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

Let's get started. If you could flip to the next slide, please. Okay. Good morning, everyone, and welcome to our Second Quarter results Conference Call. I'm Brian Stringer, I'm the Chief Financial Officer for 01, and with me on the call is Andrew Cheung, our Chief Executive Officer. The agenda today will be -- Andrew will take you through a presentation on our recent results, which we released this morning and give you an update on where we're going and elaborate more on IronCAP version 2, which we released yesterday. Following the presentation, there will be a chance for Q&A, and I think we're all now familiar with Zoom. At the bottom, there's a Q&A tab if you could press it and send me your questions, I'll sort them and provide them to Andrew and moderate the Q&A at the end of Andrew's presentation. Now before we get started, if you could take a few seconds to take a look at our forward-looking statements disclaimer. And I will now turn it over to Andrew Cheung. Andrew, over to you.

Thank you, Brian, and welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2023 Second Quarter Financial Results and Corporate Update. A lot of good development had already happened since we last met in April during our AGM. First, we participated in a joint marketing event with Thales at the RSA conference in San Francisco, The Bay Area. And secondly, many of our R&D projects in the last 2 years actually cross the line of finishing during this quarter. But before I start talking about the details about those, please allow me to provide some background of quantum computer development for the benefit of those new shareholders. The IBM Quantum Computer road map, in my opinion, is the single most important and significant information for the cybersecurity world. This road map clearly shows that quantum threat are already here. The question is, can you see them? IBM commercially released the world's first quantum computer in 2019 with 27 qubits. This was just a quantum toy like the PC we had in the 1970s. And then after a few iteration in November of last year, only about 7 months ago, they fulfilled their promised delivering 433 qubits version called Osprey. And IBM plans to deliver 1,100 qubit this year followed by 1,400 next year, then 4,000 qubit in 2025 and 100,000 qubits in 2026. Now please don't forget. This is just IBM and their competitors like Google, Amazon, D-Wave, Honeywell, et cetera, are all striving to beat them. And after all, all of these are just the commercial level, and we all know that national level is usually 5 to 10 years ahead. So logically, what they already have is likely what we will have in 2026, at least like maybe 2 years ago. And everyone, I think, still remembers the infamous act by the FBI cracking about 2 years ago, 2021, breaking the Bitcoin walls of the Colonial Pipeline hackers within 2 weeks. Of course, they will never tell you what they use and how they did it. And in addition to that, earlier this year, there's a group of Chinese crypto scientists publish a paper claiming the possibility of cracking RSA with 372 qubit, which is well under the IBM proposed 1,000 qubits or even the 433 qubits from last year. Now it is still waiting to be proven, but this is very alarming and this kind of advancement seems accelerating worldwide. First of all, let's disregard this paper from China for now. The IBM road map is very significant because if this is correct, 2023 will be the year when we cross the line of Q-Day. Cybersecurity experts generally believe that a 2,000 qubits quantum computer can crack and RSA in a reasonable time. We need to remember one thing, that cracking doesn't have to be like within the few seconds in order to post a threat because the damage is already here even if the cracking can happen within a few days, even a few months by using the 1,000 qubits version to be available by IBM later this year. It is just unthinkable what would happen when we have 100,000 qubits in 2026. Therefore, it is no surprise that quantum safety has gathered a lot of attention lately. In addition to the national agencies like NIST, who certainly rush over a few recommendations 11 months ago, the [ U.S. ] NSM, National Security Memorandum #10, also set a deadline of October 18, which is only a few months from now of this year, for the [ federal ] agencies to assess funding requirement to achieve quantum safety. The Bank of International Settlement, BIS, has also announced their intention to assess use cases in the quantum safety achievement. On the commercial side, okay, now what I just said was the -- just the national agency side. On the commercial side, vendors of deals that drive the Internet security worldwide, such as Thales has already signed up with IronCAP as their post quantum cryptographic supplier. Now I won't blame you if you don't know Thales because they are not a household name, but everything that you use every day depends on their military-grade product for cybersecurity. They are -- Thales is a French-based giant, having major customers like enterprises, banks, central banks, government, national security, space project as their customers. They have over 80,000 staff and more than EUR 20 billion in revenue. This partnership was signed about a year ago and require us to integrate IronCAP's post quantum cybersecurity into their Luna HSM hardware security module machine. This way, their clients can easily purchase an IronCAP FM, functional module, to upgrade their infrastructure to become quantum-safe. Since Thales, Luna HSM has already been approved by virtually all security-sensitive organization, this is a sharp cut for us to reach the highly security-sensitive end-user customer base. The R&D development has been completed recently, and the first co-marketing event was held in April at the RSA conference as how I mentioned at the beginning of this presentation. The RSA conference is the most important cybersecurity event in the world. It is being held at the Moscone Center in San Francisco Bay Area every year. The event has been halted for 2 years due to COVID and was just being resumed this year. But it was a day and night compared to last time when I was there in February 2020 when there was really no one talked about quantum safety. Now fast forwarding into 2023, post-quantum cybersecurity has been discussed everywhere, while Thales has already partnered with IronCAP and started to promote PQC to their customers. Now let me show you some pictures. We were thrilled to be part of the Thales, PQC Palooza event at the RSA conference this year. More importantly, they are focused on promoting the importance of being quantum-safe and have invited many of their existing customers to the booth. The most notable one was the SVP called Peter Bordow from Wells Fargo. Peter is not only noticeable because of Wells Fargo's commitment to PQC but also his outstanding appearance. Let me show you -- guess who is Peter here. The guy looks like a rock star, it's Peter. He was presenting at the PQC Palooza event of Thales about how -- why is it so important for people to be quantum-safe and why everyone has to be quantum-safe and also why Wells Fargo has committed to convert into becoming quantum-safe. Besides Wells Fargo, given the FBI was at the event. We actually have met a lot of Thales existing and prospect customers during the event. And I have to say that very glad some of them are even fast-tracking partnership with us. So I hope there will be some announcement very soon. As mentioned earlier to the other great success during this quarter is the official issuance of the blockchain endpoint protection patent on June 6, only about a week ago. This is very encouraging because it's a sign that the patent is quite granted very, very quickly. We have never -- to be very fair, we have never experienced such a speed. The speed that it has been granted was only 8 months from when we filed in October to the issuing date last week. So it was only 8 months. And where the average time for patent grants is about 3 years. So this is very noteworthy because it implies the uniqueness of our invention, as the patent examiner was unable to find anything close to what we have globally. This is almost like a hole in one in the patent application process. Our invention covers all kinds of blockchains, new blockchain, existing blockchain, private or public blockchains, I would say the most notable example that we can have would be the CBDC, Central Bank digital currency. As we all know, most central banks globally, including the Bank of Canada are investigating the issuance of CBDC that must be quantum-safe. This can be very significant technology to achieve quantum safety for CBDC, and we have already engaged into some discussion with various central banks through our partners already. In addition to the blockchain pattern, coincidently, our partner, Hitachi in Japan, also informed us on June 6, the same day that a notice of allowance has been received from the Japanese office -- Japanese patent office about a code-based encryption technology we filed in 2020. This represents a significant milestone with our PQC development in Japan with Hitachi. Now with the ex- -- on the other hand, with the unexpected -- as mentioned earlier, the unexpected move from NIST that rushed out some kind of recommendation 11 months ago, we decided to incorporate the NIST-approved algorithm into our IronCAP X product. While this has caused some kind of delay in releasing our business version, it really gives a significant marketing value. The good news is IronCAP X business version was released yesterday. Not only that it is the world's first quantum-safe, end-to-end e-mail security product, it is indeed the first quantum-safe business solution in the world that end user can really touch and use on their everyday life. And the pricing strategy is very simple. Personal usage is free and business version is $100 per year per user, and this includes a central management tool for IT managers to manage the key, relocation, the resetting passwords, things like that. Beside this end-to-end encryption that no one in the middle can intercept, including the agency from government, its digital signature ensures the authenticity of the sender, allowing it to be the most effective killer of phishing e-mail, which is 91% the source of ransomware attacks. The market size of this quantum-safe end-to-end e-mail is huge because it's very simple math, there are 730 million business e-mail accounts globally and potentially each one of them has to be quantum-safe, one day. The activities are basically reflected a very loud and clear in our quarterly result without the revenue of a onetime proof of concept project like last year, our revenue for this quarter was less. But virtually with no impact on the bottom line because the proof-of-concept project was breakeven research activity for our partner. The slightly more operating loss was due to the additional R&D spending quite obvious on the finalization of IronCAP X, which was released yesterday. With the completion of IronCAP R&D and a significant patent portfolio in place, I can see that Q2 of 2023 was a pivotal quarter when we are transforming from heavy R&D into the mode of harvesting. The [ code ] marketing activity with Thales in San Francisco is a good example and the official release of IronCAP X business version is just another example. I'd also like to emphasize that we always take the most conservative accounting approach by 100% expanding all the R&D investments. In other words, the investment in the integration with Thales, blockchain endpoint protection, IronCAP X, everything are 100% [ expanse ] and become hidden value on our book. As a summary, before I turn to Q&A, as a summary, looking forward to the rest of 2023 and beyond, we expect considerable reduction in quarterly expense as the major capital-intensive activities have been completed. The goal is to turn into a breakeven operation while nurturing more partnerships. We will also continue to support our partners in their core marketing activities in 2023 and beyond. We expect more enterprises to commence their quantum-safe journey and IronCAP is in an excellent position to capitalize on this upcoming explosive trend. I'd like to take a pause from here. I think you have -- you may have a lot of questions about all these latest development. So I'd like to take a pause to allow more time for question-and-answer -- as mentioned at the beginning by Brian, please use the Q&A feature of Zoom and type your question and Brian will moderate your questions accordingly. Over to you, Brian.

Thank you, Andrew. And yes, we found a couple of questions come in and I'm sure there will be more. The first one has to do about -- this is more of a general question, Andrew. How, if any, can IronCAP apply to artificial intelligence, AI?

I think this question definitely will be in a lot of people's mind because AI as -- while it has been in the market for a long time, but it is actually receiving attention lately. And I think very few people know that, in fact, my bachelors so many years ago, my university thesis, graduation thesis was in AI. So I have never been really doing that in the years, but this is actually my area. So AI, in my opinion is huge, it's great. However, if we focus on just ChatGPT alone, just like using AI as a answer -- as an answer to a lot of questions, it is really lacking the privacy. So if you are asking ChatGPT, for example, a question about how to build a bomb, for example, they know this account ask this kind of question, it's recorded that you have asked this question. So there's really no privacy there. So the first thing that we can imagine that AI, specifically like ChatGPT-type AI, would need to improve on privacy, and this is the area that quantum safety can squarely apply. In fact, the last probably few months, we have already investigated the source code of ChatGPT as they are open source and to see that they really do not have privacy in their code. And there is some kind of opportunity that we can apply, such as having -- like a chat IronCAP, something like that just off the top of in my mind that we can add privacy to an AI type of a question that everything that our customers ask are encrypted in the post-quantum format and then relay the question on behalf to ChatGPT. And then coming back with an answer, again, encrypting back to the user. So no one eavesdropping into the session can understand what the user had asked and things like that. So that's just one example of how quantum safety can be applied to AI in order to pluck the hole of privacy. So yes, that's a short answer to the long-winded version that I have talked about in the last few years.

The next one centers around the conference you were at in San Francisco. You did just mention that -- with a number of people. Can you elaborate a bit more on possible partnerships and where they would come from?

Now this is a little bit sensitive because I obviously cannot mention name but I can elaborate a little bit more about the type of industry that we have talked to over that few days at the RSA conference. As I mentioned earlier, Thales is a French giant in the cybersecurity business. So they have committed to PQC a few years ago. They signed up with 01, IronCAP, and so they have organized so committed that they organize a PQC Palooza event within the RSA conference and invited a lot of their customers, existing and potential customers, to the event. So this -- obviously, as shown in the picture, we met Wells Fargo at the event. And we also have met other people like the CA business certificate authority industry, which is really governing the safety of the Internet. They sell certificate to various industries, and they are also looking into selling quantum-safe certificate and also providing some end-user solutions that using post-quantum certificate. And our relative advantage as compared to our competitors, not just told by us but also mentioned by these potential customers who has dealt with our competitors before -- was that they are just -- these people are just scientists. They provide the engine -- encryption engine to them -- and that's it, saying, "Hey, this is the engine you do whatever you like. We don't know your business." But we are different. We are fundamentally a product company. So -- so IronCAP walked in and offered that we can help them just exactly how we help Hitachi and how we help our crypto partner in Asia in achieving the Solana, the quantum safety, that we can really help them converting their product or even creating a new product to take advantage of PQC, and they really like our position. And that's exactly the reason why, I briefly mentioned in my presentation, that some of them has already fast tracked some kind of discussion. And I would -- hopefully, that some announcement will be come up very soon.

And this one follows up on partnerships. And Andrew, the question centers around Talent Summit initiatives. Can you elaborate more on what's going on today with Talent Summit?

Yes. As I mentioned in the answer about RSA, our advantage is really helping our partners in achieving what they want to achieve rather than just giving them the engine. And the partnership with Talent Summit was about the quantum safety for the cryptocurrency world or blockchain world. And the sandbox that we used was Solana, and we have success -- not only successfully proven that we can add quantum safety into an existing blockchain, but also that [ spawn ] a very valuable patent that govern the blockchain endpoint security that can also help not just cryptocurrency but Central Bank, CBDC, Central Bank Digital Currency. So just specifically talking about the crypto side, as we all know, beginning of the end of last year, we -- the world has entered into a crypto winter. So that -- that side of the business has been delayed a bit. But as I said, the value that we have built is tremendous here. That is not just helping the cryptocurrency, but also all kinds of blockchain related technology, including CBDC.

Can you elaborate a bit more, Andrew, on the CBDC?

Well, CBDC, as we all know is the trend. I think, in my opinion, it is unavoidable trend worldwide. Because using of cash was invented 1,000 years ago and it's about time to change. And many government -- many countries has already moved into all digital version. And as mentioned earlier to that, currently, I would say, if not all, I would say, most or significantly most of the Central Bank in the world, including the Bank of Canada has already engaged themselves into CBDC investigation to see how they can issue a currency in CBDC format. It's just a matter of some of them are more advanced in the process and some of them are in the investigation stage. So as I said, in my opinion, CBDC is unavoidable trend, and our technology can help tremendously for CBDC to achieve quantum safety. They have to be quantum safe because CBDC will for sure across the line of Q-Day when they are in place. So we are in a very position to help in that particular sector.

And this is the last question on cognizant of time. And it has to do with our IronCAP version 2. Can you elaborate a bit more about the revenue opportunity for IronCAP version 2?

Yes. This is actually a very good question because everyone talked about revenue. The revenue is life and blood of a company. So the whole reason why we built IronCAP X was for this reason. As I mentioned earlier that IronCAP X is not only the first quantum-safe, end-to-end e-mail security product. But indeed, it is the first quantum-safe, business solution in the world. Everyone in the world, whether you're the bank, you're the certificate authority or whatever, they all have already adopt to the notion that quantum safety has to be achieved, right? Quantum threat is here. However, they all have the same kind of question, how can we monetize on it? How can we make money? And how do we have a PQC product? So this IronCAP X product is actually a demonstration or a live demonstration to the world that, hey, you know what, it can be a product that you can use, like end users can use on their everyday life. And because e-mail, as we all know, everyone are sending e-mail, I don't understand why, are sending e-mail 99.99999% unencrypted and this is also unauthenticated. So that it is like -- it gives the wide window for those hackers to get in and hijack an e-mail and become the hole to hijack every other thing in your company and asking for ransom. That's why we mentioned that 91% of ransomware attacks are actually begin from a simple e-mail phishing. So this IronCAP X product is a humongous opportunity here that not only that it preserve privacy because the e-mail will be encrypted, for example, the e-mail that you're sending to your lawyer, the email that you're sending to your accountant will be quantum-safe and encrypted that no one, including the authority can decrypt your e-mail. I always use the analogy saying that 6 years ago, maybe if we have this product, maybe Clinton will be in the office instead of Donald Trump. And anyhow, that was just the encryption side. But then on the authentication side, because e-mails are unauthenticated. So by using IronCAP X, the sender will have a digital signature that is quantum-safe and when it's arriving into the recipient side, you will see that, oh, this is really from Brian, to Andrew. It is not the impersonated Brian sending this e-mail, so I can safely open it. Even though the e-mail is any kind of strange content, I know that it is a legitimate e-mail. So this can be, as I said, the most effective killer of phishing e-mail. And on the other hand, because it kills phishing e-mail, it kills 91% the source of ransomware attack. So the market obviously is huge as there are 730 million business e-mail accounts globally, and you're charging -- forget about like $100 a year, even $10 a year, this is $7.3 billion per year of a market size possibility. And I'm very glad that we have this product finally released. As I said, the business model is very simple. Personal usage is free and business is $100 a year per user and there is a central management tool for IT manager to centrally manage the key for every user, including you want to reset the password, you want to reset the hints and you want to revoke the password, revoke the key when staff has left the company, and things like that. So I am very, very excited about this IronCAP X business version.

Okay. And that wraps it up, I'm cognizant of time. I'll turn it back to you, Andrew.

Thank you again, Brian. Also, again, thank you for joining our 2023 Q2 business update. I am very pleased to have entered a new phase of operation and can't wait to see the development for the remaining of 2023 and beyond. So please stay tuned, and we'll see you again next quarter.