Wisekey International Holding AG (WKEY) 2023 Q2 法說會逐字稿

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.

(Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Carlos Moreira, 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'm 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 on our 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 a strategic decision to operate WISeKey as a holding company on several distinctive operational companies covering the full spectrum of WISeKey related technology. Concurrently, 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 WISeKey Semiconductors that was launched as a SEALSQ 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 a big roads now in what we call the IoT or the Internet of Things revolution.

Then we have the WISeKey SA, which is the Geneva-base original company, that is a company specialized in cybersecurity, root of trust and public infrastructure segment and is actually the underground infrastructure for the rest of the companies who were concerned; cybersecurity and identity management.

And then we have WISeSat.Space, the space technology using pico-satellite segment that we launched 1.5 years ago. And then obviously WISe.ART, which is the blockchain NFT segment that was also launched only 1.5 years ago.

So each of these subsidiaries contribute in meaningful ways 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, we're able to focus on resources in areas where we saw the most promising opportunity and diversity on specifically revenue generation sources. As a result, we were able to report substantial 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. Our next generation, also of our revenue stream.

The 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 field where SEALSQ managed to do a very successful listing on the Nasdaq, May 24 this year, reaching an important valuation at that time of $200 million.

We also distributed 10% of the ownership of WISeKey into SEAL to WISeKey shareholders. And as a consequence, we didn't diversify the number of investors and there are currently investors in SEAL. SEALSQ has been very focused in obtaining the right accreditations required to sell the technology in the United States.

50% of the revenues of SEALSQ are now American companies and they are buying their products and services as I have the opportunity to deep dive during the last investors' call on SEALSQ 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 microchip when you serve at the product level and will require encryption.

So the data -- the addition 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 SEALSQ, enter 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 backing into the clients as a way to increase the what we call the recurring revenue model of WISeKey's Semiconductor, SEALSQ.

The other area, which is important, also is new, is the accreditation process. So we have been accredited in several important standard organizations such as the matter 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 or what we call, devices. And they are installed at home like your thermostat, like your WiFi system, like your smart counter.

All this information then is selected, sent from the chip to the cloud is encrypted. And this certification of matter ensures that whatever you put in your house or 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 PTI, public infrastructure, which is one of the, I will call the original assets of entire Group.

You know, WISeKey is considered one of the 10 top root of trust. Those are encryption layers then they are required into browsers, operating system, iOS and many other device control technology that is already embedded into existing operating systems and browsers. So this penetration over the last 25 years has allowed us to be basically everywhere. And this is where accelerate the deployment of the chips as when we connect chips to the Internet.

The other side of the connection requires knowledge about the connecting port. And for that, you need a root of trust. The PTI 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 has 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 it. More connectivity, you need for those devices.

And the core 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% not yet connected.

So we created another subsidiary with the name, WISeSat. This WISeSat has made a huge amount of progress in the last six months. Not only we launched 17 satellites in cooperation with FOSSA, which is one of the stock that we invested, but we also cut a deal with Space X as a launcher. Those satellites has been launched with the Space X.

And we have now 17 operational satellites, which are being used for many new applications like smart container initiative, which we signed with BA Labs that allows basically the addressability of containers in the middle of the sea and being able to ensure the transport companies and 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, which we are currently in advance development process of providing IoT connectivity from this space on a military hardware. We also have done a partnership with Parrot, which is one of the leading drone companies now using our 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 with the drones.

We also being entering to a very powerful partnership with PLD Space, which is a European company launching their own rocket. So this is in Europe, anywhere in the world, by the way, private records are not really available; only Space X and few others.

And there's 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 relation with PLD Space with our rocket, which will be launched from Spain in 2024 with the name, Miura.

And this rocket will be -- will transform the next generation of WISeSat. WISeSat is also developing applications that allow to encrypt data from this space using our post-quantum capabilities. So imagine the future secure communications from this way.

So it looks maybe complicated for traditional investors to understand so many areas of interactions. But if you really look at WISeKey, 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, PPI space, macro -- micro satellite, people satellite technology and others are essential to ensure that the company will have -- will keep its age 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 few other companies. And they are reaching the market now with the maturity required to do this kind of platform effect.

So WISeKey is one of those asset, 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 a complex product -- processes and projects and we've got technology being able to solve them.

And then we have WISe.ART. So WISe.ART is the blockchain strategy of the company. For us, blockchain is essential way of decentralizing data as blockchain is less energy consumption 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 is 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 used as a way to centralize data.

WISe.ART 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 is 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 Open.Sea with huge valuation.

WISe.ART is actually doing a very unique penetration into the humanitarian world by doing very successful NFTs, then 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 WISe.ART is to collect a fee for every transaction generated brought by the platform, which is a 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 in FTs but also original. So we have original paintings, becoming like a Amazon of art, where users are slowly using the platform to reach out investors and buyers of the other art.

So as I mentioned before, this vertical of the WISeKey contribute to the -- in a very meaningful way to the overall mission of the WISeKey holding company, which is actually for first time, maybe in the last year, operating truly as a holding company. So in cases like SEALSQ, 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.

WISeKey, I maybe just touching a few words on the stock situation. We are facing a situation, which I will say is not only us, it is the conditions of the market. Mid-cap or micro-cap market have been greatly damaged by the current crisis, concentration of farms sits 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, evaluation of WISeKey has -- was not able to reflect the valuation of the Group.

A very concrete case when we listed the SEALSQ for $200 million and WISeKey was 90% owner of SEALSQ, this did not transform the WISeKey through shares at that value. The WISeKey shares at the value didn't move, despite the fact now WISeKey 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 few minutes, but also by the fact that we are reducing, substantially, our burn rate, which is still -- sometimes there's 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 ambitious process, but it is an essential one as there is absolutely no other way to reach maturity WISeKey if we don't push this platform effect. And in order to have this platform effect, we need to have subsidiaries. Then they are each of them developing technology 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 WISeKey to support the company to this point.

So I now turn the call to Peter, who will discuss the highlights of the 2023 results, and then I will be giving my closing remarks after Peter. Please, Peter, go ahead.

Okay. Thanks, Carlos. As Carlos mentioned earlier, for the first half of 2023, we reported substantially improved financial performance for WISeKey. Specifically, WISeKey revenue for the first-half 2023 was $15.1 million compared to $10.8 million in the first half of 2022, which was represents a 39% increase year on year.

This 39% increase in revenue is mostly attributable to our semiconductors vertical on the SEALSQ. which reported first-half 2023 revenue of $14.8 million compared to $10.7 million in first half of 2022.

This was 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 markets 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 salesman 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 this will support a year-on-year increase in net sales for WISeKey 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 a transition to 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 semiconductors positively impacted our gross profit, which increased by 69% in the first half of this year versus the same period of last year. On the gross margin, which increased by over 9 percentage points from 44% to 33.6%.

Our operating loss decreased by 11% 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 SEALSQ on the Nasdaq.

We expect that our operating expenses will increase in future periods as our strategy includes strengthening our sales and marketing team to expand our customer base, both through new industries and geographical; investments in our satellite operating technology; and the launch of additional WISeSat pico satellites to increase coverage and strengthen our operable authentication solutions anywhere in the world, even in low connectivity areas.

Our R&D advancement in relation to the QUASARS project for the next-generation post-quantum semiconductors GNP. 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. That's mainly due to the SEALSQ listing expenses as well as the addition of investment and technology on 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 arago GmbH disclosed for the six months ended June 30, 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 of it, June 30, 2022, into a loss on disposal of December 31, 2022. Taking into account the write off for the sale of arago, a net loss of $7.1 million in first-half 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 on June 30, 2023, were $14.1 million compared to $20.7 million at December 31, 2023. Most significant sources of funding for the Group are financing facilities, customer sales and research tax credits provided by the French government.

I now turn in the line back to Carlos, who will discuss the second half of 2023 visibility and key growth areas going forward. Carlos.

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's a huge sale potential of our technology in Asia.

We did not operate Asia well in the past so we are intensify our coverage. We have already, in our pipeline, many new customers in Taiwan, in Singapore, in Thailand. And is increasingly, more and more the case because Asia is a bigger player in IoT in general things, South Korea as well.

So this is an area where we are intensify. We are also obviously intensifying the United States by recruiting sales force in the United States. As I mentioned before, United States represent 50% of the revenue. This is a high growth, obviously in the United States and the fact that we are still a Swiss company, does not necessarily allow us to chase all potential leads.

And then they require local presence in the United States, which is something we are also organizing. And distributors, they are also helping us with the signature of 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 other European countries are slowly getting traction. The 2023 end of the year will continue growing and this is a 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, it's a hardware business. So we have a software play as well as we also provide; it's our security layer. But there are new things that they are adding like blockchain, like NFTs, like satellite connection.

Those are incremental aspects of our future -- revenue in the future and the possibility to move to a recurring revenue because more things are connecting to the Internet with technology, more maintenance they need, more data they produce and more elements, all recurrent revenue can be aggregated into the overall revenue of the company.

We also analyzing, and this is going to be a developing line 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, Bard and all these AI algorithms now emerging in the markets with an amazing capabilities of creating efficiency, both at the company level, but also at the positioning level vis-à-vis the market. And the good news is that we have a major asset for those algorithm, which is bigger.

So WISeKey is negotiating with several very big players then they need or data in order to run their AI operations. And important strategic alliances have been built around that, that would allow us very soon to be able also to monetize the data. We also developing, as I mentioned before, post-quantum technology. In three 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 algorithm like RSA, Triple DES and others, which are algorithm 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 chip standard that the clients are buying. So that will result in some modifications due in 2024, that we are scoping, I mean, how much of our current clients will continue using the cheap 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 a known post-quantum chip the market as the possibility of hacking that chip will be enormously.

So as I say before, it is important for all investors, community and analysts and banks and their fully hosts to understand this big move -- 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 that WISeKey maturity is reaching the stage where we believe the company will become a major player in competition with existing players. Initial commitment to continue, ensuring that we are highly competitive. Our cross model continues to be a winning -- and increasing our revenue and obviously, focus on profitability, which I think also -- it's also in the horizon.

So this conclude our prepared remarks. I would like now to open the line to Q&A.

Thank you -- oh, I am sorry.

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

(Operator Instructions)

Matthew Galinko, Maxim Group.

Hi. Congrats on the strong first half and thanks for taking my questions. I have now a handful of questions. 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 -- I think, maintaining the consistency during the year, right, as we are already advanced on the month of September. So we already have some visibility of the second half. So it will be flat in terms of first quarter, but we will, obviously, will be growing in relation to last year, which is around -- we say, around 20% of growth, yeah.

So end of the year, will be around 20% growth, which is an important milestone because this has been a transformational year, right? This is a year where we are bringing the space satellite business where we are developing an FT. So obviously, that diversification also takes us some energy that needs to be taken into consideration in view that we have a limited number of staff, right? So -- but yeah, it will be flat, but will be still growing 20% vis-à-vis last year.

Okay, that's helpful. And on the operating expense line, I think you had some one-time costs for listing SEAL in the first half. So what should we expect now to hear the investment on the R&D line and the sales and marketing finally see some of the distribution agreements? What should we expect on the G&A line given, I think, first half of '23, which was pretty good? Jobs, 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 in March, as I said, we're doing our budget review and 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 got. But we're feeling about $7 million or something like that.

Yeah, it is important, Matt, also to understand when, one issue which sometimes people don't understand on the G&A, is that because the holding is incubating, if we can call that way, the subsidiaries, like WISeSat, like WISe.ART. And those subsidiaries, in order not to duplicate the accounting and all the financial, which is very heavy, the holding company's actually doing on their behalf.

So that is a reduction on the SG&A for this company, which is nearly nil, including actually in the case of SEALSQ, where an important part of the work on SEALSQ is being taken care of by the holding company. So that - I mean, if we had a G&A in each of those company, obviously, the [problem] will be much higher than what it is at the Group level.

Got it. That makes sense. And then, I guess, under the two sort of earlier-stage pieces of the business, the satellite business and WISe.ART, I was hoping you could just touch a little bit more on when you expect each of them to come to start becoming more material contributors? I know, the satellite business, you've got a lot of partnerships and engagements there. So when should we expect those to start building revenue?

And then on the WISe.ART business, I think you mentioned the scope expand a little bit from NFTs 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 WISe.ART, the investment has been done. I mean, we have launched 17 satellites in cooperation with FOSSA. So that means each of those satellites are around $250,000 per satellite, which covers the cost of Space X to send through space, which is a fraction of the cost of a satellite 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, many revenue streams. So 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 this space, right? Not even Musk.

So the two concrete revenue stream, which we already have this year, you know, those are revenue that WISe.ART is already generating big this year. One is with the Swiss Army, this is public information. An agreement was signed and 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 $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 the counterfeiting, drugs, whatever.

So there is a drive in the industry, which is being pushed by the port authorities. So we are in 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 are -- 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 and will use otherwise agreement to start with something like 1,000 containers. But the potential is 20 million containers in the market. We are making -- in each container, we are selling for $250, the sensor with the chips and the secure element from SEALSQ 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 iPhone, but then you have a three-year subscription program. So this is the two areas where WISe.ART 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 and they are benefiting from our satellites to add into the constellation. So there's 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 of $250,000 initial cost to launch the satellite.

So this is in what concerns the WISe.ART. So WISe.ART this year will produce some revenue, but mainly, 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 of the container doesn't get lost in the middle of the ocean. All that is a huge on ESG asset that we are adding to the company.

Now in WISe.ART as you say -- WISe.ART, we started with NFT. We have done transactions like selling a Picasso NFT or selling a celebrity NFT with Brooke Shields in the United States. So that was a way to testing the potential power of NFTs. As you know, the NFT market has been depressed with the collectible NFTs, which is the 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 Picasso painting, like a furniture from the 16th century, like 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 SEALSQ because SEALSQ is able to sell the microchips to the collection.

And then we create the 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've got several museums that they are saying to us, hey, we took amazing picture from your 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 will like to put that data into SEAL -- into WISe.ART.

And WISe.ART 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 by museums, galleries and collectors have on their original to be loaded into those clouds and being able to sell that as an NFT or an option to sell also the originals.

So we are going to be able, starting already this month, to be able to sell through NFT art. And then obviously, the commissions that will be lower than 50%, but it will increase big time -- the -- increase big time the -- revenue generation. And another thing which is public information, which was signed during this first semester was a deal with Italpreziosi, which is a gold company in Italy. This is a company that sells $6 billion of gold.

So they sell gold to bank's, individuals, but also to jewelry companies like jewelry companies in [Redsur], in Italy, which they produce all the major jewelry. And this company team with us to basically do NFTs on golds. So right here, if you buy gold, you will have to store the gold in your bunker and have all the security issues related to on the gold physically yourself, logistic and other.

So the model here is that you buy the NFT, they keep the goal 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 into competition in the way the banks sell gold.

So this is the 2024 revenue. We are -- actually, we just signed the joint venture agreement, which was announced, and this is another major revenue generation for us in the future.

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

Thank you, Matt.

(Operator Instructions)

Kevin Dede, H. C. Wainwright.

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

No worries. Let's talk, Kevin.

Yeah. So on the satellite business, granted, you have 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, your cargo company or anyone, you want to track your object, $50,000, you can benefit from the 17 satellites. And then, this is aggregate 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 unless we buy these millions of containers, you will multiply the fixed cost, which is the $250 per container plus minimal use of $50,000 per year plus recurring revenue on the number of containers that you're going to put.

So if you -- the minimum use for the container is 2000 containers. That's how you enter into their project. But there are many new applications that we are still figuring out. How -- 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, you know, putting chips on trees.

And then adding high-quality cameras with the 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 in the summer, right? Globally, around the world, that is going to be a recurrent issue.

So we are working to put our chips on trees plus adding a satellite monitoring so that we triangulate the data, right? So there will be the identity of the three. The AI camera plus the satellite, you triangulate the data. Without data, you can't do predictability analysis. It is a risk of fire, right? And then you can inform the authorities.

So this is a new -- I mean, once you are in this space, a lot of things are going to move to a space, right? Because there's a much better way and cheaper way. And the only other way you could do that is by installing LoRa antennas and 5G and all these very expensive technology everywhere on the wall. In some areas, you cannot do that, right? So obviously, the critical point here and the breakpoint here is how many satellites can we send.

And this is why we are creating like a consortium, which is already -- we already sent 17 satellite, 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 it into a constellation. So we are becoming like a satellite-as-a service model. And this is going to be expanding, but it is an amazing business opportunity for the company and for the sector.

Okay. The -- 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 our rocket launcher. I mean, the read -- the economics there is that if you will pay $250,000 to Space X, which includes the launch, obviously, $250,000 majority of that money is on the launch itself, it will be much cheaper for us to partner with smaller because this is a smaller rocket. It's not as big as Space X. But it's only design to launch the type of satellite that we are launching.

So basically, we are subsidizing the launch and the next one, the launch is going to be in May next year in '24. And in one of those rocket, we can launch 80 satellites, in one rocket through the new generation pico satellite. So it can be our satellite or we can do, as I mentioned before, a launch also partner satellites until 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 protection. Because if one day Space X say, no, we don't want to launch you anymore, we continue the business because we have our own alternative, right? So -- but we are not invested in this company, we have a partnership and we have a revenue sharing with them.

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

Well, I mean, the -- we are talking to Deira port in Dubai, and we are talking to MSC (inaudible) I mean, those containers sit on the top. I mean, those are the future of boats that have 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 are always in areas that you can connect through the satellite.

Actually, the chips are already doing that with Inmarsat and another satellite that they are paying a huge amount of money. You know, the beauty of this satellite is that they are very tiny and they are very powerful and they are very low cost. I mean, one WiseSat is a fraction of what it will be one of -- you know, OneWeb or reading one of the satellite which are around $25 million. So you can you can reduce substantially the defensibility costs.

Did I understand you correctly in talking about fields SEALSQ, that 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. Thus our chips, that they are TPM compliance. So TPN is going to be the standard for this high technology because you've got two niche NIST and you google WISeKey NIST, you will see that we are part of the NIST post-quantum group, which is a lab that they are working together towards the development of this technology.

Because we will also need big players to do a attack. The way it works is that 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 -- first chips will be commercialized by second semester next year.

And we have done (inaudible) already because the good news is that the people, they are buying chips from us. We cannot mention names, but some of them, they already known in the market like Cisco bought already 100 million shift from WISeKey. And now they are saying that we will like to continue upgrading that capability.

And as soon as you have those quantum -- post-quantum chip, we will obviously continue buying chips from you. So there is 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 that -- 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 of this year is due to the fact that people are expecting this post-quantum ship to be available next year and are just waiting for that?

Yeah. Great, very good question. Actually, the first part of your question, we cannot retrofit because there's totally different technology, different silicon, different crypto wallet, totally different. But out of the 1.6 billion chip, and this is what we are doing now, we are assessing how many of them really need to be connected devices, right. Because there are many other chips and they are not connected devices.

You know, they are more for securing the hardware or putting a chip in a video camera to put 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 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 come from that 1 billion? It came from three main sector. One is the defense sector, big, big user of this. Again, we have a very good client there with Parrot because Parrot is selling to the US Army plus the French Army and we are -- Parrot is -- I don't know if you saw the announcement just a few days ago. They are connecting all their drones with our chips towards satellite. So this is one of the first client 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 all deployment in the United States.

And then you have the security world, you know everything that smart card, the banking card, 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 (inaudible) 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, the Matter certification. So this is for the nominees for home use. So here, it is how to secure your thermostat, your smoke detector, your smart meter at home, all the -- 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 -- the old chips are ready today, Matter compliance. So we are we can sell chips, Matter compliant, which is very unique in the market.

And in place of that, we are, because the record root key of WISeKey was so well distributed. Matter has introduced the the root key as part of the Matter routes and there are not many. It's Digiturk, it's WISeKey and a few other companies. So we are in both end. We are the private key end and then the public key end.

So Matter is another -- actually on the deal on Matter is that we can sell both. We can sell chips, Matter complaince but we can also sell certificate with other chips. So me have companies -- like 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 iPhone 14, 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 our revenue in the first semester of the year.

But if they do, we don't know sure they will do. it will be recovering in the second semester of the year. So this is the -- we will obviously give more information about that once we have the final calculations.

Okay. I know that, 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 now 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 there, 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 the explosion of IoT in 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 attack 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 eChip Act (sic - see press release, "CHIPS Act") of the US government, you will see that there is about $70 billion to be granted to basically state 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 US. Actually, we are in the process of negotiating this because this is part of an inbound strategy into the country to locate yourself in areas that we are developing the semiconductor industry. The same, for the moment, we are not getting yet money from the US government, but we are in the process, especially now with SEALSQ 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. Those -- 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 eChip Act, that also is there to support the innovation in French companies and European companies. And also to -- by doing that, reduce the dependency of Ovation countries and particularly Taiwan.

So yeah, so this is obviously 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 that we got from France, research grant?

This year, it's right about $600,000 (inaudible - microphone inaccessible)

Already $1.1 million for this year as a subsidy from France, so which is pretty good already for the first, yeah. 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 use TSMC to actually manufacture those chips.

Correct, in Taiwan. But we also do the sense that there has been an effort to decentralize the production because the COVID situation (inaudible) looking into other options. And we looked into France. France is having a fab in Grenoble, which will be potentially of use and also in Thailand.

So we are diversifying. And also in the United States, I mean, there are some fabs that are available, but they are company fabs, you know. They are -- they only produce the chip of their own use like Arm, like NXP.

Deira has developed 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 chips in the United States, which obviously will increase against the revenue because it will be US shifts, manufacturing 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 switch shares versus ADRs and how that's changed? I'm not sure if you did a reverse. I think it was a one for seven I guess just run through that for me again so I'm caught up.

The reverse we did with WISeKey.

(inaudible) I don't have the number on the effective idea. The split was (inaudible) it was a ratio of 1:25. It could have been a share of a ratio of 1:50. (inaudible)

So the --

Sorry. Kevin. We can drop you the information -- we can certainly drop it to you afterwards, okay?

Yeah. Thank you. That'd be helpful. Because I -- I apologize. I just got lost in the engineering there. So please forgive me.

No, it's okay. It's all documented. We will send you another (inaudible) exactly.

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

Yeah, we have. But not on H1. In H2. we have, yeah.

Oh, okay. All right. Okay.

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 a infrastructure deployment year. I need to send a satellite 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 those following information.

So we have been saying always that a second-quarter WISeSat will start to make revenue and then a strong visibility for 2024. Together with WISe.ART -- it's WISeSat and WISe.ART because WISe.ART also, as I mentioned, is starting to -- WISe.ART, by the way, received, and this is important for you to understand because you follow blockchain, WISe.ART received, and it's public information as well, a strategic investment from Hedera, Hedera.

So Hedera is the largest -- it is one of the largest private blockchain on earth. Hedera is a $2 billion blockchain. It is in competition with -- grossing competition with all the major blockchain. And Hedera particularity is specialized on enterprises blockchain, which is ideal, right? Because you are known 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 WISe.ART. So WISe.ART can become not only a general blockchain as it is now, but also be used as a multi-purpose blockchain for other industries, not only art, that requires the assets we have, which is identity management. It is the NFT creation. It is the meeting processing the blockchain is the tokenization process.

And we are looking into the possibility of launching before the end of the year, a token, a WISe.ART 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 WISe.ART.

Okay, last question for me, Carlos. At the end of August, you announced the new VAULT-IC, the 292. And I'm just -- I'm wondering if you could give us a feel for, like when it will actually be available for customers and what sort of demand you're seeing?

So it is -- you have to understand this evolution as an incremental evolution from the previous version. So we're just adding more security into (inaudible) I don't have with me Bernard, which is the guy that can give you the detail exactly what security that is. But [the real] of that chip is to be able to power devices that we will not able to power before like Dyson equipment, like Medtronic's health monitoring systems and so on, right?

It is [identity], it is also a user of the 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, we will -- everybody is 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, and thank you for being there.

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 to the organizers. Thank you, Lena. Kathy, 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 is making more and more sense. We hope that this will be translated into a better visibility also from the investment community and higher return for our investors. So we look forward to keep briefing the investors community as we move forward with the project. Thank you very much for your time.

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.