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

Okay. Let's get started. Good morning, everyone. And welcome to our 2026 Third Quarter Results and Business Update. I'm Brian Stringer. I'm the Chief Financial Officer for 01 Quantum. And with me on the call today is our CEO and Founder, Andrew Cheung. Now the agenda today will be I will pass it over shortly to Andrew, who will take us through an operational highlight and discussion on the results, followed by which there will be time for Q&A. I will moderate the questions. And I think by now, everybody is familiar how to use Zoom. At the bottom there's a raise the hand, feel free, please, to take your questions, and we'll get to them at the end. Now before I pass it over to Andrew, is our disclaimer, which forms an integral part of our presentation, please take a few seconds to look at over. Thank you. Now I'll turn it over to Andrew for his presentation. Over to you, Andrew.

Thank you, Brian. Hello, everyone. I'm Andrew Cheung, CEO of 01 Quantum, welcome to our Q3 corporate update. Now this quarter marks a very important new chapter for the company. With the new capital received last year, we have advanced our technologies and go-to-market to a whole new level. I'm very optimistic about the business for the next 2, 3 years, but my expectation is not coming from the revenue today as we have already collected the onetime engineering fees during the previous quarters. Instead, it is coming from our outlook, especially on the AI side. Before I tell you why I'm so optimistic, let me reiterate the market we are in. The Quantum computing is advancing quickly and has the potential to drive major breakthrough in the areas such as like AI, drug discovery, material science and other computationally intensive fields. Many knowledgeable tech executives expect quantum computing to be as widely used in a few years as AI today. But that same computing power has also created an unprecedented cybersecurity threat or AKA Q-Day, because the encryption that protects today's digital economy will be totally naked in front of a quantum computer. And our job is to make sure our customers are safe beyond Q-Day. While there is no definitive answer to when Q-Day would arrive, major tech companies and governments are already preparing for it. Quantum computing vendors like IBM, Microsoft, Google, et cetera, are predicting 2029, and this is echoed by Trump's recent executive order in June mandating the agencies to be quantum safe by 2030. But the biggest point here is that you don't need Q-Days to arrive for quantum threat. While 2029 is only 2.5 years away, the advancement of AI, especially Claude Mitas recently has accelerated the practical Q-Days to now because it allows hackers to easily obtain your encrypted data today and then the heck can simply hold on to the encrypted data and wait until Q-Day and get them decrypted, such as your password, your crypto key, et cetera. And this is the infamous NDL attack, office now decrypt later. And this is why government enterprises and technology providers are already beginning their quantum safe migration journey because the only way to protect your data or their data in the future is to protect them now. Now one of the differentiator is that we focus on deploying products not simply post-quantum research or cryptographic algorithms. The end customers typically do not want to buy an encryption engine. What they want is the application that they are currently using to become quantum-safe. And therefore, we have built our technologies around practical commercial applications. And today, our core area of focus are in the areas of quantum ai, remote access, digital assets and e-mail security. Some of these solutions are already commercially deployed by our customers while others are moving through their time lines. This differentiator allow us to sign up a lot of world-class partners such as Hitachi, CGI, Tales, PwC and others. And we have another big one to announce very soon, kind of keeping you surprise a little bit here. So our role is to act as their post-quantum subject matter expert, SME -- our partners have established customer base and relationship and distribution while we provide the technology and expertise required to help making their customers quantum safe. This partner-led approach is important because it allows us to access large customers and markets without having to build a global direct sales organization ourselves. I would broadly say that our largest single opportunity moving forward here is the crossover between AI quantum safety and user data privacies. We have a patent-protected technology called Quantum AI records, QAW that we have been building since 2024. Recently, it has been publicly announced and demonstrated at the TMLS conference Toronto Machine Learning Summit. And QAW essentially unlock the single largest obstacle that is hindering the maximum adoption of AI, which is user data privacy because all AI operations today are operating unencrypted. QAW uses fully homomorphic encryption F optimized to encrypt both the user data and AI model before performing AR influence. In other words, the question asked by the users and the run answer back to the users 100% end-to-end encrypted -- in other words, the AI model operator has no way seeing the end users' confidential data as well as the answer. And this is even more important now, as recently based by Palantier and others have come to a view that AI model operators can eventually create competing products and services when enterprises are using their model, asking questions or even performing coatings. And to get around, the most trick-forward approach is to encrypt the user data with our technology. Our objective is to protect both the user data and the IP of the model owner. And needless to say, the whole end-to-end communication session is quantum safe while using our technologies. Our virtual proposition is very straightforward. In simple terms, we allow AI influence without exposing the underlying data and the AI model as they are both encrypted. This allows compliance and national security-related usages. And this also opens for both dedicated on-premises deployment businesses as well as managed services. Our go-to-market strategy is to go through our channel partners like CGI, Hitachi, tales, et cetera, which is very cost effective as they are -- as we are riding with them with our sales -- heavy sales and marketing investment on our teams. For example, co-marketing campaigns are being crafted with CGI as we speak. And we are also -- will soon announce a marketing campaign related to the Canadian government whereby we will demonstrate a neural network AI with the ability to distinguish drone, but plan, et cetera, in an encrypted fashion. In simple terms, it means feeding an encrypted dubious picture to the AI model, but yet the AI can tell whether it's a military drone or a birth and et cetera. This is extremely crucial for the military. Now here's the road map. We have already achieved milestone #2, as I mentioned earlier, at the TMLS event, Toronto Machine Learning Summit, where we demonstrated to the public and optimize privacy preserved AI operations. By Q1 of next year, we expect to deliver a hybrid mechanism that would allow a large language model LLM to achieve privacy also. And on top of that, we are also expecting to announce some co-marketing project with 1 or more of our partners aiming to build privacy served AI marketplace with various stages of commercial partners at -- various stages of a commercial deliverable next year. Essentially, our AI marketplace operates similar to Hugging Face, except that we allow AI model vendors to list their model for others to use in the completely quantum safe and privacy preserved fashion. Now it was mentioned in pointing out that actually last week, NVIDIA spent $14 billion to acquire Hugging Face even though they have been breached by AI model opened actually from open AI 2 months ago. In our AI marketplace, both the user data, as I mentioned, and the AI models are protected, even the platform has been compromised. While our quantum safe privacy AI is currently our unfolding story for the next few years, we are also very proud of the PTC projects already delivered to our partners that they are now being marketed as we speak. So let me just quickly reiterate this achievement that we have. Now earlier last year, we helped Hitachi from Japan converted their Remo access offering to become quantum safe. This project has been successfully delivered earlier this year, and Hitachi is now actively marketing the product in Japan while we sit back to support them and collect royalty. Recurring revenue started to accumulate cost slowly, but surely. Recently in June, we have also delivered a quantum safe crypto volt to another partner call lapse foundation. What we have created for them is a special token called Q1 as the gas fee currency for quantum locking and unlocking digital assets against Q-Day threats. This is a very large market as the whole $4 trillion digital asset market must be protected against Q-Day threats before Q-Day arrival. We have received cash the cash development fee, plus $22.5 million of the Q1 token as the compensation. We believe there's a huge upside value for the Q1 token as the world moved closer to Q-Day and our partner is now conducting a misdose challenge within September, there are more details to be announced. We have also created an e-mail product called IonCApXMal, allowing existing office outlook users to send and receive quantum safe and encrypted e-mail as well as digital signature that guarantees the authenticity of the center. To bring into perspective of the market size, there are approximately 730 million business e-mail addresses in the world. So if only 10% are serious and wanting some kind of quantum safety for the e-mail and paying $3 a month for the quantum safety. It is a $2.6 billion annual recurring revenue potential. Since this is not a partner product, it requires our own sales and marketing efforts. So we are ready to enter into this $2.6 billion untapped market once marketing resources are available. Last, but not least, I'd like to also reemphasize that our enviable partner list pack with big names like Hitachi, CGI, Thales, PwC and the other one, as I mentioned, to be announced very soon has accredited us a global reach to embrace our whole PC market. So now let's take a look at our Q3. Although, again, without those onetime engineering fee as in previous quarters, recurring revenue from Partner has started again slowly, but surely. Thanks to our prudent cash management even while R&D and marketing have been ramped up significantly, cash usage was only $450,000 in this quarter. So therefore, we still have a very clean balance sheet with about $2.5 million of cash and 0 debt. We expect recurring revenue to continue building, but most importantly, we expect the PQC revenue, especially the AI side related business starting to grow exponentially as the wealth gamble for quantum safety before the end of 2029. So I would like to take a quick pause here. We're serving more time for question and answer. I'm sure that there will be a lot, although I haven't seen them. Brian would be managing, obviously, so please use the Q&A feature mentioned earlier by Brian to enter your question. And as usual, Brian will moderate. So Brian, over to you.

Okay. There were a couple that came in, Andrew, as you were speaking. I'm sure there will be more to come. And the first 1 has to do with the Carlton University press release we made. And the question is, can you expand upon the independent valuation of the QAW or Carlton university and did it touch on the market opportunity.

Thank you, Brian. Okay. I don't understand why I feel, but always the first question always is a good -- it's a good question. So this is good because -- just like anything in the technology world, right? New technology has to be has to be vetted it has to be using accounting terms is audited, right? So this is no different. So our QAW technology, although it has been vetted by the patent office that is unique, right? But how effective it is, we still need some third-party arms links companies to kind of evaluate. So this is the process. So what Carlton University has done for us was evaluating the efficiency of the QAW technology because a lot of people -- like fully encryption is like nothing really new. It's new, but it's not like something invented by us like 2 days ago. It has been that encryption concept for AI has been in discussion for for many years. And the major concern is about the efficiency that it would be significantly slow down -- so mainly what we have done in the last 2 years was optimizing the technology so that it will -- it would do the AI influence in the encrypted way while retaining reasonable and acceptable efficiency. So that is being vetted and proven by the project conducted by Carlton University. I think this is a very, very important endorsement for the QAW technology.

Okay. The next one, in your presentation, you mentioned CGI as a partner -- and the question is, were they the Canadian global system integrator that you mentioned in an earlier press release? And then as a second part to this question, can you elaborate on any progress you've made with respect to -- I think they're referring to the part on joint promotions you were talking about the presentation.

Okay. Short answer to your question. I think your question has 2 parts. First of all, are they the party we mentioned in the press release about 2 months ago, the Canadian global system integrator. The short answer is yes. And some -- they are a huge global system integrator. They don't want their name, especially from the PR department doesn't want the name here in press release that looks like maybe promotional or whatsoever. But yes, short answer is it is CGI and I think earlier in my presentation, I already kind of hinted that we are undergoing some co-marketing activities -- and yes, so a lot of things are happening between us and they are they are very committed in the upcoming, not just post quantum, but the crossover between Quantum and AI.

I have a couple of questions, so I'm going to on the same subject. So I'll try to paraphrase them here. Yes. With respect to revenue, and can you elaborate on the customer-funded development projects and the timing with respect to revenue going forward.

Yes. I think this one kind of like covered in my presentation that the customer-funded development project were -- there were 2 of them in the last. well, 1 year. One was with Hitachi and the other 1 was with Q-Lab's Foundation, and they they paid us onetime engineering fee, and that's why the revenue goes up in the last few quarters. . And that thereafter, they will be marketing the product. We don't need to spend the sales and marketing is their product. We just have strike a royalty percentage moving forward. So all we have to do is being the SME support them and collect the royalty fees. So the royalty -- so moving forward from this project would be royalty, royalty dollars and which we have already booked some of them this quarter. And so as I said, it's slowly, but surely, it is accumulating. And so if we get more of these kind of onetime engineering fee moving forward, there will be also some spike in engineering fee, onetime engineering fee. But I think the most important thing for engineering fee is not really the amount of revenue because even though it's $1 million or so, it's not a lot of money we're talking about, but it is the commitment that is the most important thing. And the partner will not commit to $1 million if they are -- if they are not serious about the project. So for them to commit those kind of dollars into the project, meaning that they are seriously moving forward to market it. And this is the significant part that we should focus on, right? So yes, I think that's kind of like a long-winded elaboration of what we have already mentioned during the call.