Scout Security Limited (ASX: SCT) operates a direct-to-consumer business, as well as a white-label Security-as-a-Service ("SaaS") platform and product suite. White-label partners include security, internet service and telco providers, all of which provide Scout with an opportunity to penetrate established customer bases and distribute its products and services globally.
The Company generates revenue primarily through hardware sales and high-margin monitoring subscription plans. Scout designs and manufactures its own products, and its wireless home security system is primarily controlled through a user’s smartphone device.
In September 2021, Scout partnered with Windstream, a mid-sized US internet provider with more than 1.3 million subscribers, to launch Kinetic Secure Home. This marked the first major US telco to white-label the Scout SaaS platform. Sales from this partnership have exceeded management’s expectations, adding more than 1,000 monthly customers with an average revenue per user (“ARPU”) of ~A$8 per month.
In late August, Scout announced a Statement of Work to partner with Lumen, a full-service US telco with 5 million broadband subscribers, to rollout its SaaS platform by the first half of CY2023. Scout’s medium-term goal is to penetrate 10% of Lumen’s subscriber base, potentially equating to between $28 million and $46 million in annual recurring revenue for Scout.
Some of Scout’s other key white-label partners include Prosegur, Stanley Black, Decker, Hyperion Partners and Zego.
What we like about Scout includes:
Large addressable market with industry tailwinds
According to GDM Research, the DIY home security market is currently estimated to be worth ~US$3.3 billion and is forecast to reach US$11 billion by 2027, propelled by the decline of professional security installations. This industry growth will likely benefit Scout through the signing of new partnerships, expand its existing partnerships into new countries, and drive growth in Scout’s user numbers and high margin SaaS revenue.
Significant operating leverage as the business scales
Due to the success of its white-label partnerships, management expects the Company will reach cash flow breakeven by the end of CY22. Further, due to Scout currently being sub-scale, we believe operating margins will expand materially as the business continues to scale and cover its administrative costs more efficiently.
Founder-led & incentivised insiders
We like to invest in companies where management have skin-in-the-game. In this case, Scout’s co-founders, Daniel Roberts and David Shapiro, own 11.6% of Scout. Directors and employees also own a further 7.6% of the Company.
We own shares in Scout and believe the Company has an exciting future.