IS investor presentation June 21, 2017 · 2014 2015 2016 … 2020e CAGR 2014-2020: +33% In 2020,...

1 |www.insidesecure.com

June 2017

Inside SecureInvestor Presentation

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DisclaimerThis presentation and the information it contains are not intended to constitute, and should not be construed as an offer to sell or a solicitation to buy or subscribe toany Inside Secure securities, in any jurisdiction. Any public offering of Inside Secure securities would be made by means of a prospectus previously approved by theAMF that contains detailed information about Inside Secure. The disclosure, distribution and publication of this presentation may be restricted by law in certainjurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and comply with anysuch restrictions. Inside Secure takes no responsibility for any violation of any restrictions by any person.

The information contained in this presentation is of an indicative nature and has not been verified independently. No representation or warranty, whether express orimplied, is given regarding the correctness, comprehensiveness or accuracy of the information and opinions contained in this presentation. This presentation is notmeant to serve as a basis for, and shall not be used in connection with an investment decision. No person shall be entitled to rely or, or shall have any claims againstthe Inside Secure, any of its affiliates, officers, directors, employee, any of their advisers or any other person arising from this presentation.

The information contained in this presentation is as at the date of this presentation and may have to be updated, amended or completed significantly. This presentationcontains only summary information and does not purport to be comprehensive. Inside Secure does not undertake to update, amend or complete the informationcontained in the presentation in order to reflect new information, new events or for any other reason and the information contained in this presentation may thereforebe modified without prior notification.

This presentation contains certain forward-looking statements relating to the business of Inside Secure, which shall not be considered per se as historical facts,including the ability to manufacture, market, commercialize and achieve market acceptance for specific projects developed by Inside Secure, estimates for futureperformance and estimates regarding anticipated operating losses, future revenues, capital requirements, needs for additional financing. In addition, even if the actualresults or development of Inside Secure are consistent with the forward-looking statements contained in this presentation, those results or developments of InsideSecure may not be indicative of their in the future. In some cases, you can identify forward-looking statements by words such as "could," "should," "may," "expects,""anticipates," "believes," "intends," "estimates," "aims," "targets," or similar words. Although the management of Inside Secure believes that these forward-lookingstatements are reasonably made, they are based largely on the current expectations of Inside Secure as of the date of this communication and are subject to a numberof known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any futureresults, performance or achievement expressed or implied by these forward-looking statements. In particular, the expectations of Inside Secure could be affected by,among other things, uncertainties involved in unexpected regulatory actions or delays related notably to building and operating permits and renewable support policies,competition in general or any other risk and uncertainties developed or identified in any public documents filed by Inside Secure with the AMF, included those listed inchapter 4 “Risk factors” of the 2016 registration document (“document de référence”) filed with the French financial market authority (the Autorité des marchésfinanciers – the “AMF”) on March 28, 2017 under number D.17-0244 and which is available on the AMF’s website at www.amf-france.org and on Inside Secure’swebsite at www.insidesecure-finance.com. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements made in thiscommunication will in fact be realized. Notwithstanding the compliance with article 223-1 of the General Regulation of the AMF (the information disclosed must be“accurate, precise and fairly presented“), Inside Secure is providing the information in these materials as of this communication, and disclaims any intention orobligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.The distribution of this presentation and any information contained herein in certain jurisdictions may be restricted by law and persons into whose possession thisdocument comes should make themselves aware of the existence of, and observe any such restriction. In particular, neither this presentation, nor any part of it may bedistributed, directly or indirectly, in the United-States, Australia, Canada or Japan. Non-compliance with these restrictions may result in the violation of legal restrictionsin certain jurisdictions.

©Inside Secure 2017. All Rights Reserved. Inside Secure,® Inside Secure logo and combinations thereof, and others are registered ® trademarks or tradenames ofInside Secure or its subsidiaries. Other terms, logos and product names may be trademarks of others.

Inside Secure Corporate Presentation – June 2017

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BusinessOverview


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Introduction to Inside Secure: A successful transformation

• Refocused on core security software and technology licensing

• Successful sale of loss-making semiconductor business

Completed strategic

transformation

Solid execution of the strategy starting to bear

fruit

• Right-sized operating cost base• Achieved profitability on core business:

24.6% of FY 2016 EBITDA margin from continuing operations(1) (-22.8% in FY 2015)

• Strengthened liquidity and financial position

• Sound growth on core business (+35%(2) in 2016)• Increasing needs for advanced and evolving

security in an always more connected world

Positive underlying

business trends

ü

ü

ü

(1) Definitions of continuing operations in Appendix(2) Excluding semiconductor business and NFC patent licensing

2016: a pivotal year 2017: geared for growth

Pure-play software and technology licensing company

Uniquely positioned to

meet the evolving security

needs for a connected world

Target growth in new license revenue and sustainable profitability


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3.84.9

6.4

20.8

2014 2015 2016 … 2020e

CAGR 2014-2020:

+33%

In 2020, there will be billion of connected devicesin the world, each needing to be secure

An imminent explosion in Connected Devices Higher challenges for security

Internet of Things Units Installed Base by Category (Billion of Units)

Source: Gartner, IDC

Devices are more complex

Stakes have never been higher

Hacking is a huge threat for the future of mobiles

Piracy costs $20.5B to movie studios

25% of all identified security breaches will

involve IoT

Cyber crime is the greatest threat to companies around the world

One solution

cannot fit all needs


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Our vision: driving trust at the heart of billions of connecteddevices

We safeguard applications

We protect content

We secure data & communication

We providethe buildingblocks for embedded security (silicon IP)

Providing the software, silicon IP, tools and know-how needed to protect customers’ transactions, content, applications, and communications today and in the future


Mobile paymentsEarly movie releases

Connected home

VPN access to enterprise

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Uniquely positioned to meet the advanced and evolving security needs for a connected world

üDifferentiated, leading products and technology (protected more than 2 billion digital products to date)

üOver 25 years of experience and expertise in advanced security, in-house attack lab.

üSecurity expertise in our customers’ environments, able to help and advise throughout the ecosystem

üTrusted by the world’s top companies - service providers, content distributors, security system integrators, device vendors, semiconductor manufacturers


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Secure communication toolkits & cryptographic modules certified with high interoperability and portability

Widely used in security gateways, cloud deployments, smartphones, printers and other IoT devices

The largest silicon-proven security IP portfolio for SoC and ASIC designs

For high-speed networking, IoT, datacenters and content protection

Studios-approved, market leading solution

Allows secure distribution of premium content on all OTT devices

Supports all major DRM schemes, advanced playback functionalities, analytics

Comprehensive package of software protection tools

Greatly simplifies integration of security for mobile apps such as payment HCE, financial, banking, retail, healthcare, and IoT

Extensive product portfolio


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Global footprint

160 employees WW with global operations in Europe, Asia and the US


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Trusted by the world’s top companies

Banks and payment system

Content distributors

Top IT companies

Major semiconductor companies

Protecting the solutions of the broadest range of customers: service providers, content distributors, security system integrators, device makers, semiconductor companies


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Inside Secure strategy: geared for growth and sustainable profitability

Application protection:leverage momentum on

mobile banking and mobile payment (HCE)

Drive business development on securing the IoT

Pursue sustainable growth on content protection software

Pursue monetization of NFC patent

portfolio through licensing program

Sustainable long-term growth and operating leverage

4

1

Consolidate Inside Secure existing positions

Increasing share of wallet of existing customers

Target potential acquisitions

to enrich security solutions and customer base

3

2

5

Enlarge security solutions offer


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FinancialOverview


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FY 2016 Revenue: A recurring and resilient revenue base

in thousands of US$2016 2015 Y-o-Y %

Licenses 6 573 9 906 -34%Royalties 24 160 12 304 96%Maintenance, development agreements and other 5 021 4 364 15%

Total Revenue from software and IP 35 754 26 574 35%Unallocated 14 190 345

Total Revenue 49 944 26 919 86%Unallocated = patent license revenue

• Silicon IP business: on top of traditional networking fordata-centers market, traction in the IoT market (8 designwins globally in 2016)

• Content protection market: traction remains strong withhigh quality digital contents requiring always moreprotection, together with an increasing number of devices

• Application protection business: focus and traction onvertical solutions to secure and enable applications formobile banking and mobile payment

Large product range on promising marketsü

Confirmed revenue trend in Q1 2017

Diversified customer base

• More than 300 customers

ü

ü

Strong recurring revenues

• Around 70% of revenues relate to contracts signed prior to 2016

ü

*


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Income Statement – back to profitability(Adjusted* measures – continuing* operations)

* Definitions of adjusted measures and continuing operations in Appendix

Results from continuing operations include software and silicon IP, NFC patent licensing program and corporate costs notintended to be transferred or discontinued with sale of semiconductor business

in thousands of US$

12 months 2016

consolidated

12 months 2015

consolidated

Revenue 49 944 26 920

Cost of sales (adjusted) (5 421) (2 783)

Adjusted Gross profit 44 523 24 137

in % of revenue 89,1% 89,7%

R&D expenses (adjusted) (14 352) (9 874)in % of revenue -29% -37%

Selling & marketing expenses (adjusted) (11 152) (10 516)in % of revenue -22% -39%

General & administrative expenses (adjusted) (7 757) (9 655)in % of revenue -16% -36%Other (losses)/gains, net (adjusted) (367) (1 505)

Total adjusted operating expenses (33 628) (31 551)

Adjusted operating income 10 895 (7 414)in % of revenue 21,8% -27,5%

EBITDA 12 264 (6 126)in % of revenue 24,6% -22,8%

High growth due to royalties and NFC patent licenses

Reallocation of certain company’s resources to the core software and IP business

Reduction of G&A to align with new size of the business


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A Major Shift in INSIDE Secure Financial ProfileAn enhanced cash position post

transformation

12.5

22.5

27.0

FY 2015 H1 2016 FY 2016

EBITDA margin evolution following the refocusing on core business

EBITDA as a % of revenue In $m

Sound Cash Position Generation

§ Operating cash flow generation now achieved

§ Reservoir to further increase cash position :

- Monetization over time in 2017 through the sale of WISeKey shares resulting from the conversion of the loan note

-25.1% -24.6%

24.6%

FY 2015 H1 2016 FY 2016

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2016: Strong increase in cash position

0

5

10

15

20

25

30

Continuing and discontinued operations(in $ million)

Net profit excluding non cash items

(+ 4.1)

Change in working capital (*)

(+ 0.5)

Capital expenditure

(- 0.2)

Closing cash consideration for

the sale of the semiconductor

business(+2.1)

Rights Issue(+5.5)

Other (-1.5)

$16.4 m

Dec. 31 2015

Dec. 31 2016

(*) Including financing of 2015 R&D tax credit and restructuring expenses

$27.1 m


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Positive revenue trend in 1Q’17 on core business

Total revenue from core secure software and technology licensing business (in $’m)

Licenses Royalties Maintenance

1.3

2.2

Q1 2016 Q1 2017

3.4 3.4

Q1 2016 Q1 2017

1.4 1.4

Q1 2016 Q1 2017

+62% Flat as expected

6.16.9

Q1 2016 Q1 2017

Total core business

+13%

Q1 2017 Main Highlights by product lines

ü IoT market: new engagement in the area of Connected Home with an existing customer

ü Content protection: strengthened leading position introducing a new solution to address Hollywood studios’ highersecurity requirements for early-window and ultra-high definition (UHD) movies delivered over-the-top

ü Application protection: positive market traction with additional payment scheme wins in the U.S. and in Europe

Flat as expected


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Outlook and Summary

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ü Successful strategic transformation

ü Refocusing of activities

ü Rightsizing of operating cost base

• Sustain profitability1 of core secure software and technology licensing business on a full year basis

• Keep on growing the new license revenue

• Maintain a strong discipline on operating expenses

• While investing in sustainable long-term organic growth potentially reinforced by acquisitions

2017 Outlook

(1) on an EBITDA and adjusted operating income basis

2016 : Inside Secure achieved profitability1

2017 objectives


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Summary

Successfully refocused security software and technology licensing providerü

Strong position in selected niche markets with high growthpotential and significant barrier to entry ü

Core business growing, profitable and generating cashü

Uniquely positioned to meet the advanced and evolving security needs for a connected worldü

Sound balance sheet with disciplined cash management ü

Trusted partner with breadth of customer baseü

Security industry know-how and experience with differentiated and leading productsü


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Appendix


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Strong balance-sheet(as at December 31, 2016, in $’000)

26 978

(987)

15 622

8 058

18 773

Equipment and intangible assets

Other assets(incl. bonds

reedemable in shares)

Net cash

Working capital 4 773

63 670 Equity and retained earnings

Other liabilities

Assets Equity & Liabilities

Goodwill


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Disciplined approach to M&A with successful track record of strategic acquisitions

December 2012 April 2014

Unique expertiseon securing applications

on mobile platformsand on secure

technologies in embedded software

and silicon IP

Expand portfolioof application protection solutions: obfuscation, white box cryptography,

“software secure element”

Successful integration of bolt-on acquisitions over the last 4 years enabling to enrich Inside Secure expertise and offering and enable its transformation

Benefit

• Enlarge products offer and expertise to capture emerging growth trends

• Strengthen technology and IP portfolio

• Acquisitions completed are energized by Inside Secure reputation and footprint

• Support and accelerate organic by selective acquisitions

Rationale


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DefinitionsContinuing and Discontinued Operations

• Following Inside Secure’s announcement on May 19, 2016 of the sale of its semiconductor business to WISeKey and inaccordance with IFRS 5, Inside Secure semiconductor activity qualifies as a discontinued operation. Consequently, incomeand expense items for this discontinued operation are recognized directly in “net income from discontinued operations” andthus are excluded from consolidated revenue, adjusted operating income, EBITDA, and operating and net incomes fromcontinuing operations.

• Accordingly, results from continuing operations reflect the performance of the software and silicon IP business, the NFCpatent licensing program and corporate costs not intended to be transferred or discontinued with the sale of thesemiconductor business (mostly general and administrative expenses and, to a lesser extent, selling & marketingexpenses, and research & development expenses).

• Figures for 2015 have been restated in a similar manner to allow comparisons with the corresponding 2016 figures.

Adjusted measures

Certain financial measures and performance indicators are presented on an adjusted basis. These indicators are not definedunder IFRS; they should be considered to be supplementary information, not substitutable for any other indicators ofoperating and financial performance that are strictly accounting measures, such as those presented in the Group'sconsolidated financial statements

• Adjusted gross profit is defined as gross profit before (i) the amortization of intangible assets, (ii) any potential goodwillimpairment, (iii) share-based payment expense and (iv) non-recurring costs associated with restructuring and businesscombinations carried out by the Company.

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

• EBITDA is defined as adjusted operating income before depreciation, amortization and impairment losses not related tobusiness combinations.


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Reconciliation from Adjusted to IFRS

in thousands of US$2016 Adjusted Business

combinationShare-based

paymentsOther non-

recurring costs 2016 IFRS

Revenue 49 944 - - - 49 944

Cost of sales (5 421) (3 529) (1) - (8 951)

Gross profit 44 523 (3 529) (1) - 40 993 R&D expenses (14 352) (289) (134) (482) (15 257)

Selling & marketing expenses (11 152) - (196) - (11 348)

General & administrative expenses (7 757) - (301) - (8 058)

Other (losses)/gains, net (367) - - (3 849) (4 216)

Total operating expenses (33 628) (289) (631) (4 331) (38 879)

Operating income 10 895 (3 818) (632) (4 331) 2 114

in thousands of US$ 2015 Adjusted Business combination

Share-based payments

Other non-recurring costs 2015 IFRS

Revenue 26 920 - - - 26 920

Cost of sales (2 783) (9 151) (1) - (11 935)Gross profit 24 137 (9 151) (1) - 14 985 R&D expenses (9 874) (563) (209) - (10 646)

Selling & marketing expenses (10 516) - (141) - (10 657)

General & administrative expenses (9 655) - (126) - (9 781)

Other (losses)/gains, net (1 505) - - (902) (2 407)

Total operating expenses (31 551) (563) (476) (902) (33 492)

Operating income (7 414) (9 714) (477) (902) (18 507)


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Investor informationContacts

Inside SecureCorporate communications

Loic HamonEVP Corporate development & [email protected]

Inside SecureInvestor relations

Richard Vacher DetournièreGM & CFO

[email protected]

Financial calendarH1 2017 earnings July 26, 2017

www.insidesecure.comwww.insidesecure-finance.com

IS investor presentation June 21, 2017 · 2014 2015 2016 … 2020e CAGR 2014-2020: +33% In 2020,...

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