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.