Whitehawk – Assessing SME cyber risk in deep and complex supply chains

US based WhiteHawk, who listed in the ASX in January 2018, is an expert in cybersecurity risk profiling particularly in deep and complex corporate and government supply chains. Executive Chair, Terry Roberts was recently in Australia talking to investors when I caught up with her.


Date of ReportASXPricePrice TargetAnalyst Recommendation
Date of Report 20/02/19ASX ST1
Price $0.058Price Target N/A
Analyst Recommendation N/A
Sector: Technology52-Week Range: $0.039 - 0.152
Industry: Internet Content & InformationMarket Cap: $15.85 million

Source: Commsec

What do you do?

WhiteHawk has integrated and optimised a suite of products for assessing and rating businesses for cyber risk readiness. The suite ranges from heavy duty, AI powered, enterprise grade, cloud-based platforms for corporates and governments to manage supply chain and vendor risks through to ratings profiles for small and medium sized businesses and an online market for these businesses to acquire appropriate solutions. Risk mitigation through the supply chain is achieved through monitoring, alerting, context, prioritisation and management of cyber risk. This platform is supported by a rating system used by vendors in the supply chain to assess and rate their own risk based on numerous risk indicators and a unique online market where they can source a vast array of cyber security solutions.

Enterprise level platforms are typically supplied under multi-year contracts. In any case, because of the nature of the risks, the platform will almost inevitably become mission critical corporates and governments in managing cyber risk in supply chains and therefore the relationship will tend to be very sticky and long term.

WhiteHawk’s model is fully integrated where ultimately a solution can be provided to small and medium sized businesses having first assessed and rated their cyber risk. All this is achieved through a fully automated, cloud-based platform.

What is the business case?

Cyber risk is well understood at a conceptual level but small and medium sized businesses, in particular, often lack the resources to fully understand, asses and mitigate these risks in the context of their own business. Corporates and Governments, on the other hand, are typically much better prepared with robust systems in place. However, corporates and governments are nonetheless vulnerable and exposed to the risks of their unprepared vendors in their deep and complex supply chains.

The reality is that most small and medium sized businesses fail to appreciate the risk that they may pose to their corporate and government clients and won’t act unless forced by regulation or compliance requirements. The issues are generally about costs, time requirements and lack of knowledge as to where to go for support. Accordingly, the most effective way to address downstream cyber risk will be through compliance enforcement by corporates and governments through their supply chains.

WhiteHawk’s model is built around assessing and identifying these risks and ultimately providing easy access to a wide range of solutions through its online market.

What are the growth opportunities?

Research group, Gartner has said that worldwide spending on info security will exceed $124 billion in 2019. This is a huge market but dominated by government and corporate spending. WhiteHawk has identified that the small and medium sized business market has been isolated with little support in addressing cyber risks.

The company rightly sees that the easiest way to target this market is through the supply chains and then to provide the tools for assessing and ultimately managing the risk.  It has also partnered other groups with direct channels to small and medium sized business to provide assessment and rating services.

The company’s product suite will deliver large recurring income from corporate and governments which will be the principal source of income for the next few years as scale is built. Revenue from small and medium sized business will grow and become increasingly important as the service filters through the supply chains and through partner referrals, ultimately leading to volume transactions through the online market place, which completes the model.

Whilst the company is currently focussed on building its market presence in the US, the rationale is valid globally and there are considerable international opportunities which are likely to be addressed in the medium term. Whilst routes to international market entry have not been explored as yet, the earliest opportunities are likely to arise through the supply chains of its US based clients.

What has the company achieved?

As the company is in the early stages of commercialisation, quarterly cash flows are volatile reflecting client successes. Nonetheless, the company has demonstrated a clear upward trend over the past year.

WhiteHawk’s product suite is developed, the technology is stable and the focus is on building sales into the government and corporate markets and establishing sales channel relationships with partners with large SME client bases. Three large contracts have already been secured from various US Federal Government Departments. A contract announced on 1 May was with an unnamed US Federal Government department for a 5 year term with expected commencing revenue of US$300K  – US$500K with the expectation that this will grow to US$1 million –  US$3 million annually. A futyher contract was announce with another unnamed department on 3 May with a 7 year term with commencing revenues between US$1501K and US$300K.

The company is seeking to build its partner base and is targeting banks and other financial services companies with large SME client bases.

Financial overview

WhiteHawk reported revenue of US$506K in 2018 compared with US$86K in the prior year as it gained sales momentum. Nonetheless, the loss increased from US$2.8 million to US$3.5 million as the cost base was expanded to support the development of the business.

The balance sheet as at 31 December 2018 was quite modest with the only assets of significance being cash (US$1.3 million) and software development (US$1.4 million). The only liability was payables of US$793K with shareholders’ equity of $2.1 million representing 72.4% of total assets.

What do I think?

Cyber risk is an enormous issue globally and the involvement of organised crime and foreign states makes the challenge even greater for small and medium sized businesses. Moreover, these businesses are the weak links in the defensive shield of corporates and governments and are ripe attack points for nefarious operators.

WhiteHawk has developed a compelling integrated solution to manage this supply chain risk which is gaining traction. We are impressed that the company is achieving sales into the US government, but what makes this particularly interesting is that these wins have been in conjunction with lead contractors, typically, aggregators and consultants of the highest calibre who can meet the stringent security and performance requirements required. Presumably these relationships will open up further opportunities for WhteHawk. We also like that the company is building other sale channel partnerships which create opportunities directly into the small and medium sized business market.

Revenues from platform sales into the corporate and government sectors are significant, recurring and upfront, which is very attractive. Whilst subject to renewal, these contracts are likely to prove to be very sticky and long term. However, sales cycles can long and drawn out meaning that quarterly cash flows are likely to be lumpy, reflecting sales successes, until there is greater scale and recurring revenues are more significant.

Particularly in view of the long sales cycles, we see the key challenge being the timeframe for the company to build scale and achieve sustainable profitability. Recent contract wins point to another sharp boost to revenue in 2019 but a breakthrough into profitability is not expected before sometime next year, at the earliest.

Gordon Capital Disclaimer

This document is provided by Gordon Capital Pty Ltd (Gordon Capital) and InterPrac Financial Planning Pty Ltd (InterPrac). The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts.

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