01 Quantum Inc. (ONE) Earnings Call Transcript & Summary

Yes, I'm ready.

Okay. Good morning, everybody, and welcome to 01 Communique's Fourth Quarter Fiscal 2020 Conference Call. With me today is Andrew Cheung, our President and CEO. And for those of you who have dialed -- who are listening on your phone, if you're near a computer, you can log on to our website under Investor Relations and click on the Webcast button at www.01com.com and our Investor Relations page. Okay. I can see now Andrew has our presentation up, and I'll turn it over to Andrew in a couple of seconds. Our agenda today will be -- Andrew will give us a presentation on our 2020 results and let you know what's coming for 2021. Now before I turn it over to Andrew, I'd like to bring you to -- your attention to our forward-looking statements, which are included in our press release and are now appearing on the screen. I think Andrew is just going to flip the page here. There we go. And take the second to read this as there are forward-looking statements. And as I say, they are included in the press release as well, which I think has been -- which has been disseminated along with our financial statements and MD&A, which are on SEDAR at www.sedar.com. And now I'll turn it over to Andrew. Andrew, over to you.

Thank you, Brian. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. First of all, this presentation is going to report what we have achieved in Q4 of 2020, wrapping up our fiscal year ending October 31, 2020. The year of 2020 was proven to be a very chaotic year for the world. However, ironically, it has been a good year for our company. Almost all our cylinders are firing up at 01. First of all, our revenue was almost doubled to a little more than $0.5 million from under $300,000 in 2019. This is a result of the trend of remote working during COVID. These additional revenues help funding our IronCAP development. And as a result, our cash investment in the IronCAP business unit or loss in accounting point of view has been reduced to about $0.5 million from $610,000 in 2019. Our cash position has also been increased to a bit more than $1 million from about $600,000 last year. We have also got rid of our debenture with now 0 debt on our balance sheet. The improvement in our financial picture is mirrored by our achievement during this fiscal year. There are many notable achievements. First of all, at the beginning of this year, we were the first post-quantum cybersecurity vendor confident enough to have conducted a month-long hackathon. With over 500 participants sign up and all failed to crack IronCAP. This is a huge public endorsement on the strength of IronCAP. Then COVID hit. We immediately conducted a marketing activity here and another one with Hitachi in Japan to offer our remote access technology for a free 90-day period to help the community. This has paid off handsomely with our remote access users went up by almost 4x. We have also signed up a number of global partnerships, such as CGI in Montreal, PricewaterhouseCooper and Hitachi in Japan for the IronCAP product line. Now during early summer, we have launched a world first quantum-safe end-to-end e-mail encryption product, the IronCAP X product. Now the first release was a single-user personal version for free. A multiuser business version will be released in 2 to 3 months charging $100 per year per user. And last month, a fintech partner in Asia has successfully using IronCAP to create the world first quantum-safe Bitcoin ATM machine. The pilot installation was enacted at the Cyberport in Hong Kong, the Asian financial hub. And now last but not least, we have also expanded our stock listing to the OTCQB market in the U.S. as a platform for U.S. investors. Our business plan is to ride on the success of 2020 into 2021. We expect to continue signing up a number of new partners while conducting joint marketing activities with existing ones. You will see some of those activities happening very soon. And we expect cash requirement to be further reduced as remote access users continue to grow. Now as mentioned earlier, a multiuser business version of IronCAP X is expected to join our fleet in about 2 to 3 months. And obviously, we will also upgrade our remote access product to become the world first quantum-safe remote access offering leader in 2021. We also expect to cross the line of breakeven sometimes in 2022 and kicking into double turbo by 2023. And becoming -- like our aim is to become the de facto solution in the post-quantum cybersecurity market. And the rest of my presentation will basically tell you how we're going to achieve that. I think, first off, I bet everyone today know about quantum computers already, so there's no need to explain what it is. In short, the excessive computing power is going to render modern cybersecurity users. This is uprooting the world because encryption is the bedrock of our everyday life. You think about the online banking, financial transactions, credit card purchase, et cetera, et cetera. And the industry is generally referring to as Q-Day when this happened. Now first of all, Q-Day is a matter of when, not if. Now indeed, Q-Day may have already arrived, and I would explain later why it is like this. And -- but then, don't get me wrong. I want to stress one thing that we are not a quantum computer vendor. Quite the opposite, we are in a unique position to capitalize on this upcoming trend to cover the dark side of it. Our post-quantum cybersecurity journey started about 5 years ago with a new business unit now called IronCAP. And with over $5 million already invested, we are in an excellent position as a disruptive post-quantum cybersecurity SaaS company having a first-to-market advantage with patent-pending enterprise solutions. Now in short, we have created what we believe to be the first-to-market enterprise level cybersecurity software to protect the post-quantum world. And similar to any paradigm-shifting opportunity, we are targeting a massive global total addressable market. The global encryption market is expected by Gartner without even factoring Q-Day into the number is expected to reach $1.7 billion per year by 2024 and is growing at a rate of 18.7%. And having a well-defined go-to-market strategy using global partnerships to drive market penetration cost effectively, we are in a financial inflection point, providing an attractive investment entry point now. And obviously, not to mention, Q-Day is representing a massive potential catalyst for investors. I think as mentioned earlier, our quantum computing is no longer a mystery. Quantum computer can be simply described as an extremely fast computer with millions times the processing speed of a conventional computer and their excessive computing power will render modern cybersecurity useless. And this threat is no longer a future worry because it is already here. Now here is coming to explain why I thought Q-Day might have happened quietly already. Now some people still say quantum computers are years away just like there are still people who believe the earth is flat. After the commercial availability of IBM model Q in early 2019, Google claims quantum supremacy in October the same year. Now shortly after that, Amazon allowed the public to use their quantum computers via the cloud by subscribing to their Braket service. And only several months ago, Honeywell announced their quantum computer saying they doubled the speed of IBM and Google. It's only a few weeks ago, we heard that the University of Science and Technology in China has created their version of photonic-based quantum computer and effectively, they claim to be millions, millions times faster than Google and IBM. Simply put, quantum raises in white-hot. And all of these things that I have quoted, all these fact that I just quoted are only the known fact from the open world, and we have no idea about what quantum computing technology at the national level other than the fact that many countries are also investing billions of dollars into quantum computing research. In other words, like Q-Day, as I said before, may have already happened quietly. And another fact is that hackers can simply seize your data and wait until they got hold of a quantum computer to crack. And therefore, in 2016, the NSA, the U.S. NSA has already asked the agencies and companies to become quantum-safe. I keep saying that fundamentally the difference between being quantum-safe 2 years too early and 2 years too late is everything. Now recognizing this as a potential issue, many companies and governments are preparing for the eventuality. And IronCAP is designed to protect the whole marketplace with all vertical solutions that require encryption. Just name a few like e-mail encryption, VPN remote access, website security, block chain security, password security, financial transaction security, cloud storage, the list just goes on. And this is echoed by Gartner's expectation as I mentioned a little early that the global encryption software market will grow at a rate of 18.7% annual and reaching $1.7 billion per year by 2024. It is important to note that Gartner's expectation is without even factoring Q-Day effect into the numbers. Now I'm going to give you some practical example. Say Visa and Master, they have a total of 2 billion credit cards and each required to upgrade to become quantum-safe. On the other hand, there are more than 170 million, 1-7-0 million, of active website in the world, and each one of them required to become quantum-safe also. And in addition, last but not least, there are 730 million business e-mail account, and they also need to be quantum-safe. So these example do not even include all those block chain, 5G, IoT, security or VPN or cloud storage, things that I just mentioned earlier. So our go-to-market strategy and revenue strategy is plain simple. First of all, we offer IronCAP X., the world -- as I mentioned, the world first quantum-safe e-mail encryption product. In our first release several months ago was a free version for personal usage, one user per account, and a multiuser business version charging $100 per year per user will be released in a few months later this year. And at that, it doesn't take a rocket scientist to figure that we're employing a "freemium penetration model" to proliferate a quite viral growth while making money in the business version. It is simple, like plain. As indicated before, this is, by itself, a market of $7.3 billion per year that we are tapping into. More vertical solutions are in the pipeline, such as quantum-safe remote access, quantum-safe void, et cetera, et cetera. And beside our vertical solutions, the biggest side of the pie is the revenue potential in offering the IronCAP engine for other vendors to upgrade their product to become quantum-safe. So as you can imagine, beside our freemium penetration model, we have a well-defined partnership program. And let me tell you today that we have already achieved some real solid success. Over the last year, during 2020, we have signed up partnerships agreement, both large and small companies are like, say, CGI in Canada, they signed up; Hitachi in Japan, they signed up; and the PricewaterhouseCooper in Asia, they signed up; and other smaller ones like ixFintech Limited, Mirada, Privacy Horizon, the list just goes on. For example, with respect to CGI and PricewaterhouseCooper, they are offering -- we became the offer of choice for their post-quantum cybersecurities strategy, and we will be working closely with them to market IronCAP to their clients looking to be quantum-safe anytime from now and into the future. I think I have briefly mentioned about the Bitcoin ATM machine. ixFintech is another interesting example. They have created the world first quantum -- safe Bitcoin ATM machine by using IronCAP. They signed up with us almost a year ago, and they spent the last 12 month creating these things and now the pilot project has started. They are just getting starting rolling out in Asia. We plan to sign up more partnerships in 2021. And there's no need to explain why, because like partnership is extremely important because we have to admit that we are a small company, that large financial institution or the government are unlikely to deal with us but they will deal with the like of CGI, PricewaterhouseCooper, Hitachi, et cetera, et cetera. So our plan is to share a percentage of the revenue in the joint activities. We're kind of like -- I keep saying that we're kind of Gretzky skating to meet the puck. We anticipate that Q-Day can come any day between now and the next 6 months, 12 months, 18 months. And our goal is very simple. Our plan is to be ready with our partners when everyone is desperately looking for quantum-safe solution, meet the puck. So I think as a summary, we are at a tipping point where Q-Day is at least arriving, if not already here. And IronCAP is a solution to this soon-arriving quantum threat. Our strategy, our technology is patent-pending and its already proven by a public hackathon and ready to roll out with many global partners. We're well funded and expected a revenue -- a massive revenue growth between 2021 and 2025. And remember, if Q-Day happened earlier, then watch out as we believe all our effort will be instantly recognized. I want it to be the de facto solution for quantum-safe cybersecurity industry. So I think I will take a pause here and ready to answer some questions. So thank you for attending today's presentation. If you have any questions to pose, Brian will be the Q&A moderator. [Operator Instructions] So over to you, Brian.

Thank you, Andrew. And as Andrew said, if you have any questions, and I do have some -- this is being Zoom. Everybody knows how to use it these days. So I've had some rolling in. So let's get started. [Operator Instructions]

The first one, Andrew, comes from Kelly. And Kelly is asking about revenue. And she noticed that revenues were down in Q4 from Q3, yet our remote access service in Japan is picking up. And she's asked, how do you explain this?

Well, Kelly, you have a very good question. Actually, our revenue recognition is that there 2 types of revenue. One type is the recurring revenue. Because SaaS revenue, Software-as-a-Service, monthly recurring. And the other type are onetime customers such as they purchased a professional license rather than monthly payment. So if you have a quarter that reported some onetime -- some more onetime revenue than that quarter would be higher on top of the monthly recurring revenue. So yes, last quarter, we recorded more onetime revenue than this quarter. So having said that, we won't be surprised to see, for example, next quarter, we will spike again if we recorded more onetime type of revenue. And I think I would add one thing. And yes, the number of monthly recurring revenue users has been quadruple from last year.

I think just to clarify that, we expect our SaaS revenue, recurring revenue to continue growing because once they're signed up, they continue. The next question, it comes from Connor. And Connor's asking, how are things progressing with CGI and PwC, the new partnerships we've added over the past little while?

Yes. I think I have briefly mentioned a little bit earlier that one of the goal this year was to ride the success in 2020. So in addition to signing up more partner this year, I think even more important is that we would -- we're beginning to have joint marketing activities with our current partners. So you will see some of these things happen very, very soon. That's the goal. It's to begin conducting a lot of the joint marketing actives.

Okay. I have another one here rolling in from John Harwood. And John's asking, Andrew, now that you've been on the U.S. market on the OTCQB for 3 months, how do you feel about it? Is it generating the interest you expected? And can you talk a bit more about how things are progressing in the U.S.?

Yes, absolutely. We have nothing to say other than we're happy with the decision, having our stock listing on the OTCQB as an inroad into the U.S. market for a platform for U.S. investors. It was actually -- we -- if we were to roll back a clock, asking to do anything different, we will do it earlier. We should have done that earlier. And almost at the same time, after the stock being listed there, we have trading from them -- from the OTCQB market already. So it's almost instant recognition. And yes, I have nothing but good word and happy about it.

Okay. Here's one from George, a long-time shareholder from Ottawa. And George is asking, can you add a bit more color around the financials going forward?

Yes. Absolutely, George. So as I also mentioned before and I would add a little bit more, this year, we have dramatically improved our balance sheet, our financial position. So now at this point, we have more than $1 million in the bank with 0 debt. And the -- that's the cash position. And then the cash requirement, I kept saying that the investment into the IronCAP business unit or in accounting point of view, loss for the year is reducing. We have -- last year, we used a little bit more than $600,000, and this year we used about $0.5 million, and we expect the cash requirement to further reduce next year and then crossing into the breakeven position sometimes in 2022. And then our expectation of Q-Day is that it could happen any day between now and the next 6, 12, 18 months. So there will be some, we call, early adopters trying to convert themselves into becoming quantum-safe. Some do it earlier, some do it later. So we expect some revenue to be happening in 2022 or maybe even as early as later this year. And then the double -- I call double turbo will be kicking in, just like any kind of paradigm-shifting massive global market opportunity. Once we kick into that with some people call that the hockey stick, it's happening in 2023. So our position -- our cash position today, in short, is enough for us to carry on our business plan to fulfill our business plan. So we are very happy with where we are positioned today.

Okay. I have one here, an anonymous. So I don't know who's asking it, but I think it's -- Hitachi seems to be doing well with the remote access product. Do you think they will move forward with IronCAP?

Well, actually, this is hitting the nail at its head. Another -- I have to be very careful without saying anything non-public. Yes, it is already public information that they are doing well with DoMobile. And actually, DoMobile and IronCAP is not like 2 absolutely separate entities. And you probably remember what I'm saying, it's like basically, I'm in Touch/DoMobile is an extension of the IronCAP or IronCAP is an extension for them because one of the huge vertical market is remote access market, which is currently not quantum-safe. So the very mixed things that we are doing with Hitachi is to convert the product to become quantum-safe so that we are the world first quantum-safe remote access product, and the most important or I would say lucrative factor in that is that we already have some tens of thousands of users over there. So compared to our competitors, we are the only one who already have a huge installation base that we can push into it with huge practical use case for the IronCAP remote access. So we're going to, in other words, answer you the question in the short way. We are integrating IronCAP into our remote access product to build an instant use case in that sector.

Thank you. And our last question, again, anonymous question, is -- and I'll answer this one as it's strictly a financial one. Can you please explain the trend in receivables? I noticed they are double the prior year. What does it say about the revenue trends going into the next quarter?

We...

Well, I'll answer that one. Andrew, if you want me to, just on the receivables. They've already been collected. It's just the way the billing works with our partners. We bill once a quarter. So if it's outstanding over the quarter, it's outstanding. But it's paid shortly thereafter.

Yes, thank you, Brian.

And Andrew, if you'd like to take the part about what it can talk about for next quarter, which I think you've covered.

I think Brian has answered like the crux of it. I like the fact that when an accountant saying that the money has been collected, I would agree to this. So anyhow, my take on that is we believe -- I think I mentioned a little bit earlier, too, I think the trend is going to continue. The remote working trend is going to continue. And so revenue would continue at least in the same pace and going up. And that helps a lot in paying off and self-funding our IronCAP venture. So you can imagine that it's almost like they are 2 sibling. One is the hard-working big brother helping -- doing all the face lifting -- doing the weightlifting and helping the other young sibling to become the star. That's exactly how it happened between our current product and IronCAP rising star.

There are no more questions. So I'll now turn it back to Andrew.

Yes. So yes, if there's no more question, I think, I will just take a pause here, and I am, again, very happy with this fiscal year, and I expect to ride the wave of this year's success into 2021 and then preparing for embracing Q-Day to come sometime between now and the next 6, 12, 18 months. Again, if Q-Days somehow came earlier, everything will be instantly recognized, and we are well prepared for it. All the infrastructure is ready, and we are welcoming Q-Day with our arms open. Thank you very much.

Thank you, everybody. And that concludes our presentation.