Oddo MidCap Forum 2016 · 11 | Jan.2015 - INSIDE Secure Investor Presentation A WORLD LEADER IN...

Oddo MidCap Forum 2016

Richard Vacher Detournière, GM & CFO

Janvier 2016

| - INSIDE Secure Investor Presentation Jan.2015 2 |

DISCLAIMER Thiscommunica,ondoesnotcons,tuteanoffertopurchaseorexchangeorthesolicita,onofanoffertosellorexchangeanysecuri,esofINSIDESecure.This communica,on may contains certain statements that are neither reported financial results nor other historical informa,on and otherstatements concerning INSIDE Secure. These statements may include financial projec,ons and es,mates and their underlying assump,ons,statementsregardingplans,objec,vesandexpecta,onswithrespecttofutureopera,ons,events,productsandservicesandfutureperformance.Forward-looking statements are generally iden,fied by the words "expects", "an,cipates", "believes", "intends", "es,mates" and similarexpressions.Theseandotherinforma,onandstatementscontainedinthiscommunica,oncons,tuteforward-lookingstatementsforpurposesofapplicablesecuri,eslaws.Althoughmanagementofthecompanybelievesthattheexpecta,onsreflectedintheforwardlookingstatementsarereasonable, investors and security holders are cau,oned that forward-looking informa,on and statements are subject to various risks anduncertain,es, many of which are difficult to predict and generally beyond the control of the company, that could cause actual results anddevelopmentstodiffermateriallyfromthoseexpressedin,orimpliedorprojectedby,theforward-lookinginforma,onandstatements,andthecompany cannot guarantee future results, levels of ac,vity, performance or achievements. Factors that could cause actual results to differmaterially from thosees,matedby the forward-looking statements contained in this communica,on include, butarenot limited to: trends insemiconductorandwirelesscommunica,onmarkets;thecompany'sabilitytodevelopnewtechnologyandtheeffectsofcompe,ngtechnologiesdevelopedandexpectedintensecompe,,ongenerallyinthecompanies'mainmarkets;profitabilityofexpansionstrategy;challengestoorlossofintellectualpropertyrights;abilitytoestablishandmaintainstrategicrela,onshipsinitsmajorbusinesses;abilitytodevelopandtakeadvantageofnewproductsandsoNware;futureacquisi,onsandinvestments;theabilityofthecompany'stointegrateacquiredbusinesses,ac,vi,esandcompanies according to expecta,ons; the ability of the company to achieve the expected synergies from acquisi,ons; and changes in global,poli,cal, economic, business, compe,,ve, market and regulatory forces. Moreover, neither the company nor any other person assumesresponsibility for the accuracy and completeness of such forward-looking statements. The forward-looking statements contained in thiscommunica,onspeakonlyasofthedateofthiscommunica,onandthecompanyareundernoduty,anddonotundertake,toupdateanyoftheforward-looking statements aNer this date to conform such statements to actual results, to reflect the occurrence of an,cipated results orotherwiseexceptasotherwiserequiredbyapplicablelaworregula,ons.TheINSIDESecureproductsiden,fiedand/ordescribedhereinmaybeprotectedbyoneormoreofthepatentsand/orpatentapplica,onslistedinrelateddatasheets,suchdocumentbeingavailableonrequestunderspecificcondi,ons.Addi,onalpatentsorpatentapplica,onsmayalsoapplydependingongeographicregions.Brandandproductnamesmayberegisteredtrademarksortrademarksoftheirrespec,veholders. Thephotographs, informa,onandother content included in thisdocumentarenot contractualandnot intended tobe legallybinding. InsideSecuremaychangeorremoveanyinforma,onorcontentincludedinthisdocumentwithoutno,ce.©InsideSecure2015.AllRightsReserved.InsideSecure,®InsideSecurelogoandcombina,onsthereof,andothersareregistered®trademarksortradenamesofInsideSecureoritssubsidiaries.Otherterms,logosandproductnamesmaybetrademarksofothers.


Financial Overview

Market Overview and INSIDE Secure Vision

INSIDE Secure Overview and Solutions

AGENDA

Q&A

Appendix


Financial Overview



AGENDA

Q&A

Appendix

| - INSIDE Secure Investor Presentation Jan.2015 5

FROM MOBILE COMPUTING TO THE IOT WORLD, BILLIONS OF CONNECTED DEVICES NEED TO BE TRUSTED

1,000,000

100,000

10,000

1,000

100

10 2000 2020 2010

Dev

ice/

Use

rs (M

M in

Log

Sal

es)

1 Billion Units

Mobile Internet

Internet of Things

10 Billion Units

100 Billion Units

A unique market opportunity

Computing & Communication


ADD-ON SECURITY METHODS HAVE FAILED

!

39% cite security and privacy as top barriers to IoT investments

$6.1B estimated annual cost of piracy to studios

$100M projected cost of Sony's hacking scandal

of consumers won’t use digital wallets due to security concerns

Mobile banking Trojans grew by 56% in 2014

Content providers enforcing security requirements

1 billion records breached in 2014

US senators demand laws to protect cars

46%


l From connected world to a world of Embedded security world

l  Security need to be tightly embedded at the heart of any system, at the heart of the main processor of the device (e.g. Smartphone, IoT Device, etc.)

l  Security architectures and certification schemes need to be re-invented.

THE WORLD OF SECURITY IS CHANGING

User

Application

Operating System

Hardware


l VaultIP helps silicon platform providers comply with stringent US government security standards while avoiding high costs and go-to-market delays of certification.

CRITICAL MILESTONE: AVOID GO-TO-MARKETS DELAYS OF CHIP SECURITY CERTIFICATION

FIPS 140-2 PRE-CERTIFICATION ADVANTAGECertification Timeline

TRADITIONAL CERTIFICATIONCertification Timeline

VS

REDUCECERTIFICATION

COSTS BY

75%

Uses NIST sub-1 revalidation

All documents necessaryfor certification are included

CERTIFIED IP 1 month 12 month

EnterFIPS

CMVP

EnterFIPS

CMVP


l  In response to today’s “Internet of Everything”, where billions of devices must be trusted, security is fundamentally re-shaping.

l  Internet security is at the edge of an important crossroads, l  From the world of “connected security” to “embedded security”, where only true protection lies.

l  Security is moving from a world where any device/object was considered “secure” when connected to a smart card -- to a world of security embedded at the heart of the system, at the heart of the main processor of the device.

l  INSIDE Secure’s mission is to drive security innovation to meet demands of new mobile and “Internet of Everything” age by designing, developing and selling embedded security systems in order to protect transactions, content, and communication.

INSIDE SECURE’S VISION AND MISSION


Financial Overview



AGENDA

Q&A

Appendix


A WORLD LEADER IN EMBEDDED SECURITY FOR MOBILE AND CONNECTED DEVICES

Revenue CAGR 2010 – 2014:

+13% per annum

$125.4M revenue in 2014, generated through the sale /

licensing of secure microcontrollers (HW), IP components and software

An IPR portfolio in excess of 700 patents

300 employees with European & U.S.

development centers Serving more than 100

blue chip customers on growing and diversified end-

markets

INSIDE Secure is shipping in 300M devices per year


MOBILEANDCONNECTEDDEVICESWITHGLOBALFOOTPRINT


A STRONG BASE OF BLUE CHIP CUSTOMERS AND PARTNERS

100+ BLUE CHIP CUSTOMERS PARTNERSHIPS


A DEMONSTRATED TRACK RECORD OF ACQUISITIONS

September 2010 December 2012 April 2014

Unique expertise on securing applications on mobile platforms and on secure technologies in embedded software and hardware IP

Expand portfolio of solutions of mobile security division: obfuscation, white box cryptography, “software secure element”

Acquire security expertise for microcontrollers with highest certification levels

Successful integration of acquisitions over the last 4 years enriches INSIDE Secure expertise and offering


SECURITY AT THE HEART OF THE SYSTEM

Peer Device

Strong User Authentication

Secure Execution Environment

Strong Cloud/Peer Auth./Communication

SECURE IPs for COMPONENTS

•  CRYPTO-CELLS •  PACKET ENGINES •  RNGS

SECURE TAMPER PROOF CHIPS

•  EMBEDDED SECURE ELEMENT

•  JAVACARD OS •  APPLETS

APPLICATION PROCESSOR

•  SAFEZONE •  SECURITY

TOOLKITS •  DATA

ENCRYPTION

PLATFORM OS (Android, iOS, etc)

•  EMBEDDED DRM •  EMBEDDED VPN •  MATRIX SSE

APPLICATIONS END-to-END

•  DRM CLIENT •  VPN CLIENT •  MATRIX SSL •  MATRIX HCE

Provided by INSIDE Secure

Cloud services


PAYMENT AND MOBILE BANKING

l The broadest security offering for payment technologies from smart card to virtual payment card for mobile devices.

l Leveraging over 20 years of experience to meet the evolving security and certification needs of the traditional and emerging payment markets like HCE Mobile Payment.


l Anti-Tampering: l  Prevent code change,

detect hacking

l White Box Crypto: l  Protect secrets

l Jailbreak detection: l  Detect hacked devices

l Obfuscation: l  Prevent reverse

engineering

HCE PAYMENT VIRTUAL CARD PAYMENT

Application

Processor

NFC

Ready for NFC adoption in any scenario with Visa and MasterCard certified

solutions

PAYMENTNETWORK


SECURE IOT AND BRAND PROTECTION

l  Identifying objects and securing communications to enable the Internet of Things and Brand Protection

l Anticipating and bringing best-fit security to the fast growing objects to objects market by addressing needs for authentication, secure communication, information protection and user privacy.

l Protecting brands by offering anti-counterfeiting, secure traceability and unique identification of the object while enabling consumer marketing value-added services.


IOT SECURITY

•  Secure booting

1.  Denial of Service

2.  Spoofing identity

3.  Privacy: Data disclosure

4.  Elevation of privilege

5.  Repudiation

6.  Data tampering

7.  Spying communication

•  Secure communication

& Encryption

•  Device Authentication

•  Device Data Storage

•  Secure Updates IoT Device

System Hardware

Connectivity & Sensors

Application Software

System Software

•  Trusted execution

environment

TheThreats Solu0onsSecurityneeds

MatrixDAR™

VaultIOT


SECURE INTERNET OF THINGS: “WHEN TOASTERS, CARS, THERMOSTATS AND FRIDGES ATTACK”

SECURITY CONTROLLER SECURE MIDDLEWARE

Secure

communication products/toolkits


l Counterfeiting in G20 countries: 100 B$ cost of which l 70 B$ tax, 20 B$ to fight against counterfeiting

l Wine and Spirit in China: l 27 M liters of cognac in 2012 l Bottled import will reach approx. 800 M liters (wine and spirit) by 2016 l 40% to 60% of “imported” wine in China are counterfeited l France exports + 1 B$ of wine and spirit to China every year

BRAND PROTECTION: EVERY OBJECT HAS AN IDENTITY

• Mostsecure&longlifecycle• WorkswithNFCsmartphones• AllowsCRManddirectmarke0ng


CONTENT PROTECTION AND ENTERTAINMENT

l Enabling secure content access and protecting rights anywhere, at anytime, and from any device.

l Allowing broadcasters, content owners, mobile operators to provide a variety of purchasing and consumption models for Premium multimedia content to consumers.

l  Industry leaders such as BBC, HBO, AT&T, SKY, Orange and over 80 deployments already use INSIDE DRM solutions.


l  Major content owners require higher security level to distribute and access their premium movies.

l Support for trusted execution is in demand.

l INSIDE’s DRM portfolio includes: l Downloadable DRM Fusion solutions based on pure hardened

and flexible software l Embedded DRM Fusion solutions based on a mix of hardened

software and robust Trusted Execution Environment (TEE)

PREMIUM DIGITAL CONTENT TO A VARIETY OF VIEWING DEVICES

INSIDE Secure DRM solution in use by about 80 deployments


ENTERPRISE SECURITY AND SECURE ACCESS

l Helping enterprises and governments secure access to critical information for employees from anywhere.

l  INSIDE Secure brings traditional enterprise VPN solutions, security tokens and addresses demand for mobility such as Bring-Your-Own-Device through certified cryptography, authentication, and secure protocols

l  INSIDE Toolkits Solution offer the highest level of interoperability to both device and networking OEMs.


PROVIDING SECURE ACCESS FOR ENTERPRISES

l INSIDE’ssecureaccessproductsprovideEnterpriseswiththeabilitytoauthen0catealargenumberofuserstotheirsecureservices.

l INSIDEsolu0onsareusedtoauthen0catetothemostpopularwebservicesincludingGoogleForWorkwhichcurrentlyhasaninstallbaseofover5millionbusinessesand64%ofthefortune500,Google+with530millionac0veusers,andYouTubewithover800millionusers.


l  The World of Security is changing from “Connected” security to “Embedded” security

l  Security needs to be integrated at the heart of your system… l  There are architectural and certification challenges ahead!

l  All Security is a living process: l  Choose your solution carefully…

l  Choose your partners even more so… l  INSIDE Secure’s mission is to drive security innovation to meet

demands of new mobile and “Internet of Everything” age by designing, developing and selling embedded security systems in order to protect transactions, content, and communication.

TAKE AWAYS


INSIDE SECURE STRATEGY IS FOCUSED ON 2 STRATEGIC AND 2 TACTICAL GROWTH DRIVERS

Leverage and monetize NFC IP technology and IPR licensing

Extend position in the fast growing

market of security for mobile applications

Support the migration

to EMV in the US

Drive business development of the

anti-counterfeiting and secure IoT markets

Mobile Security Secure Transactions


INVESTMENT CASE

Strong position in selected niche markets with high growth potential and significant barrier to entry

Business model of IP and products, providing flexibility and leverage

Sound balance sheet with disciplined cash management

A uniquely positioned leader to address

the fast-growing market opportunity of the security “New Frontier”

History of innovation fuelling an extensive IP portfolio

Unique positioning on embedded secure hardware, software and IP solutions


Financial Overview



AGENDA

Q&A

Appendix


KEY HIGHLIGHTS

•  Q3 2015 revenue: $19.4 million, up 4% vs. Q2

•  9-month revenue: $54.3 million

•  Proactive cost structure management (closed agreement with Presto Engineering), as part of the company’s strategic shift towards a lower capital intensive business model

•  First significant customer contracts and revenue for software protection products, which are central to INSIDE Secure's strategy

•  Changes in the company's leadership on September 29, 2015 – Appointment of Amedeo D’Angelo as President and CEO


Q3 2015 REVENUE

Mobile Security •  60% increase in Q3 vs. Q2, thanks to:

•  significant software protection licensing agreement signed in the US (financial & retail)

•  robust sales in hardware intellectual property licensing

Secure Transactions •  Solid sales of secure modules for the Internet of Things and network security •  Revenue in the Pay-TV market affected by inventory management at main customers •  EMV revenue doubled in Q3 vs. Q1 and Q2, but remains well below company’s

expectations in the US market

Unallocated: non recurring revenues

in thousands of US$Q3-2015

consolidatedQ2-2015

consolidatedQ3-2014

consolidated% Change sequential

% Change annual

Mobile Security 9 805 6 138 12 966 60% -24%

Secure Transactions 9 553 12 499 12 677 -24% -25%

Unallocated - - 200 - -

Total Revenue 19 357 18 637 25 843 4% -25%


9-MONTH REVENUE

Unallocated: non recurring revenues

Mobile Security •  No NFC license agreement signed by France Brevets so far this year but on-going

actions by France Brevets on the licensing program

•  Sizeable potential for INSIDE Secure software and IP offering for securing mobile applications (in the financial and retail industries in particular).

Secure Transactions

•  Most recent products/markets not offsetting the anticipated decline in sales in mature products/markets in which INSIDE Secure has not made any new investments (chips for EMV in Europe and for Identification)

4533

45

21

2014 2015

Revenuefromlicences,royalties,developmentandmaintenance

Revenuefromsaleofproducts(Chipbased)

in thousands of US$9 months 2015

consolidated9 months 2014

consolidated% Change

annual

Mobile Security 20 957 45 716 -54%

Secure Transactions 32 716 42 660 -23%

Unallocated 650 1 713 -

Total Revenue 54 323 90 090 -40%


ADJUSTED* INCOME STATEMENT

* Definitions of adjusted measures in Appendix

in thousands of US$H1-2015

consolidatedH1-2014

consolidated

Revenue 34 966 64 247

Cost of sales (adjusted) (18 546) (26 425)

Adjusted Gross profit 16 420 37 822 in % of revenue 47,0% 58,9%

R&D expenses (adjusted) (12 375) (18 133)in % of revenue -35% -28%

Selling & marketing expenses (adjusted) (8 377) (10 569)in % of revenue -24% -16%

General & administrative expenses (adjusted) (5 036) (6 363)in % of revenue -14% -10%

Other (losses)/gains, net (adjusted) (1 445) 482

Total adjusted operating expenses (27 233) (34 582)

Adjusted operating income (10 813) 3 240 in % of revenue -30,9% 5,0%

EBITDA (8 602) 5 627 in % of revenue -24,6% 8,8%

Change essentially explained by Intel licenses deal in 2014 (10 pts)

All departments favourably impacted by positive FX effect in 2015 ($3.3 million) and cost savings

Lower headcount further to Intel agreement (R&D team transferred to Intel in June 2014)


MOBILE SECURITY – H1 2015

Adjusted operating income (in $m) Revenue (in $m)

X% = Adjusted operating income as a % of revenue

6 749

(5 493)

2014 2015

(66%) 21%

(49%)

•  2014 Intel license agreement explaining most of the change in revenue Y-o-Y

•  Very encouraging Metaforic (SW protection and HCE) projects

•  NFC licensing program very active but no revenue generated in H1 2015

18 430

476

14 320

10 676

2014 2015

Intel


SECURE TRANSACTIONS – H1 2015

Adjusted operating income (in $m) Revenue (in $m)

X% = Adjusted operating income as a % of revenue

29 984

23 163

2014 2015

(5 504)(4 525)

2014 2015

(23%)

(18%)

(20%)

•  EMV sales in the US Market below

•  H1 2015 design-wins in Brand Protection and IoT to fuel future revenues in these segments

•  Lower operating expenses more than off-set gross profit decrease leading to improved operating income


H1 2015 CASH FLOW In millions of US$

0

5

10

15

20

25

30

35

40

(6.9)

(4.9)

(0.8) (0.6) (0.3) +0.9

Net income and non-cash items

Change in working capital

Capital expenditures

Equity line financing

Other financing operations Other

Dec. 31, 2014

Jun. 30 2015

Mainly due to increase in inventories ($4.1 million)

36.3

23.8

Cash reduction ties to H1 2015 relative operational weakness reflected in operating loss and increase in inventory.


22 478

11 144

1 625

26 241

24 080

SOLID BALANCE SHEET

PP&E and intangible assets

Other non-current assets

Net cash *

Working capital

Equity

Other liabilities

Assets Equity & liabilities

Goodwill

85568 85 568

* Definition in Appendix

-

13 799

71 769

In millions of US$ As of June 30, 2015


l INSIDE Secure confirms the progressive ramp-up of its activities relating to its embedded security offering for mobile platforms and connected devices, in particular in the form of software and IP. However, visibility regarding sequential quarterly performance and repeatability remain limited

l Strong momentum on software protection and HCE mobile payment: l In July 2015, INSIDE Secure executed a multi-million $ software protection

license agreement with one of the US three largest banks (to increase the security of the mobile apps provided by the bank to its customers).

l Actively marketing HCE mobile payment solution to banks and an expanding ecosystem of major integrators and specification drivers :

l Initial distribution and licensing agreements signed, including one with a world leader in digital security in July 2015.

l Visa Ready status granted by Visa in July 2015.

OUTLOOK 2015


2014 Key Highlights

Q4 Revenue and Full Year Financial Overview

Outlook for 2015

Q & A

Appendix


DEFINITIONS Adjusted measures l  Certain financial measures and performance indicators are presented on an adjusted basis. These indicators are

not defined under IFRS; they should be considered to be supplementary information, not substitutable for any other indicators of operating and financial performance that are strictly accounting measures, such as those presented in the Group's consolidated financial statements

l  Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets and masks 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 carried out by the Group.

l  Adjusted operating income/(loss) is defined as operating income/(loss) before (i) the amortization of intangible assets and masks related to business combinations, (ii) any potential goodwill impairment, (iii) share-based payment expense and (iv) non-recurring costs associated with business combinations carried out by the Group.

l  EBITDA is defined as adjusted operating income before depreciation, amortization and impairment losses not related to business combinations.

Net cash is defined as cash at hand, cash equivalents and short-term investments, the net amount of derivatives, less finance lease liabilities, bank overdrafts and bank loans, and deferred payments due in connection with business combinations. Debt related to the financing of research tax credit (CIR) claims with a maturity equivalent to the CIR claims they finance are not taken into account since they are intended to be extinguished upon repayment by tax authorities of CIR claims.


RECONCILIATION FROM ADJUSTED TO IFRS H1 2015


AdjustedBusiness

combinationsShare-based

paymentOther non-

recurring costsH1-2015

IFRS

Revenue 34 966 - - - 34 966

Cost of sales (18 546) (4 881) (3) - (23 430)

Gross margin 16 420 (4 881) (3) - 11 535 in % of revenue 47,0% 33,0%R&D expenses (12 375) (910) (106) - (13 392)

Selling & marketing expenses (8 377) - (119) - (8 495)

General & administrative expenses (5 036) - (61) - (5 096)

Other (losses)/gains, net (1 445) (23) - (4 172) (5 640)

Operating income (10 813) (5 815) (289) (4 172) (21 089)

in % of revenue -30,9% -60,3%


RECONCILIATION FROM ADJUSTED TO IFRS H1 2014


AdjustedBusiness

combinationsShare-based

paymentOther non-

recurring costsH1-2014

IFRS

Revenue 64 247 - - - 64 247

Cost of sales (26 425) (5 924) (38) - (32 386)

Gross margin 37 822 (5 924) (38) - 31 860 in % of revenue 58,9% 49,6%R&D expenses (18 133) (777) (51) - (18 961)

Selling & marketing expenses (10 569) - (91) - (10 659)

General & administrative expenses (6 363) - (59) - (6 422)

Other (losses)/gains, net 482 (2 028) 28 (1 517)

Operating income 3 240 (8 729) (239) 28 (5 699)

in % of revenue 5,0% -8,9%


INVESTOR INFORMATION

INSIDESecureCorporatecommunicaLonGéraldineSaunièreMarcomDirector+33(0)[email protected]

BrunswickFinancialcommunicaLons

JérômeBiscay,CandiceBaudetDepierre+33(0)[email protected]

INSIDESecureInvestorrelaLonsRichardVacherDetournièreGroupGeneralManager&[email protected]

Financial Calendar

FY2015 Earnings February 25, 2016

www.insidesecure.com

http://www.insidesecure-finance.com

CONTACTS

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