Greetings, ladies and gentlemen, and welcome to the WISeKey International Holding Full Year 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 Holding Limited 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. As a reminder, this conference is being recorded. It's now my pleasure to introduce Carlos Moreira, Founder and Chief Executive Officer of WISeKey. Mr. Moreira, please go ahead.

Thank you very much, and good afternoon to all of you joining us from Europe, and good morning to all of you joining us from the United States. I am joined today on this call by our Chief Financial Officer, Peter Ward. I will start this call by providing a brief highlight on the company performance and activities for the full year 2023. Then Peter will provide commentary on our financial condition in greater detail. And before opening the floor to Q&A, I will discuss the growth opportunities for 2024 and beyond. Just as a recap, WISeKey operates as a holding company located in Switzerland, in Zug, with several distinctive operational companies that cover the full spectrum of WISeKey-related technologies. The concept is that in the 4th Industrial Revolution, companies need to solve several problems if they want to remain on the market longer, as the major players are building very large platforms and companies need to deploy alternative solutions to these very big players, which have unlimited financial resources, creating monopolistic platforms. Our angle is that WISeKey is a trusted platform with a higher level of cybersecurity and trust than many other platforms as we do not monetize consumer data or personal information from our clients. So, this holding company structure remains the same as the one we established in 2022 and comprises CLSQ, which you are all familiar with, formerly WISeKey Semiconductor, which was listed on NASDAQ in May 2023 under the symbol LAES. This is a semiconductor company, very niche in developing the next generation of semiconductors. Then we have WISeKey SA, the original startup company that is a cybersecurity player with very strong assets in digital identity, root of trust, and public infrastructure. The WISeKey cryptography and root key has been operating now for over 25 years and is a very well-distributed root of trust internationally on the Internet. Then we have WISeSat Space, which is the space technology company that has sent several picosatellites into space already operational and ARAGO provides IoT connectivity from space, which is a very good option compared to land-based connectivity, which is much more expensive and does not cover the planet. And then we have WISe.ART, which is the blockchain trusted platform for the commercialization of digital assets, NFTs, and equivalent. So, each of these subsidiaries contributes meaningfully to the overall mission of WISeKey Holding while also operating independently with specific focus on their particular area of R&D and expertise and integrating their respective technology into the WISeKey platform. For instance, in WISeKey, you can issue digital identities for people and objects, which are issued by a company, WISeKey SA. These digital identities need to be decentralized on a ledger so anyone can check them, and that is done through the blockchain company, WISe.ART. Then you will need to track and trace those identities that might be installed in semiconductors, and this we do with CLSQ. The final connectivity ensures that you can trace these chips installed in devices worldwide through WISeSat. These companies play interrelated roles among themselves. Once they reach maturity, they reinforce the other two layers. Some of them are pre-revenue, like WISeSat and WISe.ART, while others are more mature, like WISeKey SA and CLSQ. We have structurally focused our revenues in areas where we see the most promising opportunities and diversity in revenue sources. As a result, we continue to see significant improved financial and operational results. While Peter will discuss the details of our full 2023 results shortly, I would like to emphasize that for the full year 2023, as compared to the full year 2022, we reported a 30% revenue growth to $31 million, a $5 million improvement in gross profit to $50 million, with a profit margin of 48%. We continue investing in R&D for the development of what we believe will be a major revenue generator in the years to come, which is our post-quantum microchip, based on RISC-V and TPN. We have been selected as one of five companies worldwide developing these new generation chips. Additionally, the deployment of the satellite constellation and investment in R&D have been conceptualized for the semiconductor personalization center, which WISeKey is now locating in several countries. These ventures, together with new initiatives such as CL coin, constitute the next generation of revenue streams. Our balance sheet remains robust with total assets of $48 million and a healthy cash position at the end of 2023 of $50 million, which has further improved during the first 6 months of 2024, with now $30 million cash at the group level. Our full 2023 results represent the strength of our current business strategy and investment in the past, as well as continued progress in our growth initiatives. The strong cash position also puts us in a situation to continue investing in the next-generation revenue generators and be a major player in the interoperability and innovation required for Industry 4.0. I will now turn the call over to Peter, who will provide further insights into our 2023 financial highlights. Peter, please go ahead.

Thanks, Carlos. As Carlos mentioned earlier, the full year 2023 results continue to demonstrate improved financial performance for WISeKey due to focused execution and operating discipline by our team. Specifically, WISeKey revenue for the fiscal year 2023 was $31 million, compared to $24 million in fiscal year 2022. This 30% increase is attributable to our successful expansion in key markets in 2023, as well as strong demand for our IoT solutions. The shortage of semiconductor raw material during the COVID-19 pandemic has attracted new customers to WISeKey. The shortage also pushed customers to make long-term commitments to secure their supply, which meant they placed orders for delivery over more than six months, providing WISeKey with a significant backlog of orders. 54% of our net sales for the full year 2023 came from North America, a trend we expect to continue. We have therefore made advancements to further our presence specifically in the U.S. by hiring a Sales Director for CLSQ and announced the development of an OSAT center, which Carlos will discuss shortly. Our next largest market was Europe, the Middle East, and Africa, which constituted 35% of our net sales for 2023. Asia Pacific represented the remaining 11%. Moving on to gross profit, we reported $15 million with a profit margin of 48% for full year 2023, a $5 million improvement from 2022's $10 million. In addition to higher revenues, this was also due to enhanced operational efficiencies across our subsidiaries. Our net loss for the year decreased to $15 million compared to a net loss of $29 million in 2022. This improvement is primarily due to the disposal of the loss-making subsidiary ARAGO GmbH completed in 2022, as well as strategic cost management initiatives. Our cash and cash equivalents at December 31, 2023, were $15 million. This indicates not only strong financial stability but the ability to fund strategic initiatives as our subsidiaries continue to thrive. I'm turning the line back now to Carlos, who will discuss these initiatives and our growth plan for 2024 and beyond. Carlos, please go ahead.

Thank you, Peter. So, we continue to make strategic investments that align with our growth initiatives. Specifically, we are in the process of transitioning our business model to focus on recurring revenue for our subsidiaries while maintaining our dedication to operational efficiency, customer satisfaction, and technological advancement. As a company, we believe that the market is moving towards an identity-required market for two major initiatives. One is the master certification process in the United States that reinforces the need for every object to have a semiconductor for home installation. The second initiative is the CyberTrust Mark, a federal government initiative mandating that every object must have a microchip and a secure element to connect to the Internet. These initiatives will substantially improve our recurring revenue process, as you will need to maintain the consistency of the security of those devices year after year. As previously discussed, we expect 2024 to be a transition year. However, we expect to see a temporary dip in the growth of some of our existing semiconductor products and markets due to the shift towards emerging new semiconductors. This is explained by the fact that the next-generation semiconductors, the post-quantum semiconductors we are currently testing, will require a maturity period of over 12 to 18 months before we can sell these new semiconductors, which meet market demands. We anticipate generating revenue from these new certification standards and the CyberTrust Mark standards early next year, with some revenue expected during 2024. We have taken steps to diversify our revenue streams and implement sources of recurring revenue, expecting to see the full impact of these initiatives on projects starting in 2025 and 2026. Some of these initiatives include a sealed coin, which is a very much-anticipated hybrid machine-to-machine communication currently under development. Our technology is being tested in several objects that utilize semiconductors. This initiative combined with the new microchip, which is expected next year, will significantly reinforce our position in the high-end semiconductor market. Blockchain tokenization for the WISe.ART platform is also progressing well, with negotiations beginning for WISe.ART's phase three journey into Web 3.0. The WISe.ART platform has improved substantially during 2023 and is still growing rapidly in 2024. New content, including art design, is being added, and we are introducing a large number of artists who are bringing their art onto the platform. The platform's reach has also expanded into various markets, with significant players such as the Vatican and the United Nations using the platform for promotional digital art purposes. We expect further continuation of the platform's expansion during 2024 onwards. The track-and-trace technology we introduced months ago, is operational with smart containers, and we have signed MOUs with several port authorities, including the Dubai Port Authority and the southern part of the Spanish Al Jazeera Port Authority. This will facilitate sales through our asset tracking capabilities from space, as these containers, which we track, will include our microchip and next-generation sensors that allow them to be traced from space and continue to be tracked during the supply chain process end-to-end. The track-and-trace market for smart containers is substantial, as new requirements are imposed on shipping companies to ensure they can track their products. As I mentioned earlier, the introduction of the WISeSat picosatellite constellation facilitates satellite IoT services and device connection for authentication in limited areas, such as the sea or rural and developing countries, is also expected to open new revenue channels. WISeSat is expanding in cooperation with the Swiss Army, as we have signed an MoU with the Swiss Army Forces to employ our satellite capabilities for real-time tracking and tracing of objects. This project has expanded in 2024 with the planned launch of a new generation satellite developed in collaboration with the Swiss Army, which will be launched in California in October this year with SpaceX. This will add to the 17 satellites we have already launched, constituting the right number of satellites required to create a functional constellation. I previously mentioned that providing satellite connectivity is the cheapest way to connect devices, and companies are approaching us as a method to acquire satellite connectivity for tracking and tracing their objects on Earth. Additionally, we are establishing high-performance cybersecurity chip design and customization centers. The strategy is to approach specific semiconductor hubs being established in response to government funding, such as the E-chip Act in the United States and similar initiatives in Europe. We are proactive in these projects to localize our operational centers, which have already been established in France, and to expand the installation of cybersecurity design and personalization centers. Each of these centers will substantially increase our revenue generation, allowing us to penetrate new markets and sell our chips locally to specific companies demonstrating demand for locally produced chips. The Quasar program, which is associated with the next-generation semiconductor, is advancing well, and we expect to have an operational semiconductor by the end of June this year, with testing continuing until the end of the year, leading to commercialization of these new generation chips in 2025. As outlined, we are cautiously optimistic about 2024, which will be a transition year, given anticipated reductions in semiconductor sales as some clients await new generation semiconductors. This is similar to when you have an iPhone 14 and choose to wait to buy the iPhone 15; it creates temporary delays in revenue without permanent loss. Geographically, we have broadened our footprint in the United States market, which Peter highlighted as one of our major revenue markets for growth. We have established a subsidiary, CLSQ USA, incorporated in Arizona, and we are working on a business plan to facilitate our semiconductor technology development and attract new customers. Many customers have indicated a preference for local presence in the U.S. due to the critical applications of cybersecurity semiconductors, such as drone security. WISeKey expects to be operational in the United States by 2025, executing these projects alongside the deployment of OSAT centers in both the U.S. and Europe. The establishment of these centers heralds a transformative era for semiconductor technology, enabling us to solidify our presence in North America, which we prioritize. We are actively recruiting new staff in the U.S., including individuals from major semiconductor companies to enhance our market standing. Therefore, we believe WISeKey is well positioned for long-term success in supporting customers across all subsidiaries while continuing technological advancements across the cybersecurity landscape, which is in our DNA. With 25 years of experience, we have managed to address critical issues related to cybersecurity across different web eras, including Web 1.0, Web 2.0, and now, in Web 3.0, as a major player in the decentralized web, providing protection for critical assets. With this, I conclude our prepared remarks and would now like to open the floor to Q&A. Thank you very much for your attention.

Our first question is from Matthew Galinko at Maxim Group. Your line is open.

Thank you for taking my question. I guess after testing the next-generation chip, how long does it take for customers to begin implementing and shipping it on new products? So, if you complete your testing and I think you said maybe this summer, with maybe the beginning of commercialization at the end of this year, how long until it's actually shipping on customer products?

Matt, thank you. So, as I mentioned, the first layer is to design the chip. The ZIP has already been designed. We have now the first prototypes of the chips. In June, we are performing our internal testing, which means these chips need to be tested against attacks in order to ensure their robustness. We are also discussing with very large companies; I cannot disclose their names yet as this information is not public, but they have significant capabilities in quantum technology and they will test the chip to ensure it responds well to potential attacks and remains uncompromised. This process will occur from June to December this year. During that time, these chips will also require accreditation, leading us to the beginning of 2025. By then, the sales team will already be engaging with clients who wish to transition to the TPM and RISC-V platform, and there is considerable demand for that. As I mentioned earlier, the threat is real, and the requirement to upgrade is pressing. We expect to start generating revenue from this new generation chip around May next year, meaning it takes approximately a year from now to begin delivering these chips to clients for incorporation into their devices.

Got it. Thank you. And can you help maybe frame for us the competitive environment? In that selling process, do you expect to see meaningful competition, and how comfortable are you with winning your share of that market?

Yes. Obviously, there's going to be competition. The TPM and RISC-V, in particular, is a dominant architecture that many companies are transitioning towards. The competition will come from companies like Infineon and Microelectronics, who also have post-quantum capabilities on their roadmap. We can't predict if they will be faster than us, but from the information we are receiving, we believe we are fairly advanced compared to that competition. One piece of evidence supporting this is our listing on the NIST website, alongside only nine other companies as competitors. The market is massive because, as I mentioned, every company must transition to the new generation of chips. Companies typically don't buy from just one provider; they usually have one to three providers to mitigate risks. Thus, we expect to capture a significant percentage of the market share for this technology. We are currently conducting preliminary studies to assess the addressable market size; these figures will become available soon.

Next question is coming from Kevin Dede from H.C. Wainwright. Your line is live.

You mentioned that you thought revenues might stall a little bit during this transition to the new semiconductors. I was wondering if you could help us quantify that.

Yes, sure. Last year, we experienced a revenue growth of 30%, which was exceptional as it followed the pandemic, during which many companies faced supply chain issues with semiconductors. Last year was a recovery year for many companies in semiconductor installations, so it was unusually strong. This year, revenues are expected to normalize, as companies have sufficient stock. Due to the absence of pandemic-related pressures, companies have no incentive to build additional stock now. Moreover, they are likely holding off on purchasing until we release the new chip next year. Therefore, we anticipate our semiconductor revenue will be around $19 million to $20 million this year, offset by incoming revenue from the new projects I've mentioned.

Regarding the separate initiatives expected to contribute this year, could you offer some color? How about the 30 million from IoT? Can you provide any detail there?

It's important to note that WISe.ART operates under a different revenue model; it acts as a platform that collects fees ranging between 10% and 50% on all sales made through it. At this stage, the platform needs to grow significantly to start generating substantial revenue; for now, it is still considered a pre-revenue company. However, we have a project in WISe.ART that will bring revenue through the tokenization of certain assets by the end of the year. The chart you referenced on Page 55 illustrates value, not revenue. WISe.ART received an investment from Hedera, which boasts a valuation of $5 billion, and this investment enhances our outreach to the Hedera blockchain community. This increases the visibility of WISe.ART, similar to the OpenSea model, where broader product listings add substantial value.

Thanks for clarifying that. I appreciate the insight into Quasars and the expected revenue ramp-up in the second half of next year. Could you comment on the development timeline of the design process and the prototype status?

Yes. The current phase involves testing and penetration testing. We are collaborating with a major player, a multinational corporation with quantum capabilities, which is integral to the process. The feedback indicates that our chip is robust, and we have no reason to expect delays. Penetration testing is dynamic and involves continuous improvement, which could take around six months. In parallel, we pursue the necessary certification, ensuring we cannot afford any delays in compelling customers to adopt the post-quantum chip. Although some customers may choose to maintain the current chip, initial sales from the next-generation chip will commence between June and December next year.

Can you provide more insight on WISeSat and redeveloping that revenue stream? I understand you have MOUs with the Swiss Army, but it’s still challenging to quantify current revenue from WISeSat and its growth potential.

Currently, WISeSat is operating as a pre-revenue entity for us. At present, we are investing in the satellite constellation, aiming to enhance the security and connectivity of our satellites with the chips and sensors we have developed. We have secured MOUs; these agreements are essential as they allow clients to modify their backend systems in preparation for working with us. The compensation deals with the Swiss Army project also provide avenues for future revenue opportunities as they leverage our technology to fulfill their operational needs. However, patience is key. As a publicly listed company, we aim to demonstrate revenue growth regularly, but the structure we are building requires time to yield results. This is recognized by our growing base of institutional investors who comprehend the complexity of our market and objectives. While we expect limited revenue from WISeSat during 2024, it should gain traction in 2025 and beyond through both satellite sales and connectivity.

Do you think the investment in expanding the constellation increases this year, or do you anticipate it being consistent with last year? Can you share some figures on that?

This year, our investment in WISeSat is expected to be modest. We are planning to launch only one satellite, focusing on enhancing our existing constellation rather than deploying new ones. Should customers approach us seeking tracking and tracing solutions, we can incorporate their requirements into the current constellation. Thus, our satellite service can be classified as a satellite-as-a-service revenue model. For this year, we project a cost of around $500,000 for the launch and integration of the new satellite, encompassing both development costs and new technology integration. Compared to industry standards, this is a reasonable investment. Peter mentioned a strong backlog, but he didn't offer much insight. I was wondering if maybe you could add some color, maybe even quantify it for us. The backlog we have maintained over the past year ranges from $60 million to $100 million. This reflects commitments from clients who will continue purchasing chips while also acquiring cybersecurity measures and participating in master certification initiatives this year. Frequent buyers typically increase their orders by 10% to 15% annually, as they generate more products requiring our chips. Therefore, our recurring revenue model is highly dependable.

You mentioned the NIST website and 10 manufacturers there. Do you think the complexity of quantum technology might reduce the number of competitors you face?

Yes, that’s a pertinent question. The complexity involved in post-quantum technology could indeed narrow the competitive field. Our insights suggest that among the companies listed, only five out of ten might effectively succeed in this market, and we are one of them. Moreover, we appreciate that there are only two foreign companies on that list, while the others are U.S.-based. Operating within this global framework is crucial, especially when selling in Europe to avoid regulatory barriers. The E-chip Act provides a $45 billion opportunity in Europe, giving us a strategic edge as one of the few non-U.S. competitors. Additionally, acquiring prominent partners in penetration testing will enhance our credibility. We are confident in WISeKey’s pioneering status in the semiconductor field, with a robust history that offers reassurance in a competitive landscape.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you all for your time and questions. This call has been recorded and will be available on our website. If you require any clarifications, Peter and I remain available. Thank you again for your support, and we look forward to keeping in touch. Please note that the General Assembly of WISeKey will take place on June 27 in Zurich, and further information will be available on our website regarding registration.

No, June, sorry.

Sorry, June 27 in Zurich. Thank you all for your time, and we look forward to keeping in touch.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.