WISeKey International Holding AG — FY2020 Form 20-F
Reporting period: Year ended December 31, 2020; this is an annual report, not a standalone Q4 filing. The Swiss cybersecurity and secure-semiconductor group reports in U.S. dollars under U.S. GAAP. Its planned expansion into AI-enabled knowledge automation was linked to the arago transaction. Unless stated otherwise, amounts below are USD millions.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | 14.779 | 22.652 |
| Gross profit / margin | 5.465 / 37% | 9.456 / 42% |
| Operating loss | (18.532) | (20.504) |
| Loss from continuing operations, net | (28.907) | (23.030) |
| Net income (loss) | (28.907) | 7.454 |
| Adjusted EBITDA (non-GAAP) | (15.8) | (12.6) |
| Operating cash flow | (12.550) | (13.891) |
| Cash and cash equivalents at year-end | 19.650 | 12.121 |
| Restricted cash at year-end | 2.113 | 4.525 |
- Revenue fell 35%. IoT revenue declined 30% to $14.317 million; mPKI revenue fell 78% to $0.462 million.
- Operating expenses decreased 20% to $23.997 million, including lower G&A and stock-based compensation. The operating loss narrowed, but lower gross profit and higher non-operating expenses drove a larger continuing-operations loss.
- Non-operating expenses were $11.079 million, including a $7.0 million impairment of the Tarmin warrant and foreign-exchange losses of $2.195 million.
- FY2019 net income included a $31.1 million gain on the QuoVadis disposal; the comparison therefore does not reflect recurring operating profitability.
- At December 31, 2020, current assets were $38.663 million and current liabilities $24.977 million, giving reported working capital of $13.7 million. Total assets were $52.881 million, total liabilities $38.455 million, and total equity $14.426 million.
- Balance-sheet debt and convertible-note obligations were approximately $14.1 million, including $4.030 million owed to ExWorks, $9.343 million of current and noncurrent convertible notes, and $0.646 million of long-term debt. The ExWorks loan was past due, bore 10% interest, and management expected repayment following a Tarmin investment sale.
- Cash-flow financing provided $21.482 million, principally from convertible financing. The filing says projected funding needs through March 2022 were approximately $1 million and presents the accounts on a going-concern basis.
Changes, outlook, and notable matters
- Management attributed the revenue decline to COVID-19 disruption, customer order reductions and uncertainty in semiconductor markets, as well as mPKI customers pausing authentication programs. Gross margin also suffered from late order reductions during the long chip-manufacturing cycle and a $1.0 million inventory obsolescence charge, partly offset by use of an existing provision.
- Management aims to grow through customer cross-selling, sales investment, geographic expansion, selective acquisitions and a combined cybersecurity/AI automation offer. It describes a path toward future profitability but provides no quantified revenue, earnings or margin guidance; profitability is expressly uncertain.
- In January 2021, WISeKey completed the first phase of acquiring 51% of arago after converting a CHF 5 million loan and providing for the agreed investment. The filing says the acquisition date and purchase accounting were not yet determined; the definitive terms for combining the remaining arago interest were still subject to agreement and approvals.
- The arago investment’s available-for-sale debt security was reported at $9.190 million, including $5.385 million of unrealized gains recorded in other comprehensive income. The filing describes its valuation as Level 3, using significant unobservable inputs.
- Financing creates substantial potential dilution. The SEDA had CHF 46.0 million available at year-end; the LSI facility CHF 30.0 million; the GTO facility CHF 10.84 million; and the Nice & Green facility CHF 1.083 million. Convertible instruments and share facilities can require issuance or delivery of Class B shares. The GEM facility expired unused on January 19, 2021.
- Other subsequent events include release of $2.0 million of QuoVadis escrow cash in January 2021, further GTO subscriptions and conversions, repayment of the Crede loan through share conversions, and a later SEDA drawdown. These events occurred after year-end.
- COVID-19 caused customer delays and order reductions, though management reported limited disruption to operations and production and said liquidity was sufficient for the foreseeable future. The company suspended its share buyback program to reduce cash use. Key risks include continuing losses, reliance on external financing, dilution, competition, technology and cybersecurity execution, supplier constraints, currency fluctuations, and customer concentration.
Most important facts for investors to verify
- Confirm the latest revenue trend, order pipeline and segment performance, particularly whether mPKI activity and semiconductor demand recovered after 2020.
- Track cash burn, unrestricted cash, the past-due ExWorks balance and repayment status, and whether the company’s projected funding needs were met.
- Review the terms, drawdowns, conversions and remaining availability of convertible facilities and equity lines, and calculate potential dilution using current share counts and conversion prices.
- Assess the arago acquisition date, purchase accounting, integration costs, funding guarantees and measurable contribution to revenue or profitability.
- Examine assumptions underlying the Tarmin impairment and arago Level 3 valuation, as well as inventory obsolescence and customer concentration.
- Note that the auditor gave an unqualified opinion on the financial statements. Management reported effective internal controls, but the auditor did not provide an opinion on internal-control effectiveness.