WISeKey International Holding AG (WIHN) Earnings Call Transcript & Summary

Good morning. Good morning in U.S. Good afternoon in Europe, and thank you, everyone, for joining WISeKey's Investor fireside chat. I'm Lena Cati of The Equity Group Investor Relations representative for WISeKey. During today's call, WISeKey management will discuss recent business development, new products and services, growth initiatives and financial highlights. Today's speakers are Carlos Moreira, Founder and Chief Executive Officer of WISeKey; Bernard Vian, General Manager of WISeKey Semiconductors; Cesar Martin-Perez, Sales Director; Benjamin Stump, Vice President of Business Development, Brand Protection; Peter Ward, Chief Financial Officer. [Operator Instructions] Now I'm turning the line to WISeKey's Founder and CEO, Carlos Moreira. Carlos, please go ahead.

Good morning, and good afternoon from the different places around the world, joining us for this presentation, virtual meeting presentation. So first of all, to thank you for your participation and to thank the speakers and Lena to organize this event. So in the last month, WISeKey has been organizing several webinars, covering different aspects of the technology of the company and products and innovation that we have been developing since the beginning of the year, also giving updates on the COVID situation and how this has been affected the company. And we thought it'll be a good opportunity to share with you information about our company, our products and what we are doing in terms of moving forward on what we call our digital transformation. So we have prepared a slide deck that we're going to be sharing with you now, and we're going to go through the slide deck and the different speakers on these events. So yes, so just to start my presentation. Please go to the slide, the first slide -- second slide. Yes. So just to maybe position first the sector, where we say the problem we are solving. We say the best technologies are the ones that they can prove and they are solving a concrete issue on the Internet. There are many issues, especially if we combine cybersecurity with IoT with artificial intelligent, privacy and all those complex things that they are getting now, put it together and has huge consequences in the way users and companies are using the Internet. So WISeKey is a cybersecurity company. This is how we started. We are 22 years old company. We started as a public infrastructure with our own cryptographic Root Key. And in that area, our main focus has been protecting people identities. Those identities are being deployed globally. And we are now facing one of the largest ecosystems on digital identities for people and objects, which is a uniqueness of WISeKey. The problem is, as you know, this is a disconnected vendor environment. Companies when they want to solve IoT issues, don't know where to go. They might go to a cybersecurity company and the cybersecurity company will address them to another vendor. So one other thing we are solving is creating a consolidated system that allows us to integrate all these fracture and dangerous pieces into a platform effect. Next slide, please. So the IoT market, you all know, is a market with a size of $170 billion starting in 2017 and will reach $561 billion by the year 2022, with a compound annual growth rate of 26%. So it's a high-growth market. It is not yet what people expect because the proliferation of devices are just happening now. We have to take into consideration when we are talking about 1 trillion devices or 6 billion devices, this mainly are now tablets, smartphones and personal computers. Those are what they are connected to the Internet. And the second-generation of object being connected to the Internet, are cameras, are sensors, are connected cars. And by the year 2030, we'll have something like 1 trillion objects connected to Internet. So it's a phenomenal potential growth as those objects are not secure. The initial perception of vendors is just to put an object regardless of what this object will do. Their security mindset is not on their production capabilities, and it's the responsibility of a company like WISeKey to explain to them the dangers to interconnect objects to the Internet without solving that security angle. The consolidation of technology is also creating a data effect. When we are talking about connecting objects to the Internet, we have to think about the fact that those objects produce a lot of data. So that data that goes to cloud, it needs to be authenticated, digitally signed. And WISeKey has another major component of its technology, which is PKI public infrastructure, which I will be describing in the next slides. Next slide, please. So here is about what we call the WISeKey digital identity for people and object ecosystems. So as you know, our company in our days is valued and considered by the ecosystem it captures. So Facebook ecosystem, we know it's about the people that go to Facebook sites or Instagram or people -- and they have unique access on daily basis to those sites. So it's easy to calculate the ecosystem of a social media platform. For an IoT platform, our ecosystem is a bit more complex to evaluate because it's fragmented from different pieces. So we have, for instance, the software component, what we call the cryptography Root Key which is now embedded into 5 billion devices. So WISeKey cryptographic Root Key is a dominant Root Key. It's 1 of the 5 Root Keys in the world that has a large amount of downloads. So it's very likely that the computers that you're accessing these webinar or your laptops or your mobile phones are already equipped with WISeKey. The WISeKey cryptographic Root Keys automatically download when you download a browser or when you update your operating system. So that's a very big ecosystem and can be also monetized as we gradually require those objects to be trusted object. At the beginning, a few years ago, the focus was not necessary to secure the objects and companies did not want to pay attention to cybersecurity. This obviously have changed. The other dimension is the microchip. So WISeKey is one of the, I would say, unique companies in this ecosystem that produces both the software and the hardware. So we are able, if the -- our customers require, to insert that digital identity that we have for objects inside the object itself through a microchip. And during the presentation, we're going to go into the details of that. And our installed base is 1.6 billion microchips. So that means that, currently, 1.6 billion objects on the Internet are already secured by those WISeKey microchip. And this is going to -- has a huge growth trend because, especially now with the COVID situation, everybody is realizing that without putting an identity on a microchip on your objects, you will not participate in the digital transformation required. So imagine a hospital, imagine clinics, imagine a airline company, all of them are requiring to have strong authentication in everything they do. So an airport is not anymore an airport, an airport is a place where everything is tagged, everything is identified, sensors are sending real data to cloud. And for all that, you need a digital identity and a microchip. So above of that, it's -- evolution on IoT, it's applications that you can develop on the top of IoT. Once you solve the identity problem, you have endless possibilities, like securing e-mail. You can digitally sign your documents. You can PDF sign a document that you will send via a secure communication using your e-mail. So WISeKey already has 250 million signed e-mails per year, and this is growing exponentially as well. So this is the current ecosystem of the company. But obviously, we realize by doing that, we are generating a lot of data. Our customers, in some cases, are automobile companies or drone manufacturers, then they are saying, "What about if bad data that your identities and your sensors collect could end in my cloud because I want to analyze that data? I want to inject artificial intelligence, I want to inject analytics capability, and I want to predict how my objects are going to be functioning in the future because I will be able to extract the intelligence of the object through that connection." So this is what we call the Foresight Platform, which is basically like a lake where all those rivers are ending. And that lake is a lake of data, and data, as we all know, is the oil of the digital economy. So WISeKey revenue model is also transforming from just not only selling the identities and the microchips and the licenses related to that, but also being able to sell the data. Data is where we believe is going to be the value. And many companies are proving due to their valuations that data is where investors want to invest in companies, then they are able produce high-qualified data. Data also can be fake data. You know the Internet is full of fake data. That fake data obviously destroys the value of the investment being done in AI because garbage in is garbage out. If you throw bad data into AI analytical capabilities, the results are going to be obviously biased. Next slide, please. So we simplify our architecture. As I said before, WISeKey was a blend between a software and a hardware company. We have this kind of razor and blade business model. We sell chips. And after you have to keep upgrading your identity software year after year, this is now becoming verticalized into 3 areas: It's cloud service, I just described, data coming to our cloud; it's software, which we installed into the device; and then it's the hardware, which allows us to power those devices. We also -- in cases of some clients, they will say, "Look, we don't want hardware. We just want software because we want to protect the identity of our clients." KYC compliant, eIDAS, GDPR compliance, all these aspects that they do not need a hardware. And for that specific type of clients, we sell only the software components. So this has simplified this vision of WISeKey. We have created what we call the 3-year digital transformation process, which has started after our listing on the NASDAQ, December last year and will last until 2023, which are the 3 years. And we believe it's going to be a phenomenal growth, both on the industry and our capabilities to match the demand of this IoT industry. Moving chip to cloud security, mobile to cloud, personal identity to cloud, personal data to cloud in ways that protects the individual. One of the uniqueness of WISeKey, and it's going to be discussed later in the presentation, is that we also protect the individual. In the WISeKey scenario, the digital identity belongs to the user, does not belong to the product firm, does not belong to the bank, does not belong to your insurance company, does not belong to Facebook or to Google, it belongs to you as a user. And this is very unique. It has been difficult to explain that concept because that concept was not clear before. Now with all the abuses on data and the abuses of privacy, users are asking for that type of services, and this is one of the reason our ecosystem is growing. Next slide. So the investment in WISeKey, and Bernard will show you later some slides on where our R&D on investment has been done in research. It's concentrated in 4 areas. Digital brand protection. So this is the way we monetize our technology, protecting brands and protecting objects, and we'll cover that in a minute. IoT cybersecurity, which I just described. Ethical artificial intelligence, which is, as I said before, ethical use of data that accounts for authenticated sources. So only good data is analyzed. And the data that we analyze, it's analyzed in a way that you don't compromise the privacy of the user. And all this role of mobile devices, and they are inundating our lives, our virtual lives, then they require authentication and require security. Next slide, please. So WISeKey is expanding. The company now has something like 120 people working full time for the company in something like 3 continents. Our base is Switzerland. We are a Swiss company but, obviously, international scope. We open operations in the United States. We also open our operations in South Africa. In Middle East, actually, in some areas, we even have joint ventures, like the case of the Middle East in Saudi Arabia as the country is embracing a IoT deployment by the year 2030, which is going to be one of the most aggressive in the world. We are in Japan. We are in Taiwan. We are in Singapore. We are also in France, where we have our semiconductor practice. And orientation, obviously, is to expand to other countries. In some countries, we have representations or partners, like in Germany and in England. And in other countries, we team with platforms. So WISeKey has announced partnerships with Microsoft as we use Azure capabilities. We have announced a partnership with SAP. We have announced a partnership with Oracle on blockchain, where Oracle blockchain is integrated now WISeKey identities on it. And we have been announced also with IBM partnerships on hyperledger, blockchain technology and also on what's the capability of analyzing the data using the artificial intelligent algorithm. Next slide. So now I would like to introduce my team. First person is Bernard Vian, General Manager of WISeKey Semiconductor, topic specialist on semiconductor. He knows everything about semiconductor, and he's going to take the floor now to walk you through his innovation in that specific area. Bernard, the floor is yours. Thank you very much.

Okay. Thank you, Carlos, and thanks for the kind introduction. Carlos, we can move to the next slides. So what I'm trying -- I'm going to do in the next 5 minutes or so is, in a nutshell, to introduce the new products, the new solutions that we are introducing to our customers in the course of 2020 of this year. All they have in common is that they accompany the digital transformation of the customers that we are serving. So starting with the VaultiTrust platform. VaultiTrust platform is really is the pillar of what WISeKey is providing to the customers. VaultiTrust is the platform that makes the connection between the digital identity that we are generating. As we -- Carlos explained, we are expert and well one of the few companies to have this technology to create a digital identity. So there are keys, there are certificates. The VaultiTrust platform does the connection between those credentials, basically, and the edge device that's where they have to be injected. Because at the end, what we want to achieve is to give an identity to the object. So we are resolving this -- the pain that all our customers are seeing is, how do we make the connection between the digital identity and my objects. VaultiTrust is about that. So it's the basements of everything we are doing at WISeKey. The second introduction this year will be an NFC chip. We already sampled this chip to customers and partners. So this is an NFC chip that's delivering best-in-class user experience. The proposal of this chip is to serve the -- part of the brand protection and consumer engagements markets. It's -- and Ben, who is going to be next to me, will explain extensively what exactly is this market, what is brand protection, consumer engagements. But in a short -- in a nutshell, this is to give an identity of an object that by design is not connected. The second introduction we have done this year and for which we have already 2 very large projects of integration that are going on, this is what we call WISeBattery. WISeBattery is a solution that encapsulates different technology that we have at WISeKey from the chip to the PKI services. We serve a problem that is emerging and is going to grow and grow as moving forward. This problem is the problem of the counterfeiting of batteries, devices that are powered by batteries have to face the same problem that you'll have in the printer industry, where we are also present. This problem of revenue model that brands are having, where there are -- the revenue model is based on the second-hand spare part of batteries. So we are resolving this problem. It's a problem also of a brand liability. When a tool, a device explodes because it was using a fake or counterfeited battery, well, the liability of the brands is engaged so with WISeBattery resolving that. And the third purpose we are serving with our solution is what we see as a major trend in the industry of the tool, the professional tool, it's the paper use. More and more now people are not buying tools, they are renting tools on the paper-use basis. Our solution is serving that purpose as is monitoring, controlling the usage of the battery. The third and not least in this year, that's a product that we are going to introduce to the market is a new hardware platform. So it's a new generation that's going to be the foundation of our new generation of chips where we have -- we are introducing a few new things. First, we're introducing a new, what we call, core. The core is the brain, right, the brain of our technology of our chips. We are going to use a RISC-V, which is a major trend in our industry to use RISC-V. But we are going to do it to secure it. So we are building an asset for here -- for WISeKey. We'll be the premier company to introduce a secured RISC-V core. The new and even as important thing we are introducing in this new generation of chip is the resistance to a new generation of attack that is emerging. That's what we call deep learn. Artificial intelligence has good benefits, but it also provides hackers extremely powerful way to attack our objects, our connected objects. Deep learning is this new generation of attack that is emerging today, but we know that in the 2 years from now, this is going to create a major problem in the industry of connected objects. Our new hardware platform will be designed to resist to this new generation. The last thing we're introducing in this new platform, it's what we call an IP version. For that, we are benefiting from a key patent of ours, which allows us to do that in a very powerful manner. An IP version, it means that it's not going to be only a chip that we deliver to our customer, but it can be a software version, if you prefer, of the technology or a piece of technology that they can onboard as an enclave in the device microcontroller. So this is a trend also in our industry for cost optimization, for size optimization of the device to onboard technology at the heart of the device. So that's what is new hardware platform is going to serve. And with that, I will pass the mic to -- back to Lena.

Next, we have Cesar Martin-Perez, Sales Director. Cesar, please go ahead.

Yes, good afternoon, good evening for all the attendees. Thank you very much for attending. Welcome. Thank you, Carlos and Bernard for the first very compelling messages. I'd like to talk in a few minutes about our go-to-market strategy to give a clear message where we are in the market and what we are doing to address the market. In this slide, the takeaway is, clearly, we are not a newcomer in this market. We are here for decades, as Carlos already stated. And we have a significant footprint, a significant customer base footprint. And you can see here big names. And basically, those are names we can show because those names, those clients are public. Besides the relationships, the engagement with us is public. Think about that there are many others we are not sharing because of the confidentiality. And as we are in the security market, there are also reasons for large clients not to be public in regards to our relationship. The takeaway here, we have a wonderful foundation in different market segments, where we are now benefiting from and taking the next steps to grow the company significantly over the next couple of years. And another thing to take away is, we are not just depending from one market segment. We are not depending from the automotive. Specifically, where I live in Germany, there are many companies struggling now with the automotive business. So in our case, we are in a great position that we are targeting different market segments, high value, high volume. And all those market segments, all those clients are basically facing one big, big problem. The world is becoming digital much faster than these companies are able -- not everybody, but most of them, are able to keep the speed in order to deal with the complexity of the new products in order to connect to the cloud, to change business models and security. Security is everywhere, again, together with the complexity of becoming digital. And this is where we are putting our efforts. Next slide, please. So what are we doing? How we get there? So first of all, as Carlos stated, we are doing a significant investment in people as well. So we are growing our people footprint and in sales, the same. So we are hiring the new experts from the industry. And there are here 3 pillars I'd like to highlight. There are more, but our focus is in collaboration. So we are working with our clients with our existing and new prospects in developing total system solutions. And if you remember what Bernard and Carlos stated, we are not just selling a product. We are selling a complete solution through our cloud services, through our software certificates, cloud platforms. So our clients are looking for a partner capable to sit together to collaborate and to find solutions for the big, big challenge in becoming digital, big challenge in changing business models. And this is where collaboration is key. And through our cybersecurity trust platform, we can address both, the software requirements, the security requirements and help our clients. If we do this and we do this, we are creating co-value with our -- we are co-creating value with our clients. It's not just selling a product. It's really focusing on our clients' business issues and find the right solutions together with our clients and partners and address key driving issues. For example, brand protection and counterfeiting. But at the end of the day, we are helping our clients to simplify the digital transformation. And the next is to expand our -- extend and expand our sales channels. So we are already adding new key partners. Carlos mentioned a lot of them, like SAP, for example. But we are also adding other design partners, other partners to extend our ecosystem at the end of the day to have a complete solution to our clients. So it's all about, not only selling a product, selling a complete solution together with software, together with services. And coming to the end, you see here in some of the market segments we are heavily focused on. Medical, not at least because of the corona or COVID-19 issues, the medical space is something we are addressing already, and we see a significant growth. Think about if everybody would have the capability to diagnostic at home in a secure connection. So you have the right device in your home, you can send the data secure to the cloud. And the country can diagnostic at the same time, basically not 30% of the population, but close to 100% of the population, a country will be much, much faster in taking the right decisions to prevent a pandemic. Just to give you -- we cannot disclose client engagements, but just to give you an example where we're working on: Smart home building, a huge growth market; Industry 4.0, specifically in Germany, where all the big, big guys are in an alliance where we are working on; and authentication, tracking and transportation are other areas with key focus. The takeaway is we have the right footprint, the right clients to elaborate from there. And we will address this through our partners and generate new business through new prospects we are working on already. Thank you.

Next is Benjamin Stump, the Vice President of Business Development. Ben, please go ahead.

Thank you, Lena, and thank you, everybody, for joining. Good morning, good afternoon or good evening, depending on where you are. Next slide, please, Carlos. I want to talk a little bit about how WISeKey is really differentiating itself in the brand protection and consumer engagement space. Traditionally, the idea of authenticity and authentication has been disparate from the idea of consumer engagement. Brand protection and authenticity has traditionally been sitting with the operations team and the idea of consumer engagement with the marketing team. Carlos, I think we lost the slides. But what WISeKey is doing is bringing together the first vertically integrated offer. And what we mean by that is the first vertically integrated offer that goes from the physical secure chip itself, all the way through the cloud and the software and the digital identity. And what's very important there is the idea of vertical security. You've heard Carlos, Bernard and Cesar speak about digital identity in one form or another. And that's key and critical to the approach for brand protection and consumer engagement as well. Driving authenticity also helps to drive revenues for brands, which is one of their primary goals and objectives. And then the engagement side helps to drive the brands', as I like to call it, friend network so getting to know your customer, getting to know your consumer and building that network of information. So what is it really? Digital brand protection is the supporting of the digital transformation in the market. Hopefully, we all know and understand that counterfeiting is a massive problem, one that continues to grow and the importance of evolving the protection for these products and goods, supporting the digital transformation and digitally enabling in a secure way these products to interact with consumers is very, very important. And the key here for WISeKey is, traditionally, this has been a passive-type solution, a passive solution that leverages things like holograms or QR codes, which really aren't secure in the same way. And so what WISeKey is doing is pushing that digital transformation, embedding secure NFC into the products and then having a highly secure solution, vertically integrated that not only touches on authentication but then also supply chain management. The ability to support and manage sustainability, for example, when you talk about the fashion and apparel industry or you talk about maybe the food and beverage industry, all the way out through the next evolution of consumer engagement. Next chart, Carlos. Some of the early proof points that have happened in the market you can see here. And the reason it's important to note early proof points is it's really helping us to understand that the market has begun to speak, right? And the digital transformation that WISeKey is enabling is starting to happen and starting to take hold. In the case of both Mattel and Nike here, both of them were going after the consumer engagement angle in their initial pilot. And it was, how can I increase my consumer engagement, in Mattel's case, with some Hot Wheels; and in the case of Nike, with their most expensive game style jerseys. And then on the other side, you have one of WISeKey's customers Hublot, who really focused more on the authentication side and just touched on the consumer engagement piece. As we look today at these starts of proof points and then you overlay that with the massive growth of e-commerce, which is really even exploding more in the last few months given the pandemic and the worldwide situation, brands need new ways to communicate and engage with their consumers and they need new ways to increase that brand loyalty and to build their brand reputation and ultimately to drive more profitable revenues. And one of the key messages for them is with this digital transformation, you now have a single platform that enables you to do all of those things. Next chart, please. What I think is important here is WISeKey has put all of the complexity together and then simplified it from an outward perspective, so that the brand doesn't have to worry about the complexities of the deployment, the complexities of the integration. We put that solution, as you've heard Cesar speaking about a few moments ago, we put that solution in their hands so that they can hit the ground running and they can move quickly. So what makes WISeKey really different? Well, how it works is 3 simple steps. The first, of course, is what we call embed, and that's incorporating the NFC tag into or onto the product. And really what makes WISeKey different here is the level of security in our NFC tags, the fact that they are tamper evident -- tamper resistant, the fact that they're nonclonable. It puts us on a different level. But when you combine that with WISeKey ability to do custom designs for the chip and the tag itself, this really helps to position WISeKey across many market verticals where the physical installation or application of that tag is different. If it's being applied to a sports jersey, it needs to be washable, right? If it's being applied to a spirit, it needs to be designed so that interference doesn't have an implication or a role. So WISeKey's unique ability to not only have standard off-the-shelf parts for this, but also the ability to work with brands to custom design what they need is very key. Connecting is really how do you get that product connected to the consumer and everything in between. And that's where I talk about WISeKey's vertically integrated software bringing that together and supporting not just authentication and consumer engagement, but also everything in between, which is very, very important from a brand's perspective when you talk about supply chain management, the risk of diversion, et cetera, and you talk about sustainability in certain market verticals. And then, of course, the ability to engage and the ability to have a new and direct communications channel with your customer. And especially in the world of e-commerce, it's rare now that brands get to physically interact with their customers. But with this digital engagement, they can still interact post-sale. It doesn't have to be just once. And they can build a dynamic information sharing environment where they get to know their customer much better, they get to build their network and they continue to communicate post-sale, helping to drive further revenues. Next slide, please. So the way that I like to think about this is really what we're doing is expanding the Internet of Things, right? When we think about the IoT, it's typically about intelligent devices being connected. And in this case, what we're doing is we're taking static or dormant products and turning them into dynamic communications channels. And not only do they become dynamic communication channels, but they become secure dynamic communication channels. And that's very, very important because if you want to know your customer and you want that customer to feel confident in you as a brand in your products and in the messaging that you're delivering, everyone has to have trust. That route of trust that Carlos spoke about in the front is what makes this different and what makes building that friends network for the brand so important and so safe in this case. And it provides a new set of data to the brand that can be used really for endless types of marketing opportunities and dynamic content delivery, which ultimately will help to drive additional revenues, as I mentioned, add-on sales, et cetera. Next slide, Carlos. Really, this all starts, and you've heard it throughout as a common theme, it all starts with a digital identity and providing a digital identity, in this case, to a static product. And that digital identity is created within the software. Then you have the hardware layer, and that's that NFC tag or label that we spoke about. And again, the differentiation for WISeKey is the data-enabled, the connectivity. But most importantly, it's the security, the tamper resistance, the encryption that's there, all combined with the highly secured digital identity and certification. Then you have the top layer of software, which is really where your authentication, supply chain management, sustainability tracking, traceability and, ultimately, consumer engagement comes in. And in this case, for WISeKey, being able to not only deliver that as a turnkey package to our customers, but also to be able to deliver the option for a customer to take parts of that and integrate their existing platforms and products is very important. Because what we want to do and strive to do, as I said, is take something that is extremely complex and make it very simple for the brand and fit it into their current business processes and operations in a way that causes as little disruption as possible so that the value is always increasing and there is no adverse reaction that goes on. And you can also layer in there on top of that the additional services that could come, whether they want WISeKey to help with their data analytics, if they want another layer of added data security and they want to store certain pieces of data in the blockchain, for example, with distributed ledger technology. These are all important opportunities that helped to make WISeKey different with that first-ever vertically integrated solution and platform. Next slide, please, Carlos. We talked a lot in this case about the digital ID and brand protection and consumer engagement. And really at the heart of most of what WISeKey does is, in fact, that digital ID. And being able to use that digital ID for many things is important. And the WISeID app is a great example, whether you're talking about using this for personal data storage and digital identity or you're talking about a corporate layer where you're creating those digital identities for your entire company so that they can be certified, and as Carlos mentioned earlier, be able to certify e-mails and everything else. This is the way of things in the future. It's very important that everything has a secure digital ID that's managed. There's the WISeID Vault, which really then provides access. Think of it as your digital identity, which you own, as Carlos explained, now having access to a personally encrypted cloud, where you can store other information that you might want to share with others, but in ways not as traditional, so you want to share certain things, but you also want to feel confident that your information and your data is safe and encrypted. And then you may have seen the announcements that have come out over the past 6 weeks or so, discussing the WIShelter Trusted Safepath application, which is really taking the digital ID and integrating that, in this example, with the health care market to provide personal identification, to health care workers and health care personnel, where -- as a first phase, where that digital ID can be stored against or with your digital medical records, your digital vaccination history, your digital test results and having all of that information digitally signed and certified and then accessible to allow you entry to an airport, to allow you entry to a hospital, for example, or to allow you entry to work. It's a very exciting opportunity and application that is obviously coming from a terribly unfortunate pandemic situation, but we like to see the technology and the digital identification that we have being used for the greater good in this case, and we're very excited about it. And with that, I'll hand the baton back to you, Lena. Thank you very much.

Thank you, Ben. So I now have Peter Ward, Chief Financial Officer, who's going to discuss the recent financials -- financial highlights. Go ahead, Peter.

Thank you, Lena. Yes, good afternoon, good morning, good evening, wherever you're listening or watching. I will be giving a brief overview of the financial situation we had in 2019 versus 2018, since we need to keep to reported figures, since we are also about to present our half year results. So Carlos, next slide, please. So as you can see from the slide, this is a non-GAAP income statement. We tried to take some of the nonrecurring items and the unusual items out since we had some movements in the company, the sale of the SSL business in 2019. So we have some unusual items there. For the full year, the revenue from continuing operations for the year decreased by over $11 million or over 33%. And this is mainly due to some nonrecurring revenue inside of 2018 and also the fact that we were impacted by the global turndown in semiconductor sales, which were down over 15% compared to 2018. Since our operations are global in scope, we generate our revenue from selling products on services across various regions. And Europe has historically been the largest portion of our revenues, but we do have significant revenues in the U.S. The reduction in the revenues, we had something like $6 million of revenue reduction inside of Europe, $4 million of which was due to nonrecurring revenue and the other $2 million approximately was due to the impact of the semiconductor downturn. With regard to the U.S., the percentage of total revenue stayed round about the same at 43%, but the absolute drop was over $5 million. And that was essentially due to some major customer realignment in terms of their inventory balances and, again, the impact of the semiconductor downturn. From the gross profit point of view, that obviously would be impacted as well but not by such a great impact. And we -- since we do have a long manufacturing cycle, it is difficult to match that manufacturing order process if the orders from customers are coming in with reductions on delayed matter. But the gross margin did improve significantly between the first half of 2019 and the second half of 2019, but not enough to get us back to the full 49% of 2018. We come to look at the R&D expenses. We invested, again, in the R&D as we will continue to do so as we did already in 2018 over 2017 because we obviously need that R&D expense if we want to maintain our technology leadership position. Sales and marketing expenses increased also as we invest in resources to increase the sales and marketing coverage in the regions. Notably, we focused again on the U.S. and also here in Europe. The general and administrative expenses, and I have a second slide on that, and I'll come to that momentarily. With regard to the cash, the free cash flow increased by over 50% clearly due to the impact of the sale of the SSL business, where we sold the revenue generation, the sale for $45 million. And we had a profit of that -- of over $30 million. Next slide, please, Carlos. This gives you an idea of what's inside that $11 million of G&A expenses. G&A essentially covers everything that we cannot securely identify into the sales and marketing or in the R&D, but you have $6 million of staff cost, which was actually a reduction of over $1 million compared to 2018. And you've got the usual rental expenses, as we call it, offices in -- throughout the globe essentially. And because we had a lot of reorganization, legal reorganization, we appeared on the NASDAQ, we divested ourselves of companies, their legal fees were quite significant as they were in 2018 because the movement of the sale of the SSL business started in 2018 and sort of finished in 2019. Next slide, please, Carlos. And again, just to give some idea of the -- what the unusual items were inside of the P&L, we take the operating loss as reported of $20 million. We've got somewhere in the region of $7 million of unusual items. And certainly, in the case of stock-based compensation, noncash base. So we are able to maintain our cash reserves, even though the actual cost levels in the P&L look as if we will be impacted. Next slide, please. I think back to you, Carlos.

Thank you very much. I would like to thank all the speakers and also for the audience. We have a captive audience with us since the beginning of the event, which is great.

Just to maybe give some highlights because we -- I got some questions on the panel on the financials. Just to say then, as Peter said, we will be publishing our H1 very soon. We gave some results on Q1 at the beginning of the quarter, which was in a press release where we announced the $4.4 million revenue. And we also gave an indication of, by the end of the year, of an outlook about $17 million to $26 million. And the range is because with this COVID situation, a lot of customers are still taking their time to make their financial commitments as nobody knows what the economy is going to be in the next 6 months. So those are being important months for WISeKey, and we managed to move the company ahead. We are not really suffering too much. We have a strong cash reserve in the company. We have no debt because we paid the debt, important debt last year. So the company is in a very good shape now to go towards what I said at the beginning, this digital transformation journey, which we believe will take 3 years. And we will see WISeKey really in 3 years' time to be in a situation where we could become one of the largest IoT company in Europe and also start to have a major footprint in the United States. There have been also questions related to the business model on brand protection. I will let Ben to just answer those questions. But just maybe to conclude from my side, there has been one question there, which I think is important to clarify what -- why the stock has been fluctuating so much and why we didn't scale up as we should, with the kind of technology we have, the revenue we have. And the reasons are multiple reasons. One of them is that we are listed in Switzerland. Swiss stock market is not the ideal market for cybersecurity companies. The understanding of analysts is very small. And Switzerland is kind of very close market with major companies monopolizing nearly 98% of the other trades. So that's one of the reasons we're moving to the United States with ADRs in the NASDAQ. You can see the ADR volume is increasing, which is great news. Obviously, the company is not well known yet in the United States. So one of the reasons of this event today and also a non-VR roadshow that will start as soon as we can travel again, and this was actually planned already in February. Because the issues related with the COVID, we didn't manage to travel. But it is our commitment, obviously, to introduce the company in the United States investor. What we can tell is that the valuation of WISeKey versus its peer in the United States is very different. It's a discriminatory, I will say, valuation on European-listed companies. We expect that to be correct as soon as possible and see our stock going farther. The company visibility over the next year is important. We have about $240 million in the pipeline of potential new projects but also new industries where we are entering, such as industries such as the medical industry. We were not a player before the COVID, now we are a player. WISeKey is actually talking to pharmaceutical companies for illicit trade. By the way, next week, the 25th, we're going to organize a webinar, where we're going to be moderating a very prestigious group of experts on the illicit trade on how our technology can solve the illicit trade problems. Companies like Phillip Morris on tobacco illicit trade, companies like Novartis, companies like Roche that they are 50% of the pharma's stake on the Internet. So brand protection is a solution to that. So we really believe that we are at the beginning of something big. Obviously, the market is what it is. We don't know. It's a lot of unknowns there. But WISeKey is sitting in something like one of the largest IoT patent tools. We just announced 21 new patents in the United States, which are strategic patents. We have a very large number of patents on the semiconductor business, also on the rule of trust. Actually, we have a unique patent in rule of trust and combining them generates new IP and new patent. We're also investing substantial investment money on Post-Quantum technology because we believe this is something we need to be ready by the time Quantum will become important. And we have done a major investment in blockchain technology. As Ben mentioned, we want to decentralize our data as much as possible and render the data as user friendly for user and as protected in terms of privacy. So with that, I would like now to return the floor to Lena, if she has any -- she has been moderating the Q&A, if she has any questions we didn't answer. And maybe just, Ben, if you don't mind, to answer the question on the business model. There's a question there for you on the business -- please discuss the business model baked into the brand protection solution. How does WISeKey get paid? And what is the margin structure? Maybe you can say a few words about that.

Sure. Thank you, Carlos. And I think it's a good question because when you talk about the brand protection and consumer engagement environment, it is a combination, right, of hardware and software. So the easiest way to think about this is with an equation that I like to call A + Bx + C. In the case of brand protection and consumer engagement, there's always going to be a standard kind of setup in Software as a Service fee associated with the platform, right? That's going to be there. Then you're going to have the physical tags themselves, and that's a piece-by-piece cost or price to the brand. And then you have the additional, let's call them, custom services if they are required, which would be typically a onetime charge. So the simplest way to think about it is there's a unit cost and a Software as a Service fee with the possibility of some onetime Software as a Service fee being a recurring fee year-over-year. And then the potential onetime fees for additional services that may be custom for an individual deployment or application.

Very good. Thank you. So Lena, the floor is yours.

Thanks, Ben. So we received several questions. The first question comes from Andy Nowinski, a sell-side analyst at D.A. Davidson, and he's asking you, Carlos, that you recently did an interview regarding Ring video doorbell hack, highlighting why customer needs to protect the identity and password of the camera. Do the customers in the U.S. understand the need for digital identity protection or it's still a nascent market? And then there's another question from Andy, but let's start with this one.

Yes. Thank you very much for the question. Actually, that interview was interesting because they called me, they called WISeKey. They could have called anyone in the United States to answer that question. And the reason they called us is because the journalist started to understand that the digital identity is the key. It's like we have a key in our house. And if anyone wants to be invited to your house, it requires your consent. So your consent in a digital world is something that you need to program, you have to bake that into the code, and it's not in the code now. So the concern is the fact that you will be authorizing somebody under your consent to do something that your digital ID protects because the digital ID is the key. The problem on the run -- or the Ring issue was that, and as I mentioned before, they are not the only one. There are any -- as many video camera producers and Chinese hardware manufacturers, they don't care about putting an identity. I mean they -- first of all, they don't know how to do it. And secondly, it complicated their lives so much because there's not -- they are not specialized like that. So what happened is that it was very easy to open the channel because normally, those devices don't change the password or they have very basic passwords, which are very easy to break. So the concept of putting an identity on the object is now fully understood, and I think [ due ] liabilities associated to create risk. Imagine if somebody steals in my house because my ringing my door led a person to penetrating my house. Obviously, that has liability consequences, so manufacturers are taking a lot of attention to that. But also the fact that digital identity, the fact, as I mentioned before, and Ben also explained, that there is a need of a digital identity. Now in the United States, which is typically an Anglo-Saxon countries, because you don't really have an identity, you don't have a national identity card. Some people don't understand what a digital identity is. Europe is more evolving to that because we all have digital identity cards, which is basically a de-facto authentication. And this is the one we just convert into a digital version, which becomes a digital identity. So it requires some education, it requires some customer enlightment, I would call it. But because people are losing their data and people are realizing that their data is being collected in a -- without their consent by social media platforms, the business of digital identity will emerge as one of the high-growth business because everything you will put on the top requires a digital identity. This is the ground zero of Internet cybersecurity. Without solving the digital identity, everything you will put on the top will sooner or later collapse. So it took a while. WISeKey was visionary on that. It's very difficult to monetize the digital identity. How are you going to charge money for something people don't even understand what it is? So it took this education process that WISeKey established through different activities everywhere in the World Economic Forum, in the UN, in the Human Rights Council to trying to explain that every individual needs their digital identity and their digital identity needs to be under their control. And the good news for us that algorithmically speaking because the route of -- for WISeKey is one of the only companies, if not the only company, that can provide a level of ownership to the user on the digital identity.

Okay, great. The second question from Andy is about the digital identity protection space. He's asking, can you provide an update on how competitive the space is and who typically WISeKey competes with?

So this space is -- it was owned traditionally by companies that have cryptographic route keys, which is just the only one that can issue a qualified algorithmical digital identity. So those are company like Symantec, like VeriSign, like RSA, like Entrust and WISeKey. WISeKey is the only non-U.S. company with a major brand in that space. All those other companies are several billion-dollar markup companies. And there has been some consolidation into that space. DigiCert acquired Symantec Identity, which was -- VeriSign Identity was acquired before for $1 billion. And by the way, WISeKey also last year, as Peter mentioned, started to enter into this consolidation business as DigiCert, they went and acquired Verisign, approached us with their intention to acquire an asset on digital identity we had and qualified DigiCert for the European Union eIDAS legislation because DigiCert was not in compliance with that legislation. So we sold that piece of technology for $45 million. And the reason we did is because we didn't need it. We have other access to that compliant process. And there was a way for us as well to establish strong relations with major platforms in the United States. So I don't think we need to compete. The market is so big here that there is no need to compete. It's actually a market of consolidation. Obviously, companies will need to get bigger in order to become major players, and there are going to be some M&A opportunities. And WISeKey is actually doing something like that, too. But there is an international -- I mean, we're talking about 6 billion identities for every single person on Earth, plus we are talking about 1 trillion identity for objects and the potential interactions between object and people identity, all that into platforms. So there's a high-growth business. It's growing substantially per year. We'll keep growing as soon as we use the Internet.

Great. Thanks, Carlos. This next question is for Bernard, and this is related to the underlying semiconductor processing technology for WISeKey's chips. The investor is asking which semiconductor company is manufacturing the chips and what is the cost versus price metrics?

I can answer for the first part of the question. So this is -- we are using a UMC in Taiwan. This is CMOS and flash-embedded technology we are using at UMC. Cost versus price metrics, I mean they are confidential things. The only thing I can share is that we have -- with this new technology, we're achieving of many in terms of many parameters on the chip parts. On one of our flagship unit that we are shipping to our customer today, we can achieve close to a 50% reduction of the size of the units, which gives a major competitive gain versus what were delivering before.

Okay. Great. Thank you. Thank you, Bernard. The next question is probably for Ben, regarding brand protection. And the investor is asking, when will the pilots become real full deployment?

Yes. Thanks, Lena. Obviously, things are starting to move more quickly in the brand protection space. But the impact of the pandemic that's going on, as Carlos mentioned, in regards to everything, certainly has an impact here as well. I think what's most important here is the portion of the question about metrics, and that is what are brands really looking to measure and how do they define success. And that definition is what helps -- will help us to translate these pilots into full production. And obviously, that answer varies from customer to customer. But at the heart of it, right, the objective, the goal and objective for them tends to be threefold. Number one, do they -- and they struggle to prove this piece in the pilot, but it is an objective. Do they see a reduction in counterfeit goods and/or diverted goods? Now it's hard to measure in the pilot phase. However, in some examples, when the pilot is on a very specific product line, it is still very measurable then. The second is really about, what I'll call, tap through or what typically used to be considered scan rate for QR codes. They want to know and see, right, what percentage of their consumers engages with the NFC. Traditional QR code scan rates tend to be very low single digits. If you have no marketing campaign behind them, they can be 1% to 3% across the board. If you have a strong marketing campaign, you might see something in the 6% or 8% range. What most brands are looking for is a significantly higher tap through rate. And then they're also tracking the number of taps, right? So for example, did I authenticate and register my product and then never reengage or did I authenticate and register? And have I been excited about the content available and tapped and reengaged once a week? So they're looking at that as a metric as well. And of course, the last one is many of these pilots, when they put these out, they put very custom marketing campaigns behind them that are just marketed to those who opt-in on the registration in the pilot, and they want to measure the add-on sales that can be generated by those custom marketing campaigns. So those are a couple of the metrics that are important. Obviously, there are many others, but those are pretty common in this example. And I -- just from a general perspective, as I mentioned, this is the start of the transformation in this space, moving from passive to active and digitally identified products, and I'm excited to be a part of the growth with WISeKey for it.

Great. Thank you, Ben. There are a couple of questions related to the anticipated growth over the next 4 to 5 years in the pipeline, the $250 million pipeline that we announced recently. So can you provide -- can Carlos and Peter provide a little bit more color on that?

Sure. So the growth, as Ben mentioned, is -- now the way it works here is that a brand will start to develop their digital transformation strategy. So it doesn't happen at once. I mean this is normally a very sound decision for our brands. Then we'll say, okay, we'll need to do everything possible to connect to the Internet our objects, our people and increase our security. So you need some kind of situations like the one we are facing now, which is a disaster for many companies. Many companies are losing a lot of money and clients because they are not ready to face this digital transformation requirements. This is accelerating their decision-making process to move from pilots to full production. I'll give you an example, watches. WISeKey has been securing watches in Switzerland for over a decade now. I mean we started in -- actually, in 2007, that was the first project. Switzerland produced 35 million watches per year, luxury watches, and we have something like 250 million copies of those watches. And brands, all of them, they are realizing that they need to enter into this space and secure their watches and provides further security to their customers. But the decision-making process has been very slow. Normally, they start with one product and then they see, okay, if you -- let's -- that is reflected on our revenue as well is because it's a fraction of the potential upside on each of those brands. For instance, a brand will say, "Okay, let's connect one of my watches, which is the one that has the Internet capability." And once the consumer and everybody agrees to that digital transformation, we bring the entire thing. The same thing happened with Daimler. We signed with the connected car from Mercedes-Benz. They are piloting in a few cars and after they go to the main. And this happens all the time. So that's where the $250 million growth aspect is it's because our revenue is fractured between many clients, which is actually a good news because the diversification of clients are there. And all of them, they are going to the digital transformation journey. The good news for companies like WISeKey is that once a client decides to put the trust on you and they start to connect some of their objects to the Internet, it's very likely they will continue using the same company because the reengineering aspect required to make that compatible requires heavy investments, and they don't want to do that again and again. Another growth path, as I mentioned in my introduction, is that we are not able -- I mean we are a small company, we are not able yet to cover the entire world. And that's why we team with Microsoft, with SAP, with Oracle because their sales force are now enjoying the relations with our sales force and promoting our technology. I'd like to maybe describe those companies like big hospitals. They are huge, like Microsoft. So you go, you are sick, you don't know what happened to you, you go to a hospital and you get your first opinion. But very likely, the hospital, if it is a very good hospital, will maybe recognized that they do not have all the skills required to solve your problem, and they will call you to go into one of their specialists or an associated clinic or a private, whatever that will be, to find your solution. So that's what WISeKey is. WISeKey is that private doctor. Then you come to see after a generalist will say, "Okay, you are safe, but maybe you talk to WISeKey to see how they can help you." So this is happening more and more because we are teaming with these organizations. So that's why we are very optimistic on the growth and the possibility to bring the revenue to the company to the highest level. And this is -- and by the way, it's a question that goes into the volume, what are we doing to increase the NASDAQ volume. And what we are doing is actually what I say, we are going into roadshows, events like today, explaining everybody the uniqueness and why we believe, all of us, staff and our close shareholders, that the company is a great platform for the future.

Thanks, Carlos. I think you answered the last question for the day about how to improve liquidity in the U.S. So there are no more questions.

Very good. So if there's no more questions, I would just like to thank again the participants. We had something like 67 people on the call, which is great, and they have been with us for nearly 2 hours. I would like to thank the speakers. And I would like to just tell you that WISeKey is organizing those webinars on a specialized issue. So today, we covered entire company activities, but we are deep diving into issues like health. We did one in IoT health. We're going to do one in counterfeiting. We're going to do another one on artificial intelligence and the dark web. So we're bringing international experts, and they will be with us developing both the argumental and the solutions required to move into each of those industries. So we'd like to thank you, all the information is available in wisekey.com, which is our website. From there, you can go to the Investor side, and you will see a copy of these videos. It will be available there for you. And if you have any questions, you can address either to Lena or to us, and we will be delighted to answer them. So thank you very much, everybody, and thank you all of you for your participation. Okay. Bye-bye, guys.