WISeKey International Holding Ltd

Greetings, ladies and gentlemen, and welcome to the WiseKey International First Half 2023 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 Limited to be materially different from any future results performance, or achievements expressed or implied by such forward-looking statements. WiseKey International Holdings Limited 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 a listen-only mode. The 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 Morera, founder and chief executive officer of WiseKey.

Thank you very much, and good afternoon to all of you joining us from Europe and the United States. I am joined today by our chief financial officer, Peter Ward, And now let's start this call by providing a brief highlights on the company performance and activity for the first half of 2023. Then Peter will provide commentary and or a financial condition in great details. And before opening the floor to Q&A, I will discuss growth opportunities for the second half of the year and beyond. So in the first half of the year, we continue on the same path we established in 2022. As you remember, in 2022, we made the strategic decision to operate YSK as a holding company on several distinct operational companies covering the full spectrum of YSK-related technology. Currently, the holding company, which is, as you know, listed in Switzerland and with ADR program in the United States, comprises of the following subsidiaries. So we have YSK Semiconductor that was established launched as a CLSQ listed in the NASDAQ from May this year, which is a company that designs semiconductors, a new generation of post-quantum technology, which is a company that has big inroads now in what we call the IoT or the Internet of Things revolution. Then we have the YSKESA, which is the Geneva-based original company that is a company specialized in cybersecurity, road of trust, and public infrastructure segment. And it's actually the underground infrastructure for the rest of the companies in what concerns cybersecurity and identity management. And then we have YSAT.Space, the space technology using PicoSatellite segment that we launched a year and a half ago. And then obviously YSART, which is the blockchain NFT segment that was also launched a year and a half ago. So each of these subsidiaries contribute in meaningful way to the overall mission of the WiseKey Holding Company while also operating independently with a specific focus on their particular area of research and development and expertise and integrating their respective technology into the WiseKey platform. So they are what we call the pillars of the WiseKey platform. The decision to operate as a holding company and diversify our operations were able to focus on resources in areas where we saw the most promising opportunity and diversity on specifically revenue regeneration sources. As a result, we were able to report substantially improved financial and operational results for the first half of the year. While Peter will discuss the details of these results shortly, I would like to emphasize that in the first half of 2023, as compared to the first half of 2022, we reported 39% revenue growth to $15.1 million, 69% increase in gross profit to $8.1 million, and overall improved profitability. Continuing investment in R&D for the development or post-quantum chip, next-generation semiconductor, and next-generation also of a revenue stream. If we want to zoom back into each of those verticals, and describe the progress during the first half of the year. We can then say that the main achievement has been done in the semiconductor fields, where CLSQ managed to do a very successful listing on the NASDAQ the 24th of May this year, reaching an important valuation at that time of $200 million. We also distributed 10% of the ownership of YSK into SEAL, to YSK shareholders, and as a consequence, we diversify the number of investors than there are currently investors in CL. CLSQ has been very focused in obtaining the right accreditations required to sell the technology in the United States. Fifty percent of the revenues of CLSQ are now American companies, and they are buying their products and services, as I had the opportunity to deep dive during the last investor's call on CLSQ a few days ago. And this technology continues to increase as the demand on semiconductor is exponential. By the year 2030, trillions of things will be connected to the Internet. And those things will require authentication, will require secure elements, which are the microchips that you insert at the product level, and will require encryption. So the data that is sent from the semiconductor to the cloud is totally encrypted. This is also generating a new revenue model for us. As for the moment, we are selling the chips, the semiconductors. But in the future, we'll be able also to monetize the data. So, WiseKey has, in cooperation with CLSQ, entered into a strategic partnership. So, we have several important partnerships on where this data that is collected from the objects will be analyzed and will be made available back again to the clients. as a way to increase what we call the recurrent revenue model of Wise Ski Semiconductor CLSQ. The other area which is important on CLSQ is the accreditation process. So we have been accredited in several important standard organizations, such as the MATER certification process, which is a certification that is allowing companies with matter certificates to sell into the United States semiconductors, and they are used to secure objects, what we call devices, and they are installed at home, like your thermostat, like your Wi-Fi system, like your smart counter. All this information that is selected and is sent from the chip to the cloud is encrypted, and this certification of matter ensures that whatever you put in your house, in your home, it has the high level of security and authentication to avoid the possibility of a hacker to intrude your infrastructure and collect data or personal information from the end users. The certification of SEAL is based on the PKI public infrastructure, which is one of the, I will call the, uh, original assets of the entire group. You know, wise key is considered one of the 10 top root of trust. Those are, um, uh, encryption layers than they are required into browsers, operating system, iOS, and many other, um, device control, uh, technology that is already embedded into existing operating system and browsers. So this penetration, uh, over the last 25 years has allowed us to be basically everywhere. And this is where it accelerates the deployment of the chips, as when we connect chips to the internet, the other side of the connection requires knowledge about the connecting part, and for that you need a root of trust. The PKI segment is also the segment that provides digital identification to those devices. So as we are connecting millions, billions of devices, 1.5 billion microchips have been sold already by the company historically. Each of them with a digital identity creates a very powerful identity ecosystem, which is then essential to build basically authenticated data. We also look into connectivity. Connectivity is an area where we are not making revenue yet, but it has a huge potential. More objects you are going to be able to connect, more transactions are you going to be able to generate, and more connectivity you need for those devices. And the current connectivity, is very limited. We only have connectivity into rural cities, but not rural areas, not connectivity in the middle of the sea, not connectivity in many developing countries, in many areas. Only 10% of the world is connected currently, and 90% is not yet connected. So we created another subsidiary with the name YSAT. This YSAT has made a huge amount of progress in the last six months, Not only we launched 17 satellites in cooperation with FOSA, which is one of the startups we invested, but we also caught a deal with SpaceX as a launcher. Those satellites have been launched with SpaceX. And we have now 17 operational satellites, which are being used for many new applications, like smart container initiative, which we signed with BBA Labs that allows us basically the trustability of containers in the middle of the sea and being able to ensure the transport company that the containers are not being lost or replaced or any potential hacking on the container itself. We have done a partnership with the Swiss Army on which we are currently in advance development process of providing IoT connectivity from the space on military hardware. We also have done a partnership with Parrot, which is one of the leading drone companies now using or microchips that they are allowing Parrot to control the behavior of the drones, but now also being able to use our satellite as a way to connect to the drones. We've also been entering into a very powerful partnership with PLD Space, which is a European company launching their own rockets. So this is in Europe and anywhere in the world, by the way. Private rockets are not really available, only SpaceX and a few others, and there is going to be a huge need of decentralization of sending the satellite to space. So we are looking for new launchers, and we have done a relation with PLD Space with a rocket which will be launched from Spain in 2024 with the name Miura. And this rocket will transport the next generation of YSATs, YSAT is also developing applications that allow to encrypt data from the space using our post-quantum capabilities. So imagine the future secure communications from the space. So it looks maybe complicated for traditional investors to understand so many areas of interactions, but if you really look at why it's key, we act as a platform. We want to position ourselves as a multi-use platform. where different activities required for the fourth industrial revolution are slowly being added to the platform. Semiconductors, root of trust, PKI, space, micro satellite, Pico satellite technology, and others are essential to ensure that the company will have its, will keep its edge of innovation. and will be relevant for the years to come as we are competing against very powerful companies. And all of them are trying to become market leaders on this technology, as it was demonstrated a few weeks ago by the IPO of Arm and a few other companies. And they are reaching the market now with the maturity required to do this kind of platform effect. So, Wysky is one of those assets. We are obviously smaller, but we are a mid-cap that has a very strong DNA in cybersecurity, which is pretty unique. and a very strong experience in providing complex processes and projects, and with our technology being able to solve them. And then we have WiseArt. So WiseArt is the blockchain strategy of the company. For us, blockchain is an essential way of decentralizing data, as blockchain is less energy consuming than centralized data centers, so it is totally sustainable. in the way that blockchain technology is decentralized. You don't need to maintain huge data centers and burn a lot of energy. So it's part of our ESG strategy to decentralize data in a way that is easy to access and reduces the dependencies of massive data centers that so far have been used as a way to centralize data. WiseArt is a marketplace. So it's a marketplace and it started very small, only with few NFTs. This has become a major marketplace for art. It is a marketplace that has now something like $45 million in art being enclosed inside the marketplace, growing towards $100 million by the end of 2024. And it's a company that is actually very innovative in the way they are using the platform. I mean, we are competing against very big platforms such as OpenSea with huge valuations. Wise Art is actually doing a very unique penetration into the humanitarian world by doing very successful NFTs that they are used as a way to finance charity organizations such as the Red Cross in Switzerland or the United Nations. and many others, and we have been able to close very interesting transactions where organizations that they are teaming with us are able to raise hundreds of thousands of dollars in each of those transactions. The revenue model of WiseArt is to collect a fee for every transaction generated by the platform, which is the standard in this market. It goes between 5% and 15%. of the price transacted by the platform. So obviously our intention there is to aggregate more NFTs, not only NFTs, but also original. So we have original paintings. It's becoming like Amazon of art on where users are slowly using the platform to reach out investors and buyers of the other art. As I mentioned before, these verticals and YSK contribute to the, in a very meaningful way, to the overall mission of the YSK holding company, which is actually for first time maybe in the last year operating truly as a holding company. So in cases like CLSQ, after reaching the right maturity in terms of revenue, and penetration in the market, we decided to list on the NASDAQ with a very successful listing. But it is also our intention to provide the same type of exit strategies to each of the operational entities, and they are independently with a specific focus on R&D, incrementing the value of the WiseKey platform. Weisky, maybe just touching a few words on the stock situation. We are facing a situation which I will say is not only us, is the conditions of the market. Mid-cap and micro-cap market have been really damaged by the current crisis. Concentration of funds is on the big companies. Many of the funds that normally finance and buy shares on these type of companies are having their own problems with inflation and the lack of liquidity. And this has been aggravated by all the things related, obviously, to the fact that there are several moving parts and they are slowly structuring. And sometimes the valuation of Wisekey was not able to reflect the valuation of the group, a very concrete case. When we listed CLSQ for $200 million and WiseKey was 90% owner of CLSQ, this did not transform the WiseKey sweet shares at that value. The WiseKey shares at that value didn't move. despite the fact that Wysky owns 90% of another listed company that is listed on the NASDAQ. We expect the situation to improve due to the fact that the company has a strong cash position, which Peter is going to mention in a few minutes. but also by the fact that we are reducing substantially our burn rate, which is still sometimes there is confusion about the losses of the company when we talk about losses. It's actually the fact that we are financing three startups together with one listed company, then they are all of them reaching a level of maturity. So obviously it is an ambitious process, but it is an essential one as there's absolutely no other way to reach maturity in YSK if we don't push this platform effect. And in order to have this platform effect, we need to have the subsidiaries and they are each of them developing technologies to reinforce that platform. So we believe that we will be in much better shape as we move forward and we thank the shareholders and backers of YSK to support the company to this point. So I now turn the call to Peter, who will discuss the highlights of the 2023 result, and then I will be giving my closing remarks after Peter. Please, Peter, go ahead.

Thanks, Carlos. As Carlos mentioned earlier, for the first half of 2023, we reported substantially improved financial performance for Wysky. Specifically, wisely revenue for the first half 2023 was 15.1 million dollars compared to 10.8 million in the first half of 2022 which was that represents a 39 percent increase year on year this 39 increase in revenue is mostly attributable to our semiconductors vertical on the clsq which reported first half 2023 revenue of 14.8 million compared to $10.7 million in first half of 2022. This is due to the higher demand for semiconductors, following shortages in the industry triggered by the COVID pandemic over the past few years. Our operations are global in scope, and we generate revenue from selling our products and services across various regions. Our operations in North America now contribute 55% of total revenues, the largest part of our revenues. whilst our European market remains a strong contributor with 32% of our revenue. Our focus remains on these two regions, and we continue building our sales and marketing team in these areas. In the first half of 2023, we also recruited an additional sales member in Taiwan with the objective of increasing our presence in Asia, as evidenced by the recently announced distribution agreement with Holy Stone, a Taiwanese semiconductor distributor. We also have significant activities in Japan to expand our presence there. In 2022, we started the implementation of a significant investment plan to increase the semiconductor production capacity in response to customers' expectations. We anticipate that this will support a year-on-year increase in net sales for Wysky of over 20%, and we expect a strong second half. although not reaching the level of the first half of 2023. Our customers are initiating their transition towards our new product generation, which will bring them to tighten controls over their inventory and order processing. Moving on to our gross margin, the 39% increase year-on-year increase in revenue and our ability to update our pricing strategy to absorb the higher purchase costs caused by the shortage in semiconductor positively impacted our gross profit, which increased by 69 percent in the first half of this year versus the same period of last year, and the gross margin, which increased by over 9 percentage points from 44 percent to 53.6 percent. Our operating loss decreased by 11 percent from 6.6 million in the first half of 2022 to 5.9 million in the first half of 2023. despite one-off listing related expenses of $400,000 incurred in the first half of 2023, and expenses in relation to the newly created board and management services following the listing of CLSQ on the NASDAQ. We expect that our operating expenses will increase in future periods as our strategy includes the strengthening of our sales and marketing team to expand our customer base both through new industries and geographically, Investment in our satellite-operated technology on the launch of additional YSAT Pico satellites to increase coverage and strengthen our offer of authentication solutions anywhere in the world, even in low-connectivity areas. Our R&D investment in relation to the Quasars project for the Next Generation Post-Quantum Semiconductors, TMP. That said, our net loss from continuing operations increased from 6.6 million in the first half of 2022 to $7.1 million for the first half of 2023, as mainly due to the SEAL SQ listing expenses, as well as the additional investment in technology and capital expansion mentioned above. As disclosed, in the first half of 2023, we reported a net loss of $7.1 million, as compared to a net income of $800,000 in the first half of 2022, which is mainly due to the $11.8 million gain on the disposal of the ROG of GmbH disclosed for the six months ending June 30th, 2022. However, the receivable for the sale of Arago GmbH was fully written off as of December 31, 2022, which transformed the gain on disposal as of June 30, 2022, into a loss on disposal of December 31, 2022. Taking into account the write-off for the sale of Arago, The net loss of $7.1 million in the first half of 2023 compares well to a net loss of $26.1 million in the first half of 2022. I would like to note that with the sale of this company, we have significantly reduced our cash burn rate and fixed costs. Our cash and cash equivalents at June 30th, 2023 were $14.1 million compared to $20.7 million at December 31st, 2023. Most significant sources of funding for the group are financing facilities, customer sales, and research tax credits provided by the French government. I'm now turning the line back to Carlos, who will discuss the second half of 2023 visibility and key growth areas going forward. Thank you, Peter.

So as Peter explained, we are in a strong cash position, and obviously our main focus is to expand further the sales organization. So concrete activities is that we identify there is a huge sale potential of our technology in Asia. We did not cover Asia well in the past, so we are intensifying our coverage. We have already in our pipeline many new customers in Taiwan, in Singapore, in Thailand, and it's increasingly more and more the case because Asia is a big player in IoT, in general things, South Korea as well. So this is an area where we are intensified. We are also obviously intensifying the United States by recruiting a sales force in the United States. As I mentioned before, United States were sent 50% of our revenue on a, this is a high growth, obviously in the United States. Um, the fact that we are still a Swiss company, uh, does not necessarily allow us to, uh, chase all potential leads. Some of them, they require local presence in the United States, which is something we are also organizing. and distributors that they are also helping us with the signature or new distribution agreements in the United States. Europe is doing very well as well. Europe is catching up. Europe sales are more complicated because you have to go country by country. But again, in France, Germany, and England, and other European countries are slowly getting traction. 23 end of the year will continue growing, and this is good news. We will continue investing in the subsidiaries because the subsidiaries are essential to maintain the growth of revenue in the next five years to come. I mean, the semiconductor business, for the time being, is a hardware business, so we have a software play as well as we also provide our security layer. But there are new things that they are adding, like blockchain, like NFTs, like satellite connections. Those are incremental. aspects of our future revenue in the future and the possibility to move to a recurrent revenue because more things are connecting to the internet with technology, more maintenance they need, more data they produce, and more elements of recurrent revenue can be aggregated into the overall revenue of the company. We're also analyzing, and this is going to be a development by the end of the year already, a major asset that we have, which is data. As you all know, there is a huge revolution on AI with the OpenAI, BART, and all these AI algorithms now emerging in the market with an amazing capabilities of creating efficiency, both at the company level, but also at the positioning level vis-a-vis the market. And the good news is that we have a major asset for those algorithms, which is data. So Wysky is negotiating with several companies very big players than they need or data in order to run their AI operations. And important strategic alliances have been built around that and will allow us very soon to be able also to monetize the data. We also are developing, as I mentioned before, post-quantum technology in a few years' time. Quantum will be there. Quantum computers will be so powerful that we'll be able to break any type of algorithm, including the existing algorithms like RSA, triple DES, and others, which are algorithms being used to secure your credit card, your TV access, and everything that connects to the Internet. So we are in the process of developing post-quantum technology. We are about 18 months to have our first chip, which will be a post-quantum chip. that will totally replace the existing chips that the clients are buying. So that will result in some modifications during 2024 that we are scoping. I mean, how much of our current clients will continue using the chip versus waiting for the next generation chip. But the good news is that we are incrementing the number of clients, and the clients are incrementing the number of chips as post-quantum will be essential. You will not imagine in two years time to put in the market a non-post-quantum chip as the possibility of hacking that chip will be enormously. So as I say before, it is important for our investors community and analysts and banks and their following hosts to understand this big move, a strategic move of WiseKey to become a holding company, maintaining separate verticals, subsidiaries. Each subsidiary have different people, they have different leadership, all of them interconnected towards the holding objective to become one of the leading IoT platforms. We are confident that WiseKey maturity is reaching the stage where we believe the company will become a major player in competition with existing players. And it is our commitment to continue ensuring that we are highly competitive. Our trust model continues to be a winning and increasing our revenue and obviously focus on profitability, which I think is also in the horizon. So this concludes our prepared remarks. I would like now to open the line to Q&As.

Thank you. So if anybody... Oh, I'm sorry.

Go ahead. No, go ahead. I just wanted to... Okay.

Ladies and gentlemen, if you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 key. We do have a question from the line of Matthew Galenko with Maxim Group. Please proceed with your question.

Hi. Congrats on the strong first half, and thanks for taking my questions. I have a handful of questions, so I'll ask a couple and then jump back in the queue. I was hoping to start with your comments, just clarifying comments on back half of the year 2023. Should we expect relatively flat revenue from the first half to the second half, or the first half will be the high point of the year and we'll be stepping back a little bit in the second half?

Hi, Matt. Nice to talk to you again. So, yeah, so we expect a flat. Maintaining the consistency during the year, right, as we already advanced on the month of September. So we already have some visibility of the second half. So it will be a flat in terms of first quarter, but we obviously will be growing in relation to last year, which is around, we say around 20% growth. Yeah. So end of the year will be around 20% gross, which is an important milestone because this has been a transformation year, right? This is the year where we are bringing, you know, the space, satellite business, where we are developing NFT. So obviously that diversification also takes some energy that needs to be taken into consideration in view that we have a limited number of stuff, right? So, but yeah, it will be flat, but we'll be still growing 20%. vis-a-vis last year.

Got it. Okay, that's helpful. And then on the operating expense line, you know, I think you had some one-time costs for, you know, listing seal in the first half. So what should we expect? You know, we hear the investment on the R&D line and the sales and marketing line. We see, you know, some of the distribution agreements What should we expect on the G&A line given, I think, first half of 23 was, you know, pretty good jump, you know, half over half. So what should we expect that to be in the back half of the year and as we move into 2024?

Well, actually, Mark, as we said, we're doing our budget review and our forecasting review in the middle of this month. But I would expect it to be slightly lower than the first half because of the unusual items, the one-off items that we've got. So we're talking about 7 million, something like that.

Yeah, it is important, Matt, also to understand one issue which sometimes people don't understand on the GNA is that Because the holding is incubating, if we can call that way, the subsidiaries like WiseAd, like WiseArt. And those subsidiaries, in order not to duplicate the accounting and all the financial, which is very heavy, the holding company is actually doing on their behalf. So that is a reduction on the GNA for this company, which is nearly nil, you know. including actually in the case of CLSQ, where an important part of the work on CLSQ is being taken care of by the holding company. So that, I mean, if we had a GNA in each of those companies, obviously the price would be much higher than what it is at the group level.

Got it. That makes sense. And then I guess on the two sort of, earlier stage pieces of business, the satellite business and WISART, I was hoping you could just touch a little bit more on when you expect each of them to start becoming more material contributors. I know with the satellite business, you've got a lot of partnerships and engagements there. So when should we expect those to start yielding uh you know revenue and then on the wise art business i think you mentioned the scope expands a little bit from nfts to to maybe physical art and being a marketplace for physical art so can you talk a little bit about that as well yeah absolutely yeah on on why sad the the investment has been done i mean we we have uh launched 17 satellites in cooperation with fosa so i mean each of those satellites around 250 000 dollars per satellite

which covers the cost of SpaceX to send to space, which is a fraction of the cost of a satellite a few years ago. I mean, a few years ago, one satellite would be $25 million. So these low-cost satellites, obviously, you have to invest at the beginning to launch them, because otherwise you don't have a service. But once they are there, they can provide many revenue streams. We have been working with a lot of people, a lot of partners, because this is a nation industry. I mean, nobody knows really how to monetize the space, right? Not even Musk. So the two concrete revenue stream, which we already have this year, you know, those are revenue that WISAT is already generating this year. One is with the Swiss Army. This is public information. An agreement was signed. We are starting to connect devices that the Swiss Army needs to track and trace from the space already through that infrastructure. So this is one. The other one is, it actually was announced yesterday. It is a deal with one of the largest container operators in the world. that they want to, a container is a $2,000 investment. That is the box, you know, the metal box of a container. But containers do not have any technology. And this creates a lot of issues, like transport issues, like counterfeiting issues, like using the container for putting illegal products inside, counterfeiting, drugs, whatever. So there is a drive in the industry which is being pushed by the port authorities, so we are talking to Dubai, we are talking to Algeciras in Spain, we are talking to Rotterdam, which will require the containers to be traceable from space. So that means that the container will have a sensor that we have developed, and that sensor, it is embedded physically into the container, and that sensor talks to the satellite, so the satellite will tell real time where this container is. And we have signed agreements, MOUs, LROIs, agreement to start with something like 1,000 container, but the potential is 20 million containers in the market. We are making, in each container, we are selling for 250 the dollars the sensor with the chips and the secure element from CLSQ that connects to the satellite. So we sell that plus a subscription to use the satellite. So the model there, the revenue model is like if you buy an iPhone, you pay maybe low cost the iPhone, but then you have a three year subscription program. So this is the two areas where YSAT is now able to generate revenue. And with huge margins, right? Because as I mentioned before, the satellite infrastructure is being sent. Now, obviously, we want to expand to 80 satellites. So there's a further need of investment there. And what we are doing is teaming with the organizations that are benefiting from our satellites to add into the constellation. So there is a program there, a consortium program with several very key players. then they are going to add satellites, so they're going to basically cover the cost, the $250,000 initial cost to launch the satellite. So this is in what concerns the YSAT. So YSAT this year will produce some revenue, but it may be next year will be really kicking off a strong revenue as this is becoming more and more required, right? Because the efficiency and the gain on having those sensors in the container is huge, you know? Not only you don't lose the container anymore, but even the environmental impact to be able through the space to guide the transport process so the container doesn't get lost in the middle of the ocean. All that is a huge ESG asset that we are adding to the company. Now, in Weisart, as you say, Weisart, we started with NFTs. We have done transactions like selling a Picasso NFT or selling a a celebrity NFT with Brooke chills in the United States. So that was a way to testing the potential power of, of NFTs. As you know, the NFT market has been depressed on what the collectible NFTs, which is a kind of gadget thing. They have lost a lot of value, but we are not handling that. We are handling the high end NFTs. That means physical objects like a Picasso painting, like a, like a furniture from the 16th century, like a, jewelry like diamonds, like watches, that they need to create their digital twin. So we actually put technology at the original. So this is revenue for CLSQ because CLSQ is able to sell the microchips to the collection. And then we create a digital twin, which is on the site. And as I mentioned before, we get 50% of all the transaction generated. In plus of that, and this is new, because we got several museums and they are saying to us, hey, we took... amazing picture from our collections. Those are petabytes pictures of the product that goes into layers so you can see the original painting. I mean, very sophisticated information. We would like to put that data into WISART. And WISART is developing actually a cloud, a very large cloud, in cooperation with a partner that I cannot disclose yet, that will allow the ultra-high quality pictures that museum galleries and collectors have of the original to be loaded into those clouds and being able to sell that as an NFT or an option to sell also the original. So we are going to be able, starting already this month, to be able to sell through NFT art. And then, obviously, the commissions will be lower than 50%, but it will increase big time the revenue generation. And another thing, which is public information, which was signed during this first semester, was a deal with Italpreciosi, which is a gold company in Italy. This is a company that sells $6 billion of gold. So they sell gold to banks, to individuals, but also to jewelry companies like jewelry companies in Arezzo in Italy, which they produce all the major jewelry. And this company teamed with us to basically do NFTs on gold. So if you buy gold, you will have to store the gold in your bunker and have all the security issues related to own the gold physically yourself, logistic and other. So the model here is that you buy the NFT. They keep the gold in their deposits. And by buying the NFT, you own the gold, but you don't have to worry about the logistic of having the gold in your premises. And the beauty of that is by selling the NFT to somebody else, you sell the gold without the need to move the gold, which is actually will enter in competition in the way the banks sell gold. So this is 2024 revenue. We are actually, we just signed the joint venture agreement. This was announced. And this is another major revenue generation for us in the future.

All right. Thank you very much for that caller. I'll jump back in the queue.

Thank you, Matt.

As a reminder, ladies and gentlemen, it is star one to ask a question. It appears there are no further questions in the queue. We do have a question from the line of Kevin Deedy with HC Wainwright. Please proceed with your question.

Hi, Carlos Peter. Thanks for taking my question. I guess my original queue didn't go in, so apologies.

No worries. Nice talk to me.

Yeah, so on the satellite business, granted you have two two contracts, is there an initial like fee that you collect in starting that service? And do you expect to record that at some point this year?

Yeah, yeah, we have exactly. We have a minimum fee to benefit from the existing 17 satellites. which is around $50,000 per year. With that, you're a cargo company, you're anyone, you want to track your object, $50,000, you can benefit from the 17 satellites. And then this is aggregates on the, it's like a telco company, right? Basically, you aggregate per the use you want to have. And that, as I explained before, in the case of the containers, because obviously that is millions of containers, you will multiply the fixed cost, which is the $250 per container, plus a minimum use of $50,000 per year, plus recurring revenue on the number of containers that you're going to put in. The minimum use for the container is 2,000 containers. That's how you enter into the project. But there are many new applications that we are still figuring out what the revenue will be. For instance, we got a request from There's a lot of fires around the world, and they have identified that one way to predict potential fires is to serialize trees, putting chips on trees, and then adding high-quality cameras with AI capability that will detect if the tree is dry enough to provoke a fire. And this is a big issue now with the fires we had this summer, right, globally around the world, and it's going to be a recurring issue. So we are working to put chips on trees plus adding satellite monitoring so that we triangulate the data, right? So there will be the identity of the tree, the AI camera, plus the satellite, you triangulate the data. With that data, you can do predictability analysis if it's a risk of fire, right? And then you can inform the authorities. So this is a new, I mean, once you are in the space, a lot of things are going to move to a space, right? Because it's a much better way and cheaper way. The only other way you could do that is by installing LoRa antennas and 5G and all these very expensive technology everywhere around the world. And in some areas, you cannot do that, right? So obviously the critical point here, the break point here is how many satellites can we send? And this is why we are creating like a consortium, which is we already send 17 satellites, but we are talking to shipping companies and they are saying, Do you want to monitor your satellite? We send another tank with you. Those satellites are yours, not ours, but you aggregate into a constellation. So we are becoming like a satellite as a service model, and this is going to be expanding. But it's an amazing business opportunity for the company and for the sector.

Okay. You mentioned partnering with a launch company in Spain, which is, I think, something you guys have been working on for a while. How much have you had to invest there, and how many satellites will go up in that launch, that initial launch next year?

So we didn't invest on this one. This is a PLD space. So this is a rocket launcher. I mean, the economics there is that if we pay $250,000 to SpaceX, which includes the launch, obviously, $250,000, the majority of that money is on the launch itself. will be much cheaper for us to partner with a smaller, because this is a smaller rocket, it's not as big as SpaceX, but it's only designed to launch the type of satellites that we are launching. So basically we are subsidizing their launch um and the next one the the launch is going to be uh in uh may next year 24 and uh in in one of those rockets we can launch 80 satellites in one rocket though the new generation pico satellites so it can be or satellites or we can do as i mentioned before a launch also partner satellites until we we reach the maximum capability but the good news there due to the way the agreement has been signed, is that we have a first call on the use of that infrastructure, the rocket, and it is totally a protection because if one day SpaceX say, no, we don't want to launch you anymore, we continue the business because we have our own alternative, right? But we are not investing in this company. We have a partnership and we have a revenue sharing with them.

Okay. That sounds good, Carlos. Thank you. On the container monitoring question, though, most of those containers ride in the bottom of the ship. It just seems to me that you're going to have to network somehow with a shipping carrier in order to monitor a container that's buried in the hold of a ship, and I'm just wondering how you thought through that.

Oh, I mean, we are talking to DL Port in Dubai, and we are talking to MSC here in Geneva. I mean, those containers sit on the top. I mean, those are these huge boats that have, you know, 20 rows of container. And the sensors are at the size of the container. So the sensors will always be in an area that can be detected. The boat itself also have duplicators that augment the connection frequency. So, I mean, this is more like an infrastructural project, but they are not, they're always in areas that you can connect through the satellite. Actually, the chips are already doing that with IMERSAT and other satellites, but they are paying a huge amount of money. You know, the beauty of these satellites is that they are very tiny, and then they are very powerful and they are very low cost i mean one one uh one uh ysat is a fraction of what will be one you know one web or or iridium one of the uh satellites which are around 25 million dollars so so you can you can uh reduce substantially the um the traceability cost did i understand you correctly in talking about seals sq that you're

your first post-quantum solution could be available next year?

Yeah, I mean, our target is to do that on second semester next year. I mean, the technology is very advanced. uh chips than they are um they are tpm compliant so tpn is going to be the standard for this high technology if you go to nist nist and you google a wise key nist you will see that we are part of the uh nist post quantum group which is a lab and they are working together towards the development of this technology because we will also need uh big players to do a attack uh the way it works is that uh people with the attack capability for that they need to have a quantum capability already need to attack the chip and the chip needs to resist the attack so we are in that phase now and we believe that by or first chips will be commercialized by second semester next year And we have the buyers already because the good news is that the people and they are buying chips from us, we cannot mention names, but some of them they already know in the market, like Cisco bought already 100 million chips from Wysky. And now they are saying we would like to continue upgrading that capability. And as soon as you have those quantum, post-quantum chips, we will obviously continue buying chips from you. So there's a way to retain customers as well. This is public information. We did reach 100 million chips with Cisco already, which is an amazing milestone.

Right. So that sort of leads me to my next question for you, Carlos. You mentioned 1.5 billion chips in the market. How much of those do you think people will want to retrofit, number one? And number two, do you think Part of sort of the flattish sales expectation that you have for the second half this year is due to the fact that people are expecting this post-quantum chip to be available next year and are just waiting for that?

Yeah, correct. Very good question. No, actually, the first part of your question, we cannot retrofit because, you know, they're totally different technologies, different silicon, different... Crypto wallet, totally different. But out of the 1.6 billion chips, and this is what we are doing now, we are assessing how many of them really need to be connected devices. Because there are many other chips and they are not connected devices. They are more for securing the hardware or putting a chip in a video camera to put an identity. So our estimation is out of the 1.6 billion chip, we have about 1 billion of them that will basically migrate from the old chip to the new chip gradually, right? And that migration is actually the pipeline we are setting up in the next five years in terms of our revenue. And where it comes from, that billion, comes from three main sectors. One is the defense sector, big, big user of this. Again, we have a very good – a client there with pirate because pirate is selling to the u.s army plus the french army and we are priorities you use i don't know if you saw the announcement just a few days ago they are connecting all their all their uh drones with our chips towards satellites so this is one of the first clients that is triangulate the offering and then we have the medical sector we have clients and they are using our chips to secure medical devices that you use at home to monitor your health. And those devices, they need this kind of security because obviously somebody can manipulate them and kill you. And the other – so that's a very big medical sector. And for that we are, by the way, HIPAA compliant, which accelerates our deployment in the United States. And then you have the security world. You know, everything that – smart cards, the banking cards, the – airport security cards, the smart city cards, or everything which is access control in critical areas that needs to be reinforced. Otherwise, somebody can hack, and who should pay your identity? So those are the, I will call the first generation users of this post-quantum technology. But in the future, it's going to be everybody. I mean, you will not imagine in five years' time anyone to buy a non-post-quantum chip. It will be too easy to hack, especially once this technology is going to be in the market And another acceleration is what I mentioned in my introduction, is the MATTER, M-A-T-T-E-R, the MATTER certification. So this is, for the moment, is for home use. So here it is how to secure your thermostat, your smoke detector, your smart meter at home, all your spa, your fridge, your TV, everything which is connected and is not secure. So now companies like Ring, like Google, they need to be matter compliant in order to sell objects for home usage. And this is becoming very big. I mean, this is going to be a major acceleration of business. Because we are, all chips are already today Matter compliant, so we can sell chips Matter compliant, which is very unique in the market. And in plus of that, we are, because the cryptographic root key of WiseKey was so well distributed, Matter has introduced the root key as part of the Matter roots, and there are not many. It's DigiCert, it's WiseKey, and a few other companies. So we are in both ends. We are the private key end and then the public key end. So Matter is another – actually, the beauty of Matter is that we can sell both. We can sell chips Matter compliant, but we can also sell certificates without the chips. So we even have companies, other semiconductor companies, and they're approaching us to buy the software part only. So it's a very interesting 2024 growth area. Now, the second part of your question, how much will affect the future, I mean, this is like I own an iPhone 14 device. Should I buy the iPhone 15, right? Because the market is still not decided where to go. Some people are waiting to have the new chip before continue buying chips. So that might affect all revenue in the first semester of the year. But if they do, we don't know sure, they will do, it will be recovered in the second semester of the year. So this is, we will obviously give more information about that once we have the final calculations.

Okay, I know, Carlos, you touched on, you touched a little bit on the EU's willingness to support semiconductor construction. And you just, I think, alluded to it a little bit with regard to France and, you know, you're inside secure. Could you just talk a little bit about what sort of subsidies you might see, what you think the propensity is for the EU to continue that, and how much you think it might benefit?

Yeah, absolutely. So, I mean, this is both the United States and Europe. At the political level, they reach a conclusion that it is very dangerous, especially with explosion of IoT and 1 trillion devices by the year 2030. and the future requirements of AI to use semiconductors to give the exclusivity to Taiwan to do that. I mean, in case China attacked Taiwan or something happens there geopolitically, the entire supply chain stops, and this will have huge consequences of the economy of OECD economy. So what is the remedy? The remedy is to localize the technology at national level. And if you Google E-Chip Act of the U.S. government, you will see that there is about $70 billion to be granted to basically states and companies to create, to avoid the dependency on semiconductors outside the United States. And you have now Colorado, Arizona is booming because they are bringing many semiconductor companies and they are benefiting from those subsidiaries. So we are in the U.S. actually, we are in the process of negotiating this because this is part of an inbound strategy into the country to locate ourselves in areas that they are developing the semiconductor industry. The same thing, for the moment, we are not getting yet money from the U.S. government, but we are in the process, especially now with CLSQ being listed on the NASDAQ to apply for that, for those grants. The other one is in Europe. So we are already getting money from France because the semiconductor business is in the southern part of France, and we are already getting research money, and this is going to accelerate. In Europe, just a month ago, it has been voted a $45 billion ECIP Act, that it also is there to support the innovation in French companies and European companies, and also to, by doing that, reduce the dependency of Asian countries, and particularly Taiwan. So, yeah, so this is obviously, it's a lot of paperwork in those processes. You know, this is a long-term, but the good news is that we are getting research grant. I think this year, what was the amount we got from France, research grant?

This year it's around about $600,000.

Already $1.1 million for this year as a subsidy from France, which is pretty good already for the first year. And as we are developing the next generation chip, that also attracts more funding because we enter into this strategic area on where funding will be higher and faster.

If I remember correctly, though, you used TSMC to actually manufacture those chips.

Correct, in Taiwan. But we also, since that, there has been an effort to decentralize the production because of the COVID situation, forces us to look into other options. We look into France. France is having a fab in Grenoble, which will be potentially abused. Also in Thailand. So we are diversifying. And also in the United States. I mean, there are some FABs and they are available, but they are company FABs. They only produce the chip of their own use, like ARM or like NXP. The idea is to develop multi-branding FABs and they are to be used by any designer of chip because that will obviously increase the ecosystem. And we'll make, and this is basically what Colorado and Arizona is doing, is to create those kind of agnostic fabs that will allow companies like us to manufacture our chips in the United States, which obviously will increase against their revenue because it will be U.S. chips, you know, manufactured in the United States, which is our goal.

Okay. Thanks, Carlos. I have a couple of remedial questions that maybe Peter can help me out with. Peter, just sort of run through the ratio of the Swiss shares versus ADRs and how that's changed. I'm not sure if you did a reverse. I think it was one for seven. Just run through that for me again so I'm caught up.

The reverse we did with WiseKey.

We did a reverse split of the European shares, but I don't have the number how that affected the ADR. I mean, the split for the A shares was a ratio of 1 for 25, and for the B shares, it was a ratio of 1 for 50. The B shares basically are connected to the ADR.

Okay.

Sorry, Kevin, we can drop you the information. We'll send it in and drop it to you afterwards, okay?

Yeah, thank you. That would be helpful because I apologize. I just got lost in the engineering there, so please forgive me.

That's okay. It's all documented. We'll send you a letter this afternoon, yeah.

Okay, so sort of back to one of my earlier questions, Carlos, you haven't really seen revenue from YSAT at all yet.

Yeah, we have, but not on Q1. No, not on H1, H2. We have, yeah.

Oh, okay.

All right.

Okay. Yeah, yeah.

Not only we have revenue, but as I mentioned, we have a signed agreement that will strongly bring revenue for 2024, which is my target. I mean, this was an infrastructure deployment year. I need to send the satellites before creating revenue and explain the benefit of using those satellites. So that has been achieved already. And this morning we announced a partnership. We have been announced by all that is public information. So we have been saying always that Second quarter, WiseArt will start to make revenue and then a strong visibility for 2024. Together with WiseArt, WiseArt and WiseArt, because WiseArt also, as I mentioned, is starting to... WiseArt, by the way, received, and this is important for you to understand because you follow blockchain, WiseArt received, and this is public information as well, a strategic investment from Hedera. So Hedera is one of the largest private blockchain on earth. Hedera is a $2 billion blockchain. It goes in competition with all the major blockchains. And Hedera particularity is specialized on enterprises blockchain, which is ideal, right? Because you are not in the global blockchain. You can define the blockchain and you can put some kind of boundaries in the blockchain. So they are growing very fast due to that enterprise approach, and they have signed an agreement to boost WiseArt. So WiseArt can become not only a general blockchain as it is now, but also being used as a multipurpose blockchain for other industries, not only art. That requires the assets we have, you know, which is identity management, is the NFT creation, is the minting process in the blockchain, is the tokenization process. And we are looking into the possibility of launching before the end of the year a token, a WISAR token. that will monetize the transaction inside the – so this is a game changer for us to be in partnership with Hedera. Hedera is very well respected in that ecosystem, and that will totally change the dynamic of WiseArt.

Okay, last question for me, Carlos. The end of August you announced the new Vault IC, the 292, and I'm wondering if you could kind of give us a feel for – Like when it will actually be available for customers and what sort of demand you're seeing?

So you have to understand this evolution as an incremental evolution from the previous version. So we're just adding more security into those tips. I don't have with me Bernard, which is the guy that can give you the detail exactly what security that is. But the idea of that chip is to be able to power devices that we were not able to power before, like Dyson equipment, like Medtronic. health monitoring system, and so on, right? It's identity, it's also a user of those chips. So I can give you more information later on the specific use on that new generation chip. And the projection is not so much of growing in terms of revenue, because as I mentioned, everybody's waiting for the post-quantum, but it's a way to keep our clients updated with the new evolutions of the chip before we move into the post-quantum chip.

Okay. Thank you so much, Carlos. I really appreciate the time you've taken to address my questions. I really appreciate it. Thanks very much.

No, Kevin, thank you very much. Thank you for being there.

If there are no further questions in the queue, I'd like to hand the call back to Carlos Moreira for closing remarks.

Okay, so thank you very much, the organizers. Thank you, Lina Kati, to put this together, and thank everybody on both Matt and Kevin for your questions. We look forward to keep briefing you on the evolutions of the company. As I mentioned in my introduction, there's a lot of moving parts because we are handling complex projects, but the good news is that it's making more and more sense. We hope that this will be – translate it into a better visibility also from the investment community and a higher return for our investors. So we look forward to keep briefing the investors community as we will follow with the project. Thank you very much for your time. Yep.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.