SMX (Security Matters) Public Ltd Co (SMX)

Security Matters makes cybersecurity software for large organizations protecting IT systems against advanced threats. It’s not a consulting firm, not a managed-security service, not a government contractor—it’s a software company that builds detection and defense tools and sells licenses to customers who install and run them. The business is straightforward: write software, keep it working and improving, license it to organizations that need it, collect recurring subscription fees. Let’s work through how that actually works.

How Security Matters makes money

When an enterprise buys Security Matters software, it signs a subscription agreement—typically a one-year or three-year contract. The customer pays an upfront fee (or quarterly/annual installments) in exchange for a license to use the software and technical support. The pricing depends on how many of the customer’s computers or networks the software protects, what level of support the customer buys, and whether the customer wants additional services like professional implementation or custom development.

Once a customer is licensed, they use the software continuously. The subscription renews each year (or every three years), and the customer is locked in—removing the software and switching to a competitor requires time, money, effort, and risk. That stickiness is the foundation of recurring revenue: Security Matters can forecast the next 12 months of payments from existing customers with high confidence.

The second revenue stream is professional services and consulting. When a large customer deploys the software, they may need help setting it up, tuning it for their specific environment, integrating it with their other security tools, or training staff. Security Matters (or a partner) provides this service at an additional fee. A large deployment might cost the customer USD 50,000–500,000 depending on complexity. These services are higher-margin than licensing (little incremental cost once the software is written) but are also lower volume—not every customer buys them, and some customers prefer to do implementation themselves.

Support and updates are built into the subscription but are worth understanding. Security software must evolve continuously—new threats emerge daily, and the software must be updated to detect them. A customer that does not update their Security Matters installation regularly becomes less effective. Security Matters has incentive (and obligation) to push updates regularly to keep its software effective, which also keeps customers happy and reduces the risk they will switch. These updates are included in the subscription, not billed separately.

The unit economics: revenue and cost

For each dollar of Security Matters revenue, the starting point is the subscription fee. A global enterprise with 100,000 employees and a distributed IT infrastructure might pay USD 500,000–2,000,000 per year for a Security Matters license, depending on scope and support level. A smaller company with 5,000 employees pays USD 50,000–200,000. The pricing model is “consumption-based” but usually simplified to an annual subscription.

Of that subscription dollar, costs divide into:

Cost of revenue (the cost to deliver the product): mostly server infrastructure (hosting, cloud storage, compute power), customer support staff, and data infrastructure. For a software company, cost of revenue is usually 20–30% of subscription revenue. It’s not zero because the company must run servers, monitor uptime, respond to support tickets, and push out updates continuously.

Research and development: Writing new features, improving existing features, and fixing bugs. This is the company’s ongoing investment in making the product better and defending against new threats. For a cybersecurity company, R&D is often 20–35% of revenue, because the threat landscape changes constantly and the company must innovate or risk becoming obsolete.

Sales and marketing: Building the sales force, running marketing campaigns, attending industry conferences, developing sales materials. Acquiring a new enterprise customer often takes months and multiple conversations; the sales process is expensive. Sales and marketing might consume 25–40% of revenue.

General and administrative overhead: Finance, legal, human resources, facilities. This is usually 10–20% of revenue.

The math is straightforward: if a software company operates efficiently, it might see 15–25% of revenue convert to profit (operating income). But this requires actually being efficient: maintaining product quality without bloated engineering, landing new customers without astronomically high sales costs, and keeping overhead lean.

Customer acquisition and the renewal treadmill

Acquiring a new enterprise customer is expensive and slow. The sales process involves: prospecting and lead generation, multiple conversations and demos with the customer’s security team and finance team, evaluation and competitive comparison, negotiation (enterprises always negotiate), legal review, implementation, and finally, the signed contract. This process might take 6–12 months for a large customer.

The cost of this acquisition is real. A sales rep with a loaded cost (salary, benefits, commissions, equipment) of USD 200,000 per year, who closes one USD 500,000 deal annually, has a customer acquisition cost of USD 200,000. From the customer’s perspective, that’s fine—the deal pays for itself in the first year. But the sales rep closing only one large deal per year is below quota; more typically, a rep might close several smaller deals or a couple of large ones. The point is: acquiring new enterprise customers is expensive.

Once acquired, the customer renews. Renewal rates matter enormously in software licensing. If 80% of customers renew their subscriptions each year, the company has a predictable base and can forecast growth. If renewal rates are 90%, the company is winning loyalty and the business compounds. If renewal rates are below 70%, customers are actively leaving, and the company must pour new sales effort into acquiring replacements.

Security Matters, like most enterprise software, likely experiences high renewal rates (80–95%) because switching software is disruptive and risky. A customer that has integrated Security Matters into their operations has invested in training, configuration, and integration. Switching means repeating that investment with a new vendor. That switching cost is the moat that justifies recurring revenue.

Competitive pressure and the threat-landscape treadmill

Security software is a brutal competitive market. There are dozens of players: large diversified security companies like Palo Alto Networks, CrowdStrike, and Fortinet; new specialized startups with novel approaches; and open-source alternatives that customers can deploy for free. Price competition is intense, particularly at the lower end of the market.

Security Matters’ advantages—if it has them—come from: (1) the effectiveness of the product (does it catch threats that competitors miss?), (2) ease of use (can customers deploy and configure it without extensive consulting?), and (3) integration (does it work smoothly with the other security and IT tools enterprises already use?). If Security Matters is better on all three fronts, customers will stick and new customers will adopt it. If competitors are catching up, renewal rates will suffer.

The threat landscape also imposes a treadmill: new attack methods emerge, sophisticated threat actors develop exploits, and previously-effective defenses become obsolete. A security product that is not continuously improved will gradually become less effective. This requires ongoing R&D spending, and it means no security company can rest on last year’s achievement. The company that spends the most effectively on R&D, relative to the competition, wins market share.

The path to profitability and cash flow

An early-stage security company might be unprofitable—burning cash on R&D and sales in hopes of reaching a scale where unit economics turn positive. A mature, well-run security company with a large installed base and good renewal rates should be profitable.

Profitability and cash flow are not the same. A company that sells three-year subscriptions collects cash upfront but recognizes revenue over three years. Conversely, a company that grows quickly (adding lots of new customers) appears profitable on an accrual basis but may burn cash in reality because sales spending exceeds the cash it collects on subscriptions. Understanding the difference between reported profitability and actual cash generation is crucial in software companies.

How to research Security Matters

Security Matters’ 10-K filing (SEC CIK 0001940674) breaks down revenue by subscription (recurring) and services (one-time). Calculate what percentage of total revenue is subscription; a software company with 70%+ subscription revenue is recurring-revenue-focused. A company with only 40% subscription and 60% services is more of a consulting business.

Look at year-over-year subscription revenue growth. If subscription revenue is growing 20%+ per year, the company is winning new customers and/or expanding existing relationships faster than churn. If subscription revenue is flat or declining, the company is losing ground.

Examine the gross margin on subscription revenue (subscription revenue minus cost of revenue). A healthy software company should have 70–80%+ gross margin on subscriptions; if Security Matters is below 60%, something is wrong with the cost structure or pricing.

Watch for metrics on customer concentration and renewal rates, if disclosed. High concentration (a few large customers representing most revenue) is risky. Renewal rates above 85% are healthy; below 80% suggests competitive pressure or customer dissatisfaction.

Finally, track free cash flow—the cash the company generates from operations, minus capital spending. Free cash flow indicates whether the reported profits are real or an accounting illusion. A profitable company generating negative free cash flow is unsustainable; a company generating strong free cash flow relative to net income is a cash-generation machine.