Arqit abandons plans to operate quantum encryption satellites

TAMPA, Fla. — British cybersecurity software developer Arqit is looking to sell a partially built satellite after scrapping plans for a space-based quantum encryption network.

Arqit said on December 14 that he no longer needed satellites to provide encryption keys that could withstand attacks from quantum computers.

Instead, the company said it has developed an earth-based distribution method that enables symmetric-key cryptography without the risk and cost of building a quantum communications network in space.

“The security of encryption keys created on endpoints [such as customer devices and data centers] the use of our lightweight software agent is as effective with a terrestrial method as with the satellite method,” said Arqit Founder and CEO David Williams during the company’s earnings conference call on May 14. december.

The decision does not affect the construction of a satellite that Qinetiq is currently building under a contract funded in part by the European Space Agency.

SEC probe

The strategic pivot came as Arqit revealed that the United States Securities and Exchange Commission was investigating its merger with Centricus Acquisition, a special purpose acquisition company (SPAC) that catapulted the startup to the NASDAQ stock exchange in September 2021.

Arqit said in a regulatory filing that it was cooperating with the investigation, including by voluntarily producing documents.

“The SEC has informed Arqit that this is a factual investigation,” the company said without providing further details.

Arqit posted lower revenue for its financial year to the end of September than expected in August 2021, during an investor presentation a month before the SPAC merger to generate investor interest.

The company launched commercial operations this year and recorded $7.2 million in revenue for its 2022 fiscal year, or $20 million including other revenue, including ESA funds.

In the August 2021 presentation, Arqit said it expects to generate $14 million in revenue for calendar year 2021 and $32 million in 2022.

The company’s ESA contract was recently reclassified as other income in Arqit’s accounts, instead of income, in part because the company does not consider this work to be its primary output.

Arqit said in a regulatory filing that it is also aware of a putative class action lawsuit against the company, filed in early May, which alleges “materially false and misleading statements regarding Arqit’s business outlook and projections.”

Although Arqit said the complaint has not been served and does not know whether the lawsuit will continue, he “intends to vigorously defend himself against these claims” if necessary.

SPACs offer companies a fast track to the public markets without the level of due diligence that accompanies traditional stock market listings, allowing them to make optimistic growth projections to gain investor support.

The popularity of SPACs among space and other companies has declined amid tighter regulations, weakened economic conditions, and poor stock performance of post-SPAC companies.

Arqit Satellite Pivot

Arqit said there is still demand for quantum encryption satellites, including from government defense departments seeking to avoid sending data traffic over international cables.

Instead of building its own satellites, Arqit intends to license the technology it has developed for them to other organizations.

Discussions are underway with “a number of potential customers” to purchase the satellite currently under construction, according to Arqit, and to obtain licenses to use its quantum satellite intellectual property.

Arqit previously lined up Virgin Orbit, which invested in the company’s SPAC deal, to launch the satellite in 2023.

“Through innovation, we have simplified our technology and eliminated significant future capital expenditures,” added Williams.

Arqit recently announced customer contracts with cybersecurity company Fortinet, IT developer Dell Technologies and cloud giant Amazon Web Services for the use of its security software.

Shares of the company closed at $5.15 on Dec. 14, down 17% from the previous day, after falling from a high of $37.41 in December 2021.

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