In The Boardroom™ With...

José Daniel García Espinel
Global Director of Innovation and Product Development for Security
Prosegur Global Risk

SecuritySolutionsWatch.com: Thank you for joining us today, Daniel. It’s a pleasure to chat with the Head of Innovation for, arguably, the most innovative security company in the world. Before discussing artificial intelligence, the metaverse, Prosegur Security Operations Centers, and the broad range of innovation initiatives that are your primary focus, please tell us more about your background.

José Daniel Garcia Espinel: I have had a long career working in innovation in several sectors including security, construction, and energy. I hold eight patents for products in maritime and railway construction, including a patent to build seaports using glass fiber-reinforced polymer caissons. I have received several awards for innovation, including the “HP Mars Home Planet” award. The HP Mars Home Planet is a year-long competition that challenges innovators to design solutions to support one million humans living on Mars. In addition, I was responsible for designing the first 3D printed bridge in the world made of concrete. 

SecuritySolutionsWatch.com: Please share with us the importance of innovation to Prosegur.

José Daniel Garcia Espinel: Prosegur’s strategy is focused on two important concepts. We must Perform by offering our customers the very best service in our traditional businesses such as guarding. And we must Transform by offering our customers new and innovative security solutions that are unique to Prosegur and the security industry. Our innovation strategy is focused on new product development. When developing new products we analyze their desirability, feasibility, and scalability. But we don’t just concentrate on the traditional security industry. We look to adjacent industries that we know are equally important to our customers, such as business continuity and safety. And our Security Operations Centers (SOCs) around the world are the hub of innovation for our company.

SecuritySolutionsWatch.com: We understand that Prosegur’s Security Operations Centers are now equipped with a Universal Artificial Intelligence platform called Prosegur GenzAI™. Please tell us more Daniel about the competitive advantages and benefits of GenzAI.

José Daniel Garcia Espinel: We are very excited to have developed GenzAI at Prosegur. We know that the technology behind GenzAI is a revolutionary development in the security industry. To put it simply, GenzAI combines the Internet of Things (IoT) and artificial intelligence (AI) to equip our SOC operators with superpowers!
Built on a global edge-cloud platform, GenzAI can collect data from any type of events provided through IoT, video surveillance cameras, or other data sources. It processes that data through responsible AI. GenzAI allows us to manage multiple IoT Devices in one platform and to use that platform to monitor our customer’s processes. GenzAI is connected to the alarm management systems (AMS) in our SOCs to manage events. It is not a physical security information management software system (PSIM). It is not a video management system (VMS). GenzAI is a middleware developed by Prosegur that is agnostic to all cameras or input signals, so any system you currently use can be integrated into our surveillance solution. This system can adapt to your needs and it covers multiple use cases.

The responsible Artificial Intelligence system built within GenzAI is capable of learning and subsequently understanding our customer’s signals, therefore automatically generating events and alarms. This provides the information that is strictly necessary for our operators to make intelligent decisions and to inform the guards who are in person at your site so that they can act immediately. The great power of GenzAI is that it is a universal data interpretation system that filters information and can transform it into actionable insights. In short, it empowers our security professionals to be much more efficient and to cover more sites simultaneously.

SecuritySolutionsWatch.com: That’s fascinating! I understand that you will be able to monitor your customer locations in a digital twin environment, in essence, a metaverse. And that managing your customer’s environments through the metaverse enables Prosegur to replicate those environments for business continuity testing. 

José Daniel Garcia Espinel: Yes we are working to create digital twins of our customer’s environments in our Security Operation Centers. This will allow us to monitor and control the physical world from the digital twin installed in a digital environment. We will quickly react when, for example, an intrusion sensor fires an alarm, and using our digital twin, we will choose to monitor only surveillance cameras and recorders that are linked to that sensor and are close to it.

SecuritySolutionsWatch.com: It seems to us Daniel that the advances Prosegur is making in Security Operations Centers are the future of security operations center management globally. What are your thoughts on the security operations centers of the future? 

José Daniel Garcia Espinel: Modern SOCs deploy automated solutions that can analyze large data sets and effectively identify threats and attacks using machine learning. This enables our security professionals to focus on the human elements of an attack. In tandem, it provides the data necessary to avoid risk. Our SOCs are the backbone of our security business. Having fourteen SOCs around the world gives us a privileged global position. With GenzAI we aim to add new capabilities and continuously improve the efficiency at our SOCs to ultimately provide a better service to our customers. The security operations center not only monitors the safety of your building; it monitors the safety of your staff.  The exchange of real-time information between the people on the ground and the people in the operations center, aided by the data captured by your systems and filtered through GenzAI, means that together we can mobilize a response quickly and efficiently.

SecuritySolutionsWatch.com: I understand that Prosegur hosts an annual innovation contest called “COME In”. Prosegur seeks entrepreneurs from technology start-ups to develop innovative solutions to address future security challenges. This challenge addresses the industry’s main pain points, and more recently, some of society's most pressing needs during the COVID-19 pandemic. Care to elaborate?

José Daniel Garcia Espinel: “Come In” is the first Open Innovation Program launched by an international security company. We invite the start-up technology community to work with us to develop new and innovative security solutions. In the last edition of “Come In” we received more than 150 applications from more than 35 countries around the world. In the end, six start-ups were selected to participate. As an example, an IoT start-up called Thinger.io designed a smart randomized lock for our “Cash Today” product. Cash Today safely stores cash for our customers before our armored trucks collect the money and take it to the bank.

COME IN - Discover our Open Innovation Program At Prosegur, we want to make the world a safer place. And we want to achieve it with you. For this reason, we have created COME IN, the open innovation progr... youtu.be

SecuritySolutionsWatch.com: Prosegur’s 40+ year history and track record of accomplishments are second to none in the security space. What is your perspective, Daniel, on Prosegur’s unique capabilities to successfully address these critical business transformation issues for your customers?

José Daniel Garcia Espinel: Three years ago, Prosegur began one of the most challenging transformation processes in the security industry. We recognized that we had to invest effort and resources in digital transformation and innovation to increase our performance (perform) and offer our customers new products and technological services (transform). We are now seeing the fruits of that investment and we are pleased to offer our customers innovative security solutions.

SecuritySolutionsWatch.com:  Care to mention any success stories, case studies, or testimonials that will be of interest to our readers and the security community at large?

José Daniel Garcia Espinel: Our customers are the center of our development efforts. Before developing any product, we host an “early adopter program”. We pilot our new products directly with our customers. Their feedback is critical to help us continuously improve. I am reminded of a success story with a construction company and a football stadium. This construction company required us to protect construction material on-site – specifically wire coils. We leveraged the power of GenzAI to monitor their assets. We used a small device to geo-locate these assets and send an alert to our SOC when the material was outside the approved perimeter. Our guards were provided the information they needed to react quickly.

SecuritySolutionsWatch.com: Thanks again for joining us today, Daniel.  Any other subjects you’d like to discuss?

José Daniel Garcia Espinel: The only thing I would like to add is that Prosegur is the best company to help you to protect your assets in the physical world and the digital world.

Imperial Capital Research Reports

Evolv Technologies Holding, Inc. (EVLV),	Snap One Holdings Corp (SNPO)

Key trends  I am spotting include:

Convergence of three markets - IoT, Home Automation, and Alarm Monitoring.
The traditional alarm monitoring market operates under a business model where high margin recurring monthly revenue is used to subsidize initial costs (primarily hardware and installation costs). The traditional model has been very successful in landing (typically for no upfront fee or a small fee up-front fee) and keeping long-term customers for years that pay monthly recurring fees. In the last several years, we have seen a surge in the IoT and Home Automation markets. The problem with IoT and Home Automation, while growing rapidly, is that they have lacked an integrated offering with a compelling service model thus, there has been limited recurring revenue.

We believe IoT and Home Automation providers are beginning to move to an Alarm Monitoring business model (with limited upfront fees but with the customers signing long-term contracts). This shift can be observed with recent companies like Latch Inc (LTCH – Not Rated) and Smart Rent (Not Rated) both offering services to multifamily facilities with high recurring fees (we will discuss Latch in further detail later in this report).  We are also observing traditional alarm companies moving further into IoT and Home automation like ADT and Monitronics/Brinks Home Security experiencing solid growth and higher retention through a broader offering to its end user. Finally, we see multinational security companies like Prosegur expanding its offerings from guard/alarms/cash management to video monitoring and home automation to increase RMR or recurring monthly revenues.

Overall we are seeing the recurring revenue model being brought into the home automation and IoT sector.  The traditional alarm and security companies still operate somewhat differently vs. pure play IoT/Home Automation companies (sales channels/business models etc.) as well as offering different value propositions for the end users (including monitoring centers). What is undeniable, in our opinion, is a move to recurring monthly revenues, cross selling of solutions (IoT, Alarm, Home Automation), and increasing retention rates (higher perceived value for the end users). The melding of these three markets will continue to spur growth for all three segments. 

Source: Imperial Capital, LLC

Demand for Smart Home Devices Remains High
Demand for Smart Home Devices is up dramatically with our channel checks confirming that there is no slowdown in consumer spending in this sector.  ADT recently stated that ~ 80% of new customers are wanting smart home solutions not just security. On the next page is a chart of the most desired consumer smart home devices.  Smart thermostats and cameras remain at the top of the list. We note that consumers require and prefer ease-of-use over technical innovation and have gravitated towards less complicated technologies (e.g., master controls of connected devices).

Source: iControl and Imperial Capital, LLC

The Post-COVID Office
We are convinced that new commercial office construction will likely be down the next 3-5 years and the main focus over this period for organizations will likely be repurposing existing office space.  We believe Allegion (ALLE) and Assa Abloy (public in Sweden and Not Rated) will continue to dominate the new office space construction sector despite the strong and persistent rise in white labeled door/access control products in the commercial sector.  In the office retrofit sector we see smaller, newer, and more nimble competitors offering flexible solutions for the rapidly changing office.  We believe there is a strong industry up-tick in retrofitting existing office space.  COVID, in our opinion, has taught our largest and fasted growing part of the workforce, millennials, that they can work as effectively in their shorts and t-shirts from the comfort of their homes.  This lesson will be difficult to unlearn.  Most millennials (if recent surveys are an indication) do not want to go back to a traditional office full time (5 days per week) and prefer to split their time between working remotely and going to an office for meetings.  Below are images of a traditional office and a post-COVID office. As is likely obvious the security, scheduling, and access control needs of a post-COVID office will be very different from the traditional office.

Source: Imperial Capital, LLC


Supply Chain Issues a Central Concern
We believe the biggest issue beyond inflation facing the industry is supply chain delays (longer delivery times as well as uncertainty of the timing) as well as the rising shipping costs.  We note that Allegion (ALLE - In-Line) announced last week that they will miss their guidance in 2021 because they cannot get needed product in a timely manner (no demand issues only supply issues).  Allegion management lowered revenue guidance to 4%-4.5% from 7%-7.5% for 2021 while other companies saw issues in generating revenues and a decrease in gross profit in the 3Q 2021. 

Longer Delivery Times
Across the supply chain we are hearing stories of long delivery times and delays in receiving products.  Delivery times from Asia for example pre pandemic were 2-3 weeks.  These same deliveries are measured in months with limited certainty on timing.  We believe there are many problems with the supply chain from lack of skilled labor (certified short hall truckers and dock workers – just highlighting a few areas) to the historical use of just in time inventory.  As a data point, we are hearing about an increasing number of companies stockpiling inventory or buying large quantities of inventory in cash (paying in advance for product in order to “jump line” to ensure they get needed materials) in advance of a projected need.  We believe one change in the industry, post pandemic, will be for larger companies to move away from just in time inventory systems. 

Rising Shipping Costs
Shipping costs per container have dramatically risen from pre-pandemic levels to current levels.  For example, a container from Asia to the US would cost $4K-6K pre-pandemic now cost $20K-$36K per container (depending on the company’s volume). Again, the arrival times of these more expensive containers is both longer and less predictable.

In summary, we see several trends impacting our security coverage universe.  Demand remains strong but the inflation and rising costs are concerning to us as companies are forced to raise prices to keep up with the increasing costs. 

SecuritySolutionsWatch.com: Allied Universal, earlier this year, completed its’ acquisition of G4S, do you expect additional consolidation in the security space?

Brian Ruttenbur: I expect additional consolidation in the sector.  While Allied Universal is making big moves so is: Assa Abloy with HHI from Spectrum Brands for $4.3 bn (this could put pressure on Allegion to make acquisitions in the sector)

Blackstone acquisition of The Chamberlain Group which includes LiftMaster for $5 billion (announced on September 2, 2021)

Prosegur announcing they plan to build out (by making acquisitions) a US security practice in the next 5 years from a base of $100mm to $1B in revenue

Latch and SmartRent with ~1B in cash  with most of this cash set aside to Acquire

Alarm.com with over $600mm of cash and looking to acquire in the sector (Alarm.com has a history of making acquisitions)

Motorola - Has made 3 sizable acquisitions in the last year totaling $531mm in purchase price a. Pelco b. OpenPath c. Envyson

SecuritySolutionsWatch.com: Thanks again for joining us today, Brian. We look forward to doing another update with you down the road!