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AIX-EN-PROVENCE, France & SAN DIEGO, Calif.--(BUSINESS WIRE)--Regulatory News: Inside Secure (Euronext Paris:INSD), at the heart of security solutions for mobile and connected devices, is today reporting its results4. Commenting on these results, Amedeo D’Angelo, chairman and chief executive officer of Inside Secure, stated: “2018 was another year of robust operational and financial performance for Inside Secure. We successfully delivered strong top line growth in spite of an expected unfavorable base effect on a year-on-year comparison thanks to strong sales activity, bringing new customers and diversifying our revenue base. We continued to make significant progress in tackling high potential markets such as data centers, mobile networking and IoT, leveraging our proven end-to-end software security solutions from embedded security into chips to secure communications and applications. Beyond our organic development, we are adding significant capabilities with the acquisition of Verimatrix to strengthen scale and reach of our value proposition in end markets that are fast shifting towards software and cloud-based security solutions while video content consumption is becoming multi-device and multi-format. In this context, we will focus in 2019 on combining both businesses and teams to deliver first cost synergies while building for our clients the best value proposition in security, starting with entertainment and moving towards Internet of Things and connected cars.” _______________________ 1 Inside Secure uses performance indicators that are not strictly accounting measures in accordance with IFRS ; definitions and reconciliations of adjusted financial measures with IFRS are presented in Appendix 2 hereof.2 excluding payment of fees and other expenses in relation with the project to acquire of Verimatrix, Inc.3 Unaudited preliminary IFRS pro forma accounts.4 Prepared in accordance with IFRS. Figures for 2018 and 2017 have been prepared in accordance with IFRS 15 “Revenue from Contracts with Customers". The consolidated financial statements were approved by the board on March 5, 2019; the audit procedure has been completed by the statutory auditors. Inside Secure / FY 2018 Financial Results - Key figures 2018 revenue is unchanged compared with the estimate communicated on January 15, 2019 and EBITDA is at $6.6 million, slightly higher than the unaudited $6.2 million communicated at that time due to lower operating expense. Core Business Adjusted Adjusted The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2 hereof. Inside Secure and Verimatrix combined / Unaudited 2018 preliminary IFRS pro forma key figures On February 28, 2019, Inside Secure completed the acquisition of Verimatrix. The Inside Secure and Verimatrix combined entities would have generated in 2018, $124.2 million in adjusted revenue ($119 million in 2017) and $22.2 million in EBITDA ($21.5 million in 2017) on an unaudited preliminary IFRS pro forma basis (see Appendix 2). Inside Secure / Q4 2018 revenue Q4-2018 vs. Q4-2017 12-mois 2018 12-mois 2017 2018 vs. 2017 In Q4 2018, the company generated $10.5 million in revenue. As anticipated, revenue was lower in Q4 2018 as compared to Q4 2017 due to a particular strong base effect driven by exceptionally high royalties revenue in Q4 2017 from a historical U.S. customer in the defense industry. Licence revenue was $2.7 million in Q4 2018, up 41% vs. Q4 2017 and royalties revenue was $6.5 million. In Q4 2018, the company continued to leverage its customer base to expand its footprint while attracting new customers, thanks to its portfolio of products to support customers’ demanding security challenges and help them accelerate time-to-market. In datacenters, mobile networking infrastructure and IoT, the company continued to leverage its differentiated value proposition with embedded security into general purposes chips to close new design wins, with applications such as smart metering, sensors and printers. In the entertainment space, the company continued to innovate with the launch of the first software-only High-Bandwidth Digital Content Protection (HDCP) 2.35 solution offering a simpler, modernized approach to protecting content. The company has already closed a first deal to sell this new high-end solution to a major car manufacturer for an infotainment application. _________________________ 5 The Inside Secure HDCP (High-bandwidth Digital Content Protection) toolkit software solution provides all the required features (cadvanced cryptographic functions, incorporating authentication, digital signature algorithms, key storage and management) for a complete content protection solution and includes all control and management software for the HDCP2.3 specification. Inside Secure / FY 2018 Revenue Consolidated revenue In 2018, consolidated revenue was $42.1 million, up 8% compared to 2017, more than offsetting the anticipated decline from a historical U.S. customer in the defense industry. As a reminder, contribution from this customer was nil in the second half of 2018 and the company does not expect any more royalty revenue from this customer going forward. Excluding this customer, year-on-year revenue gowth was up 41% mainly driven by strong business traction of the core business over the period and marginally by a new licence signed for its NFC patent licensing program. Core business revenue Core security software and technology licensing business revenue was $40.3 million in 2018, up 4% year-on-year. Excluding the contribution of the historical U.S. customer, core business revenue was up 35% based on strong business traction and new deliveries to significant existing customers in Silicon IP and secure communications core technology, driving accelerated revenue recognition under IFRS 15. In 2018, the company continued to renew contracts and upsell its customer base with new products and solutions while successfully diversifing its customer base: top10 customers accounted for 43% of core business revenue in 2018, against 58% in 2017. During the period, license revenue grew significantly to $13.5 million, up 39% vs. 2017, leveraging strong sales activity with both existing and new customers across all its product lines. In 2018, the company signed significant contracts to embed security functions into general purposes chips, notably in IoT, cloud connectivity and Automotive (through it Silicon IP solutions) while continuing to gain traction in implementing secure communications and application protection in markets such as data center and Financials (mobile payment applications). The company also signed new contracts to help telcos and video service operators to protect video content over-the-top. In 2018, revenue from royalties was $21.2 million and revenue from maintenance and other agreements was $5.6 million, in line with the company’s business perimeter. NFC patent revenue In 2018, the Company recorded $1.8 million of revenue from its NFC patent licensing program thanks to a new license with a major Chinese handset and telecom equipment company signed in Q2 by France Brevets which manages the program (vs. no revenue in 2017). Core business adjusted gross profit at >95% Adjusted gross profit of the core business grew from $37.6 million in 2017 to $38.9 million in 2018, in line with revenue growth with a gross margin of the core business stable at 96.7% of revenue. Consolidated gross profit increased from $35.6 million in 2017 to $39.6 million in 2018. Gross margin increased from 91.6% to 94.2% of revenue due to the ending in 2017 of the amortization of intangible assets recognized in the context of the acquisition of the ESS business in 2012 (amortization expense of $1.5 million in 2017). Disciplined management of operating expenses Operating expenses increased from $29.4 million in 2017 to $34.1 million in 2018 as the company accelerated its R&D efforts and consolidated operating expenses derived from the two acquisitions completed in 2017 ($2.8 million). In 2018, the company leveraged its resources to pursue its investments notably in research & development to expand its offer to serve high growth potential markets such as IoT and automotive. All in all, operating expense remained below the previously announced $36 to $37 million range, as a result of disciplined management of expenses, reprioritization of projects, better than expected R&D tax credit in France ($0.2m) and in the UK ($0.2m) and to a lesser extent better EUR/USD exchange rate in the second half of 2018. Adjusted operating income and EBITDA reflecting operating leverage As anticipated, adjusted operating income of the core business decreased from $8.3 million in 2017 to $4.9 million in 2018 and EBITDA from $8.8 million in 2017 to $6.6 million in 2018 (higher than the estimated EBITDA of $6.2 million communicated on January 15, 2019 due to lower operating expense). (*) excluding amortization and depreciation of assets acquired through business combinations. Items without cash impact Operating income (IFRS) impacted by non-cash items The company generated an operating income of $1.2 million in 2018, compared with $1.6 million in 2017. The operating income is explained mainly by: the adjusted operating income of $ 5.6 million; net non-recurring expense in relation with acquisitions (in particular Verimatrix, Inc.) and past restructuring for $1.8 million; non cash items of $2.6 million including: amortization expense related to intangible assets arising upon the company’s acquisitions in recent years (Metaforic in 2014 and Meontrust and SypherMedia in 2017) for $1.9 million and share-based payment expense for $0.7 million. Financial income/expense Net financial income was $3.2 million in 2018, the interest expense of the convertible bonds due 2022 being offset by a non-cash financial income of $3.8 million following the change in fair value of the conversion option on the convertible bonds, and interest earned on investments and foreign exchange gains. Consolidated net income In 2018, the company generated a consolidated net income (IFRS) of $3.4 million against a loss of $1.1 million in 2017. It is derived from the operating income of $1.2 million, net financial income of $3.2 million and income tax expense of $1.0 million. Strong cash position As of December 31, 2018, the company’s consolidated cash position was $47.4 million, compared with $45.9 million at December 31, 2017. Operating activities generated $2.8 million of cash flow in 2018 ($4.5 million excluding payment of fees and other expenses in relation with the project to acquire of Verimatrix, Inc). Post closing event – Completion of the acquisition of Verimatrix Inside Secure closed the acquisition of Verimatrix Inc. on February 28 2019. At closing, Inside Secure paid $138.1 million in cash in consideration for 100% of the shares and an additional amount of $9.8 million set in escrow to cover potential post-closing adjustments and an earn-out, estimated to $8 million, final amount of which will be known in the second quarter of 2019 following completion of year-end audit of Verimatrix earnings. Business outlook In 2019, the Company will focus on integrating Verimatrix to create a leader Software-based security powerhouse. The combined Group will benefit as early as this year from its new scale and leverage the Verimatrix resilient revenue base and from the mix of both recurring and repeat revenue from both companies. This year, the company will focus on implementing first cost synergies of $4 million (out of the targeted $10 million per year on a run rate basis) and leveraging key assets - a strong technology and product portfolio as well as a complementary customer base – to build the best value proposition in security for our customers, starting with entertainment and moving towards Internet of Things and Connected Cars. Adding Verimatrix to its core business, Inside Secure should deliver in 2019 higher reported EBITDA, primarily due to the incremental earnings brought by Verimatrix and the generation of first cost synergies. On a longer term, Inside Secure confirms its objective to achieve a revenue6 of $150 million in 2021 while generating an EBITDA7 margin of 25% of revenue. __________________________ 6 on a like-for-like basis by integrating only Verimatrix, excluding any acquisitions or disposals of businesses or companies.7 including the full impact of the $10 million annual expected cost synergies from the combination of Inside Secure and Verimatrix. Target revenue and operating expenses are based on a dollar/euro exchange rate of $1.17, i.e. the conversion rate used for the operating budget for the year 2019. Conference call Inside Secure will hold a conference call to discuss its earnings results on March 7, 2019, at 8:30 am CET. Access to the call will be by dial-in on one of the following numbers: +33 1 72 72 74 03 (France) or +44 20 7194 3759 (UK), PIN 2342366#. The presentation is available online at www.insidesecure-finance.com. An audio webcast of the presentation and the Q&A session will be available on the Inside Secure website approximately three hours after the end of the presentation and will remain posted there for one year. Financial calendar About Inside Secure Inside Secure (Euronext Paris – INSD) is at the heart of security solutions for mobile and connected devices, providing software, silicon IP, tools, services, and know-how needed to protect customers’ transactions, ID, content, applications, and communications. With its deep security expertise and experience, the company delivers products having advanced and differentiated technical capabilities that span the entire range of security requirement levels to serve the demanding markets of network security, IoT and System-on-Chip security, video content and entertainment, mobile payment and banking, enterprise and telecom. Inside Secure’s technology protects solutions for a broad range of customers including service providers, operators, content distributors, security system integrators, device makers and semiconductor manufacturers. For more information, visit www.insidesecure.com Supplementary non-IFRS financial information Some financial measures and performance indicators used in the press release are presented on an adjusted basis. They are defined in Appendix 2 of this press release. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the consolidated financial statements, including the income statement set out in Appendix 1 hereof. The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2. Forward-looking statements This press release contains certain forward-looking statements concerning Inside Secure. Although Inside Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. Accordingly, the company’s actual results may differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk factors" section of the 2017 registration document filed with the French financial market authority (the Autorité des marchés financiers – the “AMF”) on April 10, 2018 under number D.18-0307, available on www.insidesecure-finance.com/en Appendix 1 - Consolidated income statement, balance sheet and cash flow statement (IFRS) The following tables are an integral part of the consolidated financial statements prepared in accordance with IFRS. Consolidated income statement Consolidated balance sheet December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Consolidated cash flow statement 2018 2017 Appendix 2 - Non-GAAP measures - Reconciliation of IFRS results with adjusted results The performance indicators presented in this press release that are not strictly accounting measures are defined below. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the company’s financial performance. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the company’s consolidated financial statements and their related notes. The company uses these indicators because it believes they are useful measures of its recurring operating performance and its operating cash flows. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently than the company, even though they use similar terms. Adjusted revenue is defined as revenue before non-recurring adjustments related to business combinations. It enables comparable revenue for future fiscal years. In 2018, the combined entities would have generated a pro forma adjusted revenue of $124 million ($119 million in 2017) and a pro forma revenue of $122 million ($116 million in 2017) as Verimatrix recorded $2 million of deferred revenue as at December 31, 2017 ($3 million of deferred revenue as at December 31, 2016) which, in accordance with IFRS, cannot be recognized in the year following the acquisition. Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture undertaken by the company. Adjusted operating income/(loss) is defined as operating income/(loss) before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture undertaken by the company. EBITDA is defined as adjusted operating income before depreciation, amortization and impairment expenses not related to business combinations. Appendix 2 (continued) - Non-GAAP measures - Reconciliation of IFRS results with adjusted results The following tables show the reconciliation between the consolidated income statements and the adjusted financial indicators, as defined above, for the fiscal years ended December 31, 2017 and 2018 respectively: 2017 Consolidated adjusted Business combinations Share-based payment Other non- recurring costs (*) 2017 IFRS 2018 Consolidated adjusted Business combinations Share-based payment Other non- recurring costs (**) 2018 IFRS
AIX-EN-PROVENCE, France--(BUSINESS WIRE)--Regulatory News: Inside Secure (Paris:INSD) (Euronext Paris: INSD), at the heart of security solutions for mobile and connected devices, is today reporting its IFRS unaudited1 consolidated results for the six-month period ended June 30, 2018. Figures for 2018 and 2017 have been prepared in accordance with IFRS 15 “Revenue from Contracts with Customers" since company opted in 2017 for an early adoption of IFRS 15 (see Appendix 3). Commenting on these results, Amedeo D’Angelo, chairman and chief executive officer of Inside Secure, stated: “This semester, we have delivered a strong performance both on revenue and profitability while continuing our investments across our portfolio to fuel future growth. Revenue growth was particularly high, driven by strong business fundamentals over the period, new significant agreements with existing customers in the second quarter, and NFC patent license revenue. We continued to significantly grow license revenue, leveraging our customer base and attracting new customers with bundled solutions to embed security at the heart of their products and secure their communications, as illustrated by our partnership with Kalray on intelligent processors and Andes on security processors for IoT in Asia. As expected, we continued our research & development efforts across our portfolio to bring more value to our customers in high potential verticals such as IoT and automotive by combining embeded security into chips with provisioning capacity of the acquired company SypherMedia to monitor security during the entire life cycle. We are also developing new solutions to enable studios protecting their premium content revenue. Thanks to strong revenue growth in the first half, we are confident that we will achieve robust top line revenue growth in 2018 while continuing to closely monitor our investments toward profitable growth and position Inside Secure in high potential markets.” Financial Results - Key figures Adjusted The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2 hereof. Q2 2018 and H1 2018 revenue Q2 2018vs. Q2 2017 H1 2018vs. H1 2017 Q2 2018 Revenue Consolidated revenue (IFRS) In Q2 2018, the company generated $12.4 million in revenue, including $10.6 million from its core business revenue and $1.8 million from the company’s NFC patent licensing program with France Brevets which signed a new license with a major Chinese handset and telecom equipment company. Revenue growth was particularly high at 67% in Q2 2018 as compared to Q2 2017 based on strong business traction, NFC-patent revenue and, new deliveries to three significant existing customers in Silicon IP core technology, driving accelerated revenue recognition under IFRS 15 (see appendix 3 on IFRS 15). Core business revenue Core security software and technology licensing business revenue was $10.6 million in Q2 2018, up 43 percent year-on-year (up 36 percent organically excluding the two businesses acquired in 2017). License revenue grew significantly in Q2 2018 to $3.7 million, up 48 percent vs. Q2 2017, primarily driven by the silicon IP product line. This quarter, the company continued to win new designs, both at existing and new customers, to embed security functions into general purposes chips, notably for IoT, cloud connectivity and connected and autonomous cars. As an example, the company was chosen by fabless semiconductor company Kalray to provide embedded security into their new intelligent processors for data centers and autonomous cars while signing an agreement with Andes to deliver secure IoT solutions to chipmakers in Asia. The Company also leveraged the businesses acquired in 2017 as reflected in the deal with NationalChip on Syphermedia’s secure provisioning for device lifecycle management in China. It also integrated Meontrust strong authentication platform into its bundled solutions for markets such as entertainment and financial. Revenue from royalties was $5.4 million in Q2 2018, up 46 percent vs. Q2 2017 (up 35 percent organically), notably driven by the contribution of the historical U.S. customer and growth at customers in digital content and in secure communications as the result of licenses signed previously with customers to secure high speed communication for data centers and IoT solutions. Maintenance and other revenues in Q2 2018 increased by 23 percent year-on-year at $1.4 million, in line with the company’s increased business perimeter. H1 2018 Revenue In H1 2018, consolidated revenue was $22.5 million as compared to $14.4 million in H1 2017, driven by strong growth of the core business over the period, new significant agreements with existing customers in the second quarter and NFC patent-related revenue (vs. nil in H1 2017). Core security software and technology licensing business revenue was $20.7 million in H1 2018, up 44 percent year-on-year. Excluding contribution of the two businesses acquired in 2017, revenue was up 36 percent year-on-year as the company continued to leverage its portfolio to gain traction in high potential markets such as data centers, IoT and automotive while benefiting from low royalties revenue from the historical U.S. customer in the defense industry. Core business adjusted gross profit >95%, reflecting the software business model In H1 2018, adjusted gross profit of the core business grew from $14.0 in H1 2017 to $20.0 million, in line with revenue growth with a gross margin of the core business stable at 96.4 percent of revenue. Consolidated gross profit increased from $13.7 million in H1 2017 to $21.0 million in H1 2018. Gross margin slightly decreased from 95.6 percent to 93.4 percent of revenue due to the product mix. As a reminder, the NFC patent license program generates a lower gross margin than the company’s core software and technology licensing business, but bears practically no fixed cost. Increase in operating expenses, as anticipated As expected, the company’s operating expenses increased from $13.7 million in H1 2017 to $18.3 million in H1 2018. This is the result of incremental operating expenses derived from the two acquisitions completed in 2017 ($1.9 million) and the impact of a stronger EUR vs. US in the first-half of the year ($0.9 million). At the same time, the company leveraged its resources to pursue its investments notably in research & development to expand its offer to serve high growth potential markets such as IoT and automotive. Adjusted operating income and EBITDA reflecting operating leverage Due to revenue growth and operating leverage, adjusted operating income of the core business increased significantly from $0.3 million in H1 2017 to $1.7 million in H1 2018 and EBITDA from $0.6 million in H1 2017 to $1.9 million in H1 2018. Thanks to the contribution from the core business and NFC patent licensing, adjusted operating income increased from $0.1 million in H1 2017 to $2.7 million in H1 2018, and EBITDA from $0.6 million to $3.2 million. Consequently, EBITDA margin increased from 4 percent of consolidated revenue in H1 2017 to 14 percent of consolidated revenue in H1 2018. 6 months2018 6 months2017 (*) excluding amortization and depreciation of assets acquired through business combinations. Items without cash impact(**) amortization and depreciation of assets acquired through business combinations and acquisition related external expenses. Items without cash impact(***) restructuring and acquisition costsSums may not equal totals due to rounding Operating income (IFRS) impacted by non-cash items Company generated an operating income of $0.8 million in H1 2018, compared with a loss of $3.4 million in H1 2017. The operating income is explained mainly by: the adjusted operating income of $ 2.7 million; net non-recurring expense in relation with acquisitions and past restructuring for $0.5 million; non cash items of $1.5 million including: amortization expense related to intangible assets arising upon the company’s acquisitions in recent years (Metaforic in 2014 and Meontrust and SypherMedia in 2017) for $1.2 million and share-based payment expense for $0.3 million Financial income/expense Net financial income was $1.4 million in H1 2018, the interest expense of the convertible bonds due 2022 being offset by a non-cash financial income of $1.5 million following the change in fair value of the conversion option on the convertible bonds and interest earned on investments. Consolidated net income In H1 2018, the company generated a consolidated net income (IFRS) of $1.8 million against a loss of $3.9 million in H1 2017. It is derived from the operating income for $0.8 million, net financial income of $1.4 million and income tax expense of $0.4 million. Strong cash position As of June 30, 2018, the company’s consolidated cash position was $49.1 million, significantly up from $45.9 million at December 31, 2017 and $43.9 million at June 30, 2017. The increase in cash position in H1 2018 reflects the operating performance ($3.6 million generated by operating activities including change in working capital vs. $4 million used in H1 2017). (*) primarily issuance of convertible bonds in June 2017 Business outlook for 2018 In the first half of 2018, the company achieved significant growth with a particularly high performance in the second quarter based on strong business traction, new significant agreements with existing customers and NFC license revenue, while royalties derived from a historical U.S. customer in defense was low. In this context, the company reiterates its anticipation of robust top line growth in 2018, more than off-setting the anticipated decline of a U.S customer who generated an exceptionally high level of revenue from royalties in H2 2017. Based on current investment run rate, a continuous agile monitoring of research & development resources, and a lower euro vs. dollar than anticipated, the company now anticipates adjusted operating expenses to increase to between $36 million and $37 million in 2018 vs. a range of $38.5 million and $40.0 million communicated previously. The company confirms to generate positive EBITDA in 2018 before getting back to a normative EBITDA margin greater than 20 percent. Conference call Inside Secure will hold a conference call to discuss its earnings results today July 26, 2018, at 6:30 pm CET. Access to the call will be by dial-in on one of the following numbers: +33 1 72 72 74 03 (France) or +44 20 7194 3759 (UK), PIN 86410143#. The presentation is available online at www.insidesecure-finance.com. An audio webcast of the presentation and the Q&A session will be available on the Inside Secure website approximately three hours after the end of the presentation and will remain posted there for one year. Financial calendar Investor conference (H1 2018 earnings and business update): September 4, 2018 – 10am (Paris) Third-quarter 2018 revenue: October 18, 2018 About Inside Secure Inside Secure (Euronext Paris – INSD) is at the heart of security solutions for mobile and connected devices, providing software, silicon IP, tools, services, and know-how needed to protect customers’ transactions, ID, content, applications, and communications. With its deep security expertise and experience, the company delivers products having advanced and differentiated technical capabilities that span the entire range of security requirement levels to serve the demanding markets of network security, IoT and System-on-Chip security, video content and entertainment, mobile payment and banking, enterprise and telecom. Inside Secure’s technology protects solutions for a broad range of customers including service providers, operators, content distributors, security system integrators, device makers and semiconductor manufacturers. For more information, visit www.insidesecure.com Forward-looking statements This press release contains certain forward-looking statements concerning the Inside Secure group. Although Inside Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. Accordingly, the company’s actual results may differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk factors" section of the 2017 registration document filed with the French financial market authority (the Autorité des marchés financiers – the “AMF”) on April 10, 2018 under number D.18-0307, available on www.insidesecure-finance.com/en Supplementary non-IFRS financial information Some financial measures and performance indicators used in the press release are presented on an adjusted basis. They are defined in Appendix 2 of this press release. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the consolidated financial statements, including the income statement set out in Appendix 1 hereof. The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2. Appendix 1 - Consolidated income statement, balance sheet and cash flow statement (IFRS) The following tables are an integral part of the consolidated financial statements prepared in accordance with IFRS. Consolidated income statement as at June 30, Consolidated balance sheet Assets 2018 December 31,2017 2018 December 31,2017 Consolidated cash flow statement 2018 2017 Cash generated by / (used in) operations before changes in workingcapital Appendix 2 - Non-GAAP measures - Reconciliation of IFRS results with adjusted results The performance indicators presented in this press release that are not strictly accounting measures are defined below. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the company’s financial performance. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the company’s consolidated financial statements and their related notes. The company uses these indicators because it believes they are useful measures of its recurring operating performance and its operating cash flows. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently than the company, even though they use similar terms. Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture undertaken by the company. Adjusted operating income/(loss) is defined as operating income/(loss) before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture undertaken by the company. EBITDA is defined as adjusted operating income before depreciation, amortization and impairment expenses not related to business combinations. The following tables show the reconciliation between the consolidated income statements and the adjusted financial indicators, as defined above, for the six-month periods to June 30, 2018 and 2017 respectively: 2018adjusted Businesscombinations Share-basedpayment Other non-recurring expense(*) 2018IFRS 2017Consolidatedadjusted Businesscombinations Share-basedpayment Other non-recurring costs (*) 2017IFRS (*) the amounts correspond to restructuring and acquisition expenses.(**) excluding amortization and depreciation of assets acquired through business combinations.Sums may not equal totals due to rounding. Appendix 3 - Implementation of IFRS 15 The revenue and results of the company of the fiscal year 2017 and the half-year 2018 have been prepared in accordance with IFRS 15 "Revenue from Contracts with Customers", which was mandatory from January 1, 2018 and replacing IAS 18. The company had chosen to anticipate the implementation of the standard, in particular to be able to present a 2018 year directly comparable to 2017. The implementation of IFRS 15 has modified some of the company's revenue recognition principles. Under IAS 18, revenues from development agreements were recognized using the percentage-of-completion method, which consists of recognizing revenue as development progresses. The percentage of completion up to completion was based on the actual costs incurred compared to the total estimated cost of the project. Under IFRS 15, income related to a contract must be recognized over time if certain criteria are met, including the fact that the company has an enforceable right to payment of the value of the work carried out to date. If none of the criteria mentioned in the standard is met, revenue is recognized upon completion. This analysis is conducted by the company on a contract by contract basis. Royalties payable in relation with technology licensed to some of the company's customers may be fixed and/or variable. According to the previous company's policy, fixed royalties were recognized on a straight-line basis over the contractual periods. Variable royalties are generally based on sales by customers and are therefore by definition difficult to estimate. These fees were recognized on the basis of confirmations received from customers, generally in the quarter following the delivery of the products. According to IFRS 15, licenses sold by the company correspond to a "right to use" the intellectual property as it exists on the date on which the license is granted, in which case the fixed royalties must be recognized immediately on the date from which the customer can begin to use the license. This leads to recognize revenue earlier than before. In the case of variable royalties, royalties must be recognized as revenue as they become due, on the basis of sales made by the customer, and not on the date of confirmation by the customer. The company therefore now estimates the amount pending receipt of consumption confirmations. The application of IFRS 15 generally leads to faster recognition of revenue compared to IAS 18. For instance, in H1 2018, consolidated revenue was $22.5 million with IFRS 15 while it would have been $20.9 million using IAS 18. 1 Statutory auditors performed a limited scope review of the IFRS consolidated condensed financial statements as of June 30, 2018 and the board of directors reviewed the financial statements on July 25, 2018
AIX-EN-PROVENCE, France--(BUSINESS WIRE)--Regulatory News: Inside Secure (Paris:INSD) (Euronext Paris: INSD), at the heart of security solutions for mobile and connected devices, today announced its results2 for the year ended December 31, 2017. The revenue and results of the Company for the fiscal year 2017 have been prepared in accordance with IFRS 15 "Revenue from Contracts with Customers". See note Basis of preparation hereinafter. Commenting on these results, Amedeo D’Angelo, president and chief executive officer of Inside Secure, stated: “We are proud of the achievements we made in 2017, our first year as a pure player in software. We were able to deliver growth on the back of strong sales activity, increased traction in licenses and upselling opportunities while demonstrating our capability to deliver EBITDA greater than 20 percent thanks to our software-based business model. We are very pleased with the progress we made in markets such as Automotive with design-wins and pipeline opportunities beyond embedded security for chips, such as content protection for car infotainment systems.Beyond organic product development, we added important capabilities during the year to bring core security technology provisioning and security as a service to our portfolio through two acquisitions. Together, we are now in a unique position to secure the endpoint, giving us strong traction in the important markets of IoT and Automotive, resulting in strong growth opportunities.In this context, we have decided to accelerate our investments and focus in these areas during 2018 to drive long term sustainable profitable growth before getting back to a normative EBITDA greater than 20 percent.” 2017 Financial Results – Key Figures Consolidated Adjusted Basis of preparation Implementation of IFRS 15 The revenue and results of the Company of the fiscal year 2017 have been prepared in accordance with IFRS 15 "Revenue from Contracts with Customers", which is mandatory from January 1, 2018. The Company has chosen to anticipate the implementation of the standard, in particular to be able to present a 2018 year directly comparable to 2017. As IFRS 15 permits, fiscal year 2016 revenue and results have not been restated and remain as previously disclosed. The impact of the new standard on the revenue and the results of the year 2017 is considered immaterial. Had the Company continued to apply the previous standard (IAS 18), revenue in 2017 would have been $ 38.6 million, consolidated operating income $ 1.2 million, and EBITDA $ 8.3 million. The Company believes that the implementation of IFRS 15 will nevertheless result in variations in recognition of quarterly revenues. For a more detailed description of the nature of the changes, see Appendix 3 hereof. Core business Inside Secure operates with a single core business segment which comprise the Company’s software and silicon intellectual property product offering. It excludes the contribution of the Company’s NFC patent licensing program. It also excludes the semiconductor business which was discontinued starting 2016 and then sold in September 2016 (reported for as “discontinued operations”). Supplementary non-IFRS financial information (adjusted measures) Some financial measures and performance indicators used in the press release are presented on an adjusted basis. They are defined in Appendix 3 of this press release. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the consolidated financial statements, including the income statement set out in Appendix 1 hereof. The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2. Continuing and discontinued operations Pursuant to Inside Secure’s decision in 2016 to exit from the semiconductor business and in accordance with IFRS 5, income and expense items for this discontinued operation are recognized directly in “net income from discontinued operations” and thus excluded from revenue, adjusted operating income, operating income and EBITDA. Continuing operations are made of the Company’s core business and the NFC patent licensing program. Fourth-quarter and full-year 2017 revenue Q4-2017vs. Q4-2016 12-months 2017 Fourth-quarter 2017 revenue Core business revenue was $12.9 million in Q4 2017, up 29 percent year-on-year. In the fourth quarter of 2017, license revenue was satisfactory while performance was impacted by an unfavorable basis of comparison. As a reminder, the Company benefited from a high level of licenses in the fourth quarter of 2016, in particular due to the shift of several contracts from Q3 to Q4. Revenue from royalties were boosted by the contribution of a U.S. customer of silicon intellectual property products in the defense industry, while the company saw ongoing traction in MACsec to secure communications, as well as in IoT and Automotive, including initial indications of widespread worldwide market adoption beyond the initial market-leader pioneer customers. In banking, Inside Secure saw its first wins with the combination of the Company’s new mobile payment solution (with a cloud-based server side and an end-point software) and the core technology protecting the mobile application, consistent with the Company’s strategy to build product bundles to increase revenue per customer. Revenue from maintenance and development agreements in 2017 was $5.9 million, in line with expectations and the Company’s revenue growth. Consolidated revenue in 4Q 2017 was $12.9 million as compared to $10.3 million in 2016. Full-year 2017 revenue Revenue from core business was $38.8 million for 2017, up 9 percent vs. 2016, driven by strong license revenue. Excluding the contribution from a U.S. customer driving significant royalties, year-on-year revenue growth from the core security software and silicon IP business would have been 20 percent for the period. License revenue increased by 37 percent compared to last year, reflecting strong sales activity with new and existing customers in all business segments. This included increased traction in IoT and Automotive and new design wins in Silicon IP with its capacity to bring bundled solutions of Silicon IP and secure communication, as illustrated with the contract signed with Toshiba during the year. The Company continued to leverage its strong position in content protection to support new applications for existing customers, such as Virtual Reality for HTC, on-line postage transactions for Neopost and inflight entertainment on passenger devices for Lufthansa. Inside Secure continued to make progress in the payment space, with additional payment scheme wins in Europe and in the U.S. and with HCE mobile payment software solution deployed in Latin America. During the year, Inside Secure increasingly focused on deploying bundled offers and demonstrated a solution with content protection, payments and strong authentication at the annual IBC show in Amsterdam. It also made solid progress in its product offerings in security as a service (SECaaS) enabled payments, strong authentication, and provisioning that will contribute to generating incremental recurring revenues going forward. Consolidated revenue for 2017 was $38.8 million, down from $49.9 million in 2016 as the Company did not generate revenue from the NFC patent portfolio monetization program managed by France Brevets. As a reminder, the NFC patent related revenue stood at $14.2 million in 2016 due to three licenses signed by France Brevets (Sony, Samsung, and HTC). Adjusted core business gross profit >95%, reflecting the software business model For full year 2017, adjusted gross profit of core business grew to $37.6 million (96.9 percent of revenue) as compared to $34.7 in 2016 (97.1 percent of revenue) reflecting revenue growth and the product mix. As expected, consolidated gross profit decreased from $44.5 in 2016 (89.1 percent of revenue) to $37.0 million in 2017 (94.8 percent of revenue) as the company did not generate gross profit from the NFC patent licensing business agreement ($9.8 million in 2016). Operating expense reflecting investments in R&D and sales & marketing starting in H2 2017 Operating expenses decreased from $33.6 million in 2016 to $29.3 million in 2017, as the company fully benefited from a lower cost base from the company restructuring and rightsizing initiated in 2016 and other net one-time savings ($1.5 million) and foreign exchange gains ($0.9 million). At the same time and as anticipated, the company reengaged with investments in H2 2017, notably in research & development and sales development to seed sustainable long-term growth on software and silicon IP. Operating expenses in H2 2017 stood at $15.7 million, a 15% increase vs. H1 2017. Substantial improvement of core business adjusted operating income Adjusted operating income of the core business increased significantly from $1.2 million in 2016 to $8.3 million in 2017 (21 percent of revenue) due to revenue growth and lower operating expenses. Consolidated adjusted operating income was $7.7 million in 2017 with a negative contribution of $0.6 from the NFC patent licensing program, as compared to $10.9 million in 2016, with $9.7 million contribution of the NFC licensing program. Core business EBITDA at 23% of revenue In 2017, core business EBITDA was $8.8 million (23% of revenue), compared with $2.0 million in 2016 (6% of revenue) due to the successful transition of the company to a software-based business model. In 2017, Company’s EBITDA was $8.8 million, compared with $12.3 million in 2016, which included a strong contribution of non-recurring NFC patent licensing program of $10.2 million. (*) excluding amortization and depreciation of assets acquired through business combinations. Items withoutcash impact (**) amortization and depreciation of assets acquired through business combinations and acquisition relatedexternal expenses. Items without cash impact Operating income (IFRS) impacted by non-cash items Operating income from continuing operations3 was $1.6 million in 2017, compared with $2.1 million in 2016. Operating performance in 2017 was impacted primarily by: Amortization expense (non-cash items) related to assets from the company’s acquisitions in recent years (ESS in 2012 and Metaforic in 2014, and Meontrust and SypherMedia in 2017) for $2.4 million. The Company did not recognize any impairment expense of the goodwill in relation with these acquired businesses; Non-recurring expenses in relation with the acquisition projects for $0.8 million; The recognition of a $2.1 million net non-recurring charge arising from the company’s restructuring and rightsizing plan initiated in 2016. Financial income/expense Net financial loss was $1.9 million in 2017 vs. a loss of 0.7 million dollars in 2016, primarily due to the interest on the convertible loan notes issued in July and September 2017 of $1.0 million (including 0.4 million of non-cash expense). Income tax expense Income tax expense of $0.6 million in 2017 consisted primarily of withholding taxes paid when licenses are signed with customers in certain Asian countries. Consolidated net income/loss In 2017, the Company generated consolidated net loss (IFRS) of $1.1 million, with: Net loss from continuing operations of $0.8 million; and Net loss from discontinued operations of $0.3 million (non-recurring expense in relation with the semiconductor business divested in 2016). As a reminder, consolidated net income (IFRS) in 2016 was $12.3 million, with: Net loss from continuing operations of $0.3 million; and Net income from discontinued operations of $12.6 million including $17.0 million of net profit from the sale of the semiconductor business in September 2016 (including assumption of intercompany debts by acquirer). Strong financial position In 2017, Inside Secure generated $5.1 million of cash flow by continuing operations, excluding restructuring and acquisition expense, as the result of higher operating performance. Combined with the sale of 100% of the listed WISeKey shares ($11.2 million), and the convertible bond issue ($17.5 million), and despite payments related to the restructuring and rightsizing plan initiated in 2016 and the acquisitions of Meontrust (4.7 million upfront payment), and SypherMedia ($7.0 million upfront payment), Company cash position increased by $18.8 million in 2017. At December 31, 2017, the Company’s consolidated available cash stood at $45.9, up from $27.1 million at December 31, 2016. Summary of cash flows Acquisitions of Meontrust and SypherMedia In H2 2017, the Company acquired Meontrust and SypherMedia International (SMI) to accelerate the execution of its strategic roadmap by adding core technologies to its portfolio and driving up-selling opportunities in key markets such as Automotive, IoT, Mobile and Banking. With SypherMedia, Inside Secure adds key core technologies from product design to product life cycle management with a secure provisioning4 solution, a critical piece of a robust root-of-trust5 solution, which is increasingly used to address the critical security needs in the Automotive, IoT, Mobile, and Smart TV markets. With Meontrust, Inside Secure adds strong authentication technology to its comprehensive solutions in mobile banking and payment and digital content protection. The integration process of the two businesses is progressing well; teams have been integrated and Inside Secure has already engaged with its customers on its expanded portfolio to support the more stringent authentication requirements in Europe imposed by PSD2 (Payment Services Directive) and GDPR (General Data Protection Regulation), leveraging Meontrust offering. The Inside Secure sales team has been trained and is fully engaged in selling SMI’s Camouflage and Provisioning products, and initial customer wins have been achieved. Outlook for 2018 In 2018, the Company anticipates continuing to sustain strong top line revenue growth with accelerated growth of its core business revenue (excluding the contribution of a U.S. customer driving significant royalties), based on strong momentum in new licenses with both existing and new customers. The Company also anticipates generating additional revenue in provisioning and security-as-a-service derived from its 2017 acquisitions, while benefiting from sales synergies on core technologies. As of today, the Company has no assurance that royalty revenues can be maintained at the high levels of 2016 and 2017. In this context, the Company has decided to accelerate its investments to leverage its strategic position in key markets such as Automotive and IoT. It therefore anticipates increasing investments in both research & development and sales & marketing, notably to accelerate product development with bundling its technologies and products across all product lines to create a unique and complete offer from embedding security into general purpose chips to provisioning with root-of-trust, strong authentication, content protection and payment. Combining these investments with operating expenses derived from the two 2017 acquisitions ($3.5 million) along with a stronger euro vs. dollar (estimated $2.0 million of incremental cost), the Company anticipates operating expenses to increase to between $38.5 million and $40.0 million in 2018, before getting back to a normative EBITDA margin greater than 20 percent. Conference call The Company will hold a conference call to discuss its earnings results today February 22, 2017, at 6:00 PM CET. Access to the call will be by dial-in on one of the following numbers: +33 (0)1 72 72 74 03 (France) or +44 20 71 94 37 59 (UK), PIN 66029149#. The presentation is available online at www.insidesecure-finance.com. An audio webcast of the presentation and the Q&A session will be available on the Inside Secure website approximately three hours after the end of the presentation and will remain posted there for one year. Financial calendar About Inside Secure Inside Secure (Euronext Paris – INSD) is at the heart of security solutions for mobile and connected devices, providing software, silicon IP, tools and know-how needed to protect customers’ transactions, content, applications, and communications. With its deep security expertise and experience, the company delivers products having advanced and differentiated technical capabilities that span the entire range of security requirement levels to serve the demanding markets of network security, IoT security, content and application protection, mobile payment and banking. Inside Secure’s technology protects solutions for a broad range of customers including service providers, content distributors, security system integrators, device makers and semiconductor manufacturers. For more information, visit www.insidesecure.com Forward-looking statements This press release contains certain forward-looking statements concerning the Inside Secure group. Although Inside Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. Accordingly, the Company’s actual results may differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk factors" section of the 2016 registration document filed with the French financial market authority (the Autorité des marchés financiers – the “AMF”) on March 28, 2017 under number D.17-0244, available on www.insidesecure-finance.com/en Supplementary non-IFRS financial information The supplementary non-IFRS financial information presented in this press release are defined within the press release. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the Company's financial performance. They should be considered in addition to, and not as a substitute for, any other operating and financial performance indicator of a strictly accounting nature, as presented in the Company's Consolidated Financial Statements and the corresponding notes. The Company uses these indicators because it believes they are useful measures of its activity. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently to the Company, even though they use similar terms. The reconciliation of adjusted financial measures with IFRS is presented in Appendix to this press release. Appendix 1 - Consolidated income statement, balance sheet and cash flow statement (IFRS) The following tables are part of the consolidated financial statements prepared in accordance with IFRS. Consolidated income statement (*)The revenue and results of the Company of the fiscal year 2017 have been prepared inaccordance with IFRS 15 , which is mandatory from January 1, 2018. As IFRS 15 permits,fiscal year 2016 revenue and results have not been restated and remain as previouslydisclosed. Consolidated balance sheet December 31,2017 (*) December 31,2016 December 31,2017 (*) December 31,2016 (*)The revenue and results of the Company of the fiscal year 2017 have been prepared in accordance with IFRS 15,which is mandatory from January 1, 2018. As IFRS 15 permits, fiscal year 2016 revenue and results have not beenrestated and remain as previously disclosed. Consolidated cash flow statement December 31,2017 December 31,2016 Appendix 2 - Non-GAAP measures - Reconciliation of IFRS results with adjusted results The performance indicators presented in this press release that are not strictly accounting measures are defined below. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the Company’s financial performance. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the Company’s consolidated financial statements and their related notes. The Company uses these indicators because it believes they are useful measures of its recurring operating performance and its operating cash flows. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently than the Company, even though they use similar terms. Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture carried out by the Company. Adjusted operating income/(loss) is defined as operating income/(loss) before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture carried out by the Company. EBITDA is defined as adjusted operating income before depreciation, amortization and impairment losses not related to business combinations. The following tables show the reconciliation between the consolidated income statements and the adjusted financial indicators, as defined above, for the years ended December 31, 2017 and 2016 respectively: 2017Consolidatedadjusted Businesscombinations Share-basedpayment Other non-recurring costs (*) 2017IFRS 2016Consolidatedadjusted Businesscombinations Share-basedpayment Other non-recurring costs (*) 2016IFRS Appendix 3 - Implementation of IFRS 15 The revenue and results of the Company of the fiscal year 2017 have been prepared in accordance with IFRS 15 "Revenue from Contracts with Customers", which is mandatory from January 1, 2018. The Company has chosen to anticipate the implementation of the standard, in particular to be able to present a 2018 year directly comparable to 2017. As IFRS 15 permits, fiscal year 2016 revenue and results have not been restated and remain as previously disclosed. 2017 underIFRS 15 2017 underIAS 18 The impact of the new standard on the revenue and the results of the year 2017 is considered immaterial. The Company believes that the implementation of IFRS 15 will nevertheless result in variations in recognition of quarterly revenues. The implementation of IFRS 15 has modified some of the Company's revenue recognition principles: Under IAS 18, revenues from development agreements were recognized using the percentage-of-completion method, which consists of recognizing revenue as development progresses. The percentage of completion up to completion was based on the actual costs incurred compared to the total estimated cost of the project. Under IFRS 15, income related to a contract must be recognized over time if certain criteria are met, including the fact that the Company has an enforceable right to payment of the value of the work carried out to date. If none of the criteria mentioned in the standard is met, revenue is recognized upon completion. Given how actual contracts signed with the Company's customers are drafted, according to IFRS 15 the revenue must be recognized upon completion. Royalties payable in relation with technology licensed to some of the Company's customers may be fixed and / or variable. According to the Company's policy to date, fixed royalties were recognized on a straight-line basis over the contractual periods. Variable royalties are generally based on sales by customers and are therefore by definition difficult to estimate. These fees were recognized on the basis of confirmations received from customers, generally in the quarter following the delivery of the products. According to IFRS 15, licenses sold by the Company correspond to a "right to use" the intellectual property as it exists on the date on which the license is granted, in which case the fixed royalties must be recognized immediately on the date from which the customer can begin to use the license. This leads to recognize revenue earlier than before. In the case of variable royalties, royalties must be recognized as revenue as they become due, on the basis of sales made by the customer, and not on the date of confirmation by the customer. The Company therefore now estimates the amount pending receipt of consumption confirmations. The application of IFRS 15 generally leads to faster recognition of revenue compared to IAS 18. 1 Core business being software and silicon intellectual property business, i.e. excluding contribution of NFC patent licensing program (see Basis of preparation hereinafter).2 Prepared in accordance with IFRS; the consolidated financial statements were prepared by the management board and reviewed by the supervisory board on February 21, 2018; the audit procedure has been completed by the statutory auditors.3 Pursuant to Inside Secure’s decision to exit from the semiconductor business in 2016 and in accordance with IFRS 5, income and expense items for this discontinued operation are recognized directly in “net income from discontinued operations”.4 Provisioning is the injection of keys, credentials, data, tokens into a personalized device either at manufacturing, or in the field or Over-The-Air to enable secure applications and services.5 Root of trust (or RoT) is the foundation for the trustworthiness of a device or a system. Roots of trust are hardware/software components that are inherently trusted. RoT a set of functions that constitutes a common trust anchor recognized by operating systems and applications of a device. It is ensuring authentication, confidentiality and integrity of data and transactions.
AIX-EN-PROVENCE, France--(BUSINESS WIRE)--Regulatory News: Inside Secure (Paris:INSD), at the heart of security solutions for mobile and connected devices, today announced it has completed the acquisition of Meontrust, a Finland-based cybersecurity emerging-growth company, in an all-cash cash transaction of up to 5 million euros. Meontrust has developed MePIN™, a flexible authentication, identification and authorization technology, ideally suited for the financial, insurance, retail and telecom markets. MePIN dynamically authenticates a user with a tap, PIN, fingerprint or face recognition, depending on the service provider. It runs on all major operating systems and is flexible to serve small to very large customers. The MePIN solution is provided as an on-premise deployment or as a cloud-based service with customers paying on a subscription or “pay-per-use” basis. Meontrust’s authentication capability is vital in serving the strong demand seen from banks to meet the more stringent authentication requirements for all online payments imposed by the European Union by 2018. These include PSD2 (Payment Services Directive) and GDPR (General Data Protection Regulation). This acquisition is a significant step in accelerating the deployment of Inside Secure strategy: Meontrust’s unique strong authentication technology reinforces and complements Inside Secure’s comprehensive solutions in mobile banking & payment and digital content protection; Meontrust’s Security a Service (SECaaS)1 business offering demonstrates the potential to augment other Inside Secure products with service based offerings; Strengthens Inside Secure’s portfolio of products to address the significant market opportunity of PSD2; Offers short-term upselling opportunities with Inside Secure’s current customers. Amedeo D’Angelo, president and chief executive officer of Inside Secure, commented: “The fundamental trend in our industry is to provide leading-edge Security-as-a-Service (“SECaaS”). Customers are willing to pay an ongoing user fee for hosted services. Meontrust’s unique technology, MePIN, provides strong critical authentication and authorization capability through SECaaS. This gives us the ability to enhance and extend our offer to our customers, protecting content and mobile applications for high-growth markets such as online payments and new-release movie distribution. It also enables our company to generate additional recurring revenues over time. This first acquisition following our strategic transformation is fully consistent with our objective to consider external opportunities that will strengthen our portfolio of technologies, products and solutions in high-profile markets such as IoT, mobile banking and mobile payment.” Markku Mehtälä, founder and chief executive officer of Meontrust, stated: “Joining Inside Secure brings growth opportunities for both companies; MePIN has established an enviable position in the telecom authentication market and will effectively meet the needs of Inside Secure’s financial services and content protection customers, as well as Inside Secure’s own mobile and SECaaS products and roadmaps. The whole Meontrust team is looking forward to growing as part of the Inside Secure family.” Inside Secure acquired Meontrust in an all-cash transaction for a consideration of up to EUR 5 million, including, marginally, an earn-out payable in 2019 and 2020 subject to completion of certain business targets. Conference call Amedeo D’Angelo, President and Chief Executive Officer of Inside Secure, and Richard Vacher Detournière, General Manager and Chief Financial Officer, will comment on the acquisition of Meontrust and will be available to answer questions during a conference call to be held on August 28, 2017 at 7pm CET / 6pm GMT / 1pm EST. To participate to the conference call, you may call the following numbers prior to the scheduled start time: +33 (0)1 72 00 15 10 (France) or +44 203 043 24 40 (United Kingdom) or + (1) 646 722 49 07 (USA), PIN: 26330594#. A replay of the conference call will also be available approximately two hours following the conference call. About Inside Secure Inside Secure (Euronext Paris – INSD) is at the heart of security solutions for mobile and connected devices, providing software, silicon IP, tools and know-how needed to protect customers’ transactions, content, applications, and communications. With its deep security expertise and experience, the company delivers products having advanced and differentiated technical capabilities that span the entire range of security requirement levels to serve the demanding markets of network security, IoT security, content and application protection, mobile payment and banking. Inside Secure’s technology protects solutions for a broad range of customers including service providers, content distributors, security system integrators, device makers and semiconductor manufacturers. For more information, visit www.insidesecure.com About PSD2 PSD2 (Payment Services Directive) was approved by the European Parliament and is coming into effect in 2018 with the main objectives of securing e-payments and expanding the financial services ecosystem within the EU and for global companies operating into and out of the EU. The PSD2 mandates the use of Strong Customer Authentication (SCA) to manage transactions between banks and new financial institutions, ensuring consumers’ data and finances remains secure while opening financial markets to innovation and new services. Forward-looking statements This press release contains certain forward-looking statements concerning the Inside Secure group. Although Inside Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. Accordingly, the company’s actual results may differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk Factors" section of the registration document approved by the French financial market authority (the Autorité des marchés financiers – the “AMF”) on March 28, 2017 under number D.17-0244, available on www.insidesecure.com 1 SECaaS is a business model in which a service provider integrates their security offering into a corporate infrastructure on a subscription basis or “pay-per-use” more cost effectively than most individuals or corporations can provide on their own, when total cost of ownership is considered
AIX-EN-PROVENCE, France--(BUSINESS WIRE)--Regulatory News: Inside Secure (Paris:INSD), at the heart of security solutions for mobile and connected devices, is today reporting its IFRS unaudited2 consolidated results for the six-month period ended June 30, 2017. Commenting on these results, Amedeo D’Angelo, president and chief executive officer of Inside Secure, stated: “I am very pleased with the important progress we made during the first half of the year on our core security software and technology licensing business on both revenue and profitability3, while moving forward on our strategic development and roadmap. We saw continued traction in our mobile payments business, including a design-win at a major credit card association. We are also leading the way in the networking chip market with the release of the very first MACsec engine offering more than 400Gbps to secure the Cloud, with first customer wins. Our strong cash balance, thanks to our operating performance and the successful issue of a EUR 15 million convertible bond in June 2017, gives us the flexibility to consider acquisition opportunities that would strengthen our portfolio of technologies, products and solutions, in important markets such as IoT and banking and payment. With current market trends and our ongoing business initiatives, we are confident that we can generate strong sequential growth in our core business during the second half of the year.” Key figures The reconciliation of adjusted financial measures with IFRS is presented in Appendix 2 hereof. Q2 2017 and H1 2017 revenue Q2-2017 vs. Q2-2016 Q2-2017 vs. Q1-2017 H1-2017 vs. H1-2016 In H1 2017, consolidated revenue was $14.9 million with no NFC-related revenue as compared to $27 million in H1 2016, including $13.9 million derived from the NFC patent license agreement signed by France Brevets with Samsung and Sony. Revenue from the core secure software and technology licensing business for the first half of 2017 increased 6 percent compared with the first half of 2016, thanks to strong new license revenue which was up 39 percent. The Company experienced continued traction in mobile payments, including a design win at a major card association. On the technology licensing front, Inside Secure is demonstrating itself as a pioneer in the networking chip market with the release of the first MACsec engine offering more than 400Gbps and seeing its first customer wins for this new engine. Consolidated revenue in Q2 2017 was $7.8 million, up 12 percent compared with first quarter of 2017 thanks to higher royalty collection. As expected, Q2 2017 revenue is down compared with Q2 2016 which included $12.6 million related to the NFC patent license agreement signed by France Brevets with Samsung (compared to $0 in NFC-related revenue in Q2 2017). Strong growth of adjusted gross margin In the first half of 2017, adjusted gross profit stood at $14.0 as compared to $23.1 in H1 2016. The Company’s gross margin increased by 11.8 points to 95.1% in H1 2017 against H1 2016 as a result of product mix. In H1 2017, company generated all its revenue from the core software and silicon IP business which generates higher-margins than NFC patent licensing revenue (due to the agent commission payable to France Brevets). Tight management of operating expenses As expected, H1 2017operating expenses decreased by $4.7 million to $13.7 million with the benefits of the cost reduction derived from the company’s 2016 restructuring plan. The evolution was primarily driven by: A decrease in research and development expense due to the rightsizing of the organization conducted in 2016 while preserving the product development capability. An increase in sales and marketing expenses, with the addition of sale resources, and a decrease in general and administrative expenses. Other net non-recurring income and foreign exchange gains on operating activities of $0.9 million. For the second-half of 2017, the Company anticipates operating expenses between $17.0 million to $17.5 million with an increase vs. H1 2017 primarily due to investments in research and development, sales and marketing, in line with the Company’s operating plan. Substantial improvement of adjusted operating income on core software and silicon IP business Adjusted operating income stood at $0.3 million in H1 2017 with $0 revenue generated from NFC patent licensing program, as compared to $4.7 million in H1 2016 with $13.9 million revenue from the NFC patent licensing program ($10.2 million contribution to the adjusted operating income). In H1 2017, the Company substantially improved profitability on its core software and silicon IP business due to an increase in new license revenue and tight management of expenses and overall operations. Adjusted operating income oF the core software and silicon IP business (i.e. excluding the contribution of the non-recurring NFC patent license business) was +$0.3 million in H1 2017, compared with a loss of $5.3 million in H1 2016. EBITDA In H1 2017, EBITDA was $0.8 million, compared with $5.3 million in H1 2016 or a loss of $4.7 million excluding the strong contribution of non-recurring NFC patent licensing program. Operating income (IFRS) impacted by non-cash items Operating income from continuing operations showed a loss $3.0 million in H1 2017, compared with breakeven in H1 2016. The operating loss is explained by: the adjusted operating income of $ 0.3 million; the recognition of a $1.5 million net non-recurring charge arising from the company’s restructuring plan; amortization expense (non-cash item) related to assets arising upon the company’s acquisitions in recent years (ESS in 2012 and Metaforic in 2014) for $1.1 million, showing a strong decrease compared 2016, the acquired intangible assets being now almost completely amortized according to plan; share-based payment expense (non-cash item) for $0.6 million which increased in 2017 in relation with the grant of performance shares and stock-options in December 2016. Consolidated net income In H1 2017, the Company generated a consolidated net loss (IFRS) of $3.7 million, mainly explained by the operating income (loss $3.1 million) and by net financial expense for $0.3 million of and income tax expense for $0.3 million. Strong increase in cash position and solid balance-sheet As of June 30, 2017, the Company’s consolidated available cash stood at $43.9 million, significantly up from $27.1 million at December 31, 2016 and $20.4 million at June 30, 2016. Net cash4 stood at $43.8 million at June 30, 2017, compared with 26.9 million at December 31, 2016 and $15.9 million at June 30, 2016. The increase in cash position in H1 2017 notably reflects: the operating performance ($0.7 million generated by operations (before changes in working capital and excluding restructuring payments)); the $4.4 million sale of listed WISeKey shares (see below); the $17.1 million (€15 million) convertible bond issue completed in June 2017 (see below); despite payments in relation with the completion of the 2016 restructuring plan during Q1 2017 for $2.2 million. During the period, the Company converted 40 percent of the $11 million bond redeemable in shares received at the closing of the sale of the semiconductor business to WISeKey on September 20, 2016, and sold the shares on the Swiss stock market. The balance of 60 percent of the loan was converted into shares on July 20,2017, and is freely tradeable on the stock market. Successful convertible bond issue On June 27, 2017, the Company issued bonds convertible into and/or exchangeable for new or existing shares for a nominal amount of €15 million. The 4,021,447 bonds issued mature on June 29, 2022, and bear interest at a nominal annual rate of 6.00%. The issue price was € 3.73 per bond. This convertible bond issue provides Inside Secure with enhanced financial capacity and flexibility to contemplate acquisitions to further enrich its security solutions offering while optimizing the financing cost and the shareholders’ dilution. Outlook for second-half 2017 The Company achieved profitability5 in H1 2017 thanks to growth in the core security software and technology licensing business and as a consequence of refocusing its activities and rightsizing its operating cost base in 2016. For the second half 2017, the Company expects to benefit from a strong royalty stream and reiterates its intention to continue growing license revenue. It should sustain the profitability5 of its core security software and technology licensing business6 on a full-year basis. Looking further ahead, Inside Secure is well positioned, with its products and technology and roadmap, to continue expand in growing and important areas such as IoT and banking and payment markets while generating profitability5. Conference call The Company will hold a conference call to discuss its earnings results at 10:00 CET on July 27, 2017. Access to the call will be by dial-in on one of the following numbers: +33 (0)1 72 00 15 10 (France) or +44 20 30 43 24 40 (UK), PIN 27318811#. The presentation will be available online at www.insidesecure-finance.com. An audio webcast of the presentation and the Q&A session will be available on the Inside Secure website approximately three hours after the end of the presentation and will remain posted there for one year. Financial calendar Third-quarter 2017 revenue: October 20, 2017 (before market opening) About Inside Secure Inside Secure (Euronext Paris – INSD) is at the heart of security solutions for mobile and connected devices, providing software, silicon IP, tools and know-how needed to protect customers’ transactions, content, applications, and communications. With its deep security expertise and experience, the company delivers products having advanced and differentiated technical capabilities that span the entire range of security requirement levels to serve the demanding markets of network security, IoT security, content and application protection, mobile payment and banking. Inside Secure’s technology protects solutions for a broad range of customers including service providers, content distributors, security system integrators, device makers and semiconductor manufacturers. For more information, visit www.insidesecure.com Forward-looking statements This press release contains certain forward-looking statements concerning the Inside Secure group. Although Inside Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. Accordingly, the Company’s actual results may differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk factors" section of the 2016 registration document filed with the French financial market authority (the Autorité des marchés financiers – the “AMF”) on March 28, 2017 under number D.17-0244, available on www.insidesecure-finance.com/en Supplementary non-IFRS financial information The supplementary non-IFRS financial information presented in this press release are defined within the press release. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the Company's financial performance. They should be considered in addition to, and not as a substitute for, any other operating and financial performance indicator of a strictly accounting nature, as presented in the Company's Consolidated Financial Statements and the corresponding notes. The Company uses these indicators because it believes they are useful measures of its activity. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently to the Company, even though they use similar terms. Appendix 1 - Consolidated income statement, balance sheet and cash flow statement (IFRS) The following tables are an integral part of the consolidated financial statements prepared in accordance with IFRS. Consolidated income statement as at June 30, Consolidated balance sheet 2017 2017 Consolidated cash flow statement 2016 2017 Appendix 2 - Non-GAAP measures - Reconciliation of IFRS results with adjusted results The performance indicators presented in this press release that are not strictly accounting measures are defined below. These indicators are not defined under IFRS, and do not constitute accounting elements used to measure the Company’s financial performance. They should be considered as additional information, which cannot replace any other strictly accounting-based operating or financial performance measure, as presented in the Company’s consolidated financial statements and their related notes. The Company uses these indicators because it believes they are useful measures of its recurring operating performance and its operating cash flows. Although they are widely used by companies operating in the same industry around the world, these indicators are not necessarily directly comparable to those of other companies, which may have defined or calculated their indicators differently than the Company, even though they use similar terms. Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture carried out by the Company. Adjusted operating income/(loss) is defined as operating income/(loss) before (i) the amortization of intangible assets related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and business combinations and divestiture carried out by the Company. EBITDA is defined as adjusted operating income before depreciation, amortization and impairment losses not related to business combinations. The following tables show the reconciliation between the consolidated income statements and the adjusted financial indicators, as defined above, for the six-month periods to June 30, 2017 and 2016 respectively: 2017 adjusted Business combinations Share-based payment Other non-recurring costs (*) 2017 IFRS 2016 adjusted Business combinations Share-based payment Other non-recurring costs (*) 2016 IFRS Appendix 2 (cont’d) - Non-GAAP measures - Reconciliation of EBITDA to Net Income/(Loss) (*) excluding amortization and depreciation of assets acquired through business combinations. Items without cash impact. (**) amortization and depreciation of assets acquired through business combinations and acquisition related external expenses. Items without cash impact. 1 Excluding contribution of NFC patent licensing program2 Statutory auditors performed a limited scope review of the IFRS consolidated financial statements as of June 30, 20173 On an EBITDA and adjusted operating income basis4 Net cash consists of cash on hand, cash equivalents and short-term investments, the net current amount of derivatives, less bank overdrafts and the current portion of the financial debt including notably obligations under finance leases, bank loans, the debt component of the convertible bonds, and any deferred payments due in connection with business combinations. Debt related to the financing of research tax credit is not taken into account because it will be extinguished when the research tax credit claims are repaid by the French government.5 On an EBITDA and adjusted operating income basis.6 i.e. even excluding any additional potential revenue from the Company’s NFC patent licensing program.
AIX-EN-PROVENCE, France--(BUSINESS WIRE)--INSIDE Secure (NYSE Euronext: INSD), a leader in embedded security solutions for mobile and connected devices, today announced that it has acquired Metaforic, a leader in the development of software obfuscation1 technologies and encryption-related security software for a variety of industries, including the mobile payment and mobile banking markets. Such Metaforic technologies are critical to securing Host Card Emulation (HCE)-based mobile payments, mobile wallets and mobile banking applications. A venture capital-backed company, Metaforic has headquarters in Scotland and operations in Silicon Valley (California). The Supervisory Board of INSIDE Secure has unanimously approved this transaction. By leveraging INSIDE Secure’s strong security capabilities, the combined comprehensive solution will lead to additional sales, and reinforce INSIDE Secure’s position as a key player in the fast-growing mobile security solutions market, as Metaforic: Complements existing INSIDE Secure enterprise secure access (Virtual-Private-Network or VPN products) and content protection (Digital Right Management or DRM products) solutions by adding mobile payments and uniquely positions INSIDE Secure as the only company able to provide security solutions for enterprise secure access, digital entertainment and financial services markets, the three key market drivers for mobile security; Extends INSIDE Secure’s lead in providing the most comprehensive system solution offering (hardware, software and IP) in the security industry from secure software solutions to alternative secure element-based hardware and IP. Such solutions are designed to target smartphones and other mobile device markets and to overcome upcoming architectural and certification discontinuities in mobile security; Brings an extensive, high quality security intellectual property and technology portfolio, in line with INSIDE Secure’s long-term strategy to expand its own IP licensing revenue; Complements INSIDE Secure’s know-how with a talented team of highly qualified employees located in the UK and the US; Expands INSIDE Secure’s customer base in the mobile and payment industries. At closing, INSIDE Secure paid US$11.6 million in cash in consideration for the shares, and could pay in 2015 an additional amount of up to US$4.5 million subject to completion of certain 2014 business milestones. Commenting on this announcement, Rémy de Tonnac, Chief Executive Officer of INSIDE Secure, said: "The Metaforic acquisition is superbly aligned with INSIDE Secure’s strategy. Metaforic brings critical technologies to address HCE-based, cloud-based mobile payment solutions which will become mainstream following support announced by major payment brands. It will uniquely position INSIDE Secure as the only company able to provide security solutions for enterprise secure access, digital entertainment and financial services markets, the three key market drivers for mobile security.” Andrew McLennan, Chief Executive Officer of Metaforic, stated: "We are delighted to join INSIDE Secure and bring our key software obfuscation and encryption-related security software, in order to accelerate our jointly held vision to secure all aspects of mobile life. The tight integration of Metaforic’s technology within INSIDE Secure’s offering will bring to the market the world’s most comprehensive, mobile security system solution.” About Metaforic’s software products Metaforic’s range of award-winning software products provide the highest level of protection for core payment functions and secure data exchange, whilst running entirely in software. These solutions protect data-at-rest, data-in-transit or data-in-use, bringing complete communications privacy, encryption key protection and data security to critical applications, and addressing growing security needs from major blue chip companies. The acquisition of Metaforic follows a two year partnership between the two companies with INSIDE Secure having licensed Metaforic’s technology for its content protection (DRM) solutions. Metaforic will be integrated within INSIDE Secure’s Mobile Security division. About Host Card Emulation Introduced on Android 4.4 (KitKat) and recently supported by major payment brands, Host Card Emulation (HCE) allows for contactless payments (and other services including loyalty programs, building access and transit passes) to be made directly between consumers' banks mobile application and retailers point-of-sale using NFC technology. It allows sensitive data used to facilitate transactions to be stored on, and accessed from, cloud servers rather than a mobile device and without the use of a secure element or a SIM card. Conference call details Rémy de Tonnac, Chief Executive Officer of INSIDE Secure, jointly with Richard Vacher Detournière, General Manager and Chief Financial Officer, will comment on the acquisition of Metaforic and will be available to answer questions during a conference call to be held on April 7, 2014 at 3pm CET / 2pm GMT / 9am EST. The call will be held in English. To participate to the conference call, you may call the following numbers prior to the scheduled start time: +33 (0)1 70 77 09 36 (France) or +44 (0) 203 367 94 53 (United Kingdom) or + (1) 855 402 77 64 (USA). A replay of the conference call will also be available approximately two hours following the conference call and for 90 days on the Group’s website. This press release and other presentation materials will be available on INSIDE Secure’s website: www.insidesecure.com About INSIDE Secure INSIDE Secure (NYSE Euronext Paris FR0010291245 – INSD) provides comprehensive embedded security solutions. World-leading companies rely on INSIDE Secure’s mobile security and secure transaction offerings to protect critical assets including connected devices, content, services, identity and transactions. Unmatched security expertise combined with a comprehensive range of IP, semiconductors, software and associated services gives INSIDE Secure customers a single source for advanced solutions and superior investment protection. For more information, visit www.insidesecure.com. Forward-looking statements This press release contains certain forward-looking statements concerning the INSIDE Secure group. Although INSIDE Secure believes its expectations to be based on reasonable assumptions, they do not constitute guarantees of future performance. The Group's actual results may accordingly differ materially from those anticipated in these forward-looking statements owing to a number of risks and uncertainties. For a more detailed description of these risks and uncertainties, please refer to the "Risk Factors" section of the annual financial report of April 24, 2013, available at www.insidesecure.com. 1 Obfuscation technology in particular is used to enhance applications security by intentionally making software more difficult to understand and to reverse-engineer
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