Greetings, ladies and gentlemen and welcome to the WISeKey International Full Year 2022 Financial Results Earnings Conference Call. As a reminder, this conference call contains forward-looking statements. Such statements involve certain known and unknown risks, uncertainties and other factors, which could cause the actual results, financial condition, performance or achievements of WISeKey International Holdings to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. WISeKey International Holdings is providing this communication as of this date and does not undertake to update any forward-looking statements contained herein as a result of new information, future events or otherwise. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. Carlos Moreira, Founder and Chief Executive Officer of WISeKey. Mr. Moreira, you may begin.

Thank you very much. Good afternoon to all of you joining us today from both Europe, United State and in some cases, from South America. I am joined today here in our call with our Chief Financial Officer, Peter Ward, that he will be providing a financial briefing after my introduction. Before the opening floor, we will also have a Q&A on which we will discuss growth opportunity for 2023 and beyond. So 2023 was a year of major milestone of WISeKey, but it's also a transitional year as we made the strategic decision to operate as a holding company of several distinctive operational company that has been operated by WISeKey since many years, covering the full spectrum of WISeKey-related technology. So current holding company structure, WISeKey has 4 companies. One is WISeKey SA, société anonyme in French, which is the original start-up, which is very much focused on everything, which is cybersecurity, public infrastructure, digital identity with a very famous digital identity project with a name WISeID. Then we have the semiconductor, which is the name of this company, has been renamed to CL SQ, S for semiconductor, Q for Quantum, which is a company that has been a spin-off from the holding company and is now in the process of doing its own listing on the Nasdaq, the 26th of May and on which last week, the shareholders approved the spinoff and the listing on the Nasdaq. Then we have 2 start-ups that they have been added during 2020. One is isatpace, which is a space technology picosatellite company. So this company has launched in cooperation with another start-up with the name FOSSA, 13 picosatellite using SpaceX. So we have now 13 picosatellite in low orbit that they are being used to collect data from the sensors that…

Okay. Thanks, Carlos. As Carlos mentioned earlier, 2022 was a year of significant developments, which resulted in improved financial performance for WISeKey. Specifically, our revenue grew by 35% to $23.8 million compared to $17.6 million in 2021. Also, our gross profit for 2022 grew by 35% to $10.1 million as compared to $7.5 million in 2021. We also significantly strengthened our sales and marketing team with a new sales director in the U.S.A. and the onboarding of 7 additional sales reps in the EU region, Israel and South Africa and 2 representatives, which will cover the eastern states of the United States. We continue to invest in increasing semiconductor production capacity. In 2022, we initiated a 5-year capital expenditure CapEx plan, aiming to increase our semiconductor volume by up to 80% over the next 5 years. The plan is supported by a $2 million loan from a third-party client for the purpose of increasing production capacity. At the same time, we took significant steps to improve our cost structure and streamline our operations. As a result, our operating expenses for 2022 decreased by $8.1 million and by $5 million when excluding noncash stock-based compensation in comparison to 2021, while we were still being able to revenue. We ended the year with a strong cash position of $20.7 million. And this strong cash position allowed us to continue to make investments in research and development. During the year, we invested $3.9 million mainly in the COSA's project, a radical innovative solution, paving the way for post-quantum cryptography; launch of 13 security, IoT, hard and lower but picosatellites; why, as Carlos mentioned for our new satellite base secure IoT Connectivity as a Service; and our WISe.ART platform, all of which Carlos discussed earlier. Despite strong revenue growth, we ended the year with $9.8 million in loss due to the aforementioned investments in next-generation semiconductors on the launch of CLSQ listing process in Nasdaq. The investments in CLSQ's next-generation semiconductors and AI infrastructure are part of our long-term strategy to stay at the forefront of technological innovation to develop new products and services that will meet the needs of our customers in the years to come and ultimately result in subsequently -- substantial, sorry, higher revenues and improved financial performance that comes with operating leverage. So with that, I will turn the line back to Carlos, who will disclose the 2023 key growth areas. Carlos, please go ahead.

Yes. Thank you, Peter. So as I mentioned in my introduction, the demand for WISeKey products and services are substantially increasing, a 35% increase in revenue over 2022. The group is back on a growth path, which was already characterized pre-COVID, supported by investment in R&D, aiming to remain at the age of technology, which, as you know, we have very good tie environment where companies with a lot of resources are competing for the same type of clients for the same type of product. So our investment focus on strengthening our sales force, we -- the group has continued reinforcing sales and marketing team with a new sales director in the U.S. and the onboarding of 7 additional serve representatives in the European Union, Israel and South Africa and just recently a few days ago, an announcement of reinforcing the team also in Taiwan as it's a critical country in semiconductors. We -- the strong semiconductor backlog of order and pipe opportunity are valued over $100 million, has given us a great building block that allows our sales team to focus on new opportunities. Now just to explain the $100 million, many of our clients are increasingly asking us to increase the number of connected devices because the way it works in this market is that one of our clients, let's say, Medtronic or Cisco or a medical device manufacturer will be slowly connecting devices to the Internet. Not all the devices are connected to the Internet. Some of them, they are connected to the Internet, and many or all of them will be connected to the Internet as the years progress. And at the moment, you take the decision to connect to the device to the Internet, you have to put a microchip on the device. Otherwise, this…

[Operator Instructions] And our first question is from Matthew Galinko with Maxim Group.

Congratulations on the strong 2022. Can you maybe provide an opinion or predict how quickly you expect post-quantum chips to displace sort of pre-quantum chips in the overall mix for you and for competitors? And is it something that happens quickly? And is it something that you're in active discussion with existing customers about?

Yes. Thank you, Matt. Very good question. So yes, so we are with Post-Quantum technology as we were with the bug of the year 2000, as you remember, for the people on that are older, if I remember that the entire market started to develop technology that will eventually resist an attack or a failure of what at that time was a very serious threat, right? So we are on that same philosophy here, ambition is that Quantum has arrived. It's inevitable, it's going to happen. I mean quantum computers are already in place with Google, for instance. They had a spin-off of Google of Sandbox IQ, which is a spinoff of Quantum from Google. So they just raised $500 million, $3.1 billion valuation. So the quantum industry is getting formed. And every players in that industry will win the battle because there are not many actually. And this is a complex technology that you cannot just invent in a garage. So what we are doing is that our vision was always to have the most secure chip that the market will be able to produce, okay? Secure in 2 levels: secure because of the technology of the chip design and what we put inside the chip with a cryptographic capability, PPI, cryptographic Root Key. So all that was very strong innovation from WISeKey that many other competitors, they didn't even have because so many semiconductor companies who are more concerned just to provide low-cost and noneuro semiconductor just to do electronic functionalities but not our security functionality. WISeKey from day 1 say, no, we want our chips to be secure. And that's the reason our chips are using by Medtronic, for instance, to secure medical devices or by Cisco to secure routers, which are obviously critical infrastructure when you…

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

Yes. The main macro complexity we had was the supply chain, which was totally disrupted during the COVID, right? It was very difficult to provision microchips because the fabs were shut down. That obviously created a situation where we were not able to provide as many chips as our clients wanted. And actually, and I would say our team was very efficient in maintaining the clients satisfied because many other very big companies that they used to sell hundreds of millions of chips they say, well, hey, if you don't buy me 100 million chips, we don't need to talk. And we recover all those clients and they came to us. And those clients, actually, they stay with us because they are very happy to have somebody that is willing to sell to them less than 100 million chips, which is obviously is a great business. So we managed to convert the problem into an asset solution. The other thing we did is that, obviously, now that the supply chain is being -- concerns are being eased, the clients are less stressed, and they don't necessarily buy as many chip at once or do not maintain the same level of stock than they used to maintain before. So that's why moving to more clients and diversifying the number of clients is our main concern, and that's why we increment the sales organization to reach out. We put people in Taiwan, we put people in Japan, we put people in the United States and many, obviously, leading markets in Europe like Germany, just to cope with that necessity to diversify or offer. Another thing it's getting is that, as you know, electricity is very expensive worldwide due to the Ukraine situation. Obviously, fabs require a huge amount of electricity to manufacture…

Our next question is from Kevin Dede with H.C. Wainwright.

I think the first thing, Carlos, just sort of from a top-down given 4 business segments now, which one are you the most excited about? I understand CLSQ is certainly the most mature, but which one do you think offers you the most growth this year?

So for the moment, for sure, is the semiconductor post-quantum chips. This is the one that is growing faster, and it's the most mature one, right? Because we have already 1.6 billion devices already sold in the market. So you have a huge customer base that needs to be educated to upgrade the chips to the next-generation chip. So that's the most exciting part. But this is creating new industries. This is like the telegraph evolved in the United State when you install the rails on the train because it was easy to put the polls during the rail. So this industry is creating the space industry. If somebody will have told me 5 years ago that I will be sending picosatellite, I will say you're dreaming. Why I need to do that? Now I do need to do that because those chips are everywhere, including in containers in the middle of the city. And we have to validate the identity of those containers real-time from space because there's another way to do it from the sea, right, or in the middle of the desert or in any agricultural region or even in a smart city because 4G and 5G is too expensive to be used to track and trace objects. So this technology of picosatellite, it's amazing because a picosatellite is $150,000 -- between $150,000 to $250,000 end-to-end, including the launch and operational. These things satellite 10 years ago was $25 million investment. So now that means that companies are willing to send their own satellite and attach that to the WISeKey satellite installation and in some cases, ourselves, selling the satellites we have as a service. So this is going to grow and this is going to accelerate the usage of the chips because if I can track…

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

So we don't want to manufacture the satellite because this is a specific area -- it's like manufacturing mobile phones, right? So this is a very specialized area. So we are doing that with a start-up company in Spain with the name FOSSA. Actually, WISeKey is one of the -- it is one of the largest investors in FOSSA. We also made an investment 2 years ago. And with that investment, we started to develop the WISeSaT space satellite, which is an upgraded version of traditional satellites that you will use for, I don't know, sending social media data down to earth. Those satellites are specialized for IoT activity. So inside a satellite is WISeKey technology. They have obviously some components from FOSSA for the communication part, but everything which is the cybersecurity encryption, the microchips are powered by WISeKey and secured by WISeKey. Now we do not want to own the satellites. What we are doing is because now we have 13 satellites and we are launching more in June, the current constellation covers the earth every 5 hours. So every 5 hours anywhere in the world, the satellite will detect the chip anywhere in the world. So if the chip is in the middle of the sea every 5 hours, the satellite detects the chip, which is enough for track and trace, making sure that your chip didn't deviate from the path and was designed to be -- this kind of thing. But it's not enough for real-time track-and-trace capability. For that, you will need a faster latency. And for that, we need to launch 88 satellite, which is our target by the end of 2025. So with 88 satellite we'll be able to detect a WISeKey chip anywhere in the world every minute. And this is the kind of service that we believe customer needs from the customer we are talking about. And the way we sell that, yes, is as a service. So a customer with containers in the middle of the sea will say, I want to track and trace 100,000 containers because this is my capacity. And I will pay like you pay your mobile phone operator, a fee for having those containers connected to the satellite. We also have a model where we can also team with our constellation. So there are other constellations that they are approaching us and they are saying, I only need 5 satellites, but I would like to benefit from your other satellite because I want to get that level of latency. And then what they are doing is teaming with us to launch those satellite and aggregate those satellites into the constellation.

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

Yes. I mean we could -- the satellite companies are trading around $100 million and $200 million mark cap, right? We could eventually spin off WISeSaT and raise money on WISeSaT as a private company. That's one scenario. Another one is steaming for -- which is the model. As I mentioned, we can send -- if you use I want to send a satellite today, we can do it in 4 weeks, you could be in space. And that will close you $250,000, and you will have your own satellite. So we are doing that as a partnership with organizations, governments. We -- WISeKey is securing drones, so Parrot drones are secured by WISeKey and now the drones are going to be connected through satellite because it's a much efficient way to connect the drones than -- from Earth. So that's the new business model emerging that will increment -- we don't need to raise money per se because the technology is already there. It's just -- and the -- every time you launch with the SpaceX, you can launch 20 satellites, 30 satellites at the same time, right? That's -- it doesn't happen one by one. What we are competing here is with OpenWeb and those huge massive investment that requires hundreds of millions of dollars just to have a person in the space. In our model with less than $300,000, you are in space, right? And you are -- with the WISeKey chips, you are able to track and trace your product. Imagine FedEx wants to track parcels real time from the space or you want to track and trace cars because it -- or bicycles. We got other day somebody wants to track bicycles from space because everybody is still in bicycles now. It's so easy to steal a bicycle and very difficult to recover. So those are the new usage. Space is going to become like the normal way to verify objects on earth. And this is where we want to be the first one to position ourself.

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

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

Quick question on the arago sales [ph].

Sharing.

I'm sorry, go ahead, Carlos.

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

Right. So you're going to -- WISeKey is going to be the Uber of satellites?

Not necessarily, why not. Maybe -- I don't think Uber is a very good business model anymore. So we would like to be a bit different than that.

All right. Just quickly on arago, $25 million owed, what are your recourses? And what is your expectation?

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

Okay. So as it is now, you're not using arago AI IP in WISeKey systems?

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

Okay. Okay. The -- you kind of glanced over the expectations for the year. I think you said $25 million to $30 million so far this year. Just to make sure I understand that correctly, given that we're 1/3 of the year through, is it fair to assume that you could be in the $75 million to $90 million range? Or I'm just a little confused?

You mean -- that's revenue, right, what you're asking?

Correct, correct. Yes. I know you said, I think, $100 million in backlog on the CLS Q side.

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

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

When I say $25 million, $30 million, yes, it was revenue Yes.

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

You are talking about 2 different companies, right? I mean the WISeKey and CL, they are different companies, different in the structures. But WISeKey has ever always had, which is 2 class of shares, A and B shares. And A and B, A is not listed. This is outside the market. B are listed on the Swiss stock market. And then the B shares on the Swiss stock market, they have an ADS in the Nasdaq, which is for every 1 ADS, you have 10 B shares. So that's the structure in WISeKey, right? The structure in CLSQ, which is a different company, which is the one that's going to be listed and the question about the app shares, those shares are belong to WISeKey. So those shares is very similar to the Palantir type of governance structure. They are designed, at least at the beginning, to avoid a hostile takeover of WISeKey by somebody that will -- because the CL shares will be more valuable than the WISeKey shares that will just eventually buy WISeKey in order to get into CL, right? So it's a protection mechanism that has been put in place so WISeKey basically prevents any potential hostile takecover. And this is very well described on the F1, by the way, Kevin. I invite you to have a look into this one and review that.

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

Yes. Two different companies. I think what you -- you maybe might misunderstood that the FR also in WISeKey, and they are not. F is only on CLSQ.

Exactly. are not listed either. They are not.

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

So Kevin, you ask me that question so I can prepare. I don't have that number in my head. Sorry. I can give it to you.

We'll come back to you, Kevin on the -- yes, yes. We'll come back to you. We will just...

Okay. I really appreciate the candor.

Thank you very much, Kevin for your questions.

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

Okay. So thank you very much to everyone. As I mentioned, we will be in contact with all of you soon because WISeKey will be celebrating the Nasdaq bell of CLSQ, and all WISeKey shareholders are now also CLSQ shareholders as we have been providing 20% of the CLSQ shares to WISeKey shareholders. And that was approved by the last week, started in our January meeting. So just use this opportunity to invite to join us at the 26th at the opening bell in New York at the Nasdaq to celebrate the CLSQ interest in the Nasdaq Stock Exchange. And if you have any question or any concern, you can contact us or contact Lena or investment relations in New York, and we will be happy to answer any questions on concern. Thank you very much for participating in today's call, and we look forward to see you soon. And thank you for your organizers of the call as well.

Yes. Thank you.

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