WISeKey International Holding Ltd

Welcome to Wise Key International Full Year 2021 Financial Research Earnings Call. As a reminder, this conference call contains a forward-looking statement. Such statements involve certain known and unknown risks, uncertainties, and other factors which could cause actual results, financial condition, performance, or achievements of Wise Key International Holding LTD to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statement. Wise Key International Holding 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. At this time, all participants are in the 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 Carlos Morella, founder and chief executive officer of WiseKey. Thank you. You may begin.

Thank you very much, and good afternoon to all of you joining Front Europe, and good morning from the United States. So just to mention that last year, 2021, was a very transformative year for Wysky. As you recall, the entire industry, the semiconductor industry, has been disrupted during the COVID situation as all the supply chain logistics was paralyzed in many countries. And we do source our microchips from Asia, from Taiwan in particular, and Thailand. And we had, obviously, the situation where many of our clients were not able to deliver them due to the shortage. But this is being recovered. Despite that situation, we managed to deliver a $22.3 million in revenue, which compares about 2020 with a 51% growth in the company. We could have even delivered more. We have about $5 to $7 million that was not able to be cashed in due to the fact that we could not deliver the client. But the good news is that we managed to recover that in 2022. Just as I recall, the audience, WiseKey operates now three verticals. One is the traditional vertical, which is our security. We have 23 years' experience in running cybersecurity projects. That includes identity management with our own cryptographic root key, which is a dominant one. Something like 5 billion devices have now the WiseKey cryptographic root key embedded. Those are browsers, operating systems, some documentation tracking devices, everything which basically dematerializes can be embedded with the root key of WiseKey. This root key is at the same level of companies like Symantec, VeriSign, and others. Then we have the other vertical, which is IoT. It's a very fast-growing vertical. This is where our main revenue generation comes from, which is the possibility of embedding semiconductors into devices, devices as laptops, smartphones, routers, modems, drones, gaming consoles, have a necessity to be secured by those chips. In the United States, we have a very powerful demand for those chips now as more things are getting connected to the internet. And if you don't secure the object with that technology, the object becomes a threat. It means that hackers can hack unsecured objects and through that object get into the infrastructure. So new sectors emerging with revenue in in 2021 and increasing 20 times in 22 are from the health sector we managed to enter into this sector which is now realizing the danger of not securing the objects imagine a pump insulin being hacked in a hospital or a scanners or life supporting equipment being hacked by the hackers and and basically stop to function that basically has, you know, death and life consequences. So liabilities or insurance companies are now requesting that this technology is available in the product even before they're covering the insurance part of the product. In that area, WiseKey is very big. We have 1.6 billion secured chips already embedded in high-tech products. And those chips are slowly being connected to the internet. Not all of them, they are connected to the internet. Many of those devices are not yet connected to the internet, but the manufacturers are all of them moving towards connecting devices to the internet because this is the best way to monitor the performance of device, the security of device, the monitoring system of the device. And this is an area which is growing very fast. Actually, on that specific area in 2022, WiseKey has seen very strong demand from main clients in the United States. Then they are increasing their request for microprocessor over 170% of the previous request. So for us, obviously, being in the United States this year is going to be a major priority, and the company is working towards that. The company has also a very strong year in what we call the combination of cybersecurity, IoT, and NFTs, although some people have concerns about the NFT expansion. Actually, our stock was influenced by Mimi Socks, you know, because when we announced the NFT last year, our stock progressed enormously. and then decrease it because there was a high speculation in the market, especially on investors, on NFT companies. But we are not the traditional NFT company that just put an NFT on a marketplace. We are the security company that NFT plays use in order to ensure that the objects are not hackable, cannot be replaced or stolen from platforms. In the last weeks, they have been Anonymous and very large platforms trading at $10 billion and they are losing NFTs and they are getting hacked in the case of wise key. We ensure as a cybersecurity company than those NFTs and we are now publishing and selling in a platform with the name wise dot art are secure because they include or cybersecurity or identity managing and in some cases. like the case of bringing physical art to the metaverse, we're also now able to digitally tag the original. Actually, yesterday, just as an information, Waisky launched a NFT with a Spanish museum that they NFT with our technology, a very famous letter from Christophe Colomb when they discovered America. And that letter was valued by Christy $400 million. And they wanted to create an NFT of that letter. And obviously, they want to be sure that the technology they will use will be a technology that will not be possible to hack or replicate. There's a lot of fake copies on NFT. So Wysky entering to the NFT will allow objects to connect directly to the blockchain and being able to mint directly from the original. So imagine a painting that will have a microchip of Wysky installed. That painting will immediately establish a NFT minting process in our WISE.R platform. And with that, that object can be immediately on sale through what basically we call the digital twin of the object. This obviously accelerates also the deployment of microchips because more NFTs you're going to be able to load into the platform, more chips you are going to be selling, more identities are going to be collected. And WiseKey also through the NFT vertical is able to generate a different revenue model than just selling a technology, microchips or cybersecurity as we are getting 20% of the value of every NFT sold in our platform. And we return 80% to the artist or the museum or whoever has the ownership. This sector is also evolving in other areas. We are seeing now NFTs for industrial properties, intellectual property, real estate, luxury watches. So the NFT is actually becoming dominant and we believe that we are entering into the fourth industrial revolution. we are entering into the NFT of everything and where every single object will have an NFT minted on the blockchain because that's the best way to certify and verify that the object is actually a genuine object. We're also looking into the possibility of using NFT technology for identity management. This is very unique. Today, Elon Musk has announced and Twitter wants to be the platform that will verify and authenticate everybody on earth. That's a huge consequences for neutrality and ownership of your identity. You don't want a platform to do that. So the model of WISC is much more human centric, is that you want your identity, you want the control of that identity. And with that identity, if you create an NFT with that identity in the blockchain, everybody, anyone can verify that identity without the need of you compromising the ownership of that identity with a platform. So, as I mentioned before, the company is still investing, although we announced an EBITDA loss of $20.7 million. A lot of that loss, US GAAP accounted loss, is actually investment we made in areas such as artificial intelligence and also in areas such as PicoSatellites, a wide-scale launch. We invested last year, but we launched this year, generally this year, Or on satellites, we have now 12 satellites in Arvid, and we're going to have 88 before the end of the year. We are launching satellites again in June. And those PICO satellites are IoT satellite tracking devices. So basically what they do, front of space, they are able to track the identity that is stored in the microchip, either directly from the object, which could be a an agricultural object, imagine a tree, then you want to track, or a vineyard, then you want to track humidity, temperature, whether there has been some damage. All that traceability comes from the space. Those Pico satellites collect the signal of the identity of the object and sends that information to control centers, then they can use that information to assess. So this is being used now in areas such as controlling pipelines in case the pipeline breaks. In the distance of the pipeline, that signal is captured by the satellite. Those satellites were launched with SpaceX So that make it possible to launch the satellite because much cheaper obviously those satellites a few years ago would cost you $100 million maybe to send five satellites. Now it costs $200,000 per satellite and the price is going down. We have many clients and they're approaching us to say, hey, can we add into the WISE, we call that WISE-SAT, constellation of satellites means that they will be able to use the satellite for their need while they share the connectivity with our needs as well. So this becomes like a collective approach to use those satellites. We expect that to become a major growth area to WiseKey. We have invested a lot on R&D. We have developed new chips like the Volt IC 292, which increases the security, and the Volt IC 408, which is a new FIPS compliant 143 level 3, which is the highest level on certification. Those very high-end chips are used for critical missions like drones. WiseKey provides the chips for, for instance, a drone manufacturer with a very strong presence in Europe and the United States with the name Parrot. This drone manufacturer actually sells the drones to the U.S. military and also to the French military, and they require that kind of chip in order to ensure that the security of the drones are maximized and nobody can hack We are also investing. We did a lot of investment last year, but especially this year in what we call post-quantum cryptography, that they are resistant against quantum crypto analysis because quantum is coming. We are in three years in a quantum era, and we need to anticipate the future of cybersecurity threats. So working in cooperation with the American National Institute of Standards and Technology and the European Union Agency for Cybersecurity, we are now in the process of generating our own post-quantum chips. that will be a chip that will have a much higher resilience than the current one. As you know, the cyber war going on now between Russia and the rest of the world is a high concern because the critical infrastructures are being threatened now. This is not only hacking your data, this is hacking a hospital, hacking the electrical grid, and we need to secure the objects. I mean, there is absolutely no way to secure an infrastructure by software only. You have to go object by object, put the chips on the object, make sure that the identity of the chips are not able to be compromised. And this is the area where WiseKey is making an important development. We also invested into an AI company with the name Arago. That part of the investment was done to integrate the Arago AI capability into the IoT capability. Arago does many things, including including automation, which were less interesting for Wyski because that diversifies too much our offering. So what we basically focused was to integrate the hero, H-I-R-O, which is a human interface AI algorithm into the IoT backend of Wyski, which we call that I-N-E-S, which is the software that runs all the IoT operations. And the reason why is because we generate a lot of data And this data has potential value when you analyze that data through AI as you can detect vulnerability issues. You can also anticipate threats. You can also provide data analysis and provide a much better support to our clients. So we developed a joint product with the name Wise AI. Wise, by the way, means World Internet Security. And this AI, it's been now fully integrated. We just announced, and I give that as all of that happened just recently, we just announced that WiseKey is selling the 51% of Arago uh we didn't want to own the entire company and we rather provide the cash that we got from from the sale to reinforce or semiconductor iot nft play which we believe is unique in the market and we believe is the one that will allow the company to uh to grow much faster and and and better we are disappointed and i make that point because obviously i got several calls with the current valuation of wise in the stock market i mean it makes absolutely no sense uh wise key has nearly more cash in evaluation And there are many factors for that. Many of them, you know them already because this is the entire sector suffering that. The EV, the enterprise value is nearly nil for companies, mid-cap companies. We expect this to be corrected very soon, hopefully once the war is over. We also had two years of COVID in the middle that obviously put a lot of pressure on the stock. And we have made acquisitions and those acquisitions, part of that has been done with shares. So all that has created an overhang on the stock, which has decreased tremendously. But companies like Wisekish will be trading at six times revenue. We are trading at one time revenue. So you see the potential upside there. And we are trying to correct that and we will be providing very concrete actions in the next weeks before General Assembly. So we will present to the shareholders a plan of recovering the devaluation of YSK and present a very powerful three years to five years plan where you can see YSK becoming a major leader in the areas that I just mentioned. So without taking any longer of your time, I would like to pass the call to Peter Ward, our CFO, who will provide details on the 2021 financial result. Peter, please go ahead.

Okay, thank you very much, Carlos. Yes, I will give you some more information on the financials that we've performed. As you can see, 2021 was a very positive year for Wysky, with revenues growing by, as Carlos mentioned, 51%. from 2020 to reach $22.3 million in 2021, and finishing with a very strong liquidity position with a total cash balance of $34.4 million at year end. The cash and cash equivalents together with the restricted cash of December 31, 2021 was $34.4 million compared to $21.8 million in 2020. This reflects the group's continued drive to maximize cash reserves and ensure that it has sufficient liquidity to be able to support its operations and investment strategy, such as its investment in Arago and the development of its WiseArt NFT platform. This has also been essential for the investment in Arago in February 2021, when we acquired 51% controlling interest, as Carlos mentioned. Arago's original cost structure was very heavy. and Wysky's management has invested resources to streamline it and to resize it in line with its revenue activities. In total, Wysky invested around $7.5 million in Arago's operations in 2021. The group also entered into new funding arrangements with L1 Capital and Anson during the year and continues to have funding arrangements in place for the fund of Yorkville. As of December 31, 2021, these facilities provide the opportunity to draw down up to $5 million for L1 Capital, up to $5.5 million for Anson, and up to just over $50 million for Yorkville. So this illustrates the capacity of Wysky to find funding for its future investment and M&A strategy. Now, going back over to the revenue side, again, it was a very positive year for Wysky with revenues growing 51%. Indeed, 2021 had seen a strong decrease in demand as our customers were cautiously delaying their purchasing decisions to gauge the impact of the pandemic on their own market. This trend is now completely reversed, and we have had a very healthy backlog of customer orders since 2020, which actually exceeds our current annual production capacity. The group is making investments in its supply chain to increase its capacity for 2022 onwards in order to meet this strong demand. The acquisition of Arago in 2021 in February also contributed to the revenue increase of 4.6 million additional AI revenue. In parallel with our revenue increase, we have also showed substantial improvement in gross profit with a gross profit margin of 41% compared to 37% in 2020. Our IoT segment has been impacted by higher supply costs caused by the worldwide shortage in materials and components. However, our strong partnership with our customers has allowed us to increase our selling prices to take into account the majority of these higher supply costs. And we continue to focus on making our cost base leaner, which also contributes to the improved cost margin. Most of our revenue is generated in North America, which is why Wysky has developed its sales team in the U.S. and is still looking to strengthen its presence in this area. We're also working to develop new revenue streams with our Wysat constellation of PICO satellites. allowing for identification in remote, low connectivity areas. And our WiseArt NFT platform with built-in authentication of digital identities, which makes it one of the most secure NFT marketplaces and platforms. The group's operating loss increased by 8.2 million year on year, going from 18.5 million loss in 2020 to an operating loss of 26.7 in 2021. This is mainly due to the consolidation of Arago's results since February, with Arago's operating expenses totalling $7.2 million for the 11 months to December 2021. Although we remain attentive to reducing our cost structure, we are also committed to investing in both our sales and marketing operations to develop our sales force, and also R&D of new products such as post-quantum cryptography and development of our WiseArt NFT platform to ensure that we maintain our technology edge and respond to the evolution of the demand in our markets. We also know that we have significant non-cash expenses in 2021, such as stock-based compensation of $3.8 million and higher M&A-related expenses due to the acquisition of our 51% interest in ORAGO. For our group, being technology-driven, the level of our R&D expenses reflects our engagement to act as a leader in new cybersecurity developments and future applications. We expect our R&D expenses to remain a significant portion of our overall expenditure as the group continues to invest in new products. Our 2021 R&D expenses include these expenses related to the development of further applications for our new and existing products and technology, such as our new WiseArt NFT platform, VoltiTrust, WiseID, and NanoSeal IoT. WiseKey continues to strengthen its sales and marketing team, We recruited three new members for our US sales team in 2021 and doubled the size of our European team in comparison to 2020. These investments in sales have started to bear fruit, with a backlog of customer orders totaling $39 million at the start of 2022. Our G&A expenses increased by $8 million in 2021 compared with 2020. The increase is due to three main factors. $4.7 million additional G&A expenses from the consolidation of Arago since February. Stock-based compensation of $2.5 million recorded in G&A in comparison with only $200,000 in 2020. And an increase of $600,000 in legal and professional fees of the parent in relation to the acquisition of a controlling interest in Arago. The group made a net loss of $24.1 million in 2021 in comparison to a net loss of $28.9 million in 2020, hence a net decrease of the loss of $4.8 million. The variance was mainly due to the one-off credit of $5.6 million in non-operating income corresponding to the reclassification of the fair value adjustment on the convertible loan with Arago at acquisitions. We also note that the net loss of $7.1 million in 2021 added as a result of the consolidation of Arago was offset by a one-off $7 million impairment charge in relation to investment in Tarmin recorded in 2020. As discussed earlier, the main highlight is the liquidity reserve that the company has been able to build with a total cash balance of $34.4 million referring to the balance sheet. As far as receivables are concerned, despite the 51% increase in revenue, our day sales outstanding, DSO, which is the average number of days that it takes a company to collect the payment for the sale, has actually decreased from 64 days to 49 days in 2021. This shows the good quality of our additional sales and our ability to negotiate favorable payment terms thanks to strong customer relationships. We have also reduced our day sales of inventory from 110 days to 96 days in 2021, which shows that the revenue growth has not impacted our inventory management processes. With a long manufacturing cycle in the semiconductor industry, especially as our products are highly tailored, we expect our inventory to remain at relatively high levels with 2.7 million at the end of 2021 compared to 2.5 million at the end of 2020. Finally, on the liability side, Our total convertible notes liability was $9 million at the end of December 2021, compared to $9.3 million at the end of 2020. The convertible notes outstanding at year end 2021 related to the L1 and Anson, L1 Capital and Anson facilities, with respectively $3.1 million and $5.9 million outstanding. We also note that the deferred income tax liability of $2.9 million at the end of 2021 relates to the acquisition of our 51% interest in Arago. With the sale of Arago, this liability will disappear. So with that note, I am finalizing my presentation. I would like to return now to Carlos, or the moderator, for further questions.

Thank you very much, Peter. So if there's any question, I'll transfer back again to the moderator to process with the question. Thank you very much.

Thank you. 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 if you would like to remove your question from the queue. And for a participant using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Matthew Galenko with Maxim Group. Please proceed.

Hey, thank you for taking my questions and congratulations on the close to the year. On the capacity on the IoT segment, you talked about, I think, trying to expand that internally as well as sourcing what you need to source externally. Can you talk about what your capacity is to deliver on the order flow that you're generating today and the demand that you're seeing today?

Yeah. Hey Mike, nice to talk to you again. So, so as I mentioned, the, uh, the money's coming actually from the United States. There is where we are seeing, uh, with existing clients that they are just increasing substantially the number of objects connecting to the internet that has already your technology. So those are clients then they are already loading or chips into their hardware. And now they are increasing the number of hardware themselves they are selling. So this is representing 170% increase. And they are coming from different sectors. They're coming from, for instance, Cisco. Cisco is one of them. And this is public information. So we announced last year that we have reached already 100 million chips sold to Cisco. And Cisco, because Cisco is the plumber on the internet, basically, everything goes through Cisco routers. the number of routers are increasing because the cybersecurity concerns are increasing as well. So that is a normal growth there. In order for us to cope with that demand implies two things. One is maintaining the supply chain as active as possible. And this does not always depend on us. Look what is happening now with Apple and China with all the boats locked into Shanghai port. So we are lucky that we don't have anything in China. Everything that we have is in ASEAN and Taiwan, and we don't have, for the moment, any major issues there, although COVID is affecting them as well. But for the moment, that's not affecting us. So we should be able to cope with this increasing demand. The other factor is that WISC is actually pushing the European Union, and actually even in the United States, the possibility of creating capability both in the United States and in the European Union to manufacture IoT chips. This is not a, I mean, it's a very large investment. Obviously, that's why he cannot do it alone because we are talking about hundreds of millions of dollars, but it's an investment that needs to happen. Otherwise, the United States and Europe will be subject to all sorts of potential risks in the future If something goes wrong in Asia or in China or in Taiwan or China invades Taiwan, I mean, this kind of thing, that will obviously be a very dangerous situation. So the European Union has launched what they call the ECHIP Act. So the ECHIP Act, it's a $34 billion investment by the European Union in companies than they have microchip technology so uh we obviously lobbying with them to say okay we are we are this company we have manufacturing capabilities and we would like to expand or reach we are both in in europe in europe because uh switzerland is not a member of europe so there we are in france with the whiskey semiconductor and we would like to expand all capabilities also in the united states and we are loving in the same way with the u.s government So this is going to be something that we need to observe because, as I say, microchips is affecting everybody, including if you buy a BMW car now, you have to wait six months. Why? Because they don't have enough chips. And this is something that is also a big opportunity for Wyski because if you're trying to buy now chips from our competitors like Arm or NXP, you will have to make a $20 million order. Otherwise, they don't even take care of you. In our case, they can come in with a million-dollar order, right? So we are collecting these customers, and they don't have the possibility of getting served in the other competitors. So that's the situation.

Got it. Thank you. And maybe on that last point that you made about picking up, you know, kind of some of those million-dollar orders, how many of those are out there? I think you referenced a million or a million-three a week of new orders per week. Correct. So how much of those million-dollar orders are out there that you can continue to go after versus sort of those 20 million orders? And at some point, if you're able to expand your capacity, are you able to go after those 20 million-dollar orders, or is this environment kind of unique? And once supply chains are a little more fluid, then it's going to be tougher to take market share again.

No, actually, Cisco could go directly to a very big player, right? The reason they do with us is because we serve them better and we have been providing a better service to them than even the big players. The 1.3 is not necessarily a small account. Those are actually large accounts that they want to, you know, every – every month, they allocate a number because we have to distribute the amount of chips we have in production with the demand. The demand is much higher now than the production, right? But because we are diversifying, we have now possibility of manufacturing in Taiwan, for instance. We didn't have before. We are going to have possibility of manufacturing also in the United States very soon. And this is part of my plan for this year and next year to have our own localized manufacturing capability, either our facility or somebody else's facility where we are teaming. Those IoT chips are very highly specialized chips. There are not many. I mean, it's only five companies in the world and they have that type of technology. And the big players like ARM and NXP and others, they are more into the high-end chips that they are not IoT chips. They are more like connector chips or hardware, computer chips, and things like that. So this market of IoT is a market that just started about a few years ago. We didn't have things connected to the Internet before. But it's growing very fast. This is the fastest-growing market. I mean, those chips are very low-cost. We are talking about millions of chips than they are. ranging from uh you know one dollar to to ten dollars thirty dollars depend where you're putting the chips on the on the specifications of the chip but but what i mentioned in the in my presentation i think this is a big opportunity is that chips can also run nft so you can do an nft before you do the chip right so if a client says hey i have my entire supply chain i want to provide identity to all the objects i produce because i want to have inventory on the on the cloud You don't even need to put chips at that point. You just say, okay, let's issue an identity for every object that you have. Let's create an NFT. And gradually, not for the old objects, for the new objects that you're going to be manufacturing, in plus of that, we're going to add in new chips. So you can also go and sell the software part of it without the need of depending on the chip.

Got it. Thank you. That's very helpful. Last question for me before I jump back in the queue. Just on the sales, um, of the AI, uh, stake. I, I, I'm, I apologize, but I couldn't quite, uh, understand if that's already closed or what, what's left in the process to close that transaction.

Yeah. So, so the transaction is, uh, is based on German low because this is a German, uh, German company. And, uh, we saw based on German line, German low, uh, the, uh, moment the transaction becomes binding is when you sign with the notary and you verify the signature so that has been done and this is where we announce that because at that moment it's material information and we do have to have an SEC filing and an announcement So that is done. So that means that the transaction is binding, is operational. Now, WiseKey is in the process of doing KYC on the money itself. We are now in Europe, I'm sure also in the United States, but with the Russian situation, you have to look very much in detail about every single transaction, and that takes a few days more. So we should be able... to announce very soon the finalization in terms of getting the cash, you know, getting the money. And this will be announced within days as soon as we do or lawyers do all the verification work.

Thank you. That's very helpful.

Our next question is from Kevin Deed with HC Wainwright. Please proceed.

Hi, Carlos, Peter. Thanks for having me on the call. Hey, Kevin, nice to talk to you. Yeah, always a pleasure, sir. Could you just give us a little more insight on the satellite initiative? How are you packaging that? What sort of investment did you have to make? I mean, when I say packaging, I mean how are you presenting it to potential customers? Are you using or partnering with other enterprises? Do you guys actually own the satellite? Is it a consortium? Just some more detail on that so we can understand the business case a little bit better.

Absolutely. So the story of that is that there is a company, a startup company in Madrid, in Spain, run by a very young team. They are under 20, actually. It's an amazing team. that developed a hardware solution with the name FOSSA, F-O-S-S-A, which is a very tiny hardware satellite. So basically, they developed the satellite component. And this company came to us as a way to say, we have this project to launch a Pico satellite, those IoT satellites, But obviously, we are very small and we don't have security. We want to be sure that those satellites are robust enough in terms of cybersecurity to do what we intend to do, which is IoT tracking. Obviously, when we invested on them, so Wysky acquired 15% of that company through an investment we made. And then we injected further cash. as a way to create what we call the YSAT, you know, which is we actually added our microchips into the satellite. So the satellite has now the possibility of storing a digital identity, which is a unique key that is the one that encrypts the data between the satellite and the receptor. The receptors are our antennas. Then you will put, let's say that you have a pipeline and you want to put hundreds of thousands of chips, to monitor the pipeline consistency and there has not been any leak or any issue in the pipeline. And each of them has an antenna, a micro antenna, which connects to the satellite. And through that antenna, you check all the time the chips in an IoT place. So this is done also in agricultural projects. We did a project in Spain with olive trees. Then they want to track and trace olive trees from space. And why this space is because the space is much cheaper than 5G technology. The only option you have to do the same thing is by putting 5G antennas, which are very expensive. And it's a lot of pushback in many countries because they are concerned about the consequences of 5G antennas on the human health. So satellites become a total options to that. So that's what we did, right? We put the chip. We then work with SpaceX to send the satellite because we have to send it to orbit. We did send in January. That was an amazing experience. And this was sent at the same time than Musk. Elon Musk was sending Starlings, you know. So those satellites are sent at the same time. And now we have our own constellation of satellites. I obviously, as a company, we don't want to be a satellite company. The reason we did that is that We can go now to our clients, and they want to track their objects. For instance, we have clients in the agricultural area, but also in solar panels. They want to analyze solar panels, if they are functioning or not functioning in a very big solar panel installation, or you have cargo in the middle of the ocean. You want to monitor the cargo situation. the cargo containers to be that the container has not been opened. Integrity of the container has not been compromised. So we are putting satellites in all these new places because those satellites are tracking those devices. And we offer our clients the possibility of launching co-branded satellites with us. So let's say then the FedEx wants to track parcels and they don't want to launch their own satellite, need to develop their own satellite because that would be time consuming. So we can team with companies like that. They, we give them the satellite, we give them the technology, we give them the managed service and they finance the operation of launching a satellite. Launching a satellite Pico satellite is, is around a hundred to $200,000 per satellite. The life, the lifetime of a satellite is three years. After three years, they decompose in the atmosphere. So you have a three years window to, um, to basically, um, Amortize the investment. But as I mentioned before, the option, other option is 5G and 5G is very expensive because you have to build antennas and all that. So it is much more competitive if you are doing IoT traceability. And I think it's going to be the future. It's also a way for Wysky to enter into the space, you know, for technology companies. You need to have a spatial strategy because in the future a lot of the hardware is going to go to the space, including cyber security. On the satellite, for instance, we are working on R&D now with Microsoft has acquired one satellite to do Microsoft R&D is actually looking into the satellite operations. And they are looking into the possibility of using. We're also looking into the possibility of teaming with drone companies because we already secure drone companies. So drone and satellite plays very well. Anyway, it's going to be a major use. Another new use of satellites, by the way, is the possibility of putting nodes or blockchain nodes in the space. Blockchain nodes cost a lot of money. to be maintained and secure on earth because people can walk and hack whether bringing a node at the satellite level and convert the satellite into a node a blockchain node is actually much more secure um and and cheaper and and that those are new potential use of this technology you will see a lot of uh a lot of uses of this technology uh expanding actually wise key is hosting the uh Financial Time Investing Satellite event in London in June, sorry, the 5th of June. And the entire industry is there to try to learn how to use the space for technology, traditional uses such as IoT.

So, Carlos, are you marketing YSAT separately or with partners such as SpaceX and FASA? Or are you pretty much trying to do all the heavy lifting yourself?

No, no. We wanted to create the satellite. So the satellite is there. FOSA now is still manufacturing that satellite. We don't want to move that expertise from them. They are the one improving the satellite, manufacturing the satellite. We do all the security layer and the software layer to connect the satellite with more processes like identity verification, PKI. We actually, we did the world first with the Brookchill on where we issue an NFT that was minted using a key that was sent from the satellite. So those are the amazing thing that we did just to prove that you could use the satellite as a way to activate an NFT. And this was launched at the NASDAQ event, the opening bell that we organized that captured a lot of attention. So we don't want to be hardware satellite manufacturer. We want to be the cybersecurity IoT player for hardware. Obviously, it's part of our agenda to use FOSA because we're also investors in FOSA, but we could use anybody. I mean, anyone that now sees that technology and says, hey, I have satellites. I would like to enable those satellites with the YSAT technology developed by Wyscape. We will enter into relations as well with them.

Can we talk a little bit more about cybersecurity and particularly your investment in quantum proofing the network? Can you talk a little bit about some of the investments you're making there and when you think they'll get to market?

Yeah, so, I mean, quantum is not so much selling quantum itself, but selling the new generation of post-quantum chips. So the idea is that the chips will be threatened by quantum computers once they arrive into the market, because quantum will be able to break a lot of the existing crypto. And the only chips that they are going to be able to survive that environment is chips that they have already a post-quantum capability means and they can resist a quantum computer attack cyber attack because there is uh technology into the chips and it's already designed to provide that type of defense so this is what they call the post-quantum um technology that is embedded and we are dealing with very big players i mean this is a consortium of companies uh we cannot disclose the ad because it's not being uh announced but those are very big concertions of companies that They are all very concerned about quantum technology because their business could die if the quantum arrives. So this is a big investment from our side, but it's also a consortium investment. I am actually organizing in Davos in a few days, the 25th, an event with the Tech Accord, which is the Microsoft Techaccord group, which is a very large consortium of companies that was initialized by Microsoft. And now it's everybody, Cisco and SAP, all the major companies, which is going to be mainly discussing about this issue, right? How we can make cyber security resilient to quantum attacks. And as we are in a cyber war situation now, you know, on daily basis, due to the situation with Russia, the attacks are very, very nasty attacks and you need to bring your technology to that level. So we are still small, so we could put more money into that, but obviously then we are accused that we lose too much money. So this is a cash and act situation because you need to keep investing in this type of high-end technology in order to make revenue, right? So this is an area where WiseKey is going to inject a substantial amount of money. The good news is that we are sitting in a very strong cash position. But the good news as well is that those chips will sell for a much higher price with higher margins and higher quantities, right? Because post-quantum chips are going to be required everywhere. You won't have one object without the need of having those chips.

Well, from what little I know, Carlos, you're trying to use like a lattice design, but it's very compute intensive. I imagine the tech guys are all over that. I'm just kind of wondering, what do you think the timeline is?

So for post-quantum cryptography, that is resistant against quantum cryptoanalysis, which is what it is now. The time is now. You know, this is the... This is the top concern now of the American National Institute of Standards and Technology, NIST, right? And it's a NIST-compliant process. So that is now. What you're saying is more in the back end, is the computer itself. You know, when you're going to have – to be honest, it's very vague. Some people say that some governments already have that computer. People are saying that China already have that computer. Some companies like Google and others are very close to have one, or maybe they already had it. The question is not when you're going to have those computers. The question is going to be when those computers used by a hostile player are going to be able to harm others, right? And that's why you need to go into this post-quantum cryptography movement for making your devices resilient against cryptoanalysis. Quantum cryptoanalysis is a very powerful software function that basically allows with endless capabilities, they cryptoanalyze your deficiencies in your infrastructure, right? So imagine a massive CPU analyzing J.P. Morgan failures, right? And once they detect the failure, attack those failures with the same massive power or computing power. So this is an area that cybersecurity companies need to focus on. immediately and wise kids doing it. I mean, we have already three years of post-quantum, uh, you know, analysis and that's why the big players are coming to talk to us because they, although we are small, but we are very, very strong on that. And I have an amazing team in France working on this.

So of the, of the three main revenue drivers, cybersecurity, uh, embedded semis and the NFT combo work you're doing with IOT, which one do you think will be the largest drivers of revenue this year?

So it still is the embedded microchip technology because, I mean, we are benefiting from the fact that we have very good customers, and they are all of them increasing the number of connected devices. I mentioned Cisco, you know, Medtronics, Pyro, all of them, the way it works is at the beginning, they say, okay, we want to test the, or, or devices connected. We're going to order, I don't know. I, we produced a million drums, but we're going to start with 1 million of them, right? That's the way it works. But then when they realize the benefits they have in terms of increased security and also the benefit they have in terms of marketing, you know, because they, if you Google pirate whiskey, you will see, they made a huge, uh, Foss about the fact that they are cyber secure by by wise key because they need to bring that type of Reassurance to their clients and their clients as I mentioned before is the US military, right? So so this is going to keep growing and the NFT actually I don't see the NFTS a Separated revenue. See how much money are you making on NFT? NFT is an incentivation to buy more embedded semi chips because you want to do an NFT from the object So it's a new way to approach the brand. So for instance, when we go to talk to luxury brands, uh, before the major argument was, um, uh, counterfeiting and things like that, to be honest, not many of them pay attention to that, but, but, but they do pay attention to bring them to the metaverse. That's a, and that's a new, okay, I understand the value of my watch to have a metaverse, um, NFT presence. And therefore I am willing to buy your chips because your chips are going to be able to, uh, allow me to be on the metaverse directly from the device. So this is the new trend. We will also make money on the platform itself because, as I mentioned, we get 20% of all the revenue. Those platforms are very, you know, OpenSea is trading at $10 billion, right? And OpenSea just got hacked last week and is getting hacked nearly every week now because I guess they are not really a cybersecurity-conscious platform. infrastructure you know they are just a platform they are learning now the consequences of doing nfc trading and auctioning in a platform without having the cyber security and knowledge and experience that whiskey has so but despite that look at the difference i mean they're trading at 10 billion dollars look how much are we are trading right so so the market does not necessarily understand yet uh and the investor community doesn't understand yet the the uh the uniqueness the nft brings for cyber security company and this is this is the message we want to send more nfts are going to be there more we are going to be growing on both of the other two verticals, which is embedded microchips and cybersecurity on those chips.

Thanks, Carlos. Peter, just two questions for you quickly, please. I'm going to take everybody's time. I think you mentioned $7.5 million investment in Arago. Could you kind of sum up all the – the investment that you made there, I mean, is that 7.5, the total, and then what was the agreed sale price for that 51% that you owned?

Um, yeah, I mean, the 7.5 million was essentially the, um, uh, carrying costs of the, um, daily sort of, uh, or weekly sort of cash burn that they had over the period. Um, So because they, again, are also doing R&D development work that they don't actually see progressing in sales. And so that was in addition to the original $5 million that we used to acquire them, the 51%. And I don't know if we can actually give you the price yet, but it is certainly a multiple... Okay, yeah, I mean, fair enough. It's certainly a multiple, you know, of that.

Well, you're hosting another call in, I think, a week and a half or something, so maybe at that point we can talk about it a little bit more.

Oh, absolutely, yeah. I mean, we would expect something to happen. Well, we were expecting something to happen confirmation-wise today, but I would imagine middle of next week we would be announcing something.

Understood. And then what was the average share count for 2021? I know it's in your documents, but I just couldn't pick it out easily.

Yeah. It's not a number that I have in my head, actually, but I mean, no, I don't.

Okay. I'll circle back with you. Not a problem.

Yeah, yeah, sure.

Okay. Thank you very much. Thank you, Carlos, for for all the detail. I really appreciate hearing that. And thanks for entertaining my questions, gentlemen. Good to talk to you both.

Thank you, Kevin. Good to talk to you as well. Wish you the best.

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

Okay, so thank you very much for your questions and for the audience. WiseKey has all those reports in our WiseKey Investor website. We will be keeping informing and we will soon announce the general assembly of the company. So you are all invited to access also remotely as we will organize this year again due to COVID situation remotely. So thank you very much for the moderator and for Lina or IR in New York for organizing this. All the best.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.