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18 April 2019

Verimatrix reinforces Inside Secure results despite shaky start

Last week we reported exclusively to readers that the Inside Secure name is set to be buried for that of the stronger US Verimatrix brand (pending shareholder vote), and now the Dutch security software developer has published its Q1 2019 results – raining praise on the newly acquired DRM specialist and outlining the formation of two new organizational divisions to tackle various markets.

Total first quarter revenue ramped up 102% to $20.4 million, of which Verimatrix contributed one month’s worth of revenue to the tune of $7.2 million, from a quarter which is historically slow for Verimatrix. The peculiar thing about the deal is that Inside Secure has acquired a larger company in Verimatrix and the first set of finances since completing the merger at the end of February really paints a picture of how sizable the Verimatrix contribution is and could continue to be.

That said, Verimatrix revenue was down by 14%, while pure Inside Secure revenue grew organically by 30% year on year, boosted by a steep 61% climb in the license revenue sector to $4.6 million ($3.5 million from NFC licenses alone). Potential cause for concern though within Inside Secure’s Royalties segment, as revenues dropped sharply by 38% to $3.7 million having lost a certain “historical US customer”, while the Maintenance and Other arm held firm at a 5% increase to $1.3 million.

For argument’s sake, let’s say Verimatrix hoists monthly revenue by $1 million a month during the next quarter, so $8.2 million a month, making it $24.6 million in quarterly revenue. If the Inside Secure side of the business has a similarly prosperous quarter and sees another 30% revenue spike, to total $17.2 million, it would bring in a combined $41.8 million for the quarter and be well on its way to building a $200 million a year revenue business. As it stands, Inside Secure is about 50% smaller than Verimatrix, so how this fluctuates during the new company’s journey will make for intriguing observation, although the respective contributions could be trickier to spot once the integration is fully completed and the Inside Secure name phased out (potentially from June).

But like anything in business, maintaining growth and ramping up revenues is easier said than done, so how does the new Inside Secure plan to get there? Faultline’s NAB coverage from last week reported some insights from Verimatrix President and COO Steve Oetegenn, highlighting a renewed focus on areas like connected cars and other IoT niches going forward – not necessarily the Verimatrix specialty but technology fields it was certainly known to be investigating pre-acquisition.

Inside Secure’s latest report therefore provided some important extra color from the other side of the coin. In the first quarter alone, it signed five new deals in the connected car market and says progress continued in tackling high potential markets such as data centers, mobile networking and IoT, while addressing new security challenges in the entertainment market. By new challenges, we suspect Inside Secure primarily means the proliferation of piracy.

As of the beginning of April, Inside Secure also designed and implemented a new combined organization around two business units – Software and Silicon IP, and Secure Protocols. Each arm will have its own R&D resources, product marketing and sales force. The Software unit comprises Inside Secure Content and Application Protection product lines, alongside Verimatrix Conditional Access technologies (offered both on-premise via a license and SaaS), and also including the Verimatrix SaaS big data analytics offering.

The Silicon IP and Secure Protocols unit, meanwhile, will house software toolkits and provisioning to enable semiconductor makers, fabless firms, device manufacturers and security software integrators to meet needs for authentication, secure communication, information protection and user privacy for IoT and network security markets.

In the entertainment space, Inside Secure says it signed several new licenses with existing customers to protect content delivery under new access forms and operating systems, including iOS, Android, Amazon FireTV, Tablet and Apple TV.

The five new aforementioned connected car deals came at customers in the US, Asia and Israel, each order detailing different product lines but Inside Secure highlights being particularly active in selling and implementing its DTCP (digital transmission content protection) software for mobile and in-car applications, such as IVI (in-vehicle infotainment) systems, during the quarter.

Elsewhere, momentum was steady in the networking market for Inside Secure in Q1, notably due to its portfolio of silicon IP products, including the delivery of a new MACSec (media access control security) engine license to a top chipmaker in Asia. Presumably this unspecified chipmaker is China’s fabless semiconductor developer HiSilicon, as Inside Secure signed a deal in February to supply its Provisioning Platform to secure product secrets during the manufacturing process as well as throughout the device lifecycle.

So, as the Verimatrix server technologies continue the integration process with the Inside Secure client technologies through 2019, the company expects Verimatrix to recoup growth in the second quarter – starting first with entertainment before reprioritizing connected cars and potential IoT treasure troves.