WISeKey International Holding Ltd

Greetings, ladies and gentlemen, and welcome to the WiseKey International Holding First Half 2024 Financial Results Earnings Conference Call. As a reminder, this conference call contains forward-looking statements. Such statements involve certain known and unknown risks, uncertainties, and other factors, which could cause the actual results, financial condition, performance, or achievements of WiseKey International Holding Ltd., to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. WiseKey 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. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Carlos 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 for Europe, and good morning to all of you joining us from the United States. I am joined today by our chief financial officer, John O'Hara. And I will start this call by providing highlights on the company performance and subsidiary-level initiatives for the first half of 2024. Then John will provide commentary and our financial conditions in greater detail. And before opening the floor to Q&A, I will discuss growth opportunity for the second half of the year and beyond. So we continue the gradual restructuring that we announced a few months ago of WiseKey into what we call a computer infrastructure company, which is specialized in different assets, such as cybersecurity, digital identity, blockchain, IoT solution, and now, lately, post-quantum semiconductor. As a computer infrastructure provider, WiseKey delivers secure platforms for data and devices management across various industries, including finance, healthcare, government, and also IoT industrial applications. Leveraging its robust cybersecurity and public key infrastructure of over 25 years, Wysky ensures traditional encrypted communication and a strong authentication, while also focusing on next-generation security through post-quantum cryptography. Wysky has evolved into a Swiss holding company encompassing several specialized operational subsidiary, each covering an area of activity of WiseKey technology ecosystem and platform. Some of them are CLSQ, formerly WiseKey Semiconductor, which was listed on the NASDAQ in 2023 under the symbol LAES. CLSQ focuses on advanced semiconductor technologies. WiseID, the PKI component, the root of trust and PKI segment, central to the Wysat identity and trust encryption services. Wysat.Space, which is a space technology division, which has been now a spin-off into a full company, utilizing Pico satellites for secure communication from space. Wysat, the trusted blockchain and NFT segment, offering secure digital asset solution. And lastly, CL Coin AG, incorporated this year to develop the sealed coin platform and focus on the decentralized physical internet, what you call DPIN. Each subsidiary plays a crucial role in the WiseKey ecosystem, contributing through independent research, development, and expertise, while integrating their technology into the overall WiseKey platform. WiseKey revenue generation strategies focus on combining a stable, mature revenue stream with high potential, free revenue companies to create a balanced and sustainable business model. And this approach is actually allowing WiseKey to leverage its diverse portfolio, technology portfolio, capturing both immediate and future revenue opportunity. The core of the WiseKey revenue, as you all know, comes from CLSQ, the semiconductor business. than a spin-off into a full company last year and was listed in the NASDAQ Stock Exchange, which serves as the company financial backbone. This segment provides consistent income thanks to its strong marketing presence in sectors such as IoT, cybersecurity, digital identity, mattress certification, the Cyber Trust Mark in the United States, and many other movements that they are making IoT devices requiring this level of security. Complementing this stable revenue source, WiseKey is investing in high-growth potential ventures like WiseSpace. Although still in development, WiseSpace is poised to become a significant revenue generator starting in 2025 by leveraging PicoSatellites to deliver secure communication solutions tracking IoT device. It targets industries like logistics, agriculture, defense, drones, that require secure IoT services. Another key component of WiseKey's strategy, CL Coin AG, which is the ZOOC-based company created this year, which is scheduled for launch in 2025. CL Coin aims to capitalize on the growing decentralized economy by providing a secure blockchain-based platform for digital transactions and asset management. This venture will create new revenue channels through tokenization, digital asset management, and blockchain services, taping into the expanding market for blockchain-based solutions. By blending this steady income from its established semiconductor business with the future revenue potential of its emerging ventures, Wiseki ensures financial resilience. This approach allows the company to invest in high-potential technologies like space-based communication, and blockchain platforms while maintaining revenue flow from its mature operations. By 2025, Wysky expects these new ventures to significantly contribute to overall revenue, working alongside its traditional semiconductor business. Before John covers our financial results for the six-month period ending in June 30, 2024, I'd like to highlight that Wysky's performance represents our resilience and strategic ability to adapt amid rapid technology changes and a year of transitional demand. For the first half of the year, we announced 5.2 million in revenue, reflecting the slowdown in traditional semiconductor revenue and demand, 26.3 million in cash and of June 30, 2024, and 2.9 million invested in R&D projects and technology. As we expected 2024 to be a transitional year driven, as mentioned, by a slowdown in traditional semiconductor demand, we demonstrated our ability to adapt to an ever-changing environment through investment across subsidiaries in projects and technology that we expect to drive recurring revenue for the years to come, and which will solidify a wise key position at the forefront of the foreign industrial revolution. Key areas on the investment for this half of 2024 include CLSQ post-quantum chip, CLCoin, and our WISA satellite and the next generation of this technology. Along this line, I would like to briefly highlight the strategic initiative which we are undertaking and each of the subsidiaries and which we have made progress in the first half of 2024. Beginning with CLSQ. for which, as announced, we secured $20 million in additional funding during the H1-2024 to expand production facility. The funds are earmarked for the development of the post-quantum semiconductor, which are increasingly critical as quantum computers possess challenges to traditional encryption systems. CLSQ is preparing to release engineering samples of its QS7001 quantum-resistant secure chip before the end of the year. This will position CLSQ as one of the few players on the ever-increasing industry, which is TPM. Our semiconductor subsidiary is also expanding its U.S.-based sales team, made significant progress towards the establishment of several OSOT cybersecurity chip design and customization centers, and secure global partnership More details on these initiatives can be found by accessing the CLSQ H1 2024 earnings new release and an archived website available on its site. Another one is ysat.space. It's also working on a variety of projects expected to drive growth in H2 2024 and beyond. This includes launching a constellation of 88 low-orbit satellites by the end of 2027, a total of which 17 satellites have been already launched today in partnership with Forza Assistant and SpaceX, which is the carrier for this satellite. Utilizing PicoSatellites to offer a cost-effective IoT connectivity solution from space and launching a new generation of satellites from California with SpaceX expected to take place In early 2025, although we depend on the launching slots, and they are provided by the SpaceX, which we don't have control. Installing a satellite antenna in Switzerland, which has been done for Constellation, monitoring and management. We also have another antenna installed in the southern part of Spain, which diversifies the monitoring aspect. and developing a European-based neutral satellite constellation aiming at ensuring data sovereignty and enhancing international cooperation. And lastly, a collaboration with the Swiss Army to leverage WISAT secure IoT connectivity solution for defense and national security purposes on a strategic partnership signed last year and reinforced this year during the H1 period. At WISAT, We are working towards the development of the WiseArt 2.0 platform after a very successful launch on the initial platform with over a thousand artists already using on daily basis this platform to negotiate their digital art. A highly secure environment for trading NFTs, digital art, and even now physical objects and conducting authenticated online transaction, WiseArt grows is further fueled by the strategic investment from the Hashgraph Association, a Swiss nonprofit organization focused on promoting the global adoption of the Hedera network, which, as you probably know, is the promoter and deployer of the HBAR token, which is a very successful token in the digital economy. This partnership is expected to significantly buster bolster WISART growth by leveraging Havera decentralized sustainable public ledger. The WISID ledger, which is our identity platform, or INS platform, which is our digital certification platform offering PKI as a service, is gaining significant traction. The platform allows companies to manage device attestation certificates without the need to cost the infrastructure and investment. This area will grow substantially again over the next year as this certification of the object level issuing a digital certificate is becoming compulsory in many industries on which IoT devices need to be secure before they are deployed. CL Coin AG, which secure a $50 million token investment commitment from Gen Digital Limited during this H1 period to support the CL Coin project. Additionally, the Hashgraph Group has committed to providing engineering expertise and strategic guidance in the Web 3.0 economy. CL Coin is poised to become a clip player in the transactional IoT ecosystem, expanding semiconductor sales while enabling autonomous and secure transactions between IoT devices. Approval concept for the token is already available on our website, and the CL Coin COIN project leverage Hedera LAT decentralized ledger technology is actually targeted to revolutionize the IoT landscape because this technology has not been deployed anywhere by anyone. So we are the first group that is fully deploying a T-IoT infrastructure. The state-of-the-art platform will facilitate autonomous transaction and services for payment exchanges among IoT devices. addressing the growth demand for efficient and trustworthy transaction in the IoT sector. Key features and timeline for the CL Coin are as a follow. Approval concept was successfully executed on July 25, 24, demonstrating the platform capability to handle secure autonomous IoT devices. This video of the approval concept is also available on the clcoin.ai website. Preceding investment was completed with a raise of $2 million in mid-2024, positioning CL Coin for a solidary growth and development, and a FIMA application, which is in process. FIMA is the regulatory body in Switzerland, which requires to give the go-ahead and the non-action letter in order to deploy the token. CL Coin AG is about to submit its application to FIMA, ensuring full regulatory compliance as the project progresses. The platform has been developed and it was officially launched in Q3, 2024, utilizing Hedera Hashgraph technology for enhanced scalability and security. The CL Coin platform is expected to go live fully commercially with a token issued by mid-2025. CL Coin is also targeting a digital exchange listing by Q3, 2025, providing liquidity and accessibility for the token holders worldwide. Before that happens, it is the objective of the company to raise pre-listing funding, extra funding, then we'll finance this operation without any dependency from the YSK budget. With CLcoin, we are not only redefining the IoT ecosystem, but also unlocking new revenue avenues for YSK. This is an ambitious project and positions CLcoin as a frontrunner in both the T-IoT and Web3 economies. With that, I will now turn the call over to John, who will provide further insight into the first financial year highlights. John, please go ahead.

Thank you, Carlos. As Carlos mentioned earlier, half-year 2024 results demonstrated WiseKey's resilience during a transitional year. WiseKey revenue for the six-month period ended June 30th, 2024 was $5.2 million as compared to $15.1 million in the six months ended June 30th, 2023. This reduction is in line with our previously announced expectation that 2024 would be a year of transition for WiseKey and our subsidiaries. Revenue decline at the WiseKey level is primarily attributable to our semiconductor vertical CLSQ, which announced revenue for H1 2024 of 4.8 million compared to 14.8 million in H1 2023. This decline was driven by a decrease in traditional semiconductor demand and high levels of supply at many of our legacy customers, a leftover impact from the supply challenges we and our clients faced in the past year. As customers use their stock, we expect revenue to begin showing signs of recovery in the second half of 2024, with a material recovery expected in 2025 and beyond. 60% of our net sales for half-year 24 came from North America, a trend that we have seen increasingly and which we expect to continue. We've therefore made advancements to further our presence, specifically in the United States, by hiring a sales director for CLSQ and announcing the establishment of CLSQ USA Ltd. Our next largest market was EMEA, which consisted of 23% of our net sales for H1 2024, and Asia-Pacific represented the remaining 17%. Moving on to gross profit, we saw a similar trend to revenues for the first half of the year. Our gross profit margin decreased from 53.6% in H1 2023 to 21.5% in H1 2024. This decline is expected to be temporary and is primarily due to high costs of inventory coupled with some incompressible fixed costs while our customers are using their previously accumulated stock. As customers' stock levels are depleted and they recommend ordering new products, we expect the revenues to grow and the gross margin to return to our traditional levels. The OPEX R&D expenses increased by 0.8 million between H1 2024 and H1 2023. As we are working on the development of our next generation products and revenue streams, including our post-quantum Quasar project and Sealcoin T-IoT project, RMD remains a large part of our operating expenses, with 2.9 million spent in the six months ended June 30th, 2024, which represents 19% of total operating expenses. Our G&A expenditure of 8.3 million has increased by 0.4 million in comparison with the G&A expense the six months ended June 30th, 2023. This increase of around 5% is mainly due to additional legal and audit expenditure of 0.9 million and 0.2 million respectively, in relation to various SEC filings required during the first half, in particular relating to the financing we raised via our convertible notes with L1 and Anson. These additional expenses were partially offset by a reduction in professional fees by 0.5 million relating to one-off costs incurred in 2023 for the initial partial spin-off and listing on the NASDAQ of our subsidiary CLSQ Corp. Our net loss for the first half of the year increased to 15.5 million as compared to a net loss of 7.1 million in H1 2023. This includes a 1.0 million increase in income tax expenses related to deferred income tax asset write-offs. Additional information on this is available in our H1 2024 semiannual report. Our cash and cash equivalents at June 30th, 2024 was $26.3 million, compared to 15.3 million at December 31st, 2023. The most significant source of funding was the 20 million funded by the share purchase agreements with L1 Capital and Anson Investments Master Fund. This strong cash position indicates not only our strong financial stability, but the ability to fund strategic initiatives at all our subsidiaries throughout this transitional year. I'm turning the line back to Carlos, who will discuss these initiatives and our growth plan for the second half of 2024 and beyond. Carlos, please go ahead.