123.872 million and total liabilities $45.317 million, leaving net assets of $78.555 million. The company reported no borrowings at year-end; liabilities included $7.835 million of lease obligations, $10.644 million of warrant liabilities and trade and other payables.
- Cash use: Cash declined by $28.975 million during FY2022. Financing provided $22.373 million, mainly from warrant exercises. Management stated that year-end cash and forecasts were sufficient to support operations for at least 12 months from the financial-statement signing date, subject to its forecasts and cost controls.
- Development assets: Capitalized development costs were $40.291 million, up from $18.235 million. These assets were not yet being amortized; management reported no impairment at year-end.
Material changes versus FY2021
- Revenue increased by $7.164 million as commercial activity expanded; ESA-related other operating income contributed a further $12.843 million after milestone recognition began.
- Administrative expenses rose by $57.594 million, including $22.915 million of share-based compensation, $13.535 million of foreign-exchange expense, and higher staffing and other operating costs.
- Operating loss narrowed substantially, but comparisons are affected by FY2021’s one-time $155.460 million reverse-acquisition expense and $2.590 million Nasdaq listing expense.
- The warrant fair-value movement swung from a $98.090 million loss in FY2021 to a $117.394 million gain in FY2022, materially changing reported net income without representing operating cash generation.
- Warrant liabilities fell to $10.644 million from $128.038 million, reflecting fair-value changes and warrant exercises. Cash also declined from $86.966 million.
Outlook, risks and unusual items
- Strategy change after year-end: In December 2022, Arqit said it would remove satellites and associated ground infrastructure from QuantumCloud’s core offering, using a terrestrial method to distribute replicated entropy instead. It planned to sell or otherwise monetize the satellite under construction, continue its ESA contract, and stop further satellite construction if no sale agreement is reached. Failure to sell could result in capitalized-cost write-offs or contract breakage fees.
- Commercial outlook: Management plans to emphasize channel partners and recurring platform revenue, while retaining direct sales for some government programs. No clear numerical revenue or earnings guidance is provided. The company expects losses and increased operating cash use until commercialization generates material cash flows.
- Funding: In December 2022, Arqit filed to establish an at-the-market offering program of up to $50 million, subject to effectiveness; it had no obligation to sell shares. Any issuance could dilute existing holders.
- Execution and market risks: Adoption of the product and the pace of channel-partner sales remain unproven. The company depends on a small customer base, third-party data centers and fiber infrastructure, and continued product development. It also cites competition, cybersecurity, intellectual-property, export-control, privacy, staffing and foreign-exchange risks.
- Accounting and controls: Management identified material weaknesses in financial reporting controls involving control documentation, IT general controls and segregation of duties, and insufficient IFRS and SEC-reporting expertise. Remediation was planned for FY2023, but effectiveness was not assured. The auditor issued an unqualified opinion on the financial statements; it did not attest to internal-control effectiveness.
- Legal and regulatory matters: The company disclosed a putative U.S. securities class action filed in May 2022; it said it had not been served and could not estimate a possible loss. Arqit also said it was cooperating with an SEC fact-finding inquiry into the business combination. No related liability was recorded.
- Shareholder returns: Arqit had paid no cash dividends and did not expect to declare dividends in the foreseeable future.
Important facts for investors to verify
- Whether channel-partner agreements and customer pipeline convert into recurring, collected revenue, and how concentrated sales remain.
- Whether operating cash burn, hiring and investment plans are consistent with the company’s liquidity forecasts and stated runway.
- Progress on selling or monetizing the satellite, associated contract commitments, and any resulting write-offs, fees or proceeds.
- The valuation and accounting assumptions behind the warrant liability and the effect of future fair-value changes on reported earnings.
- Recoverability of the $40.291 million capitalized development asset balance as products reach commercial use and amortization begins.
- Whether material control weaknesses are remediated and tested effectively, and developments in the class action and SEC inquiry.
- The timing, effectiveness, potential use and dilution impact of the proposed $50 million ATM program.