WISeKey International Holding Ltd

Greetings, ladies and gentlemen, and welcome to the Wise Key International Full Year 2022 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 could cause the actual results, financial condition, performance, or achievements of WiseKey International Holdings to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. WiseKey International Holdings 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 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 call is being recorded. It is now my pleasure to introduce your host, Mr. Carlos Morera, founder and chief executive officer of WiseKey. Mr. Morera, you may begin.

Thank you very much. Good afternoon to all of you joining us today from both Europe, the United States, and in some cases from South America. I am joined today here in our call with our Chief Financial Officer, Peter Ward, that he will be providing a financial briefing after my introduction. Before the opening floor, we will also have a Q&A on which we will discuss growth opportunity for 2020. and beyond. So 2023 was a year of major milestone of WiseKey, but it's also a transitional year as we made the strategic decision to operate as a holding company of several distinctive operational company that has been operated by WiseKey since many years, covering the full spectrum of WiseKey related technology. So currently holding company structure WiseKey has four companies. One is WiseKey SA. SA means Societe Anonyme in French, which is the original startup, which is very much focused on everything which is cybersecurity, public infrastructure, digital identity with a very famous digital identity project with the name WiseID. Then we have the WiseKey Semiconductor, which is the name of this company has been renamed to CLSQ. S for semiconductor, Q for quantum, which is a company that has been a spinoff from the holding company and is now in the process of doing its own listing on the NASDAQ, the 26th of May, and on which last week the shareholders approved the spinoff and the listing on the NASDAQ. Then we have two startups, and they have been added during 2020. One is YSAT.Space, which is a space technology PicoSatellite company. So this company has launched, in cooperation with another startup with the name FOSA, 13 PicoSatellites to space using SpaceX. So we have now 13 PicoSatellites in low orbit that they are being used to collect data from the sensors that we are installing in all sort of equipment, and we'll come back later to that. And then we have another company with the name Wise Art, wise.art, A-R-T, which is a trusted blockchain NFT platform. So this company acts as a major marketplace for NFT technology. People, organization, art, museums, galleries are using this platform to buy and sell which, as you know, is growing very fast. And the reason why those companies are attached to WiseKey and we believe enrich WiseKey is that they act as a platform, means that the products and services of each of them, they are also accelerating the growth and the revenue generation of the others. So the decision to operate as a holding company comes from our commitment to provide a very comprehensive and effective cybersecurity platform. to our customer. We also believe that diversifying the operations from the holding company position holds much better in the evolving needs of cybersecurity market while maintaining a central focus of our core business on securing the internet. As you know, the cybersecurity is growing very fast worldwide as the number of attacks are exponentially increasing. And there is absolutely not enough cybersecurity companies in the present ecosystem that are able to protect consumers, institutions, governments against the ever-emerging threats. So that position of WiseKey, which is already a 24-year-old company, so we have a huge amount of experience, and our cryptographic root key has been already expanded and downloaded over 6 billion times, position us in a very strategic position to provide to our clients this cybersecurity service that is badly needed. Each subsidiary has its own revenue stream and profitability targets. So this is enabling us to focus on its core strength and market opportunity. At the same time, each subsidiary has its own maturity stage. As an example, CLSQ, which is the company that is going to be listed on the NASDAQ the 26th of May, it is a company that is already profitable. This was announced a few weeks ago when we announced the 2022 result for CLSQ. Other companies like Wise Space, Wise Art, they are still on a startup mode. That means that they are building their business model and their ecosystem. The way we sell, they are also different. In the case of CLSQ, we sell microchips, semiconductors, and certification for devices. Whether in the case of Wiser Space, we sell the launch of the satellite, manufacturing, launch and operation of the satellite. And in Wiser, we sell the NFTs inside our platform. So each of them, they have its own business model and revenue model. Over time, the objective will be to gradually IPO each independent company as we are doing now with CLSQ once they reach maturity. This approach will provide its subsidiary with the flexibility to operate independently while benefiting from the resources and support of the parent company, which acts as a holding, as a truly pure holding. For instance, from the holding, we provide financial support, strategic support, marketing, communication, and social media coverage. It will also create a diversified business structure that is better positioned to succeed in the rapidly evolving cybersecurity market. That said, our main focus are, and it is, the Internet of Things and the development of CLSQ semiconductor post-quantum offering through our subsidiary CLSQ. With CLSQ, our goal has been to maximize its potential on the semiconductor, which, as you know, is a very major issue in our current economy, as many governments, including the US government and the European Union, are announcing very big incentives to semiconductor companies that they will help both Europe and the United States to reduce the dependency on semiconductor from Asian countries. Everybody is concerned if ever is a war between China and Taiwan, for instance, that we will be in a total disruption situation in order to be able to manufacture those semiconductor. So decentralization and the possibility of using the United States and Europe as a new hub for semiconductor is not only economic reality, but also a geopolitical requirement necessity. We are excited about the possibility we see in CLSQ with increasing demand for the connecting devices. As you all know, something like 1 trillion devices are gradually connected to the internet, and every one of these devices, they require its own security, as one device which is not secure can compromise the entire ecosystem. Let's say your smoke detector at home or your ring doer opener or any device that is using in your house to provide any type of analytics and services, digital services can be hacked if it's not secure. So this strategy will be more explained into my 2023 forecast and will be provided at the end. So as part of this strategy, we're investing in innovation, a strong customer demand and execution, excellent, really put us in a position on a strength for the future. We continue to see a solid demand in the, as I mentioned, in the post-quantum chip roadmap. So post-quantum is a new generation of chips that they are being developed by Wysky in view of being able to protect the microchips against a quantum attack. So, quantum is coming, quantum computers are about two to three years to be available and commercially available, and whoever owns and operate a quantum computer will be able to decrypt existing algorithms inside microchips. So, being able to provide post-quantum resistant algorithms is essential, and for that, WiseKey has been very active through the CLSQ team by establishing R&D partnerships with leading universities, like they call the mines in France, which is one of the leading quantum universes in the world, and also with international community to find cryptographic algorithms that will resist future quantum computer-based cyber attack. The CLSQ on-chip, on-cloud solution are also provided services with Matter. Matter is a new standard for certification in the United States. that basically forces company to provide a matcher certificate in order to be able to sell their hardware anywhere in the market. So let's say a connected device at home, a manufacturer would like to sell to the market through eBay or whatever. If they don't have a matcher certification, that device will not comply with the legislation. So this is an element that accelerate sales as WiseKey has Matter Certification Plus is a certificate provider of Matter. It's only about 12 companies in the world that has reached the Matter Certification. Many of them, they are very large company in the United States. So we also, as I mentioned two years ago, we invested substantially in blockchain. Blockchain and AI are elements that basically reinforce or platform blockchain because we decentralized identities in the blockchain ledger ecosystem. And we have done amazing projects like the, for instance, the World First, where we, from the space, we minted an NFT that was stored into a Casper blockchain. This was announced in New York with Brookchills in an amazing event that we organized last year. And it shows basically that in the future, you will be able to NFT any device, any object, and with that NFT stored into the blockchain, anyone, anywhere in the world can verify the identity of that object. Obviously, having the space technology in our portfolio allows us to also provide connectivity from the space, as only 10% of the Earth is connected. We still have 90%, which is not connected. And we expect a huge amount of demand on projects, and they would like to track and trace objects in the middle of the sea or in the middle of the desert or in the middle of Africa. And for that, this combination between identity satellite and blockchain is very powerful. So everything relates to logistic processes will be facilitated by the geolocalization of the product. So I am turning now the call to Peter. We'll discuss the highlights of 2022 results. Before I say that, I will just give some clarification because I was just announcing our press release that another vertical that we started to develop with the name WiseEye which was Wysky Artificial Intelligence for which we made an investment into a startup in Germany with the name Arago two years ago. It did not evolve as expected as this, basically after we realized that the AI algorithm Arago provided was mainly focusing on optimization of of big data centers and IT department unless into IoT, we decided to sell back this to the founder. The net process from their sale of our 5100 ship in Aragog was 25 million, which had not been received yet, which obviously is impacting the company financial performance during 2020. And Peter will come back into the details. But the good news is WiseKey is currently assessing enforcement scenarios to turn its pledge on Arago, $25 million, against the full ownership of the Arago IP, allowing WiseKey to integrate the AI into the WiseKey platform and eventually spin off into a new company. I just want to make that clarification because that was announced. Maybe it was not clear why this happened. And the reason why we are not getting pay is basically market conditions. I don't think the founder of Arago was able to find the right investment than was required to buy our shares. But Peter will give you more information into that in a few minutes. And then I will come back to you guys to discuss the 2023 visibility for 2023. Peter, please go ahead.

Okay, thanks Carlos. As Carlos mentioned earlier, 2022 was a year of significant developments which resulted in improved financial performance for Wysky. Specifically, our revenue grew by 35% to 23.8 million compared to 17.6 million in 2021. Also, our gross profits for 2022 grew by 35% to 10.1 million as compared to 7.5 million in 2021. We also significantly strengthened our sales and marketing team with new sales director in the USA and the onboarding of seven additional sales reps in the EU region, Israel and South Africa, and two representatives which will cover the Eastern States of the United States. We continue to invest in increasing semiconductor production capacity. In 2022, we initiated a five-year capital expenditure CapEx plan, aiming to increase our semiconductors volume by up to 80% over the next five years. The plan is supported by a $2 million loan from a third party client for the purpose of increasing production capacity. At the same time, we took significant steps to improve our cost structure and streamline our operations. As a result, our operating expenses for 2022 decreased by $8.1 million. and by $5 million when excluding non-cash stock-based compensation in comparison to 2021, while we were still being able to pull our revenue. We ended the year with a strong cash position of $20.7 million. And this strong cash position allowed us to continue to make investments in research and development. During the year, we invested $3.9 million, mainly in the COSAS project, a radical innovative solution paving the way for post-quantum cryptography, launch of 13 security IoT hard and low-orbit Pico satellites, WiseSat, as Carlos mentioned, for our new satellite-based secure IoT connectivity as a service, and our WiseArt platform, all of which Carlos discussed earlier. Despite strong revenue growth, we ended the year with $9.8 million in loss due to the aforementioned investments in next-generation semiconductors and the launch of CLSQ's listing process in NASDAQ. The investments in CLSQ's next-generation semiconductors and AI infrastructure are part of our long-term strategy to stay at the forefront of technological innovation, develop new products and services that will meet the needs of our customers in the years to come, and ultimately result in subsequently, substantially, sorry, higher revenues, and improved financial performance that comes with operating leverage. So with that, I will turn the line back to Carlos, who will discuss the 2023 key growth areas. Carlos, please go ahead.

Yeah, thank you, Peter. So as I mentioned in my introduction, the demand for wide-scale products and services are substantially increasing, 35% increase in revenue over 2022. The group is back on a growth path. which was already characterized pre-COVID, supported by investment in R&D, aiming to remain at the age of technology, which, as you know, we have very environment where companies with a lot of resources are competing for the same type of clients for the same type of product. So our investment focus on strengthening our sales force. The group has continued reinforcing sales and marketing team with a new sales director in the U.S. and the onboarding of seven additional CER representatives in the European Union, Israel, and South Africa. And just recently, a few days ago, an announcement of reinforcing the team also in Taiwan, as it's a critical country in semiconductors. The strong semiconductor backlog of order and pipeline of opportunity, our value over 100 million, has given us a great building block that allows our sales team to focus on new opportunities. Now just to explain the 100 million, many of our clients are increasingly asking us to increase the number of connected devices because the way it works in this market is that one of our clients, let's say Medtronic or Cisco, or or a or a medical device manufacturer will be slowly connecting devices to the internet not all the devices are connected to the internet some of them they are connected to the internet and many or all of them will be connected to the internet as the years progress and at the moment you take the decision to connect to the device to the internet you have to put a microchip on the device otherwise this device will will compromise the rights of the device. And as I mentioned before, with the matter certification, that is becoming basically a legal obligation to do so. So we will see a growth in the semiconductor business. That growth will be accentuated by, as I mentioned before, the European Union is putting $42 billion into the ECHIP Act, which is mainly designed to invest in semiconductor companies in Europe. And the United States has a similar ECHIP Act. on where places like Phonics is booming as the entire semiconductor industry is getting ready for what is coming, which is basically 1 trillion devices connected to the internet and they need to supply semiconductor to those devices. The semiconductors of WiseKey has a unique characteristic, is that they also include cybersecurity, as we are a cybersecurity company. And as I mentioned before, they are getting post-quantum ready. On that, by the way, we are part of the NIST group of companies, and they are working with the U.S. government on post-quantum technology. So our main focus for the 2023 will be keeping our CLSQ growing. The fact that we are doing a listing on CLSQ in the NASDAQ issue, correct evaluation issue we have because basically what we did with CLSQ was to compare the semiconductor business we have with any other semiconductor company and with external evaluators. And they came with a total different figure in what concerns the value of that company, which is, as you can read on the F1, that is published on CLSQ, they are valuing the entire company at $270 million, which is about nine times the current value of WiseKey. So obviously, and this was the main reason in the General Assembly, extraordinary General Assembly of WiseKey last week when we asked shareholders to vote for the transaction, we got an overwhelming vote because there is obviously an opportunity for WiseKey shareholders now to benefit for the incremental valuation that will be eventually achieved through the NASDAQ listing. Also on the semiconductor, as I mentioned, 13 satellites. This is very unique. There are not many companies with satellites in orbit. We are one of them. On incorporation with FOSA by June, we will send in more satellites. June this year, those new satellites include CAMERAS, So you will be able to provide new services like supply chain supervision, logistics, and including other services where there will be need for that level of visibility. On the satellite business, we signed an MOU with the Swiss Army, which is a very interesting one because the Swiss Army will be using PicoSatellites in the future to assess where the equipment is. Switzerland is full of mountains. It's very hard to track and trace equipment because the mountains are in the middle. So having a view from the space optimizes the way they are managing to access that equipment. Many new strategic partnerships, as I mentioned, post-quantum is something that we will be putting a huge focus on. Artificial intelligence. Everybody's talking about artificial intelligence. It's a big fuss in the market. But at the end of the day, artificial intelligence, in order to be something real and practical, needs to be applied to specific cases. And in our case, we need artificial intelligence, and we are using already artificial intelligence to be able to data mine the data that we collect at the object level. So why is key? Because we track and trace the object that has our microchips, that data, which includes your localization, in some cases temperature, in some cases temperature, activity, behavior, if the object has failed or not. All that data is analyzed by our cloud and then with artificial intelligence we can provide to our clients a very specific monitoring system for their devices. That's been used already in agricultural devices to monitor trees in the middle of of a land or monitoring cattle or monitoring cargo in the middle of the sea or monitoring integrity of pipeline and so on. So we expect a very large number of applications to be developed as we move forward. So as a result, we believe we are well positioned to continue to grow our business in 2023. We have very strong visibility to the end of the year. This was announced between $25 and $30 million revenue already at this point of the year. And we believe that with that position, we will be able to provide high returns to our shareholders together with what is our objective this year as well to recover the valuation and the stock price in WiseKey, which mainly was has been affected by several factors, obviously the traditional geopolitical, the fact that we are in a war, the fact that the supply chain is stopped during two years during COVID, but also the fact that we acquired companies and we acquired them with shares. And obviously when those shares were sold to the market, created an overhang. But we think that this will be corrected very soon. And as I mentioned, Peter mentioned, we are in a very strong cash position. We have already CLSQ as a profitable company that is going to grow with profits. So this is a very, very interesting and beneficial activity at the moment. All that together with the fact that cybersecurity, IoT, Pico satellites, and NFTs, they are not going to get any anytime soon displaced from the market. To the contrary, those are exponential technologies that are keeping growing, puts WiseKey in a very strategic position. So with this, we conclude our remarks. I would like to open the line to questions and answers.

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 that your line is in the question queue. You may press star 2 if you would like to remove your question 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 pull for questions. And our first question is from Matthew Galinka with Maxim Group. Please proceed with your question.

Hey, congratulations on the strong 2022 and thanks for taking my questions. Can you maybe, you know, provide an opinion or predict how quickly you expect post quantum chips to displace, you know, sort of pre-quantum chips in in the you know overall mix for you and for competitors and it's something that happens quickly and is it something that you're in active discussion with existing customers about yeah thank you matt very good question so

So yeah, so we are with post-quantum technology as we were with the, you know, with the bug of the year 2000, as you remember, for the people and they are older, they might remember that the entire market started to develop technology that will eventually resist an attack or a failure of what at that time was a very serious threat, right? So we are on that same philosophy here and vision is that quantum has arrived. It's inevitable. It's going to happen. I mean, quantum computers are already in place with Google, for instance. There has been a spin-off of Google of Sandbox AQ, which is a spin-off on quantum from Google. So they just raised $500 million, $3.1 billion valuation. So the quantum industry is getting form and early players in that industry will win the battle because there are not many actually. And this is a complex technology that you cannot just invent in a garage. What we are doing is that our vision was always to have the most secure chip than the market will be able to produce. Secure in two levels. Secure because the technology of the chip, design, and what we put inside the chip with a cryptographic capability, PKI, cryptographic root key. So all that was a very strong innovation from WiseKey that many other competitors didn't even have because so many semiconductor companies were more concerned just to provide low cost and non-secure semiconductor just to do electronic functionalities, but not cybersecurity functionality. Why skip from day one, say, no, we want our chips to be secure. And that's the reason our chips are using by Medtronic, for instance, to secure medical devices or by Cisco to secure routers, which are obviously a critical infrastructure when you are installing in banks or defense department and so on. So that's been always our vision. Because quantum is coming, what we are doing is saying, okay, let's develop technology at the quantum chip level that will resist a quantum attack. And that's what we have done. The chips are now quantum ready, the current generation of chips. So when we are selling our chips to our clients, those chips that we are selling, they're already post-quantum ready. It means that if anyone comes tomorrow with a quantum computer, they will not be able to break the chip. So this is what is being sold now. And this is why we are growing because our clients are getting more sensibilized to the cybersecurity aspect of the chip than they had before. But the next thing we are doing is actually developing a new chip. And that new chip, the name of the project is Quasar. It's a totally quantum chip. And that chip is about three years. And maybe we can accelerate that if we raise money on the IPO. And this is one of the reasons why we are listing CLSQ. Because that chip will be the ultimate defense system mechanism for an object. And that quantum chip, there's where I mentioned before, we team with NIST, N-I-S-T, but also with the French university means, which are very, very knowledgeable institutions on quantum, plus we are also teaming with the startups when they're working on quantum. And what is gonna happen is that quantum will feed AI, because AI is all about data, and and capability of the algorithm to perform but but they need a huge computational computational capability so an ai chat gdp needs huge amount of computational capability to operate imagine when that will be backed by quantum technology right uh so you will be able to go to chat gpt and ask how can i break visa.com and and they will give you that that solution so the chips will need to be ready to resist that type of complexity that we are facing in the years to come

Got it. That's helpful. And I guess to the follow-up, just, again, broadly, we're in a different macro environment, I think, than we were last time we spoke. And obviously, things have changed very quickly over the last few years. But is the macro impact having any impact, particularly on the semiconductor business? Are you seeing changes in your customers' patterns You know, how is macro affecting your outlook?

Yeah, the main macro complexity we had was the supply chain, which was totally disrupted during the COVID, right? It was very difficult to provision microchips because the fabs were shut down. That obviously created a situation where we were not able to provide as many chips as our client wanted. And actually, I would say our team was very efficient in maintaining the clients satisfied because many other very big companies that they used to sell hundreds of millions of chips, they say, well, hey, if you don't buy me 100 million chips, we don't need to talk. And we recovered all those clients, and they came to us. And those clients, actually, they stay with us because they are very happy to to have somebody that is willing to sell to them less than 100 million chips, which is obviously a great business. So we managed to convert the problem into an asset, a solution. The other thing we did is that obviously now that the supply chain concerns are being eased, The clients are less stressed and they don't necessarily buy as many chips at once or do not maintain the same level of stock than they used to maintain before. So that's why moving to more clients and diversifying the number of clients is our main concern. That's why we increment the sales organization to reach out. We put people in Taiwan. We put people in Japan. We put people in the United States. and many, obviously, leading markets in Europe, like Germany, just to cope with that necessity to diversify or offer. Another thing it's getting is that, as you know, electricity is very expensive worldwide due to the Ukraine situation. Obviously, fabs require a huge amount of electricity to manufacture material, so that they are required on the chips are more expensive. So all those are complexities that they are obviously putting the margins on the stress. The way to react to that is by increasing cybersecurity at the chip level because, you know, a cybersecurity algorithm injected or a root key injected at the chip level does not require raw materials. It's a digital device. So that has been our strategy. I mean, maintaining the same price of the chip but providing to the client more services, more technology, more cybersecurity at the chip level than we were doing if it will only be – a fight for price. I think what is happening, and we are at the infancy of this industry, I mean, or observation when you go around, is that a very small number of hardware manufacturers are considering cybersecurity as top one priority. That was my observation in the last year. Now it's changing. Now it's totally changed and Matter is actually helping to that because Matter is for a moment only applies to IoT at home, everything which is connected devices at home, but this is many already. But this is going to evolve in many other industries like health industry, like e-commerce. So, you know, we're still trading $2 trillion of fake products on the internet, right? That could be sold by just putting a microchip on the product level. so you can certify that the product is not a counterfeited product or not. But for the moment, the e-commerce platform has not paid a lot of attention to it. They could do it very easily by putting regulations that say only products that are authenticated and you can prove the authentication of the product will be sold. Obviously, that would maybe reduce their revenue. but they will provide a better service to their customers. So this is happening. It will take time, but as I mentioned before, this is 1 trillion devices to be connected and will be connected, and we expect that to gradually and exponentially grow now with arrival of new technology.

Perfect. Thank you. I'll jump back in the queue.

Thank you very much, Matt.

Thank you. Our next question is from Kevin Deedy with HC Wainwright. Please proceed with your question.

Hi, Carlos. Hi, Peter. Thanks for taking my question. I think the first thing, Carlos, just sort of from a top-down given four business segments now, which one are you the most excited about? I understand... You know, Seals SQ is certainly the most mature, but which one do you think offers you the most growth this year?

So, for the moment, for sure, it's the semiconductor post-quantum chips. This is the one that is growing faster, and it's the most mature one, right, because we have already 1.6 billion chips. devices already sold in the market. So you have a huge customer base that needs to be educated to upgrade the chips to the next generation chip. So that's the most exciting part. But this is creating new industries. This is like the telegraph evolved in the United States when you installed the rails on the train, because it was easy to put the the poles during the rail. So this industry is creating the space industry. If somebody would have told me five years ago that I would be sending Pico satellite, I would say you're dreaming why I need to do that. Now I do need to do that because those chips are everywhere, including in containers in the middle of the city, and we have to validate the identity of those containers real time from space because there's no other way to do it from the sea, right? or in the middle of the desert or in any agricultural region, or even in a smart city because 4G or 5G is too expensive to be used to track and trace objects. So this technology of PicoSatellite is amazing because a PicoSatellite is $150,000 between 150 to $250,000 end-to-end, including the launch and operational. And this same satellite 10 years ago was $25 million investment. So now that means that companies are willing to send their own satellite and attach that to the Wysky satellite installation. And in some cases, or sell, selling the satellites we have as a service. So this is going to grow, and this is going to accelerate the usage of the chips, because if I can track and trace from the space, then I'm going to put it in the container in the middle of the sea. Otherwise, why I will do that, right? So that is another growth area. We are adding more technology in the satellites. For instance, the communication between satellite and Earth station. It's now been secure with the same technology that we use at the chip level. So in the future, you could do quantum communication from a spice. I mean, this is very, very, very amazing thing. And the third one, which is a bit different, but at the same time, it is actually a part of the ecosystem, is the NFT play, right? The non-fugible token play that for the moment has been used in the industry mainly for art and intellectual property. but the industry, the semiconductor IoT industry has concluded that the most efficient way to digital identify an object is to issue an NFT of that object and put that NFT in a blockchain ledger. So anyone in the world in a decentralized way can verify the NFT. So we have now inside a wise art, which is the, I mean, the art applied for art, but also for, for the ecosystem that we are building on NFT, it's already growing with something like 2 million NFT being already recorded there and something like a $40 million value credible value of the NFT into the platform. And this is going to go exponential. I mean, the model this is following is something like OpenSea. I'm sure you know them. They are one of the largest NFT platforms trading at $6 billion. So that is potential spin-off again in the future for us. We are looking into that possibility maybe next year as well. That will increment, again, the valuation of WiseKey. and will increment the value of the platform because more microchips we manufacture, more identities we generate, more NFT we create, bigger is going to be the platform, bigger is going to be the ecosystem, right? So there are things that they feed each other and they are at their infancy, obviously different maturity levels, but they are all exponential and sooner or later they will collide together into a very powerful business model.

Speaking of business models, could you kind of peel back the onion a little bit on the satellite business? I know you're working with partners there, but do you own those 13 satellites? And I guess, is it a service that you're providing? Just sort of run through how the satellite business model works.

Sure. So we don't want to manufacture the satellite because this is a specific area. It's like manufacturing mobile phones, right? So this is a very specialized area. So we are doing that with a startup company in Spain with the name FOSA. Actually, Wysky is one of the largest investors in FOSA. We also made an investment two years ago. And with that investment, we started to develop the YSAT, YSAT Space Satellite, which is an upgraded version of traditional satellites that you will use for, I don't know, you know, sending social media data down to Earth. Those satellites are specialized for IoT activities. So inside the satellite, YSAT technology, they have obviously some components from FOSA, for the communication part, but everything which is the cybersecurity encryption and the microchips are powered by WiseKey and secured by WiseKey. Now, we do not want to own the satellites. What we are doing is, because now we have 13 satellites and we are launching more in June, the current constellation covers the Earth every five hours. So every five hours anywhere in the world the satellite will detect the chip anywhere in the world. So if the chip is in the middle of the sea every five hours, the satellite detects the chip, which is enough for track and trace, making sure that your chip didn't deviate from the path that was designed to be, this kind of thing. But it's not enough for real time track and trace capability. For that, you will need a faster latency. And for that, we need to launch 88 satellites, which is our target by the end of 2025. So with 88 satellites, we'll be able to detect a Wyski chip anywhere in the world every minute. And this is the kind of service that we believe customer needs from the customer we are talking about. And the way we sell that, yes, it's as a service. So a customer with containers in the middle of the sea will say, I want to track and trace 100,000 containers because this is my capacity. And I will pay, like you pay your mobile phone operator a fee for having those containers connected to the satellite. We also have a model where we can also team with our constellations. So there are other constellations that they are approaching HOST and they are saying, oh, I only need five satellites, but I would like to benefit from your other satellite because I want to get that level of latency. And then what they are doing is teaming with HOST to launch those satellites and aggregate those satellites into the constellation.

So do you... I guess your plan for 2025 and 88 more launches, is that something that WiseKey will need to raise money to accomplish? Or is that something that you hope to partner with in accomplishing?

Yeah, I mean, we could imagine, you know, the satellite companies are trading around $100 and $200 million market, right? We could eventually spin off. YSAT and raise money on YSAT as a private company. That's one scenario. Another one is teaming, which is the model. As I mentioned, if you say I want to send a satellite today, we can do it in four weeks. You could be in space, and that will cost you $250,000, and you will have your own satellite. So we are doing that as a partnership with organizations, governments, You know, WiseKey is securing drones, so power drones are secured by WiseKey, and now the drones are going to be connected through satellite because it's a much efficient way to connect the drones from Earth. So that's the new business model emerging that will increment. We don't need to raise money per se because the technology is already there, and the Every time you launch with SpaceX, you can launch 20 satellites, 30 satellites at the same time, right? It doesn't happen one by one. What we are competing here is with open web and those huge, massive investments that require hundreds of millions of dollars just to have a person in the space. In our model with less than $300,000, you are in space, right? And you are with the wise key chips, you are able to track and trace your product. Imagine FedEx wants to track partials real time from the space, or you want to track and trace cars or bicycles. You know, we got another day, somebody wants to track bicycles from space because everybody is stealing bicycles now. It's so easy to steal a bicycle and very difficult to recover. So those are the new usage. Space is going to become like the normal way to verify objects on Earth, and this is where we want to be the first one to position ourselves.

Okay, just to make sure, I apologize for not having this resonate too clearly for me, Carlos, but just to make sure I understand it, you'll partner with a customer to launch a satellite and the customer will own part of that satellite, and WiseKey will own part of it, and that way you can leverage it to sell a service to other customers?

That's one scenario, yes. If the customer says, we want our exclusive use of our satellite for our own operations, then they will own the satellite. We will provide to them the technology, the satellite, the launch, but they will be the owner of the satellite. But if the client says, I don't need to have my own satellite just for me, I don't mind to share that satellite with the other satellite you have in your constellation because I want to have a larger coverage and I want to be able to track and trace my object anywhere in the world, then you are just adding yourself. You just pay a fee and you get involved into the constellation. Quick question on the Arago sale.

It's like car sharing. I'm sorry. Go ahead, Carlos.

No, no. I was just giving you the example of car sharing, like a satellite sharing, right? You don't need to own your car. You just share with somebody else. I don't need a similar model, but on the space.

Right. So you're going to, WiseKey is going to be the Uber of satellites.

It's not necessary. I don't think Uber is a very good business model anymore, so we would like to be a bit different than that.

All right. Just quickly on Arago, $25 million owed. What are your recourses, and what is your expectation?

I mean, this is now in the hands of lawyers, so we cannot comment very much on the process. What we waited, the right, the legal time to get paid. We understand that the market has not been the best market for this guy. This purchase agreement was backed by a guarantor, which is an energy company in Germany. So we were just telling them, guys, when you're going to pay, and if you don't pay, in due time, then we would like to take measures. One of the things WiseKey has, as I mentioned in my introduction, and it's also in the press release, is that we have a first call on the IP. Worst case scenario, they don't pay, we get the IP, and we integrate the IP into our platform. Remember that Arago got $55 million investment from KKR many years ago, and Hero is one of the leading artificial intelligence algorithms. I mean, this is a very, you know, AI is booming. I mean, there are startups with a fraction of that, and they are raising money now in the market, right? So, worst case scenario, we will integrate the IP into our operations, and then we'll obviously enrich the entire technology assets that WiseKey has. But, I mean, the important thing to say around that is, and what Peter said, is that We have been reducing substantially the losses. It looks like we didn't because we are aggravating with this $25 million loss, but actually it's not $25 million because this is something that in one way or another we will recover as soon as we can. But Edira has been, you know, it is the same in the United States. A lot of startups are struggling to raise capital due to the banking situation that has been created and continues to be created now with the FRC, and this is maybe not the end. So for some companies like Arago, raising money has been complicated, and that's the consequence of not being able to pay.

Okay, so as it is now, you're not using Arago AI IP in WiseKey systems?

No, no. We are, as I mentioned, we have the right to, but we are waiting until the legal situation is clarified, yeah.

Okay, okay. You kind of glanced over the expectations for the year. I think you said 25 to 30 million so far this year. Just to make sure I understand that correctly, given that we're one-third of the year through, is it fair to assume that you could be in the 75 to 90 million range? Or I'm just a little confused. You mean that's revenue, right, what you're asking? Correct, correct, correct, correct. Yeah, I know you said I think 100 million in backlog on the – on the CLSQ side.

Yeah. No, no. In terms of the revenue, maybe, Peter, you want to come on this?

Well, we have to be careful, actually, with the forecasting numbers, but we're talking about a $30 million total revenue for the year potential, not the $100 million backlog as for several years because, obviously, it's a longer-term sales process, but we have that already in the bag now.

Okay, that's helpful.

When I say 25, 30, yeah, it was revenue.

Oh, I see. Okay, okay, I got you. All right, thank you. The, I think, and I apologize for this, Carlos, but could you help me understand, and maybe Peter can chime in on this too, can you help me understand the rights that each share class holds? Because you'll have A and B, and then the ADSs, and now the new F share class with the Seals SQ spin. I just want to make sure I understand what each share class represents, donors.

You're talking about two different companies, right? I mean, the WiseKey and Seal, they are different companies, different structures. But WiseKey has whatever it always had, which is two class of shares, A and B shares. And A and B, A is not listed. This is outside the market. B are listed on the Swiss stock market. And then the B shares on the Swiss stock market, they have an ADS in the NASDAQ, which is for every one ADS, you have 10 B shares. So that's the structure in Wysky, right?

Okay.

The structure in SEAL SQ, which is a different company, which is the one that's going to be listed, and the question about the F-shares, those F-shares belong to WiseKey. So those F-shares, it's very similar to the Palantir type of governance structure. They are designed, at least at the beginning, to avoid a hostile takeover of WiseKey by somebody that will, because the SEAL shares will be more valuable than the WiseKey shares, they will just eventually buy WiseKey in order to get into SEAL, right? So it's a protection mechanism that has been put in place, so WiseKey basically prevents any potential hostiles to cover. And this is very well described on the F1, by the way. Kevin, I invite you to have a look into the F1 and review that.

Okay. Well, I appreciate your hand-holding, Carlos, because it wasn't so clear for me.

Yeah, two different companies. I think what you maybe misunderstood is that the F are also in YSK and they are not. F is only on CLSK.

Exactly. And they're not listed either.

Okay. Okay. I see. I see. Okay. Peter, since I have your attention, could you tell me what the share count was, the average share count that you used to calculate loss per share for the year? Because I didn't see that.

No. Sorry, Kevin. You asked me that question so I can prepare. I don't have that number in my head. Sorry.

Okay.

I can give it to you.

We'll come back to you, Kevin. Yeah, yeah.

We'll come back to you.

Okay. Well, thank you, gentlemen, for entertaining my questions. I really appreciate the candor.

Thank you very much, Kevin, for your questions.

There are no further questions at this time. I would like to turn the floor back over to Mr. Moreira for closing comments.

Okay, so thank you very much to everyone. As I mentioned, we will be in contact with all of you soon because Wyski will be

celebrating the NASDAQ bell of CLSQ, and all YSK shareholders are now also CLSQ shareholders, as we have been providing 20% of the CLSQ shares to YSK shareholders. And that was approved by the last week, starting our general meeting. Just use this opportunity to invite you to join us the 26th at the opening bell in New York at the NASDAQ to celebrate the CLSQ entrance in the NASDAQ Stock Exchange. And if you have any question or any concern, you can contact us or contact Lina. or investment relation in New York, and we will be happy to answer any question or concern. Thank you very much for participating today, Cole, and we look forward to see you soon. And thank you for your organizers of the call as well.

Yes, thank you.

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