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

This meeting is being recorded.

Okay. Andrew, I think we can get started. Well, good morning, and welcome to 01's presentation on our fourth quarter results and a business update. I'm Brian Stringer. I'm the Chief Financial Officer for 01 Communique. And with me is Andrew Cheung, our President and Chief Executive Officer. Before we get started, I'll just draw your attention to our forward-looking statements. If you would just take a quick look through these as they form an integral part of the presentation. Now before I turn it over to Andrew, I think we're -- just explain the agenda for today. Andrew will give you a presentation on where we've been and where we're going. Hopefully, that explains why we believe 2023 is going to be the catalyst year and for what we've been doing in 2022 and prior. Now as a matter of housekeeping, if you have a question, you'd like to table at the end of the presentation because we will have time for Q&A. Please -- at the bottom of the screen, you can see where -- and I think we've all used Zoom for quite some time now just click on the Q&A, and I'll gather them and present them to Andrew at the end of his presentation. Now I'll turn it over to Andrew. Andrew, over to you.

Thank you, Brian. Welcome, everyone. Again, my name is Andrew Cheung, President and CEO of 01 Communique. Now welcome to our 2022 Fourth Quarter Financial Results and Corporate Update. When we met in September during our third quarter announcement, I have made a comment that quantum computing development is moving faster than light speed. It turns out that was an understatement. I also said quantum threats are clearly written on the wall and the question is, can you see them? Now only 2 months later in November, IBM has fulfilled their promise delivering 433 qubit quantum computer called Osprey. Now what does it mean? It means that quantum development is predictable. Now just to reiterate IBM's public announcement of a road map, they plan to release 1,100 qubits and 1,400 qubits in 2023 and 2024, respectively. And they also plan to follow by 4,000 qubits in 2025 and 100,000 qubits by 2026. Now please don't forget, this is just IBM [ always us ]. And their competitors like Google, Amazon, Honeywell, D-Wave, et cetera, et cetera are all striving to beat IBM. And after all, these are just announcements, commercial level and the national level is usually 5 to 10 years ahead. So logically, they are already having what we have -- we will get in 2026, at least 2 years ago. In 2021, it was publicly known that the FBI managed to crack the bitcoin wallets of the Colonial Pipeline hackers within 2 weeks. Of course, they would never tell you how they did it. And earlier this month, only about 2 weeks ago, a group of Chinese crypto scientists have published a paper claiming the possibility of cracking RSA 2K with just 372 qubits. Now while this is still waiting to be proven, it is alarming. And this kind of advancement can only be accelerated worldwide. Now at this point, let's assume temporary that this January 4 paper is a hoax. So let's focus on the general belief. With the exception of those who prefer to bury their heads in the sand, cybersecurity experts in the last few years have generally arrived in a conclusion that 1,000 qubit quantum computer can crack RSA 2K in a reasonable time. Now currently, the brute force cracking using classical supercomputer requires over 150 years to accomplish the task. The cracking doesn't have to be within a few seconds to pose a security threat because the damage is already there, good enough if the cracking can happen within a few days, even a few months. It is just unthinkable what would happen when we have 100,000 qubit in 2026. So in other words, if IBM's road map is correct, 2023 will be the year when we cross the line of Q-Day. If this is still not clear enough, please take a look at the announcement from various other government agencies. First of all NIST, the National Institute of Standards and Technology. They originally expected to announce their post-quantum cryptography recommendation in 2024. But all of a sudden, 6 months ago in July last year, they rushed out a few recommendation and said they will continue to add more in 2024. This is a clear indicator that NIST sees some kind of urgency and needs to make some kind of an announcement to the world so that you will not be standing naked against the quantum threat tsunami. In addition to NIST, the U.S. National Security member in the NSM 10 announced in May 2022 -- gave a clear deadline, clear deadline of October 18, 2023. I don't know how they put up that specific date [ as ] October 18 of 2023 for federal agencies to assess funding requirement to achieve quantum safety. Now last but not least, around the same time in June of last year, the Bank of International Settlement, the BIS has announced their intention to assess use cases in quantum safety. So these are just the more outstanding notable government agency announcement. Now IronCAP is formed to capitalize on this massive post-quantum cryptography market. And the strategy of IronCAP has been reiterated year-over-year. So instead of waiting for NIST recommendation, we jumped the gun using our deep knowledge in post-quantum cryptography to predict the final winners out of the 82 initial NIST candidates. This means if we were correct, our global partners such as CGI, Thales, PwC, Hitachi will have something in [ large ] step with NIST process without having to wait years for the development of the API around NIST-approved algorithm from the day of the announcement. Now live example would be our integration project with Thales, Luna HSM. I would elaborate a little bit more later. The project started in around March of last year, which was about 4 months before the NIST announcement of the initial full recommendation, but we have already jumped the gun using the algorithm later proved -- to be approved by NIST in their July announcement. And similarly, the blockchain project completed in September was also using NIST approved algorithm correctly predicted prior to the July announcement by NIST. I have a lot of people asking me, who is Thales. So let me give you a little bit more details about them. First of all, they are a French-based conglomerate in the cybersecurity space. And the name is called Thales . And a lot of my friends says Thales, but they are called Thales in France. You may not heard the name because they are not a household name. But everything you use in your everyday life depends on their military-grade product for cyber security, such as the bank, central bank, government, national defense, satellite communication, et cetera, et cetera. They have more than 80,000 staff with over EUR 20 billion in revenue. So for a company of this size, they won't even answer our call if we don't have what they need. But this partnership was signed in March of last year and required us to integrate IronCAP technology, the post-quantum cryptography technology as functional module within their Luna HSM machine. This way, their clients can easily purchase the IronCAP FM, the additional option to upgrade their machine to an infrastructure to become quantum-safe. Since Luna -- the Thales Luna HSM has already been approved, virtually by all the security-sensitive organization. This is a shortcut for us to reach the highly secure, sensitive end user customers. And the development has been completed and we have just made a press release on Tuesday, 2 days ago about the beginning of the co-marketing phase. Now we already [ stated ] before that one of the -- I would say one of the major differentiation we have with our competitors is that not only that we're not a startup, but also that we are a product company by nature. So that means we are not only just providing an engine for our customer, but also we can help our customer in their post-quantum journey. A typical example of that is our proof-of-concept development project for Thales Summit. We have spent about 7 months to successfully complete a practical demonstration of a quantum-safe wallet, having our -- we call it QNT, Quantum Native Token floating on the Solana blockchain. Our method is so flexible that we can operate as a Layer 2 technology on top of any Layer 1 blockchain. In other words, in a non-technical point of view, the mechanism we have built can be applied to just about any private or public blockchains such as Bitcoin, Ethereum et cetera. And this means a shortcut to provide a quantum-safe version of the [ like ] Bitcoin, Ethereum, et cetera, et cetera. And this put us in a global leading position to help just about any blockchain, private or public, to become quantum safe. As a result, as announced before, this -- we ended up in a new patent application related to this technology that has been filed in November. And a QNT demo is also publicly available in the following URL: qnt-demo.ironcap.ca. In addition, with the exception of -- with the unexpected NIST announcement in July, we have also decided to delay a little bit of the in IronCAP X business version, the e-mail product to include the NIST-approved algorithm, which is like -- kind of like a significant marketing value and this will be released in early 2023 as the first business e-mail security product that is not only quantum safe but also using NIST-approved algorithm. It is a SaaS model, Software as a Service, charging $100 per year per user with a 3 personal usage version available at the same time, and besides end-to-end encryption, that is -- that means no one in the middle, right, no man in the middle can intercept and read the message, it's digital signature also ensures the authenticity of the sender. Now what does it mean? It means that we can effectively kill phishing e-mail because you know who are the true sender, who are not which is like these kind of things can basically cure 91% of the source of ransomware attacks. So as a result, I think it doesn't take a rocket scientist to figure out we have made a lot of progress, real progress in the fourth quarter. Just to summarize a little bit of the achievement. The integration with Thales Luna HSM has been completed. And therefore, we have entered into a co-marketing phase officially, a press release again have been issued on Tuesday, 2 days ago about the status. And secondly, the quantum-safe wallet demo, as I just mentioned a little bit earlier, is publicly available at qnt-demo.ironcap.ca. This is a huge success whereby an international patent application has been filed. And last but not least, we have also decided to include NIST-approved post-quantum cryptography PQC into the business version of IronCAP X, and this can massively help the marketing of the product because it is kind of NIST-approved. So looking forward to the -- 2023 and beyond, we expect -- 2023 is a very interesting year as we briefly discussed before, that it will cross the critical line of Q-Day. And therefore, more enterprises will begin to adopt to quantum safety, and therefore, we will engage more proof-of-concept in the implementation projects with IronCAP. As such, we are going to ensure our customers having NIST-approved algorithm within IronCAP as well as our related products such as IronCAP X, the I'm InTouch and the blockchain project. And last but not least, we also expect more quantum safe project in the blockchain sections such as cryptocurrency, private blockchain as well as CBDC, the central bank digital currencies. So all of the above, a good development have somewhat reflected in our Q4 quarterly and full year results. While Q4 and full year revenue were up 50% and 16%, respectively, from last year. We have only used $570,000 cash in the last 12 months, despite all the additional R&D achievements. Operating loss remained under $500,000, which is our investment in the post-quantum world. And within this trajectory at 0 debt moving forward, we are comfortable with our current cash position of about $0.5 million. And as a result, I just cannot be happier, especially 2022 was indeed a very tough year globally, and we are doing great. Let me give a quick summary before entering into the Q&A session. I'm very happy, again, with our achievement in fiscal 2022. It continues to exceed our plan, and Q-Day has arrived and have gathered serious attentions. We expect to continue our technological leadership, which allow us to embrace the Q-Day multibillion dollar market opportunity. And the strategy we made 5 years ago, I have to say, has been proven correctly and also beginning to bear fruits. This also dovetails into our expectation of a massive revenue and profitability growth between now and the next few years. So thank you again for all your support, all the way from the -- as beginning just a quantum story several years ago all the way to this critical inflection point. So at this point, I would like to take a pause and allowing more time for question and answer as earlier mentioned by Brian, if you have questions, please take advantage of the Q&A section, type in the questions, and Brian will moderate that and on a first come, first serve base. So here you go.

Okay. Wait for a couple of seconds here. There are a couple of questions that have already come in, so I'll get started with those. Andrew, the first one has to do with Thales. What type of joint marketing activities are taking place?

Yes. That's a pretty good question about Thales, especially they are a huge conglomerate in the cybersecurity space. In fact, we have already done a few with Thales. Those include joint webinar and presentation and things like that. The last one we did was in December. When we jointly present at a ISAC educational event, we're educating and presenting to the audience about the importance of quantum safety. So we expect a lot more co-hosting webinar, seminar and trade show activities to be happening from this point onward.

Okay. Now the next one, Andrew, has to do with quantum-safe blockchain and I thought you covered this very well, but I think if you could just expand a bit. They want to know, can this apply to central bank digital currencies?

Yes. Indeed, the short answer, it is applicable to Central Bank, CBDC, central bank digital currency. The reason is very simple because CBDC is based on blockchain, okay? And the blockchain technology was a very good technology. It is very safe. It's unhackable, unbreakable but the digital signature is based on [ electric ] curve, which is quantum vulnerable. So in other words, the whole blockchain technology that CBDC based on is only 100% safe in the pre-quantum world, but not in the post-quantum world because of the digital signature. You can imagine that if the transaction being signed can be forged, the whole trust of the blockchain, in other words the CBDC, will be eliminated. So they have to be upgraded to become quantum safe in order to move forward. So in other words, the -- all the CBDC around the world, they must be 100% quantum safe. Otherwise, it will be meaningless.