| 0 |
After what has seemed like an eternity, one of our earliest investments and long term holds has come out of a long “quiet execution mode” announcing a US federal government contract signing.
Whitehawk (ASX:WHK), is a US based cybersecurity technology provider servicing US federal government agencies, large corporations, right through to small businesses.
WHK was our 2019 Tech Pick of the Year. Long time readers will know that we are big believers in the long term WHK story.
Coming out with a bang in 2019, WHK had a good run through 2020 and earlier this year before reaching a peak in January. While the share price has come off its highs recently because it hasn’t released much news, the company has been quietly working on signing more big deals.
We think COVID, plus a US president change, has slowed down spending decisions in WHK’s key markets. This has seen WHK take a long time to launch new announcements… Until this week when they announced a US$680k contract with an option for an additional US$505k.
ASX:WHK We added WHK to our portfolio in May 2019 at 6.4¢. Shortly after we increased our position at 11.3¢ and then again at 13.3¢. We are high conviction, long-term holders of WHK, and are looking for continued, sustained growth in company value over the coming years. Most recently (in May 2021) we purchased more WHK at 16.77¢ after the price came off during the “sell in May” weakness.
WHK is currently capped at just under $40M.
We picked up the phone to CEO Terry Roberts this morning (Terry is one of our favourite CEO’s and we fully back her to deliver) and while she expressed frustration at the delays WHK experienced she was sounding very optimistic that all the work they have been doing will soon deliver what they have promised to the market.
We are hoping that yesterday’s announcement will be the start of WHK coming out of its quiet execution phase and delivering some long awaited news on new deals. Terry confirmed again that a lot of delays had been due to COVID impact on business and government spending decisions.
WHK has always told the market they are cooking some more big deals with big organisations, we just don’t know when they might land…
The good thing about big deals with big organisations is that they are sticky, and the incumbent is usually “rusted on” given the difficulty to change providers.
In summary, the deals are hard to get but can be very lucrative over the long term if WHK can get them.
After we first invested in 2019, WHK delivered multi-million dollar long term contracts with big enterprises (a few of you who have been around since then probably remember a few delays back then too).
Here are some of the key deals WHK signed in the last 2 years:· 7 year contract US Federal Department of Homeland Security - (DHS) CISA QSMO Cybersecurity Marketplace, as sub-contractor to Guidehouse for US$1.5M to US$1.8M fiscal year 2021.
· Prime Contractor on a U.S. federal government department contract - Chief Information Security Officer (CISO) Cyber Risk Radar contract for the base year and 4 option years, worth up to US$1.18M annually.
· 2nd contract with U.S. federal government department CIO - WhiteHawk’s Cyber Risk Policy subcontract length is 5 years (1 year with 4 option years). Second full year (12 month) revenue to WhiteHawk is expected to be between US$300K to US$500K and is subject to refinement by the prime contractor and government customer.
· Defense Industrial Base (DIB) company: a total of over US$700K - comprehensive annual subscription contract put in place with a top 12 U.S. DIB company for 150 suppliers and vendors.
More deals and revenue on the way?These larger types of deals can be slow to start (huge organisations move slowly), but the revenue will be significant once they get into full swing, which should start to show through in WHK’s upcoming quarterly reports.
We are expecting more big deals to come in from WHK now that the Biden administration has settled in and business sentiment is coming back after the COVID freeze.
Remember that a lot of potential WHK deals have been simmering in the background since 2019.
Other reasons we like WHK:
· Cybersecurity a strong macro theme: Cybersecurity is becoming a new front of war at government level, so cybersecurity is getting funding and attention.
· Biden administration is good for WHK: We wrote why Biden will be good for WHK (when he finally gets his administration in).
· CMMC rolled out in the US: The US government has rolled out its Cybersecurity Maturity Model Certification (CMMC) — the US Department of Defense’s security framework used to assess its contractors' and subcontractors’ security and capabilities. WHK helps businesses implement CMMC.
· Other applications of WHK tech? WHK’s tech is used to monitor and mitigate cyber-risk across many supply chain companies. But it also has applications for “business clients" of banks, insurance providers internet service providers, and any organisation that services hundreds of businesses and wants to keep them cyber safe. We are watching for deals in this space.
We have been invested in WHK for a while now and are expecting big things from the first investment in our portfolio model, here is some of our past commentary on WHK:
New to WHK? Here is a review of our investment journey with WHK including links to our commentary:Initially drawn to its deep connections to the US government and the experience of founder and CEO Terry Roberts, WHK was added to the Next Investors portfolio in May 2019 as our 2019 Pick of the Year.
That decision followed WHK being awarded a cyber sub-contractor role on a 5-year, $2B US federal government contract, which was followed by news of a second government contract just days later, a partnership with cyber risk reduction firm, Global Cyber Alliance, and the integration of its cyber risk solution into EZShield’s Small Business Suite later that month.
Keeping the momentum going, in June 2019 WHK expanded an existing contract with a top 12 US Defense Industrial Base (DIB) company, had renewed a contract with a top 10 US financial institution in August.
In April 2020, WHK established a new sales partnership for its SaaS product, expanded its Cyber Risk Program and reported 55% growth in revenues for the quarter.
Three months later, the company was contracted by a key US federal government Chief Information Security Officer (CISO) to implement its Cyber Risk Radar in a $1M+ 5-year deal.
It was then awarded a US$1.5M contract extension with a US federal government department, in October 2020, a 375% revenue increase on the initial contract. That month also saw it kick off 5 new cybersecurity proof of value (POV) engagements and contracts.
This year has been relatively quiet on the contracts front, largely due to COVID-19 causing “procurement and contracting paperwork delays of months, to a year or more”. But this week’s news of a Cyber Risk Radar contract extension with (an undisclosed) US federal government CISO for up to $1.185M, suggests WHK is now back on track.
Here are our company milestones for WHKThe is what WHK has achieved since we invested, yellow highlights show the last two announcements:
|
(20min delay)
