Increased working capital to drive Scout’s sales growth

By Trevor Hoey. Published at Aug 26, 2019, in Technology

Home security provider Scout Security Ltd (ASX:SCT) has entered into an agreement providing access to a working capital facility of up to AU$1 million, available in two separate tranches.

The key terms of the agreement will see Scout receive a first tranche of $500,000 upfront, with each tranche of the facility having a term of 180 days, and a minimum term of 90 days.

In the event Scout draws down on the second $500,000 tranche (available 150 days after the first tranche is drawn down), bringing the total to $1 million, the term of the second tranche will be a further 180 days, and a minimum of 90 days.

The interest rate will be fixed on each advance at 11.25% per annum, calculated and payable every 30 days after the relevant advance is drawn.

The funds will allow Scout to continue to pursue growth opportunities across the company’s lines of business without incurring the earnings per share dilution of issuing shares in order to raise capital.

As a backdrop, Scout sells the Scout Alarm, a self-installed, wireless home security system that is making security more modern, open and affordable.

Scout was named “Best App-Based Security System” in 2019 by US News and World Report.

The company’s design-centric offering gives users complete flexibility around connected home security, allowing the system to integrate with other best-in-class IoT devices and offering flexible monitoring options.

Scout is an official partner of Amazon Alexa, Google's Assistant and Samsung SmartThings, and it is also an Amazon Alexa Fund portfolio company.

Funding to assist in growing revenues in 2020

Access to increased working capital should assist management in facilitating the strategic goals outlined in July when chief executive, Dan Roberts said, ‘’We plan to bolster our home security product suite by selectively unveiling new devices, integrations and system capabilities in the near future.

‘’We expect this to provide a steady flow of positive news, and more importantly, ensure users receive a curated home security experience from end to end.’’

In providing this forward overview, Roberts was reflecting on 2017 and 2018, a period in which the company invested heavily in new products, which placed a drag on cash flow.

Scout is now set to capitalise on its broad suite of products developed over the last few years, and the access to increased working capital announced today positions the company to deliver on its strategy, with Robert saying, “Securing this facility allows us to fund the working capital Scout needs to meet the company’s expectations to continually expand Scout Alarm deployments and grow monthly recurring revenue.

‘’As our existing white label business continues to expand and new opportunities arise, this facility gives us the flexibility to respond with additional resources to meet the demands of those programs.

“The facility will support Scout’s operational expenditures and allow the company to pursue growth opportunities in the second half of the year.

‘’This will empower us to meet customer orders faster as we continue to aggressively grow the business in the USA and abroad.

“We look forward to building Scout’s operational momentum with greater supply chain efficiency as our white-label partnerships continue to develop as planned.”

Indeed, the company’s two pronged strategy of building recurring revenues while expanding into overseas markets delivers a healthy mix of growth and stability.

On one hand, the company should achieve solid revenue growth as it builds its position in overseas markets, while increasing recurring income will provide earnings predictability.

As Scout improves its supply chain efficiencies, the company should also start to generate improved margins on the sale of its products.

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