SEALSQ Corp

Greetings, ladies and gentlemen, and welcome to the CLSQ Full Year 2024 Financial Results Earnings Conference Call. As a reminder, this conference call contains forward-looking statements. Such statements involve certain known and unknown risks, uncertainties, and other factors which can cause the actual results, financial condition, performance, or achievements of CLSQ to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. CLSQ is providing this communication as of this date and does not undertake to update any forward-looking statements contained herein as a result of new information, future events, or otherwise. These risks are also discussed in our filings made with the Securities and Exchange Commission. Please be advised that our full year 2024 earnings release was issued on Thursday, March 20th, 2025. Also, our Form 10-K for the full year ended December 31st, 2024, which was filed with the SEC on Thursday, March 20th, 2025, to be found by visiting the investor section of the CLSQ website at investors.clsq.com. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Carles Morera, Founder and Chief Executive Officer of CLSQ. Mr. Morera, you may begin.

Thank you very much and good afternoon to all of you joining us from both Europe and good morning for everybody joining from the United States. So we'll start this call by discussing the business highlights of the full year 2024. Then John O'Hara, our CFO, will provide an overview of our financial performance. Then I will close the prepared remarks by discussing our growth initiatives and also the outlook for 2025 and going forward. So we had a financial year 2024 with revenue of 11 million. It's a bit disappointed about this reduction of revenue from the 30 million we had in 2023, but actually reflects the company transition from traditional semiconductors, the legacy, semiconductors that we were selling for many years to now the next generation quantum-resistant chips, which is the next generation that we started to develop two years ago, and we are reaching maturity now. So, we are still early stage on the post-quantum market potential alongside the impact of market normalization following the semiconductor supply chain disruption that was caused by the COVID-19 pandemic. Also, the excessive inventory accumulation by customers in 2023, we saw the lower 2024 orders volume as clients utilize existing stock before making new purchases commitment. Basically, they are waiting to finalize the use of those stocks before we are able to deploy the next generation chip with them. That said, as we are preparing to take advantage on numerous growth opportunity We scale post-quantum security technology by investing $5 million during 2024 with another $7.2 million plans for 2025. So 2024, as previously discussed, was a transformational year for CLSQ. As we scale post-quantum security technology, started the process to execute strategic acquisitions raised over $80 million in funding, and expanded into high-growth markets. With a strong cash position, no bank debt or convertible loans, and a celebrating demand for a post-quantum and quantum cybersecurity solution, we are very well positioned to drive sustainable long-term growth and technology leadership in the quantum era. Thus, we enter in 2025 on a very strong financial position, and we are well positioned to execute a multifaceted organic growth investment and acquisition strategy. Demand for our post-quantum and quantum cybersecurity solution should drive sustainable long-term growth and technology leadership in the quantum era. We anticipate also a significant revenue increase in 2025 compared to 2024 due to the steps we took to bolster our position in the market we serve on a global scale. I will discuss all these initiatives shortly, but I would like to emphasize how our combined bookings are now 6.8 million, reflecting strong year-to-year growth, while our projected contract pipelines over the next few years stands already at 93 million. The post-quantum cybersecurity market, driven by the need for securing systems against quantum computer attacks, than they are becoming available within the next three to five years is projected to grow significantly with an estimated market size of 302.5 million in 2024, which is then expected to reach 1.8 billion by 2025 at a CAGR of 44.2%. So, due to the highly entry-level barriers, we believe very few players will have the required expertise, technology, and IP to build quantum resistance security chips in the short term, which will position CLSQ as a leading player in this space, especially on a very high growth market, which is the TPM segment. We believe that this factor positions CLSQ to strengthen its market leadership and capitalize on emerging opportunities in post-quantum security. So in terms of being a, financial year 2025 outlook. Although it's very early in the year to provide a definitive outlook number due to the major projects under discussion, CLSQ anticipate a significant revenue increase in 2025 compared to 2024. This growth is expected to driven by the integration of CHIP revenue front of new sources of revenue and expansion in CHIP personalization services as announced during the year. and the consolidated revenue for our planned investment. We expect the full impact of our growth to arrive in 2020 with the commercial launch of our new product scheduled for Q4 2025. We anticipate that the growth in 2025 and beyond will be fueled by the increased demand of post-quantum trusted platform models, what we call TPMs, The successful securing new large-scale contracts with government and enterprise, adopting both quantum cryptographic solution, and this includes also some of the new defense contracts, and they are being negotiated now in Europe. The growth in CO2 cybersecurity certificate and managed PKI services, which is a recurrent revenue on the software side, and the consolidated revenue for strategic acquisitions, some of them being already announced since the beginning of the year. So the post-quantum cryptography market driven by the need for securing system against quantum computer attacks is projected to grow significantly, as I mentioned before, by 1.8 billion. So we believe that this factor positions CLSU to strengthen its market leadership and capitalize on emerging opportunity in post-quantum security. I will now turn the call over to John O'Hara, our CFO, who will provide details on the 2024 financial result. So John, please go ahead.

Thanks, Carlos. As Carlos just mentioned, I will now go into a bit more detail on our FY24 financial results. Firstly, to highlight, we finished the year with an unprecedented balance sheet that was far stronger and debt-free relative to previous years. Our cash reserves peaked at over $90 million on January 6, 2025, which was up from the approximately $85 million at the end of 2024, while being a solid foundation for investments, acquisitions, and scaling production. We had a clean balance sheet at December 31, 2024, showing no bank debt or convertible loans, along with no overhanging warrants following the elimination of the convertible debt and associated warrants in late 2024 and the first days of 2025. This significantly enhanced our ability to fund growth without dilution risks. We raised over 80 million capital during 2024, leading to strengthened capital resources to support our expansion into post-quantum cybersecurity markets. Carlos has already mentioned FY24 revenue was approximately $11 million, down from 30 million in 2023. And this reflects the company transition from traditional semiconductors to next-generation quantum-resistant chips and the still early stage of the post-quantum market potential alongside the impact of market normalisation following the semiconductor supply chain disruptions caused by the COVID-19 pandemic. The access inventory accumulation by customers in 2023 resulted in lower 2024 order volumes as clients utilised existing stock before making new purchasing commitments. As a final highlight point, I'd like to highlight the research and development and strategic investments in post-quantum security. We increased our research and development expenditure by 1 million year-on-year, so a 26% increase against 2023, despite the reducing revenue year-on-year. This demonstrates the strategic importance of the development of our next-generation cutting-edge quantum-resistant technologies. Our investments in research and development included the high costs associated with certification, which are treated as R&D expenses, emphasising CLSQ's commitment to staying at the forefront of post-quantum innovation. The $7.2 million we are planning for 2025 demonstrates our commitment to staying at the forefront of this post-quantum innovation. All of this resulted in a net loss of 21 million for the year, which is primarily due to the migration from traditional semiconductor products to post-comp and semiconductor technologies and the associated reduction in demand for our products during the year. I'll now send it back to Carlos who will provide additional details on our outlook and growth strategy. Carlos, please go ahead.

Thank you, John. So, as I mentioned before, we really expect the full impact of our growth to arrive in 2026, we will see an improvement in our revenue in 2025 already. One of the reasons of the 2026 timetable is that these new chips require certifications. So the CLSQ post-quantum TPM are aimed to achieve the highest potential level of security in the market with the NIST, and the TCP 2.0 compliance. We're positioning the company as a leading supplier for post-quantum cybersecurity infrastructure at that level of security and certification. Also, we're providing compliance solutions to the European Union Cyber Resilience Act and the U.S. Cyber Trust Mark for device manufacturing, supporting the implementation of the Next Generation Security Mandate. Also, the renewed ISO 2007-1 and the ISO 9001 certification across chip fabrication and PTI operation. And lastly, the consolidation of revenue for strategic acquisitions. So, let me provide a few additional details on those initiatives. So, as was announced at the beginning of the year, we have allocated a fund of $20 million focused on investing in a startup engaged in quantum computing and AI initiatives that could be integrated into all quantum roadmap. So quantum is a very complex market. It requires many small companies components to fully integrated quantum platform. And what we are doing is investing in companies that can accelerate this deployment. So one of them is Colibri, a French company which provides state-of-the-art quantum cloud computing services for industrial and scientific research applications. So with this company now we are able, for instance, to simulate a quantum attack on a cyber security infrastructure and see how we can, with the TPN chips, be able to mitigate that attack in real time. It also provides for organizations that want to benefit from quantum computers without the need to enter into the complexity to operate a quantum computer to be able to plug and play in a managed quantum service. The second is exclusive negotiation. We enter to acquire 100% of IT alts. a leading ASIC design and supply-friend company with revenue in areas related to the design of new chips. This is a mature company, which basically has 100 people in Grenoble, which is a short distance between our development center in France, southern part of France, And it's a company that has a strong client base and very strong expertise in areas such as basic design for the car industry. The third we just announced today with a 30% ownership of CLSQ on WeCan Group, which is a blockchain financial company used mainly by private banks here in Switzerland, providing key KYC on a blockchain. So a system that allows many multiple banks to share the KYC-compliant process by accessing the blockchain and verifying the identity of the bank holder. The same technology is now being expanded into something we call a KYO, which is Know Your Object, which basically replicates the KYC by the object level. So the verification of the object is done before the object can connect to the internet. So, let me move on the expansion of testing and personalization facilities on semiconductor production that has been announced during the last year and the beginning of this year. So, those are facilities that basically personalize semiconductor on national level, and we expect to enter into a formal agreement to commence the construction of the first semiconductor personalization design center in Spain. We are in the final stages for the approval process by the Spanish government entity responsible for the funding under the PERTI budgets, which the name is SETT. So this government company, 100% owned by the Spanish government, allocates the budget in a share format with the investors, then they basically develop semiconductor facilities in Spain. In the U.S., we are expanding direct sales team with a target to enhance our sales pipeline and develop government partnerships in the U.S. available now to us through the semiconductor localization strategy in the United States with a goal to secure a large-scale cybersecurity infrastructure projects. Some of them have been announced as we are looking into the possibility to establish those centers in Arizona as was one of the candidates, and another now emerging now is New York. In the Middle East, we're also working to finalize a joint venture to establish a quantum-ready chip personalization center. In Asia Pacific, I just came from Singapore, and we are in the same process to leveraging the infrastructure already available on semiconductor as we manufacture some of our semiconductors in Singapore to being able also to attach to it a personalization center. And we are leveraging on its later partnerships with leading semiconductor distributions such as DGT, Symmetry, Ukaya, and other companies, and they are adding to or increase sales. We have made significant progress in all of these initiatives, and I am proud to say that we started 2025 on a very strong note with an improved backlog and a strong pipeline, together with a very strong, as John just mentioned, financial position. So, specifically, we have confirmed bookings of 6.8 million as March 20, 2025. reflecting a strong year-to-year growth. Our projected contract pipeline is over 93 million for the next three years with active discussion with 60 new post-quantum TPM customers. It's important to note that any customer that is running major infrastructure, whether it comes from hospitality, whether it comes from hotels and facilities, And client security, whatever it requires for airports, medical facility, government facility, all of them, they are now looking into upgrade their facility to TPN levels to be able to defend a quantum attack. It will be too late if these organizations wait until the quantum computers are available to start defending their infrastructure. So the quantum resilient strategy will soon be forced. and not only a nice-to-have but a must-to-have in order to comply with many of the current cybersecurity criterias. So we have secure, settled, significant new business on public key infrastructure for matter, which is a certification process for homes and anything related to what is inside your homes, cameras, smoke detectors anything connects to the internet those devices which are provided by iot manufacturer and they are starting to be delivered together with a volt 408 iot secure chip and companies like toshiba and landis and gear are using this technology already and expanding the use in smart meters, like the case of Landis and Gear, and also on parking meters, in the case of Toshiba, in very large projects being announced during the year. So, our 2025 strategy is built around four key priorities. One is commercial launch of the post-quantum chip. This is priority for us. As I mentioned before, there are only five companies in the world that they are able to deploy this technology. The entry level is very high, and we are one of them. and maybe one with the most mature technology and with a chip already operational to be tested in the following months. Also, the expansion of the chip fabrication partnerships to increase output and development of quantum resistant ASICs for specific larger client needs and or acquisition of IC-ALP will accelerate big time as they are one of the leading ASIC providers. Executing targeted acquisitions, we expect to be able to complete the acquisition of IC-ALP, as I mentioned, Before, once we have the government approval, as there's a requirement for companies and they are integrating crypto and high-level security to have this government approval in France, so this is something that will take a few months, but we expect that to be finalized within the summer in 2025. And this will allow us to design a new chip for clients and will add, as I mentioned before, 100 top engineers to organizations together with an important amount of revenue, which we are qualifying now, will be communicated in the weeks to come. continue to invest in R&D with more than 7 million has been allocated for 2024 and from 5 million 2025. It's actually a small amount for that level of security that those chips have and the design requirements. But the good news is that we already invested on them. So there's no further investment beyond that revenue, that investment that we are making that is required. So we are in a very strong position because normally This technology takes important investments that have already been achieved and done during the last years. So expanding and scaling the managed PKI, this is recurring revenue that can be added to the cheap revenue, and we are making good insights into the mature compliance process and IoT enterprise security. So before closing, I would like to emphasize that CLSQ remains committed to leading the evolution of cybersecurity and semiconductor security. ensuring trusted digital ecosystem for enterprise government and next generation AI applications. In terms of AI, we are training AI with the data that is collected by those semiconductors. There's important developments there. As everybody knows, AI requires good data, and the data comes from the authenticated devices, the best quality possible data. We are not yet adding that into our revenue generation. That will be added very, very soon. And as we all know, quantum computers will accelerate AI, and that will have obviously consequences on many, many areas, new areas, and they will need to be considered in the future. So with that, I am finalizing my prepared remarks. I would like to open now the call for Q&A, and thank you very much for your attention.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Matthew Kalinka with Maxim Group. Please proceed with your questions.

Thank you. And I have a question and a follow-up. Carlos, you mentioned 2025 revenue growth will come from new sources of CHIP revenue and CHIP personalization services. Should we understand that to mean that we're not going to see a lot of, you know, 2023 customers coming back into 2025 revenue, or are we going to see some level of normalization, or what do you expect in terms of normalization in 2025?

Yeah, so basically there's not really normalization per se because what is happening is, as John said, some of these customers, which will be on the TVM as well, will continue to be customers, are sitting on a very strong inventory on the previous generation chips, right? During COVID time, companies, because they were concerned about the supply chain, acquired a lot of chips. And that's one of the reasons we have $30 million revenue on your chips during that time. And this is actually being normalized now. We never know what's gonna happen, as you know. The situation in Taiwan and the Asian region is uncertain, and that could be at any time become, again, a very high growth on revenue because the company will start to buy chips. But this is one area where 2025, we will still start to see normalization because those clients are coming back and new customers are coming back through the personalization center. The personalization center's advantage is that they localize the technology at national level. So some clients that normally don't buy chips, if they are not being personalized at national level, they have now an option to become customers. And that implies, for instance, in Spain, we have now companies, and they are putting chips on solar panels, you know, the new technology, because they want to use the chip to secure the solar panel, but also to collect tokens, and they are being able to exchange energy tokens between the solar panel and the smart meter. So those are new usage, and they merge at national level. Other Aztecs and companies that could buy more chips for the future, they are waiting for the new post-quantum chip to be available. And we already have the chip, so the chip was demonstrated in New York at the NASDAQ event that we organized. But as I mentioned before, that chip is now being tested, and it has to go very strict certification process like FIPS compliance. And it's nothing we can do there. I mean, we have to wait until those evaluations are finalized in order to be able to sell the chip because that's part of the requirement. But the good news is that we are letting our clients to test the current chip, the post-quantum chip, as a way to accelerate the sales process. And as I mentioned before, we'll start in Q4 this year and we'll strongly accelerate in 2025, 2026, sorry. So that's the situation. I mean, it's like you basically wait for the iPhone 17 to be in the market. before you make a decision on upgrading from the 16 and maybe you just wait the next year. So we are in this kind of scenario on this technology. TPM is very new. The post-quantum chips are totally new concept in the market. That's why CLSQ, if you see the progression of the quantum stocks and you compare that with the CLSQ stock, you will see that they are progressing the same way. It's just enough that, you know, one CEO says, then this is going to be a 30-year sign, and the market crashes on quantum. The other says, no, no, actually, we have already achieved what happened with Google and with Microsoft, a quantum chip. for the quantum computer, so that immediately brings the attention to the people of the post-quantum chip, which is the defense of that quantum chip, right? So it's a very emotional market now. It goes up and down, but what is 100%, 1,000% clear is that we are entering into this quantum era, and we are early players in that era, and the technology is going to be growing and growing as the market is phenomenal.

Got it. I appreciate that caller. My follow-up question is on the 2025 R&D spending that's incrementally up from 2024, is a meaningful portion of that in additional certification costs, and is that hitting 2025, or are you adding engineers, or what is the – can you explain a little bit more behind the ramp-up in R&D spending?

Yeah, as you rightly say, it is actually, the certification process is very expensive. Just for instance, a certification might be $2 million. And you have to do it per country, right? So you have to go market by market. The other element is what we call CLQuantum.com, which is a platform that we are building with the IP that is being integrated into the platform, which is our platform, from other companies. So our model has been that – and that's why we allocated a $20 million – investment fund to acquire and invest in a startup that could integrate their technology into our quantum platform. So the first one was Colibri, as I mentioned, it's a quantum cloud play, very niche. They're French also. This is a lot of this technology, by the way, is available in France. The reason why other companies like Sandbox, and others, they started to acquire French companies, right? it's very fragmented, but this is, if you are able to put them integrating into the Quantum platform, you advance very fast. So this is part of the R&D as well to once we make the investment, then you obviously bring, need to recruit people. And this is a very high level expertise area. So it's plenty of people that will help you to integrate that specific platform into the SEAL Quantum platform. Another example is ITOps. ITOps is a $10 million revenue company. They have very good client of ASIC. This company, as I mentioned, we have signed an exclusivity agreement to acquire them. Everything is being agreed to be acquired. Just waiting now for the... French government to give us the go-ahead. And that will integrate 100 people, around 80 engineers, very specialized in ASIC. ASIC is the design for new chips around customer specifications. And because we are integrating that into the quantum technology, and post-quantum backend will be basically the first Q ASIC, first quantum ASIC developed and integrated into existing company. Those are companies like a car company, then they want to develop their own chip, and before we might not necessarily have everything they wanted to have, and now we can design a chip for them, sur mesure, as you say in French, right? So those are the new areas where, obviously, we will require R&D investment to keep growing and keep adapting to the quantum requirements. Great. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Nehal Shashki with Northland Capital Markets. Please proceed with your questions.

Yeah. Hi. Thank you. Carlos, the $93 million pipeline, typical duration of that contracts are being discussed is three years. Is that correct? Yeah. Correct. Three years. Okay. And so, What's historically SteelSQ's win rate of pipeline? I realize that historically the competitive landscape was probably a lot more intense than what the current post-quantum cryptography market landscape looks like right now, but at least for some sort of anchor point, that would be helpful.

So maybe I'll let John to go into the first part. On the competition, as you rightly say, the fact that we very early entered into the post-quantum play, and we also integrated not only the new quantum crypto, but also some of the other components brought by YSCI, like a quantum root key, you know, YSCI has developed. a unique quantum root key that is now being used to digitally sign quantum CAs, then they are able to issue quantum certificates and they can be embedded into the object, you know, with basically like a unique quantum identifier. So all that has put CLSQ in a very interesting strategic position because we don't have a competitor yet that integrates all those elements. And I'd like John to cover the second part.

Just quickly, Michal, hi. Just quickly, on the pipeline, as you rightly pointed out, that's the pipeline valued over three years. But of course, there are some prospect in there where we believe that the project is going to take maybe until year two or even into year three before it comes online. So in that instance, the valuation attributed to it will only be for the final year. It's a three-year operational pipeline for us. When we win clients in this domain, we tend to find that they become very sticky, so we keep them for a long period of time. So although we're working on a three-year pipeline there, We believe that once clients have won, they will become clients for five, ten years, depending on how long products.

And the way it works, actually, on post-quantum chips is that a client will not necessarily take immediately a decision to put the chips everywhere in their ecosystem. They might start with one product or hardware. And then they scale, like with the case of Cisco, right? Cisco has acquired 175 million microchips from us historically. And Cisco is actually one of the leading companies testing the post-contract chip. Obviously, once the chip is certified and they are happy, they will expand the usage of that chip into their entire ecosystem, right? So, this projection, as I say, revenue can ramp up very fast here as post-quantum is going to be compulsory. I mean, in September this year, there's going to be regulatory moves by forcing companies to be quantum resilient compliant. Otherwise, their insurance premium will be increased, and they might be, in some cases, not even able to sell their object anymore. So this is becoming like the airbag in the car. You know, you have it. If not, you don't sell the car. So we are moving towards that scenario.

Sorry, just to then come back and answer your actual question following that extra background information. So the pipeline, obviously, that includes clients at various stages. So it goes everything from where we have kind of you know, identified an opportunity through to having the conversation, so sort of identified, qualified, design in and design win, and we apply different percentages to the likelihood with design win being where we've already received a purchase order to develop the initial product, at which point we apply around about, say, 50% success rate, because once we start developing the approval concept, then Generally, we find that means we've been selected as the preferred supplier, and then that reduces down to sort of, I think, 20% to 30% on design-ins and so on, and then we obviously weight the pipeline accordingly.

That's very helpful. Thank you, John.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. I'm sure we have no further questions at this time. I would like to hand the call back over to Carlos Moreira for any closing comments.

So thank you very much, and thank everybody for joining the call and your interest in CLSQ. So please feel free to contact us anytime you need more information. You have an investor site on CLSQ.com. with all the information, including the annual report, and we are available for any one-to-one call with investors or shareholders or anybody that will like to learn more about our development and company. Thank you very much for the moderation and organizing, and Lina and Jen for organizing this call.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.