Executive Summary
• Hub Security founded in 2017 by Israeli military veterans who served some of the most elite signal intelligence (SIGINT) units employed by The State of Israel
• Company utilizes highly advanced cryptographic tech to help organizations and governments that adhere to the highest cybersecurity protocols protect digital footprint end-to-end
• Hub Security benefits from a recurring revenue model with significant room for growth precipitated by the public and private costs of sophisticated and ever-evolving cybersecurity breaches. Comprehensive suite of products, solutions and consulting services enable the company to capture the whole cybersecurity value chain across a market conservatively valued at $52bn
• First mover advantage and strength of human capital facilitates a unique opportunity for Hub Security to capture, long-term, 5-10% of a market conservatively sized >$50bn
• Compelling case for triple-digit growth in profits and high valuation. Ability to retain clients and establish economies of scale could enable the company to generate >20% operating margins
• Estimated value based on long-run prospects: USD $5-10bn realized by 2023-2026. Sufficient basis to assign an initial estimate of $2bn based on existing sales pipeline, projections, and risk profile
Investment Thesis
Hub Security offers an attractive investment in future cybersecurity verticals at the forefront of quantum computing. Cash flows presently valued at significant discount rates to account for risk in establishing a consistent customer base that produces the necessary economies of scale to profit on a long-run basis. Further diligence recommended as the company operates in a nascent and complex market with advanced technologies understood by few. First mover advantage and a portfolio of intellectual property presently deployed and sold via a suite of solutions mitigates short and medium-term risk. Further financing suggested via IPO to inject the necessary capital and running room to catalyze triple digit growth over a sustained time frame (5-10 years). An investment in Hub Security offers an attractive play on cybersecurity in a world that enters a digital age in full force. Given a proven market and need arising from costly cyberattacks and high-profile ransomware events, an investment in the company depends strongly on the execution and the knowledge of those involved. The founders of Hub Security and the individuals it employs form the basis of the most significant competitive advantages the company wields. Recreating the know-how and expertise brought by the human capital the business utilizes simply cannot be recreated and must not be underestimated.
Catalyzing Factors
Hub Technology initially listed on the Tel Aviv Stock Exchange (TASE) via a reverse merger with an existing company known as Advanced Logistics Development (ALD). The reverse merger afforded the combined entity an additional NIS 40 million at a NIS 105 million pre-money valuation. This event facilitated Hub Technologies’ access to public markets and enabled the company to prove the concepts behind technology further, not to mention afforded the necessary funds to establish the necessary infrastructure required to distribute complex technology leveraging hardware to deliver innovative cybersecurity solutions to end-users.
As an Israeli company with a distinct and secretive pedigree, Hub Technologies intimately understands cybersecurity with the greatest standards at the nation-state level. Cyberattacks and retaliatory actions by both nation states and rogue actors place organizations, in addition to all levels of government, in the crosshairs of an ever-growing and hard-to-track shadow war. Defending against targeted and incidental cyberattacks require enterprises to place best practices for cybersecurity and the necessary investment at the forefront of capital investment priorities. Organizations like Hub Technologies, if they deliver their solutions in robust and compelling ways, could capture significant chunks of numerous verticals in the cyberdefense space and other ancillary markets and segments as eventual cybersecurity behemoths.
Consistent and effective use of research and development (R&D) funds and/or the acquisition of intellectual property, along with an efficient buildout of sales, operations and other related infrastructure could enable Hub Technologies to deliver superior returns to its shareholders. Listing on the NASDAQ exchange, presently under serious consideration, would open up financing and business relationship opportunities for the company to capitalize on its innovative technology. First-mover advantage persists for only a limited time and requires diligent and dynamic follow-through by the beneficiary; without it, other players with similar capacities but further behind in development step in to capture superior returns from hyper-growth. Cybersecurity investments deliver returns inasmuch as human capital and strategic operating plans materialize at or beyond par: Hub Security compels further diligence as its current and future prospects depend on a technology that few understand but most underestimate. This piece covers the general prospects, but what materializes in the medium-run goes beyond the scope of an introduction.
Market Opportunity
Consider cyber protection by three phases:
• Protection-at-rest
• Protection-in-transit
• Protection-in-use
The first two phases comprise prevalent commercialized cyber security offerings in the market (e.g. antivirus, firewalls), while the latter phase represents a so-far minimally untapped niche known as ‘confidential computing’ at the frontier of cyber protection. Malicious actors gain privileged access once they go beyond the first two phases of protections (‘wrappers’), a critical point where an unauthorized party breaches confidential in-use computing. Compromising unencrypted data while in use in the RAM or processor units of any hardware unit gives the offending party quiet backdoor access which is incredibly challenging to protect against based on existing idiosyncrasies, let alone unravel. Hub Security offers a nearly-unhackable Trusted Execution Environment (TEE) that safeguards data while in use. Practitioners and experts refer to the first two phases as traditional legacy methods; confidential computing, the cream of the company’s market opportunities, lies beyond the frontier of legacy methods and relies on a holistic cyber defense approach to supplant the first two phases intrinsically. The end-point, once commercialized, gives the holder of the technology unparalleled commercialization opportunities in already and newly discovered along with yet unearthed applications.
Hub Security, a frontrunner in the field of confidential computer hardware solutions, leverages existing technology to service a $54bn market with unmet and evolving cybersecurity needs. Daily and alarming reports of ransomware attacks targeting individuals, organizations and governments behoove significant public and private investment. Current technology rendered useless to prevent $6 trillion in annual damages stemming from malicious cyber actors. These ill-willed actors exploit existing design flaws to compromise data while it is in use. IT departments will recommend investments in the best cybersecurity as the cost of potential ransomed or compromised data far outweighs the benefits of inaction in the cyberdefense realm. CFOs and fiduciaries at organizations and governments will see safeguarding data with the highest standards as a compulsory affair.
Hub Security expects to capture ~150bps (1.50%) of the total addressable market ($54bn) in 2026 and foresees producing operating margins >25%. The company forecasts a compound annual sales growth rate (CAGR) of ~50% from 2020 to 2026 and expects to ramp up EBITDA margins from ~4 cents to ~25 cents on every dollar of sales during the same period. Hub Security services >1,500 global clients ranging the gamut of industries and segments and of all sizes.
Company Overview
Hub Security and its subsidiaries employ ~600 employees with a physical presence in both Israel and the United States and operations across 30+ countries worldwide. The company sells confidential computer server solutions on the cloud and/or at client premises across two divisions: technology and professional services. Hub Security fills a niche by providing hardware-level cyber defense covering the computing core (e.g. CPU, memory), where data is fully exposed based on standards employed today. Malicious actors exploit vulnerabilities arising from subpar protection of data-in-use.
Veterans of Israeli Defense Force (IDF) elite signal intelligence (SIGNIT) units founded Hub Security in 2017. The founders wield premier SIGINT capacities and knowledge in related verticals via their participation in the most upper echelon SIGINT cohorts serving The State of Israel. The company – leveraging advanced encrypting solutions – helps its clients protect against hostile intrusions and theft by preventing the compromising of sensitive commercial information while in use. Hub Security offers solutions which draw theory and practical application from disciplines like artificial intelligence (AI), data, fintech and infrastructure, to mention a few. Organizations utilizing the company’s solutions benefit from military-grade cyber protections that insulate users against nascent and ever-present cybersecurity risks in today’s digital age. Along with IBM, Hub Security solely stands ready with commercialized products prepared to help organizations and governments protect data-in-use from the growing threats arising from recent developments in quantum computing, a very powerful new technology that will up the ante of cyberthreats and malicious attacks.
Company Products and Solutions
Hub Security espouses a vision of precipitating a paradigm shift in the secured computing arena. Significant ransomware and other malicious cyber attacks befell and continue to befall the largest and smallest enterprises and governments worldwide. A lack of purpose towards cyber defense by original equipment manufacturers (OEMs) plagues hardware design and production to-date. Malicious actors compromise, expose and/or hold ransom petabytes of data on a daily basis. No current solution on the market transcends a temporary fix. Hub Security offers the first ever hardware solution for entrenched hardware-level protection that goes beyond traditional ‘wrapper’ security. The company develops solutions to protect data-in-use at the hardware level and, at some level of production, reduces cyber protection costs on aggregate. The company provides unique, military-grade dedicated solutions for cyber defense, enabling it to be ready for quantum computing threats; a distinction only shared by Hub Security and International Business Machines (NYSE: IBM).
The company develops complex integrated hardware products and offers comprehensive digital security solutions to help organizations meet the highest international cybersecurity standards. Core solutions include:
– HUB Enterprise
• Cloud and on-site confidential computing solutions; premier cyber defense for enterprise and government
– HUB Silicon
• Internet-of-Things (IoT) cyber defense on-chip solution (CDOC) for home security cameras, connected mobility phones, credit cards, etc.
The company presently offers HUB Enterprise solutions and expects to commercialize HUB Silicon in 2023. Service offerings in core business verticals include, but are not limited to:
• End-to-end managed services
• Execution of HUB technology projects
• Integration and migration services prime contracting (will be required and standard operating procedure for almost all federal, municipal and local governments and large organizations due to severity of ransomware attacks)
• Offensive security (DDOS, Phishing, Pen Tests)
• Threat modeling and security assessment
• Safety and reliability management
• Cyber governance compliance
Hub Security services the banking and finance industry, focusing on supporting digital payments, high-value transactions, and tokenization, to name a few related verticals. Across telecommunications, blockchain and digital assets, critical infrastructure, and healthcare, the company similarly services cybersecurity needs for varying organizations across diverse industries and segments, consistently adhering to the highest standards and employing the most cutting-edge technology. Hub Security considers its front-runner advantage to give it a clear competitive edge ranging from 18-25 months in a market undergoing sustainable medium-term hyper-growth.
Operational and Company Milestones
Hub Security unveiled on October 26, 2021 a new comprehensive security solution for hardware control interfaces such as Redfish and Intelligent Platform Management Interface (IPMI) platforms. Redfish is a standard designed to deliver simple and secure management for converged, hybrid IT and the Software-Defined Data Centers (SDDC). IPMI is set up for servers and other IT equipment as a hardware-based out-of-band platform management tool for full remote access. IPMI platforms provide unlimited privileged access to servers and equipment, albeit with known security vulnerabilities and limitations. Large enterprises, including financial institutions, employ both interfaces across defense equipment, servers, and data centers.
The hardware control interface security solution introduced to the market by Hub Security delivers enhanced security and governance functionalities, seamlessly integrating by leaving legacy controls and services undisturbed. The security solution launched by the company protects Redfish and IPMI, authenticating and verifying incoming traffic: the process enforces access control through stringent governance frameworks including, but not limited to, approvals of sensitive actions. The system blocks attack vectors that exploit credential theft, vulnerabilities and unauthorized access routes, thereby superseding the traditional ‘wrapper’ approach to cybersecurity currently rendered helpless in the face of catastrophic ransomware events, for example. Product launches and related ventures similar to the ones illustrated above demonstrate an inherent desire to leverage frontier technology developed by Hub Technologies to dynamically create new or improve upon existing markets and verticals.
Hub Security announced on October 12, 2021 its intention to explore the possibility of listing company shares on the United States-based NASDAQ stock exchange. As it analyzes comparable listings of peers in the cybersecurity sector, the company commissioned A-Labs Advisory & Finance Ltd. to create a listing feasibility report. With a professional services and global distribution platform operating in >30 countries, servicing >1,500 clients and turning annual sales > US 100 million, the company wishes to capitalize on existing hyper growth within the cybersecurity industry at the hardware level. With emerging and ever-more malicious cyberattacks taking place on a daily basis, Hub Security could potentially mobilize an entire cadre of players that follow in raising funds to tackle the most complex and pressing cybersecurity problems across the industry.
Further financing from a primary U.S-based equity listing opens up greater access to new and existing markets for Hub Security. Developing valuable cybersecurity solutions with the necessary infrastructure necessitates significant investment in research and development (R&D) by the company, both in-house and externally through acquisitions. Access to one of the most stringent capital markets in the world endows a premier level of legitimacy to Hub Security’s operation, lowering the company’s barrier to entry in the context of relationships with leading governments and organizations requiring the highest levels of confidentiality, performance, and notoriety. Recurring revenue business models with complex, entrenched technologies typically thrive from listing on the NASDAQ once clearing the initial listing hurdles. Scaling operations and establishing a consistent pipeline of business requires initial and continuous access to capital at the right time, a privilege afforded to few across a multitude of capital markets worldwide.
Merger and Acquisition (M&A) Activity
On September 29, 2021, Hub Security announced it acquired Comsec Global for NIS 70 million: the company paid NIS 40 million cash and NIS 30 million of its own shares in consideration. Hub Security described the acquisition as a strategic approach to increase its global sales and distribution footprint in dozens of new markets. The company anticipates existing revenues will double via accelerated penetration of Hub’s unique cybersecurity solutions into the cyberdefense repertoire of global enterprises. The acquisition fosters pipelines of existing customers for Hub with similar core needs.
Founded in 1987, Comsec Global functions as one of the leading companies in Israel’s cybersecurity sector. It pioneered data security and maintains an extensive customer network spanning >1,000 leading companies in >40 countries across five continents. The company serves clients with a broad spectrum of services, with comprehensive solutions in application security, general security, and source code testing. Through innovative and sophisticated solutions such as threat modeling, penetration tests, Black Box and White Box infrastructure, among others, Comsec turns ~ NIS 120 million by delivering premier cybersecurity solutions to clients across banking, insurance, hi-tech, and government, to illustrate a few. Comsec Global’s one-stop cybersecurity shop model fits smoothly with Hub’s stated strategic objectives and existing prospects.
Hub Security internally financed the purchase of Comsec Global with a mix of cash and mortgaging future growth. Convincing external stakeholders to accept consideration in a future enterprise with risky prospects requires a novel product or service grouped with first-mover advantage. Hub Security paid >50% of the purchase price with cash, a decision normally made when acquiring enterprises consider the future benefits to significantly exceed the risks. The synergetic value between marrying an innovative, first-mover suite of technologically complex solutions in the nascent realm of cybersecurity with an existing sales pipeline and Rolodex of relationships with bona fide enterprise users likely explains why Comsec Global shareholders still wanted to participate in future growth prospects by accepting shares in Hub Security concurrently in consideration for the acquisition.
Future growth will depend on a mix of internally developed and external acquired R&D capacities and related technologies.
Company Valuation
Use of a discounted cash flow approach based on recurring Software-as-a-Service (SaaS) business model. SaaS comprises charging clients – organizations – a fixed (or sometimes variable) price for access to a specific tool or set of technologies hosted on the cloud or delivered locally via specific hardware installed at a client’s place of business. Hub Security charges clients a monthly fixed price based on four different gradually priced tiers. Difference in tiers across two categories of users based on system architecture needs: Core Central Processing Unit (CPU) users and Core Graphics Processing Unit (GPU) users. The company targets cloud computing and IoT recurring SaaS revenues based on client profile and needs.
Hub Security encounters deployment and other ancillary costs of revenue, including expenses associated with procuring hardware necessary to deliver recurring SaaS offerings. Generating sales requires, at a minimum, installing hardware and ancillary equipment both onsite at Hub Security and at client locations, respectively. Additionally, the company must continuously plow in resources towards research and development (R&D) to maintain and improve relative competitive positioning. Traditional sales, marketing, management, and general expenditures also factor in the company’s normal operations. Combined, top-line charges comprise anywhere between 70-85% of total revenues. The company and its subsidiaries expect an aggregate operating margin of ~15-30% for every dollar of sales generated. Frontloaded investment in equipment, a significant requirement for operations, generates shareholder value through time-value for investors due to deferred tax liabilities associated with depreciation of fixed assets in most jurisdictions.
Hub Security predicts the fair market value of equity as of FYE 2020 to range from USD ~$63m to ~$130m, with a probability-based median target of USD ~$90m. Based on the most recently available information along with performance metrics from the most recent fiscal year, the company expects the fair value of equity to increase twenty-fold, to approximately USD $2,250m. This figure is contingent on pro forma sales of ~USD $150m and a forward price-to-sales ratio of ~15.0x. On a vis-a-vis basis, underlying growth in the industry and the first-mover advantage Hub Security benefits from justify triple-digit growth rates along with significantly high forward equity multiples.
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