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INSIDE Secure first-half 2014 results(M2 PressWIRE Via Acquire Media NewsEdge) - First half of 2014 results confirm successful execution of strategic repositioning - First success in INSIDE Secure's strategy to monetize the group's NFC technology and IP with the new license agreement with Intel completed in June 2014 - Strong growth in adjusted gross margin[1] the first half of 2014 at 59 per cent of revenue (compared with 38 per cent in the first half of 2013), reflecting the impact of the shift in the group's revenue model and product mix - Second consecutive half-year of positive adjusted operating income with USD 3.2 million in the first half of 2014 (compared with a loss of USD 6.3 million in the first half of 2013) - EBITDA of USD 5.6 million in the first half of 2014 (compared with a loss of USD 3.5 million in the first half of 2013) Aix-en-Provence, France -- INSIDE Secure (Euronext Paris: INSD), a leader in embedded security solutions for mobile and connected devices, today reports its consolidated results[2] for the six-month period ended June 30, 2014. Financial results for the first half of 2014 - Key figures (unaudited) Commenting on these results, Remy de Tonnac, chief executive officer of INSIDE Secure, said:"The strong results posted for the first half of 2014 confirm the effectiveness of our strategic repositioning. Embedded security technologies of INSIDE Secure aim at protecting the most popular applications on smartphones and tablets for transactions and content protection. Our solutions target the main applications driving the sector: entertainment content delivery, enterprise, which is driven by the BYOD[3] developments, and financial, which is driven by mobile payment. The structure of our revenue is moving gradually towards a higher value-added mix, including a greater contribution from our intellectual property portfolio." Financial information for the second quarter of 2014 and first half of 2014 Second quarter 2014 and first half 2014 Revenue At USD 40.8 million, consolidated revenue for the second quarter of 2014 was up, relative to both the first quarter of 2014 and the second quarter of 2013. Having repositioned around two strategic divisions, the group started to monetize its NFC technology and intellectual property rights in the first half of 2014, while concentrating sales efforts on a cutting edge product range in embedded security. The revenue from this is gradually replacing the volume sales from NFC connectivity components, a large part of which came to an end in the fourth quarter of 2013. As a result, in the first half of 2014, consolidated revenue that amounted to USD 64.2 million showed a decline of 9.3 per cent compared with the first half of 2013, but was driven by different underlying businesses compared to that period. The group also confirmed its position as leader in advanced mobile payment technologies through the acquisition of Metaforic in April 2014. High-margin revenue from licenses, royalties and maintenance services amounted to USD 32.1 million in the first half of 2014. This now accounts for 50 per cent of revenue, showing a strong increase compared with last year (USD 13.4 million or 19 per cent of revenue). The license agreement with Intel in NFC technology and intellectual property have been the main drivers of this. Adjusted operating income Adjusted gross margin improved strongly in the first half of 2014 to 58 per cent of revenue, compared with 38 per cent in the same period last year and 40 per cent in the second half of 2013. This was buoyed by a positive product mix effect and the effects of the 2013 reorganization plan. This strong increase demonstrates the tangible results of the group's strategic repositioning to offer a full product range in the high value-added embedded security business. The decrease of the operating expenses following the implementation of the 2013 reorganization plan was partially offset by the impact of incremental operating expenses. This related to the integration of Metaforic into the group in the second quarter of 2014 and by a decrease of the R&D tax credit (0.8 million dollars). In addition, in accounting terms, part of the R&D expenses were capitalized in the balance sheet in 2013 (0.7 million dollars), while in the first half of 2014, all were noted as expenses. Finally, the euro's appreciation against the dollar also weighed on operating expenses during the first half of 2014. At constant exchange rates, operating expenses would have been USD 1.3 million lower than those posted in the first half of 2014. Nonetheless, thanks to the sharp increase in gross margin, adjusted operating income rose significantly in the first half of 2014 to USD 3.2 million (compared with a loss of USD 6.3 million a year ago). EBITDA In the first half of 2014, EBITDA amounted to USD 5.6 million (8.8 per cent of consolidated revenue), compared with a loss of USD 3.5 million in the first half of 2013. Moreover, the group achieved for the first time positive EBITDA over two consecutive half-year periods. Net financial income Net financial income to June 30, 2014 amounted to USD 0.5 million, compared with a loss of USD 0.2 million to June 30, 2013, with the difference deriving mostly from the fluctuations in the euro/dollar exchange rate. Consolidated net income Consolidated net income (IFRS) for the first half of 2014 amounted to a loss of USD 5.5 million. This marks a strong improvement compared with the prior year (USD 21 million loss in the first half of 2013) despite the amortization of assets (non-cash item) recognized on acquisitions (SMS, ESS and, most recently, Metaforic) totaling USD 8.4 million in the first half of 2014. Business segment analysis Mobile security At USD 32.8 million, revenue in the first half of 2014 was up 24 per cent on the previous year. Activity in the second quarter of 2014 was primarily driven by the following: Completion of a new NFC technology and Intellectual Property license agreement with Intel, extending the pre-existing 2011 license agreement into a broad and fully paid-up license. At closing INSIDE Secure received USD 19.2 million in cash from Intel. This payment led to the recognition of incremental license revenue of USD 16.2 million in the second quarter of 2014, while respectively USD 1.1 million, USD 1 million and USD 0.9 million were recognized as revenue during the fourth quarter of 2013 and first and second quarters of 2014 under the pre-existing agreement Very good performance by the embedded security solutions product line, in particular royalties that hit a historical record level The acquisition of Metaforic, which has been consolidated since April 5, 2014, the date the acquisition was completed. In June 2014, the group also signed the first of its HCE[4] mobile payment solution contracts with banks and 'payment associations' Furthermore, the group confirms that it has not sold any more NFC components to BlackBerry since the fourth quarter of 2013. Note that such sales amounted to about USD 9.3 million in the first half of 2013 (35 per cent of the division's revenue) and USD 36 million in the whole of 2013 (49 per cent of the division's revenue). The sharp rise in adjusted gross margin between 2013 (52.1 per cent of revenue) and 2014 (86.9 per cent of revenue) is mainly due to favorable changes in the product mix. In particular, it includes the first revenue from the group's NFC technology in line with the group's strategy, which aims to monetize its NFC technology and related intellectual property rights portfolio. The Mobile Security division had already reached profitability in the second half of 2013. It generated USD 6.7 million in adjusted operating income in the first half of 2014 (compared with a loss of USD 9.6 million in the first half of 2013). This was due to the strong increase in gross profit and, to a lesser extent, the reduction in underlying operating expenses. The division generated USD 7.2 million of EBITDA in the first half of 2014 (compared with a loss of USD 9.1 million in the first half of 2013). Overall, the mobile security sector experienced strong traction due to the wide reporting of an outbreak of cyber-attacks in recent months. Over the last 18 months, the group has strengthened its position in the market for embedded security for mobile devices by expanding its range of solutions to applications considered to be the strongest drivers for mobile security: entertainment (digital content), enterprise and financial (mobile payment and eWallets). The group continues to position itself as the only supplier whose solutions and product offering enable it to target all of these fast growing applications. At the same time, the group is actively pursuing its NFC technology and patent portfolio licensing strategy. Secure transactions The Secure Transactions division generated USD 30 million of revenue in the first half of 2014. This was down substantially on the previous year, mainly because of a continuing decline in the group's legacy EMV business in Europe (sale of EMV payment chips) and pending the takeoff of the EMV market in the US. In the first half of 2014, the division's adjusted gross margin deteriorated from 32.7 per cent in 2013 to 26.2 per cent in first half of 2014, mainly as a result of the decline in volumes delivered in the first half of 2014, leading to poorer fixed cost absorption. At the same time, the group increased its R&D spending to develop future generation products, particularly in the area of new-generation secure microcontrollers, using embedded flash memory, as well as the expansion of its offer of secure software embedded on these semiconductor platforms. These new products under development will target the markets of authentication, as well as securing data and transactions for connected devices and the Internet of Things. As a result, the division recorded an adjusted operating loss of USD 5.5 million (compared with an operating income of USD 4.5 million in 2013), while first half 2014 EBITDA amounted to a loss of USD 3.6 million (compared with an income of USD 6.7 million in 2013). The group plans to continue investing in the 'Internet of things' and in anti-counterfeiting ('the internet of secure objects'). It is also continuing with its marketing efforts to take advantage of the implementation of the EMV standard in the US. Cash and other key figures Over the last six months, the group once again maintained its cash position thanks primarily to cash generated by operations and a very tight control of working capital requirement. On June 30, 2014, the group's available cash stood at USD 38.8 million, compared with USD 40.2 million on December 31, 2013 and USD 41.8 million at June 30, 2013. On June 30, 2014, net cash[5] amounted to USD 38.1 million, compared with USD 39.7 million on December 31, 2013 and USD 40.7 million on June 30, 2013. The main movements in cash in the first half of 2014 were as follows: On-going operations[6] generated USD 3.8 million A reduction in working capital requirement (including the financing of the 2013 research tax credit) helped generate USD 9.6 million The group paid out USD 13 million to acquire all the shares in Metaforic (USD 11.6 million) and pay the company's debts Purchase of tangible and intangible assets in the first half of 2014 remained limited at USD 1 million (compared with USD 2.2 million in the first half of 2013) The group has a strong balance sheet, with USD 90.6 million of consolidated equity on June 30, 2014. Outlook for 2014 The second half of 2014 should confirm the results of the strategic repositioning initiated in 2013, in particular through: Continuing efforts to license its technology and NFC patents, with an intended impact from the second half of 2014 Signing new licenses on mobile security embedded products, for applications in content protection as well as enterprise security Pursuing the integration of Metaforic in the group's product offer and winning new customers after the first contracts signed at the end of the second quarter of 2014 in mobile payment (deployment of HCE solutions as defined by Visa and Mastercard) Registering first volumes in the EMV in the U.S. market Pursuing business development in anti-counterfeiting solutions for wine and liquor and luxury goods industries with field trial implementations Conference call A conference call will be held at 11:00 am (Paris time) on August 1, 2014 when the first half 2014 results are published. Access to the call will be by dialing one of the following numbers: +33 (0)1 70 77 09 41 (France), +44 20 3367 9453 (United Kingdom) or + 1 866 907 5928 (USA). The presentation will be available on our website: http://www.insidesecure.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 Publication of revenue for the third quarter of 2014: October 27, 2014 (after trading) Publication of a registration document ('Document de reference') approved by the AMF: September 2014 [1] Some financial measures and performance indicators are presented on an adjusted basis as 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 in Appendix 1. [2] The consolidated interim financial statements were prepared by the Management Board and reviewed by the Supervisory Board, and have been subject to a limited review by the statutory auditors. [3] Bring Your Own Device [4] Host Card Emulation. Introduced on Android 4.4 (KitKat) and recently supported by major payment brands, HCE allows for contactless payments (and other services including loyalty programs, building access and transit passes) to be made directly between a consumer's' banks mobile application and a retailer's point-of-sale terminals using NFC technology. It allows the sensitive data used to facilitate transactions that can be securely stored on, and accessed from, cloud servers rather than via a mobile device and without the use of a secure element or a SIM card. [5] Net cash is defined as cash on hand, marketable securities, time deposits and derivative financial instruments, less obligations under finance leases, bank overdrafts, bank loans and any additional payment related to business combinations. Debt relating to the financing of research tax credit claims is not recognised since it is to be extinguished when the research tax credit claims are repaid by the government. [6] Cash generated by operations before changes in working capital and before the exceptional payment of USD 1.5 million relating to the departure in the first quarter of the last employees affected by the 2013 reorganization plan (which had no impact on earnings since the expense was fully accrued for in 2013). About INSIDE Secure INSIDE Secure (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 http://www.insidesecure.com Supplementary non-IFRS financial information The supplementary non-IFRS financial information presented in this press release are defined within the release. These indicators are not defined under IFRS and do not constitute accounting elements used to measure the group's financial performance. They should be considered in addition to, not as a substitute for, any other operating and financial performance indicator of a strictly accounting nature, as presented in the group's consolidated financial statements and the corresponding notes. The group 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 group, even though they use similar terms. 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 28, 2014, available on http://www.insidesecure.com To view the original release: http://www.ala.com/article.php?id=436 Mark Tidmarsh [email protected] ANDREW LLOYD & ASSOCIATES http://www.ala.com https://twitter.com/ALA_Group Tel UK: +44 1273 675100 Tel France: +33 1 56 54 07 00 Tel US: +1 617 517 0146 . (c) 2014 M2 COMMUNICATIONS |