Scout Security Limited (ASX: SCT) is a home security provider. The company designs and manufactures Scout Alarm, which is a self-installed and wireless home security system. This makes security modern, open and feasible. The company offers complete flexibility around connected home security. This paves the way for systems to integrate with other IoT devices. The company is Amazon Alexa’s official partner. It is also its Fund portfolio company. Besides this, is the official partner for Google's Works With Nest and Samsung SmartThings as well. SCT received recognition from CNet as one of the Best Smart Home Devices for 2016.
SCT’s Products (Source: Company’s website)
On 23rd May 2019, the company provided an update on the financial impact, regarding its partnership agreement with key resale partner Zego declared on 1 May 2019.
The initial partnership was announced on 16th October 2017, when Zego had ordered more than 7,000 systems from SCT. In due course, the rate of order flow and deployment has increased expectations of the partnership.
On 1st May 2019, the company had announced its initial partnership update which included the addition of monthly recurring revenue on active systems due to SCT for interactive services. The company would not work with selected competitors of Zego and would be the exclusive provider of home security services provided by Zego.
Both parties agreed to an updated Hardware Purchase, Software Licence and SaaS Agreement, which would be effective from 1st May and valid for 5 years. Zego would continue to buy hardware from Scout hubs. The agreement revised installation and integration support responsibilities and fees.
Further the 1st May announcement also stated that ‘Zego would pay Scout a monthly fee based on the number of Zego customers with hubs connected to Scout interactive services before 1 May 2019. Deployed hubs which Zego customers have activated prior to 1 May 2019 will be grandfathered into a lower pricing plan for a period of 18 months. Further, Zego will pay Scout a higher monthly fee for hubs activated on or after 1 May 2019. On 1 November 2020, all active hubs will switch to the higher monthly fee.’
This revised arrangement leads to a change in subscription revenue to Scout. The company stated that the revenue earned in 18 months would be depending on various new hubs that Zego would set up in the customer homes in this tenure. Post the 18-month period, which is referred to as the Grandfather period, the revenue would depend on new hubs installed between May 2019 and November 2020, and the hubs that would be already installed after this period.
The revenue generated after the updated arrangements would showcase the financial forecast. The company does not currently have a basis to forecast it, given the uncertainty of events regarding number of new units to be installed by Zego and the number of units currently installed. The changes in the agreements too, do not give SCT a base to derive its financial forecast.
Zego has recently been acquired by PayLease. It’s technology would have an integration of the expanded version of PayLease’s current application. Zego’s platform would have the benefits of Scout’s hardware and software. This would ease residents in payment of rent and utilities, submission of work orders, staff communicate, accessing third-party tenant services, receiving package notifications, and more through a single mobile app.
The revised partnership would give the company leverage of new opportunities, given this recent acquisition. PayLease, Zego and Scout jointly aim at providing value to management companies through their offerings.
SCT’s stocks closed the day’s trade at A$0.110 on ASX, up by 10% as on 23rd May 2019.
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