archTIS Ltd earlier this week secured a A$3.2 million contract with the Australian Department of Defence, renewing annual recurring software licensing for its Kojensi Enterprise platform and adding application development and maintenance services.
Managing director and CEO Daniel Lai told Proactive that the Department of Defence had been a sponsor and customer of the company for many years, with archTIS Ltd continuing to renew and expand licence counts in a highly classified area.
The contract includes A$1.0 million in annual recurring software licences and A$2.2 million in application development and maintenance services. Lai said the services component was important because Defence was investing to expand the platform across a larger number of users.
“The real message there is it is investing in it with these A$2 million worth of services to make sure that it can expand that across a greater amount of users,” Lai said.
Lai described the renewal as a validation of archTIS Ltd and its Kojensi Enterprise platform, noting that systems deployed into highly classified environments tended to remain in place for long periods. He said this created potential for future growth as usage expanded.
A key catalyst for investors remains the company’s progress with the US Department of Defense. Lai said archTIS Ltd was moving closer to a commercial contract after its product was tested in classified areas and within Central Command, the warfighter area of the US Department of Defense.
He said the product had achieved a 100% pass mark across 60 use cases and that the company was now entering commercial contract negotiations for a potential licence deal. Lai said the opportunity involved around 120,000 licences and described it as potentially transformative for archTIS Ltd’s US expansion.
The company’s wider defence strategy is also being supported by partnerships with Mattermost and Microsoft. Lai said the partners were working with archTIS Ltd as part of a consolidated secure collaboration offering for defence organisations including NATO, Scandinavia, the US and the UK.
Lai also pointed to the Sphere acquisition as an important step in expanding archTIS Ltd’s US presence and commercial market reach. He said Sphere had brought 150 commercial clients that were already beginning to invest in data-centric security, creating potential for integration and cross-selling.
He said the market was focused on the anticipated US Department of Defense deal, while also noting that archTIS Ltd had other pipeline opportunities. Lai said these types of contracts could become long-term, sticky annual recurring revenue once secured.
Interview highlights
- archTIS Ltd has secured an A$3.2 million contract with the Australian Department of Defence.
- The contract includes A$1.0 million in annual recurring software licences and A$2.2 million in application development and maintenance services.
- The work relates to Kojensi Enterprise, archTIS’s secure collaboration platform for sensitive and classified information.
- Daniel Lai said the Department of Defence had been a sponsor and customer of archTIS for many years.
- Lai said the additional services work was aimed at expanding usage across a greater number of users.
- archTIS is progressing commercial contract negotiations with the US Department of Defense.
- The company achieved a 100% pass mark across 60 US Department of Defense use cases in classified and Central Command environments.
- Lai said the potential US Department of Defense opportunity involved around 120,000 licences.
- archTIS has partnered with Mattermost and Microsoft as part of a broader secure collaboration offering for defence organisations.
- Lai said the company saw opportunities across allied defence markets including NATO, Scandinavia, the US and the UK.
- The Sphere acquisition was described as a key part of archTIS Ltd’s US and commercial market expansion strategy.
- Lai said Sphere brought 150 commercial clients that could provide cross-selling opportunities.
Proactive: Welcome back to Proactive. I’m joined by Daniel Lai, managing director and CEO of archTIS Ltd. The company is a global provider of data security solutions. One of the biggest challenges around the world right now is how information can be shared securely, and that is what archTIS Ltd does. archTIS stands for Architectural Trusted Information Services, correct?
Daniel Lai: That’s right, Kerry. You’ve got it in one.
Proactive: Great. I want to get through quite a lot today. archTIS Ltd has secured a A$3.2 million deal with the Australian Department of Defence. I understand A$1 million of that is in licensing and A$2.2 million is in development and application processes. That is quite a big deal, especially with the Australian Department of Defence. Talk to us about that.
Daniel Lai: The Australian Department of Defence has been a sponsor and a customer for many years now. We have consecutively renewed this and grown the licence counts with it. It is in a highly classified area, so the renewal is important because it continues that work.
The real message is that it is investing in it with these A$2 million worth of services to make sure that it can expand that across a greater number of users. There is potential growth there for users in the near future once we work with it.
It is a really important client. We are very proud of what we have achieved there, and we are expecting growth in future years with that development. Once these kinds of systems go into highly classified areas, the systems do not come out very quickly. It is an important investment in Kojensi and a great validation of archTIS Ltd as a company.
Proactive: That is what I was going to say. Once archTIS Ltd is in, and it has been in for a while now, Defence is renewing and expanding, as you said. That is a big tick, not just in Australia, but globally. I would have thought other defence forces around the world would look at this and say, if Australia is using it, what about the rest of the world? Specifically, what about the US?
Daniel Lai: Most shareholders that know archTIS Ltd are anticipating an update from us with the US Department of Defense. We are making progress with that, so we are getting much closer.
We made an announcement recently where we got 100% of the use case stories returned to us. The US Department of Defense, in classified areas and in Central Command, which are the warfighter areas of the US, tested our product and we got 60 out of 60 use cases, or a 100% pass mark.
We are now entering commercial contract negotiations for a licence deal with the US Department of Defense. People are aware of that and it has been in the market. The quantum of that is somewhere around 120,000 licences. It is obviously transformative for us, expanding into the US. It is one of the reasons we acquired Sphere, to leverage our position back into that market, and people are anticipating it. It is getting closer.
The other good news was that back in February we sold 2,500 licences to a US-European alliance. There is only one of them, but we sold licences into it and the deployment is going well.
The other exciting news that has been out in the market is that we have partnered with Mattermost and Microsoft as part of a consolidated offering to defence organisations such as NATO, Scandinavia, the US and the UK. The partners have been pushing us most recently at TechNet in the US, and the feedback from that has been fantastic. That growth looks like it is going to come through over the next two years.
We see that as all very important stamps of approval for us being the data-centric security solution for allied forces. That is really exciting.
Proactive: Can you explain who Mattermost is? Everyone knows Microsoft, but who is Mattermost?
Daniel Lai: We have probably all used Zoom, chats such as WhatsApp and Signal, and those types of tools. The tools are all based in the public arena. Sometimes a customer needs those types of solutions in offline environments, including through satellites and other systems, because the customer is using classified information and does not want other people to have access to it.
Those commercial offerings are not offered in those environments. If a customer wants chat and file sharing, Mattermost does that. It is essentially what someone would do with Teams, but in an offline environment for the military.
There are also other companies, such as PEX, which provides video conferencing like what we are doing now, but for classified environments. Microsoft provides Azure Cloud services to help provide those services.
It is not one company that can solve the collaboration for classified information problem. It is an ecosystem. We have been recognised by very important players in that ecosystem as providing a validated and very important solution for data-centric security that meets high standards for defence.
Proactive: One final question. Last time I spoke to you, at the end of January, we talked about the December quarter and strong revenue. Our audience likes to look at investment opportunities. Right now, the market capitalisation is about A$35 million, and the share price has not moved all that much. What do you think it will take for the market to sit up, because archTIS Ltd is a revenue generator and there appears to be a disconnect?
Daniel Lai: I think that is clearly the anticipation of this US Department of Defense opportunity. We acquired Sphere back in October, and that jumped revenue from A$14 million to A$15 million annual recurring revenue. We have been consolidating that business, integrating it, doing all the hard work and seeing a lot of synergies.
By December or January, we had taken about A$4.5 million out of that business. We have restructured it, and we think there are additional savings there. What we are really doing is reformatting it so that we can launch into that market in the US. People are still waiting for this anticipated US Department of Defense deal.
There are other deals in our pipeline that we are constantly working on. The Australian Department of Defence is just one example of that. Once we hit these deals, the deals are long-term annual recurring revenue and very sticky. For us, it is important to win that space.
Part of the Sphere deal is also to get into the commercial market. Sphere has 150 commercial clients that are already starting to invest in data-centric security. We are looking at making sure our products integrate so we can offer a platform to those customers and cross-sell.
I know the market is really waiting for this. What we saw back in June last year was 1,000 licences and a 400% jump in the share price. That is the anticipation. Of course, we are a microcap. People have to work out what their level of acceptable risk is to invest in the company. But we are very confident that these things are going to happen.
Proactive: You have to come back and tell us as soon as that is awarded. I look forward to hearing all about it. For now, thanks so much for joining me on Proactive Investors today.
Daniel Lai: Thanks very much, Kerry. Cheers.