Professional Documents
Culture Documents
Company
Key Points
Ross Barrows
Catalysts for Growth: We see the following as key drivers of growth for FZO: i) Strong organic ross.barrows@wilsonsadvisory.com.au
and acquisitive growth has created scale that can be leveraged; ii) Cyber security and digital Tel. +61 3 9640 3854
safety tailwinds with funding on the horizon; iii) FZO’s breadth of products results in
differentiated offering, and advantages in the delivery of consolidated procurement; and iv) the Cameron Halkett
recent Qustodio acquisition capitalising on cross-sell opportunities, and potentially accelerating cameron.halkett@wilsonsadvisory.com.au
ARPS expansion. Tel. +61 2 8247 3162
Digital Safety Tailwinds Can’t Be Ignored: We see FZO as a high quality with a ‘true north’ that
Lachlan Woods
finds itself at the intersection of three key tailwinds: digital safety, ESG principles and capital
lachlan.woods@wilsonsadvisory.com.au
allocation to address children’s wellbeing. Keeping Children Safe in Education (“KCSIE”) in the UK
Tel. +61 3 9640 3818
and the Children's Internet Protection Act (CIPA) in the US represent guidance and legislation
respectively which provides a clear and unambiguous direction for safety. Perhaps even more
meaningful, is the Government funding that has been appropriated to fund these programs, an
opportunity that FZO is very well placed to capitalise on, primarily in the UK and the US. 12-mth price performance ($)
Guidance & Forecasts: While FZO has not provided any guidance for FY23e, we are forecasting 0.80
FY23e ARR to grow +56% (+30% organic) to $95m, Total Revenue to grow +84% (+39%
0.70
organic) to $83m while Underling EBITDA (ex. SBC) improves marginally to -$21m. FY24e
highlights FZO’s operating leverage, with 28% revenue growth driving positive Underlying 0.60
EBITDA. 0.50
Recommendation, Target Price & Valuation: We initiate with an OverWeight recommendation 0.40
and a $0.53 target price which represents an EV/Sales multiple of 6.0x applied to FY23e revenue 0.30
of $82m. We believe our revenue forecast is conservative, with potential upside of ~5%, which
0.20
would lift our target price to $0.56. Sep-21 Jan-22 May-22 Sep-22
FZO XAO
Risks to our View: Downside risks: i) Slower than expected growth, Qustodio in particular; ii)
Increased competition from PE-backed competitors; iii) Issues with integrating acquisitions; and
1-mth 6-mth 12-mth
iv) material FX volatility; iii) Reliance on Equity Capital Markets given it’s currently loss-making;
Upside Risks: i) Qustodio gains meaningful traction, accelerating ARPS expansion further; ii) Abs return (%) (22.0) (5.9) (57.3)
government funding is appropriated faster than expected; iii) new product launches (eg. Rel return (%) (19.8) (2.6) (53.9)
Wellbeing) exceed expectations.
Financial summary (Y/E Jun, AUD) FY21A FY22A FY23E FY24E FY25E Key changes 0-Jan After Var %
Sales ($m) 13.2 45.2 83.0 106.0 126.3 Sales FY23E 83.0
Consensus sales ($m) 82.0 101.0 122.0 ($m) FY24E 106.0
Sales growth (%) 55.5 243.4 83.8 27.7 19.2 FY25E 126.3
EBITDA norm ($m) (17.3) (26.7) (20.8) 2.1 12.6 EBITDA FY23E (20.8)
EV/Sales (x) 18.9 5.6 3.4 2.7 2.2 norm FY24E 2.1
($m) FY25E 12.6
Source: Company data, Wilsons estimate, Refinitiv.
Price target 0.53
All amounts are in Australian Dollar (A$) unless otherwise stated.
Rating O/W
Catalysts Risks
i) Regulatory funding in the education sector for FZO’s products; ii) Cross- Key Risks: i) Commercialisation strategy execution leading to slower
sell and further uptake of FZO’s product offering; iii) New Products growth or uptake of users; ii) Competition from existing competitors or
developed (e.g. Wellbeing products); iv) Organisational cost optimisation new entrants; iii) Reliance on Equity Capital Markets for growth; iv) Issues
from acquisitions; v) the launch of Qustodio gaining broad traction. with acquisition integration.
P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 13.2 45.2 83.0 106.0 126.3 Cash & equivalents 34.9 32.7 11.9 4.7 16.6
EBITDA norm (17.3) (26.7) (20.8) 2.1 12.6 Current receivables 8.8 14.8 24.4 30.0 32.1
EBIT norm (18.9) (31.7) (35.6) (14.7) (5.1) Current inventory 0.4 1.1 2.3 1.7 2.0
PBT norm (19.1) (33.8) (36.7) (16.1) (6.5) PPE 2.8 3.2 4.0 5.0 6.3
NPAT norm (19.1) (32.4) (33.0) (12.2) (2.6) Intangibles 6.0 182.2 247.5 238.1 228.5
NPAT reported (21.0) (68.0) (48.2) (29.3) (20.5) Other assets 4.7 6.6 6.3 6.2 6.4
EPS norm (cents) (5.2) (4.3) (4.0) (1.4) (0.3) Total assets 57.5 240.7 296.3 285.6 292.0
DPS (cents) 0.0 0.0 0.0 0.0 0.0 Current payables 10.9 11.0 18.8 16.7 16.8
Total debt 0.4 0.9 10.9 10.9 10.9
Growth (%) FY21A FY22A FY23E FY24E FY25E Other liabilities 12.3 62.2 124.2 128.0 90.2
Sales 55.5 243.4 83.8 27.7 19.2 Total liabilities 24.2 75.4 155.3 156.9 119.1
EBITDA norm 67.5 54.5 (22.3) (110.2) 495.8 Minorities 0.0 0.0 0.0 0.0 0.0
NPAT norm 81.1 69.8 1.7 (63.1) (78.6) Shareholders equity 33.3 165.3 141.1 128.7 172.8
EPS norm (cents) 16.7 (16.9) (8.7) (63.5) (79.6)
DPS (cents) n/m n/m n/m n/m n/m Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
Operating cash flow (15.6) (37.3) (8.1) 4.0 21.4
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Maintenance capex (0.7) (0.4) (2.0) (2.5) (2.8)
EBITDA margin (131.4) (59.1) (25.0) 2.0 10.0 Free cash flow (16.2) (37.7) (10.1) 1.5 18.6
EBIT margin (144.0) (70.2) (42.8) (13.9) (4.1) Growth capex (1.5) (0.9) (4.6) (5.9) (6.6)
PBT margin (145.1) (74.9) (44.3) (15.1) (5.2) Acquisitions/disposals 0.0 (142.3) (16.1) (1.9) 0.0
NPAT margin (145.1) (71.7) (39.7) (11.5) (2.1) Dividends paid 0.0 0.0 0.0 0.0 0.0
Other cash flow (0.2) (1.3) (0.1) (0.8) 0.0
Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E Cash flow pre-financing (17.9) (182.2) (30.9) (7.2) 11.9
Sales 6.4 17.9 27.3 36.6 46.5 Funded by equity 47.8 179.7 0.0 0.0 0.0
EBITDA norm (10.9) (15.7) (11.1) (13.5) (7.2) Funded by cash/debt (76.9) (177.5) 20.9 7.2 (11.9)
EBIT norm (11.8) (20.7) (11.1) (20.5) (15.1)
PBT norm (12.0) (20.9) (13.0) (21.0) (15.7) Liquidity FY21A FY22A FY23E FY24E FY25E
NPAT norm (12.0) (20.2) (12.2) (19.2) (13.8) Cash conversion (%) 89.9 138.4 51.7 70.1 149.5
NPAT reported (12.6) (33.1) (34.9) (26.7) (21.5) Net debt ($m) (34.5) (31.9) (1.0) 6.2 (5.7)
EPS norm (cents) (3.3) (3.7) (1.6) (2.3) (1.6) Net debt / EBITDA (x) 2.0 1.2 0.0 2.9 (0.5)
DPS (cents) 0.0 0.0 0.0 0.0 0.0 ND / ND + Equity (%) n/m (23.9) (0.7) 4.6 (3.4)
EBIT / Interest expense (x) n/m (15.2) (30.1) (10.8) (3.7)
Stock specific FY21A FY22A FY23E FY24E FY25E
ARR 14.1 61.0 95.0 114.0 134.5 Valuation FY21A FY22A FY23E FY24E FY25E
Contracted Students (mill) 2.4 12.0 16.2 18.8 21.4 EV / Sales (x) 18.9 5.6 3.4 2.7 2.2
UK - Services Rev 0.0 24.4 38.7 46.4 53.4 EV / EBITDA (x) n/m n/m n/m n/m 22.0
US - Services Rev 5.0 15.8 31.1 43.0 53.4 EV / EBIT (x) n/m n/m n/m n/m n/m
ANZ & ROW - Services Rev 3.7 4.1 12.2 15.4 18.0 P / E (x) n/m n/m n/m n/m n/m
Hardware Rev 0.3 0.3 0.8 1.0 1.2 P / BV (x) 4.1 1.7 1.9 2.1 1.6
Total Operating Income 9.0 44.7 82.8 105.7 126.1 FCF yield (%) (11.7) (13.2) (3.8) 0.5 6.6
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Weighted shares (m) 365.5 747.1 832.2 843.3 883.0
Executive Summary
Our OverWeight recommendation is predicated on the following:
• Strong Organic and Acquisitive Growth Has Created Scale that Can Be Leveraged: FZO has completed 7
acquisitions since listing in 2016, but the two acquisitions of meaningful scale (Smoothwall, Qustodio)
have both occurred in the past 12 months and represent 93% of the total consideration paid across all 7
acquisitions. Smoothwall added $30m in ARR and Qustodio added $16m, which has resulted in both
meaningful and timely scale.
We believe FY22 was characterised by acquisitions, FY23e will be characterised by consolidation and FY24e,
by operating leverage. Of the $34m (or +56%) ARR growth that we are forecasting in FY23e, we expect
organic growth and acquisitive growth to be largely equal. However, we only expect a moderate improvement
in Underlying EBITDA as the Qustodio acquisition annualises into the business. Then, in FY24e, we are
forecasting ARR growth of $114m ($19m, +20%), with the vast majority of that (~90%) being organic. More
importantly, FZO should realise its operating leverage goals, with FY24e Underlying EBITDA of $2m seeing its
2H24e EBITDA turning positive (+$3.4m). Lastly, FZO’s average FY22 Gross Margin of 68% is now above
>80% on a spot basis.
• Digital Safety Tailwinds Can’t Be Ignored, with Funding Beginning to Flow: In FY22, the UK and the US
collectively represented 91% of FZO’s total Education Service revenues (UK: 55%, US: 36%). In the UK, the
Department of Education’s Keeping Children Safe in Education (“KCSIE”) was introduced in 2014 and was most
recently updated only two weeks ago, specifically, on the 1st of September. Its “Statutory guidance sets out
what schools must do to comply with the law” and this is providing FZO with ‘tailwind demand’ for its child
online safety offerings.
In the US, the Children’s Internet Protection Act (“CIPA”) was enacted by the US Congress in 2000 to address
concerns regarding children’s access to harmful or obscene content over the internet. CIPA imposes online
safety requirements that schools and libraries must meet. Perhaps more importantly, residual funding from the
Trump administration and US$125bn in funding under the Biden administration will be appropriated over time,
with a portion of that funding relevant to FZO’s offerings. Product fit and scale are very important, but what can
really add momentum to revenue growth is not just regulation, but conformity being mandated, and then
funding being provided to facilitate that conformity. This is a material, medium-term growth opportunity for
FZO.
• Competition is Real, But FZO Has Depth of Offering, and is Adding Breadth: FZO targets two core customer
bases: i) schools and regional/state-based school boards with its content filtering, Classwize and monitoring
product; and ii) parents with its parental control product Qustodio.
FZO sees itself as being uniquely placed to capitalise on the trend towards consolidated procurement, where
FZO can address all four key areas of a child’s digital journey: i) the school’s duty of care (Filtering); ii)
Classroom analysis (Classwize); iii) Parental Controls (Qustodio); and iv) the student’s wellbeing (Smoothwall,
future FZO product launches). FZO believes it is unique in its long-term and ‘unwavering’ focus on children’s
online safety and offline wellbeing. With this ‘true north’, FZO’s broad product offering and hence, consolidated
procurement capabilities, FZO is well-positioned to capitalise on the imminent UK and US growth opportunities.
Company Overview
Family Zone (“FZO”)is an Australian listed and Perth headquartered company focused on the cyber safety market.
The company is focused on keeping children safe online and it has developed a unique and innovative
cloud-based digital safety and student wellbeing solution which supports the needs of both schools and parents to
protect and support children. Matters addressed by FZO's solutions include online bullying, drugs, suicide and
pornography. FZO's business model is to target schools directly, school board districts, sell direct to parents and
target parents through school referrals.
Segmental Overview
FZO operates in two key segments, which are defined by product: K-12 Education (B2B and B2G) and Consumer
(B2B2C and B2C).
K-12 Education
FZO considers its range of filtering technology to be second to none. This technology includes:
• An innovative suite of cloud services which support a uniquely flexible hybrid cloud / on-prem architecture.
Since listing in 2016, FZO has developed its filtering suite organically and inorganically bringing together technology
from Linewize (New Zealand); Tesserent (Sonar), and Cipafilter (US). FZO's core filtering suite is called School
Manager which works with the School Manager Appliance and Connect Apps & Applications.
In modern digital classrooms teachers need the ability to monitor student activity and focus their attention whether
they are in class or at home in a virtual setup. FZO currently has two classroom management solutions, Classwize
and NetRef which was added to the portfolio of products in 2021. NetRef is soon to be depreciated with feature
parity to be achieved this calendar year.
With FZO's acquisition of Smoothwall in 2021, FZO obtained access to the world leading safeguarding tool Monitor.
This product serves to monitor student activity in real-time, including their use of social media, gaming and any app,
including offline apps, on student devices. With this logging plus, advanced AI tools and a world leading human
moderation team based in the UK, FZO's Monitor provides the most comprehensive safeguarding tool to any school
anywhere.
Monitor is tuned to look for toxicity; such as bullying, suicidal ideation, grooming and radicalisation and literally
intervenes daily to keep children safe.
Safeguarding technology is experiencing strong tailwinds on the back of the increasing importance for children’s
wellbeing and safety.
Wellbeing refers to a broad range of products and services that the digital safety industry is beginning to offer
schools and includes training courses, professional development programs for teachers, student check-in and survey
systems and much more. Today FZO offers face to face and online education courses for Australian schools and
these offerings are being scaled to take to the UK and US. The Company believes this is an area of massive growth
potential and is signalling ongoing investment.
Since listing in 2016 FZO has run a parental control app called Family Zone Connect. This product was promoted
into FZO's ANZ school footprint with strong parent take-up. In 2022 FZO acquired the world leading parental
control provider Qustodio. With Qustodio, FZO intends to take the successes of B2B2C sales in ANZ to its global
school footprint of ~24,000 schools.
The features of Qustodio include permitting parents to i) filter and block inappropriate content; ii) set time limits and
daily routines for online activity; iii) selectively block or allow individual apps and games; iv) track the location of
devices; and v) set permissions and access levels based on each individual’s requirements.
Below is a breakdown of FZO’s product offering and some recent acquisitions. The company operates across three
key regions: the UK, the US and ANZ.
• Qustodio: Qustodio is a global leader in parental controls with customers in more than 100 countries and it
supports 9 different languages. When it was acquired by FZO in August 2022 it was profitable with over 270k
paid parental control accounts and was doing >A$16m in ARR of which 95% was through customer channels
with the remainder through its K-12 education offerings. Its telecommunication partners included the world’s
leading telcos in Spain, France, Singapore, Mexico, Japan, Brazil and Chile.
• Cipafilter: Cipafilter was acquired in February 2022 and supports more than 580 K-12 clients and 400k
students. It is profitable, cashflow positive and was generating ~A$3m in annual revenue at the time of
acquisition though multi-year contracts for provision of filtering, firewalling and associated hardware.
• Smoothwall: Smoothwall was acquired by FZO in August 2021 as it was the leading UK K-12 digital safety
solutions provider servicing more than 12,400 schools and 6m students. Smoothwall’s leading product called
“Monitor” services the rapidly growing market for data, analytics and monitoring which had a strong tailwind
from UK regulatory mandates. At the time of acquisition, the company was generating ~A$30m in ARR and
had delivered a pro from an unaudited EBITDA of ~A$7m for the financial year ended March 2021. Since
being acquired Monitor was launched in the US in November 2021 and has since grown to over 200k active
US users (31 March 2022) and had detected 106k actionable events with 293 interventions.
• NetRef: FZO announced the acquisition of NetRef in June 2021. At the time of acquisition Net Ref had >450k
students and was offering its customers a comprehensive classroom management and learning analytics tool.
NetRef's features are being ported into FZO's Classwize tool and will be end-of-life in CY22. The company
helps schools set universal rules to limit what students could do on school-owned devices, provide a
dashboard so teachers can watch over what students are doing on devices during class time and view student
usage and costs across EdTech investments to see if they were worthwhile for schools.
• Classwize: Classwize was launched in February 2020 and was designed to empower teachers for modern
classrooms with complete control and visibility. The product can operate with or independently of FZO’s
network filters, offering network administrators complete flexibility in deployment. It is priced at the same cost
as FZO’s content filter and was launched by FZO in the UK in March 2022 creating a A$30m cross-sell
opportunity due to the over 5m in Smoothwall UK licenses that FZO has in the region.
3. Competitive Landscape
FZO Zone has completed 7 acquisitions since listing in 2016, and these are summarised below in Figure 2. However,
acquisitions of meaningful scale (Qustodio, Smoothwall) have only occurred in the past 12 months.
Smo o thwall's filtering pro duct serviced 38% o f UK educatio n market A ccretive fo r shareho lders and delivered a wo rld leading po rtfo lio
with it pro viding services to mo re than 12.4k scho o ls and 6m o f K-12 o nline safety pro duct inclusive o f co mpliance/filtering,
Smoothwall Aug-21 US$103.7m students. A t the time o f acquisitio n it was generating ~$ 30m in A RR classro o m management, data analytics, mo nito ring and cash
and delivered a pro fo rma unaudited EB ITDA o f ~$ 7m fo r the management. There was significant cro ss-sell o ppo rtunities and
financial year ended M arch 21. co st efficiencies which came fro m the acquisitio n.
Net Ref is a new entrant into the USA scho o l classro o m safety
market with its co mprehensive classro o m management and P ro vides expansio n o ppo rtunity in the US and immediately
Net Ref Jun-21 US$4.325m analytics to o l ("Net Ref") gro wing swiftly to suppo rt in excess o f increases FZO's student base by ~10%
250k students.
Linewize is the leading pro vider o f cyber security and safety services
in NZ. Its platfo rm is an inno vative clo ud-managed firewall service, Linewize penetrates o ver 11% o f NZ scho o ls and 15% o f NZ's
specifically develo ped fo r the educatio n secto r. The platfo rm and students pro viding a significant cro ss-sell o ppo rtunity. Linewize
Linewize Oct-17 US$1.1m service co vers user authenticatio n, co ntent filtering, netwo rk also had a better co st structure, techno lo gy stack, big data and
appliances, teleco ms services, B YOD suppo rt, netwo rk access machine learning capabilities and relatio nships
management and an award winning suite o f classro o m to o ls
So nar is a leading cyber security platfo rm in the A ustralian educatio n Generates immediate license fee revenue o f $ 840k a year and is
secto r o ffering firewall techno lo gies, plus web and co ntent filtering. expected to be o perating cash flo w accretive in the first 12 mo nths.
Sonar/MyNet IP Nov-16 US$2.1m M yNet is an administratio n, self-service and repo rting to o l which A lso pro vides FZO with the o ppo rtunity to cro ss-sell to So nar's
respo nds to the specific cyber needs o f the educatio n secto r. 180 scho o ls.
CASM Nov-16 US$0.2m Enables FZO to run filtering services o n P Cs and M A Cs Expands Family Zo ne's market o fferings
• Qustodio, FZO’s most recent acquisition, expands its product offering into existing markets, which is the Product
Development quadrant.
• Smoothwall added the market-leading ”Monitor” product and also gave FZO a beach-head in the UK, placing it
in the Diversification quadrant.
• CipaFilter extended FZO’s existing filtering capability in the US, a market that it was already operating, putting
it in the Market Penetration quadrant.
This analysis helps to highlight the strategic nature of FZO’s acquisitions, and how it has intentionally and
strategically expanded both its product and market footprints meaningfully over the past 12-18 months. These
actions have helped FZO both gain scale and capability, giving it a strong position to stay competitive and
differentiated.
Figure 3: Ansoff Matrix – Highlighting the Strategy Behind FZO’s Recent Acquisitions
Product
New Existing
New
Existing
Given the considerable acquisition activity, Figure 4 shows our estimates for FY23e revenue growth. We are
forecasting FY23e Operating revenue (excl R&D grants and interest income) growth of +85% (+$38m), of which we
estimate organic growth to be +39% (+$17m) and +46% (+$20m) to be inorganic.
• Of the $20m of inorganic growth, ~$14m (or ~70%) comes from an incremental 11-month contribution from
Qustodio, with the majority of the balance coming from the modest (final) incremental contribution from the
Smoothwall acquisition.
• Of the $17m (+39%) of organic growth, more than half (~$10m) will come from the UK, ~35% (~$6m) from the
US and the balance ~9% (~$2m) from the ANZ + Other (i.e. Rest of World).
• In FY22, ARR grew $47m to $61m representing a total growth of +333% or ~100% organically. Of the $47m
growth in ARR, ~$30m (64%) came from the acquisition of Smoothwall, ~$2m (4%) from Cipafilter ($3m
announced at acquisition but $1m of ARR got reclassified to hardware revenue) and the remaining $15m (32%)
was organic, predominately from the Education segment (note that FZO’s original parental control product
remains, but was subscale in FY22).
• In FY23e, we are forecasting ARR growth of $34m (+56%). We expect $16m (~47%) of the $34m growth in
ARR to come from the Qustodio acquisition, with the remaining ~$18m (~53%) coming from Organic growth.
Of the $18m in forecast organic ARR growth, we expect the this to be driven by both the education business
and the Consumer (parental control) segment, with the ultimate mix to be determined by both their stand-alone
traction, but also cross-sell.
• In FY24e, we are forecasting ARR growth of $19m (+20%), with the vast majority of that being organic and the
remainder coming from one extra month of contribution (~$1.3m, ~1%) from Qustodio. A caveat to our FY24e
forecast is that it is difficult to forecast at this juncture as FY24e’s success will largely be determined by how
successful FZO is in FY23e at leveraging the Qustodio business into the US in particular (the US was ~45% of
Qustodio revenue at the time of acquisition).
16 95.0
2.4
16.0
13.9 61.0
30.0 3.0
14.1
FZO’s two key geographic markets are the UK and the US. In FY22, the UK and the US collectively represented 91%
of total Education Service revenues (UK: 55%, US: 36%), and once the Qustodio acquisition has completed we
estimate the UK and US will still collectively represent ~85% (UK: ~47%, US: 38% in FY23).
As such, the regulatory environment in these two jurisdictions are of most importance to FZO. The two key
frameworks are the Keeping Children Safe in Education (“KCSIE”) guidance by the UK Department of Education and
the Children's Internet Protection Act (“CIPA”) in the US. We now explore these in detail.
The UK Department of Education’s Keeping Children Safe in Education (“KCSIE”) was introduced in April 2014 and is
regularly updated with the most recent update occurring this month. KCSIE focus is on increasing safe obligations in
schools. The following extract from KCSIE regarding the online filtering and monitoring of children’s school
computers and devices:
“Whilst considering their responsibility to safeguard and promote the welfare of children and provide
them with a safe environment in which to learn, governing bodies and proprietors should be doing all that
they reasonably can to limit children’s exposure to the above risks [porn, cyber bullying, sexting etc] from
the school’s or college’s IT system. As part of this process, governing bodies and proprietors (e.g.
headmasters) should ensure their school or college has appropriate filters and monitoring systems in place
and regularly review their effectiveness”
Under KCSIE, schools and colleges must “ensure appropriate filters and appropriate monitoring systems are in place.
Children should not be able to access harmful or inappropriate material from the school or colleges IT system.”
“Schools and childcare providers in England and Wales must also ensure that children are safe from terrorist and
extremist material when accessing the internet in school, including by establishing appropriate levels of filtering”
• “Statutory guidance sets out what schools must do to comply with the law”.
• “Where the guidance states schools and colleges should do something, you should follow this unless you have
a good reason not to”.
The focus on ensuring schools are monitoring their students and filtering what they can view on the internet is a
significant tailwind for FZO’s products in the UK, specifically, the statutory guidance that mandates conformity.
SWGfL is a non-profit charity centred around ensuring everyone in the UK can benefit from technology free from
harm, and forms part of the UK Safer Internet Centre. SWGfL have developed a tool to check whether a school or
college’s filtering provider is signed up to the relevant lists (e.g. Your Internet Connection Blocks Child Abuse &
Terrorist Content, CSA content and Sexual Content). Smoothwall is a registered provider on SWGfL’s list.
Founded in 2001, Smoothwall is an industry pioneer, with a mature filtering product and a leading position in UK
education, which, according to FZO, serviced ~38% of the UK market at the time of acquisition by FZO in August of
2021. Smoothwall is also a partner and meets the standards required by the Internet Watch Foundation, UK Safer
Internet Foundation, Google Education, and the Council of British International Schools (COBIS), amongst others.
Smoothwall has three key products (Filtering, Firewalls & Monitoring), with its flagship product being its “Monitor”
product, which ‘helps schools proactively detect online risks before they become real-life incidents”. While this
service was only ~20% of Smoothwall’s annual recurring revenue (“ARR”), it is this service that meets the needs of
the rapidly growing market for data, analytics & monitoring, and which is being buoyed by the recent UK regulatory
mandates. Smoothwall Monitor is 100% cloud based and is EU General Data Protection Regulation (GDPR)
compliant. For perspective, at the time of acquisition, Smoothwall serviced >12,400 schools and 6 million students,
was generating ~$30m of ARR and delivered a pro-forma unaudited EBITDA of ~$7m for the financial year ended
Mar-21.
The US Children’s Internet Protection Act (“CIPA”) was enacted by the US Congress in 2000 to address concerns
regarding childrens’ access to harmful or obscene content over the internet. CIPA imposes requirements that schools
and libraries must meet in order to be eligible to receive discounts for internet access or internal connections through
a program called the “E-rate program”. This program is designed to make telecommunications and information
services more affordable for schools and libraries and includes discounts on telecommunications,
telecommunications services, and internet access, as well as internal connections, managed internal broadband
services and basic maintenance of internal connections. Discounts range from 20% to 90% and are based on the
poverty level of the schools and how rural the school or library is. Some service costs are also eligible for a discount
under the E-rate program. Thus, schools and libraries have an economic incentive to meet the US Children’s
Protection Act requirements in order to receive significant discounts.
In order to be eligible for the E-rate program schools and libraries must have the following:
• Protection measures must block or filter internet access to pictures that are: i) obscene; ii) child pornography; or
iii) harmful to minors (for computers that are accessed by minors e.g. all school computers)
• To meet CIPA requirements schools must also have two additional certification requirements: 1) their internet
safety policies must include the monitoring of online activities of minors; and 2) they must provide for education
to minors surrounding appropriate online behaviour including how to internet with others online and on social
networking websites and chat rooms and surrounding cyberbullying awareness and response.
The National Conference of State Legislators (“NCSL”) outlines which states in the US have internet filtering laws
that apply to publicly funded schools and libraries in their state. See Appendix 3 for a detailed list of US states. Most
of these states just requires that school boards and public policies adopt internet use policies in order to stop minors
from gaining access to obscene, sexually explicit or harmful materials. However, some states have even gone a step
further and require publicly funded institutions to install filtering software on school computers or on library
terminals.
A company with a proven product fit and has subsequently achieved scale is well placed to grow its business over
time. This describes FZO today. But, FZO also has regulatory tailwinds, where the US Government either has, or is
looking to, mandate conformity with its school student protection policies. Not only is there momentum via
regulation, there is also funding being made available to meet those requirements.
Part of the capital flowing into the sector is from the Trump administration’s policies in the education sector, but
more recently, from the Biden Administration. The Biden Administration has committed US$125bn in funding for
‘school districts to support student wellbeing and other programs’ (see Figure 6 below).
In summary, product fit and scale are very important, but what can really add momentum to revenue growth is not
just regulation, but conformity being mandated, and then funding being provided to facilitate that conformity. That is
how we see FZO’s current situation in the US, and with new wellbeing services to launched in 1H23e, we argue that
FZO is well placed to capture some of that impending opportunity.
While Australia only represented ~4% of FZO’s education service revenue in FY22, we make comment here given
Australia is FZO’s DNA, and to provide some domestic context.
In Australia each state has its own Department of Education which is in charge of funding to specific schools and
specific subjects, as well as determining the policies and procedures that each school within a state must adhere to.
This means that each state has different policies and requirements on how children can use digital devices in
classrooms as well as the monitoring, filtering and cyber training that teachers and students are required to
undertake.
In Victoria, the Department of Education requires schools to have filtering devices to prevent students from accessing
inappropriate content and websites. The Department of Education in Victoria also has measures that include:
• Teachers must move around the room to regularly monitor screens (a manual approach)
• The installation of remote access software that enables teacher access to individual students’ 1 to 1 learning
device used in class (a technology-driven approach)
FZO Insight
Australia places a high level of importance on data privacy for students and hence, arguably has lower levels of
monitoring, filtering and other cyber security measures compared to other countries. While there is a still a strong
tailwind for FZO’s suite of products in Australia, the primary difference is Australia’s lack of scale, compared to other
countries.
FZO targets two core customer bases: i) schools and regional/state-based school boards with its content filtering,
Classwize and monitoring product; and ii) consumers and parents with its parental control product Qustodio.
Although there is some overlap between the customer bases and this is expected to continue over time, at the
moment they are effectively distinctly different. As such we have broken the competitive landscape into the two
different distinct offerings given that each segment has different key players.
Overall FZO is a Top 5 player in the Education market and a global market leader in the Consumer (Parental Control)
Market. Ultimately though, both these markets are competitive with most companies in these sectors having a
similar product offering.
Education Market (e.g. Schools and School District Boards) – Content Filtering,
ClassWize, Monitoring
The Education market is currently quite fragmented with 5 key players. Over time we expect this market to
consolidate as a result of the importance of winning licensing agreements with regional board sectors and the
importance of having a significant brand name and customer awareness. Nonetheless, we don’t expect this will be a
“winner takes all” market – we expect it could, however, be predominately controlled by 2-3 players. We see FZO as
‘a leader’, not ‘the leader’ from a market share perspective, but it is in a strong position to remain one of the key
players as a result of its compelling technology stack, proven marketing strategy and its ability to win district-wide
US education deals.
From a pricing perspective Qustodio is definitely the cheapest, providing it with a significant opportunity to increase
prices (but this could likely slow growth). From a market share perspective, Qustodio is seen as the market leader
with 4m cumulative accounts since launch (~270k paying users) followed by OurPact at number 2. Bark is seen as a
serious contender albeit its 3m users is likely spread across paying parents (like Qustodio and OurPact) and schools
(like FZO’s filtering product).
Nonetheless, we see Qustodio as being in a strong position to maintain a market leading position in the parental
control market given we believe it’s not likely a “winner takes all” market. We expect that in the long-run, there will
likely be consolidation that will result in a smaller number of larger players that will control the majority of the
market.
“technology solutions that facilitate or improve teaching and learning outcomes. This includes software,
hardware and other solutions that support the education value chain” (Deloitte, 2020).
EdTech is a rapidly growing market as a result of the education sector previously investing little money in digitising
its systems and learning processes. This can be seen as in 2020 EdTech spend made up less than 4% of the total
education expenditure, with over 80% of educators believing that schools are allocating an insufficient budget to
technology. As the benefits of EdTech and more innovate technology becomes more well-known, the digital spend
in education is expected to double from 2020 to 2025 to reach a total of US$404bn (see figure below).
US$404bn
5.2% Digital
Spend
US$227bn
3.6%
Digital Spend
2020 2025
Source: HolonIQ.
Family Zone operates a variety of business models due to having several different end-customers and product
offerings. A breakdown of which products are sold through each business model is outlined below:
Financials
Segmental Revenue Summary
• Total Operating Revenue, which is Services Revenue plus Hardware Revenue, is forecast to increase from
$45m in FY22 to $82m in FY23e. The large step up in operating Income from FY21 ($9m) to FY22 ($45m)
reflects the Smoothwall and Cipafilter acquisitions. The +81% (+$36m) jump from FY22 to FY23e revenue
reflects the inaugural 11-month contribution from Qustodio (~$14m), and 1 additional month from Smoothwall
(~$4m) and an incremental 8-month contribution from Cipafilter (~$2m).
Note that hardware revenue relates to computer servers used for content filtering which they generally put into
the on-premise data centres of schools. This revenue is expected to be immaterial over time as FZO has shifted
to charging this on a SaaS basis in the US, so this is predominately only reflecting hardware revenue in the UK.
Hardware revenue was ~6% of Total Operating Income in FY20, it fell to ~1% in FY22 and is expected to
remain immaterial going forward.
• The UK was $24m or 55% of total services revenue in FY22 on the back of the Smoothwall acquisition. Of
Smoothwall’s $30m in ARR at the time of the acquisition, 85% of this was generated in the UK.
• US Revenue grew from $5m in FY21 to $16m in FY22 due to both acquisitions and FZO having success
winning district-wide school education deals. We expect robust growth to continue – we are forecasting the US
will grow to $31m or 38% of Total Services Revenue in FY23e as we expect further district-wide school
contract wins, traction with its Monitoring product, and to a lesser extent, additional content filtering deals.
• ANZ, Rest of World (“RoW”) and Corporate Services Revenue grew in dollar terms in FY21 and FY22, but has
fallen from 73% of Total Services Revenue (excl hardware) in FY20 to only 9% in FY22 given the acquisitions in
other geographies. The ANZ region remains in FZO’s DNA, but lacks scale compared to the UK and US markets,
and as such, isn’t expected to be a meaningful segment in the short and medium term, unless FZO decides to
strategically expand into Western Europe, Asia and/or Central/South America.
• We are forecasting Total Operating Revenue to grow +81% (+$36m) in FY23e due to the inaugural 11-month
contribution from Qustodio (~$14m), 1 additional month of Smoothwall (~$4m) and an incremental 8 months
from Cipafilter (~$2m).
• Gross Profit (“GP”) is forecast to increase $24m in FY23e on the back of an additional $36m increase in total
revenue. FZO’s GP margin is expected to stay largely flat (66% vs. 68%) as a result of us forecasting that
Qustodio’s marketing expenses being included in Cost of Sales. Without this, we estimate the GP Margin
would have been ~500bps higher, at ~71%. (Note, both EBITDA and EBITDA margins would be the same
under both scenarios, as the marketing expenses would have been picked up in Opex, if not included in Cost of
Sales).
• Underlying EBITDA (pre non-cash and non-recurring items) improves slightly from -$27m in FY22 to -$21m in
FY23e as FZO absorbs the additional costs (primarily staff) from Qustodio. We then forecast EBITDA to
improve substantially to +$2m in FY24e as we expect FZO will gain operating leverage from operational
improvements and synergies from acquisitions (eg. modest Cost of Sales increases, removal of duplicate roles,
increased use of Share Based Payments, etc.).
• EBITDA (Reported – incl. Share Based Comp. (“SBC”)) is expected to improve in FY23e due to Share-Based
payments of -$15m in FY23e (FY22: -$19m) a result of the technology labour market pressures starting to
slowly cool and one-off SBC charges not re-occurring.
• Net Profit / (Loss) After Tax (Reported) in FY22 included -$4.7m of Acquisition related expenses relating to
Smoothwall, Cipafilter and Qustodio which isn’t expected to continue in FY23e. It also had a -$11m FX
headwind given the UK and US makes up the majority of its revenue. Going forward FZO’s reported NPAT
could swing considerably as a result of movement in the USD and the GBP.
EBITDA (pre non-cash and non-recurring items) -10.3 -17.3 -26.7 -20.8 2.1 12.6
Net Profit / (Loss) after Tax (Underlying.) -17.6 -21.9 -59.3 -48.1 -28.5 -20.5
Significant Items & FX 0.0 -0.1 -16.1 -0.1 -0.8 0.0
Net Profit / (Loss) after Tax (Reported.) -17.6 -22.0 -75.4 -48.2 -29.3 -20.5
% Margin nm nm nm -58% -28% -16%
Source: Wilsons, Family Zone.
• Cash: FZO finished FY22 with $33m in cash and we expect this to fall to $12m in FY23e primarily due to the
cash payment of US$9.9m (~A$14m) relating to Qustodio. This $12m balance assumes the drawdown of its
$10m working capital facility. We then forecast FY24e cash of $6m as sales gain traction and any negative
working capital impacts from acquisitions have cycled through.
• Intangibles: FZO’s intangible asset balance jumped from $6m in FY21 to $182m in FY22, reflecting the
Smoothwall acquisition, and has jumped again in FY23e to $248m, reflecting the Qustodio acquisition. The
amortisation of intangibles has been estimated, but is difficult to gauge accurately as the Qustodio acquisition
accounting is still be finalised, as the transaction only closed recently (1st August).
• Contingent Consideration: While the Smoothwall acquisition consideration was upfront, the Qustodio
acquisition has some deferred consideration components, which takes non-current contingent consideration up
from $2m in FY22 to $51m in FY23e, which largely represents the US$25 (~A$36m) in deferred consideration
from Qustodio. Payment is due in cash or equity – we have assumed equity.
• Operating Cashflow:
o FY22: -$37m was negatively impacted by a working capital headwind related to the Smoothwall
acquisition, which is expected to have fully worked-through by the close of FY23e.
o FY23e: Should see cash receipts improve considerably, while cash payments should remain relatively
stable, a positive impact. With FZO having a strong 1Q skew to its cashflows, we are forecasting
1H23e Operating Cashflow of -$3m, but also the potential for (late?) 4Q23e to post positive
Operating Cashflow.
o FY24e: While we are forecasting positive FY24e operating cashflow of ~$4m, note that the strong
1H skew sees it turn positive, but 2H24e may still be operating cashflow negative.
• Investing Cashflow: Nothing material here, other than calling out the acquisition expenses which is expected to
continue in FY23e due to the upfront cash component of US$9.9m (~A$14m) associated with the Qustodio
acquisition which is due in 1H23e and then deferred cash payments to the VC investors and founders in 2H23e
and 2H24e. At this time we have also assumed the US$7.7m Convertible Note due to VC Investors will convert
to shares vs being paid out in cash by FZO.
• Financing Cashflow: We assume FZO draws down its ~$10m working capital facility in full in FY23e.
We then used a DCF as a Cross Check which returned a valuation of $0.61 is 15% above our target price of $0.53.
Family Zone Cyber Safety Ltd 288 256.1 3.1x 2.4x 2.0x 84% 28% 19% 41% 4.7x 3.3x 2.7x NM NM 20.3x 59% 30% 29%
Source: Wilsons, Refinitiv, Family Zone.
Risks
We see the following as the key risks for FZO:
• Commercialisation strategy execution: The success of the company relies on consumers subscribing to FZO’s
services through both retail and wholesale distribution channels. Achieving a large scale of users/subscribers is
crucial for FZO to generate income. Slower growth or uptake of users will affect FZO’s earnings ability
• Competition: The K-12 education and parental controls market is highly competitive with some competitors
having greater capital resources. FZO’s competitors include telecommunication companies, internet companies
and computer, software and hardware manufacturers
• Sufficiency of funding: Given the company is unprofitable it relies on the equity capital market in order to fund
its operations. There is currently no guarantee that the company will become profitable and it is likely that there
will be future dilutive equity raisings in order to fund operations and potential acquisitions.
• Integration risk in regards to acquisitions: FZO has acquired several businesses in the past 2 years including
Smoothwall, Cipafilter, Qustodio and NetRef. These acquisitions may consume significant management time,
attention and effort during the integration phase. Acquisitions may also fail to live up to expectations or derive
the synergies that management has derived. Any failure to realise those benefits in any material aspect will
likely mean that the company will fail to meet its previously stated financial forecasts.
• Other risks: Other risks include, but are not limited to: i) due diligence risks associated with past and future
acquisitions; ii) Information technology risks and security risks; iii) Brand risk; iv) Change in technology and
suppliers; v) Exchange rate fluctuations; vi) Third party manufacture and distribution risks
• Environmental: Although FZO doesn’t disclose its environmental impact it is expected to have little impact on
the environment overall. Greater disclosure would be welcomed.
• Social: FZO provides little disclosure around its social principles and impact. We see its mission statement of
to “create environments where children can thrive” as something that is hugely important for the world and
would likely be supported significantly by its staff. Hence, we believe FZO’s staff would feel like there job is
having an impact on the world and would be drive to see the products that they develop have an impact.
FZO states that the “cost to schools for the involvement of senior staff in resolving cyber bullying matters is
estimated at $300m every 5 years”. We see FZO as being highly socially responsible given its focus on
protecting and supporting a child’s digital journey. Below we have outlined some statistics that FZO has
published to illustrate the significance of the issues that children and students face when accessing the
internet at a young age.
• Teen suicide rates have doubled in Australia and Tripled in the US in the past decade
• 4 million kids in Aus and the US display clinically disordered gaming problems
• Governance: FZO’s corporate governance statement complies with the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations 4th edition (February 2019). The board also has 7
directors of which 5 are Non-Executive. The board currently only has 1 female director which we think could
be improved and we would be supportive of having a director with past experience in the Public Sector or
Education given that is currently the key driver of FZO’s revenue.
FZO’s Corporate Government statement endorses the following policies: i) Code of Conduct, ii) Whistle-
blower policy; and iii) Antibribery and Corruption Policy. They don’t have a Modern Slavery Policy but we don’t
believe this is of significance given their Code of Conduct covers a lot of the relevant material. Nonetheless, we
believe this is a formal document FZO could look to create at some point in the near future and if its supply
chains get more diverse and/or this become best practice for ASX-listed companies.
The Executive Directors and a number of senior staff agreed to convert part of their cash based remuneration into
security based remuneration. Shares and Remuneration Performance Rights were issued in lieu of salaries with the
objective of conserving cash and aligning the employee remuneration with shareholders through employees having
an equity interest in the Company. Note that Mr Pawlowitsch “agreed to receive security-based remuneration for the
2020 calendar year in lieu of his cash remuneration”.
Management Team
The management team has an average tenure of 4 years at FZO providing the company with strong experience in
working together. FZO has had 3 senior staff only join in the past 3 years though which is seen as reasonable given
FZO has undertaken several acquisitions and has expanded its international operations rapidly over the last several
years.
Figure 19: Management Team
Tim Levy Managing Director Accounting, Management Consultant, Technology Entrepreneur 2014
Ben Jenkins Chief Financial Officer Accounting, Finance and Operations 2022
Ben Trigger VP, Technology Applications Technology Consultant & Background in Running Tech Companies 2015
Paul Robinson VP, Technology Services Information Technology Consultant & Background in Running Tech Companies 2016
Ross Young SVP, North America Sales and Marketing and Product Strategy Development 2018
Gavin Logan SVP, United Kingdom Sales, Public Sector Relationship Managagement 2021
Eduardo Cruz CEO, Qustodio Technology Entrepeneur and Development, Consultant 2022
FZO’s senior management team are remunerated with a combination of a Base Salary Package and Short-Term and
Long-Term Performance Incentives based on meeting a number of company metrics.
Interestingly, the FY22e and FY23e STI’s are 50% based on a “positive Personal Scoreboard from the Board”
(specifics are undisclosed), with the remaining 50% a straight-line, sliding scale based on the 4Q’s Quarterly
Recurring Revenue (“QRR”) growth rate vs. the pcp:
• For FY22: 4Q22 QRR must be ≥50% growth vs. the pcp (i.e. 4Q21)
• For FY23: 4Q23 QRR must be ≥40% growth vs. the pcp (i.e. 4Q22)
We note that the growth rate does not discern between organic or acquisitive. The acquisition of Qustodio, which
closed on August 1st this year, is estimated to add ~A$16m in ARR. Given FZO finished FY22e with ARR of A$61m,
the A$16m increase (+26%) in ARR will account for ~2/3rds of the FY23e STI QRR growth requirement being met
just from the Qustodio acquisition.
FZO will need to achieve a further ~A$8m in ARR added over the course of FY23e to fully realise the STI payment.
This A$8m only requires a Net Revenue Retention (“NRR”) rate of 113% in FY23e, which is noticeably below the
very strong 132% it achieved in FY22e. And that assumes no new client wins.
As such, we see it as highly likely that the STIs relating to the QRR hurdle will be paid in full in FY23e.
Make Sustainable: Achieve quarterly average data and hosting costs per student below targets set by
the Board
Achieve quarterly Service Margin above targets set by the Board.
Improve Revenue per Student: Achieve Average Revenue Per Student targets set by the Board.
Appendices
Appendix 1: Capital Raising Timeline
Below is historical timeline for FZO’s capital raises since its IPO, summarising the amount raised, the number of
shares issued and the price per share:
Sum 2 6 7 .1 6 7 3 .6
Australia is estimated by Deloitte to have over 600 EdTech organisations that typically operate across the following
business models and develop a variety of products as outlined below:
Source: Deloitte.
The global VC education market has grown rapidly since 2010, further accelerating in 2020 as a result of the
pandemic, and the evident shortcomings in school’s technology systems for teaching children from home. McKinsey
reported that the pandemic resulted in K-12 students being “on average five months behind in mathematics and four
months behind in reading by the end of the school year and the pandemic only widening pre-existing opportunity
and achievement gaps hitting historically disadvantaged students hardest.” As parents with young children were
required to teach children from home, education technology companies saw a significant step-change in demand for
their services leading many to do capital raises at valuation multiples higher than expected.
This sustained interest in the VC EdTech sector has continued despite students returning to in-person learning.
China is the key driver of growth making up ~60% of all global VC investments in the EdTech sector in 2020. This is
due to China being the largest education market in the world and having one of the highest internet adoption rates.
In July 2021 though, Chinese regulators barred tutoring companies from making profits which made the shares of
publicly listed education companies operating in China plummeting. It would have also likely slowed down
investments into privately held Chinese education companies as this sector would have been seen as less attractive
to investors. Hence, going forward China is expected to receive a smaller part of the global VC Education
investment.
Outside of China, the US makes up 15%, India 14% and Europe 5% of the total EdTech VC market.
10.2
5.2
3.9
2.3
2.0
1.6
0.4 0.6
0.1 0.2 0.3
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: HolonIQ.
0.8
2.5
0.6
1.8
1.6 0.5
1.5
1.3
1.1
1.0 0.3
0.8
0.6
0.5 0.1 0.1
0.4 0.1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
The number of publicly listed education companies with a market cap greater than US$1bn has increased from ten in
2015 to approximately 30 in 2018. This trend is expected to continue as a result of the interest that VC firms have
been showing in education companies and a large proportion of VC exits taking the form of public listings -
especially during 2020/2021 when Equity Capital Markets were strong.
Figure 26: Number of Listed Education Companies with a Market Cap Greater than US$1bn
Source: HolonIQ.
In the US each state has differences in the rules surrounding internet filtering and what is required to be met within
schools and libraries. A summary of the key rules associated with each state that has them is outlined below.
implement an Internet use po licy that pro vides fo r the use o f hardware o r installatio n o f so ftware o n co mputers and o ther techno lo gy related
devices to filter o r blo ck Internet access to materials that are harmful to mino rs. Requires the use o f hardware o r so ftware o n co mputers
Indiana √ √ and o ther techno lo gy related devices to filter o r blo ck Internet access to materials that are harmful to mino rs.Requires public library bo ards
to ado pt a po licy co ncerning the appro priate use o f the Internet o r o ther co mputer netwo rk by library patro ns in all areas o f the library.
Iowa × √ Requires public libraries that apply fo r and receive state "Enrich Io wa P ro gram" mo ney to have and Internet use po licy in place.
Requires any scho o l district that pro vides public access to a co mputer to implement and enfo rce techno lo gy pro tectio n measures to
ensure that no mino r has access to visual depictio ns that are child po rno graphy, harmful to mino rs o r o bscene. A ny public library that
Kansas √ √ pro vides public access to a co mputer shall implement and enfo rce techno lo gy pro tectio n measures to ensure that no mino r has access to
visual depictio ns that are child po rno graphy, harmful to mino rs o r o bscene, etc.
Requires the Department o f Educatio n to develo p regulatio ns to prevent sexually explicit material fro m being transmitted via educatio n
Kentucky √ √ techno lo gy systems.
Requires scho o ls to ado pt po licies regarding students' and scho o l emplo yees' access to certain Internet and o nline sites. Requires the
Louisiana √ × State Department o f Educatio n to make reso urces available to parents abo ut free internet filters fo r ho me co mputers.
Maryland × √ Requires co unty-state libraries to ado pt po licies to prevent mino rs fro m o btaining access to o bscene materials via the Internet.
Requires public scho o ls pro viding co mputer access to students to have a po licy regarding internet safety measures to pro tect students
Massachusetts √ × fro m inappro priate subject matter and materials that can be accessed via the Internet.
Michigan × √ Requires libraries to use a system to prevent mino rs fro m viewing o bscene o r sexually explicit matter.
Requires public library co mputers with access to the Internet available fo r use by children to be equipped to restrict, including by use o f
available so ftware filtering techno lo gy o r o ther effective metho ds, access to material that is reaso nably believed to be o bscene o r child
Minnesota × √ po rno graphy o r material harmful to mino rs. A lso requires public libraries that receive state mo ney to pro hibit, including thro ugh the use o f
available so ftware filtering techno lo gy o r o ther effective metho ds, adult access to material that under federal o r state law is reaso nably
believed to be o bscene o r child po rno graphy.
Requires public scho o l and public libraries with public access co mputers to either (a) equip the co mputer with so ftware o r a service to
Missouri √ √ restrict mino rs' access to material that is po rno graphic fo r mino rs, o r (b) develo p a po licy that establishes measures to restrict mino rs fro m
gaining access to such material.
New Hampshire √ × Requires scho o l bo ards to ado pt a po licy regarding Internet access fo r scho o l co mputers, and establishes liability fo r vio latio n o f the po licy.
New York × √ Requires public libraries to establish po licies co ncerning patro n use o f co mputers.
Requires internet o r co mputer-based co mmunity scho o ls to use a filtering device o r install filtering so ftware that pro tects against Internet
access to materials that are o bscene o r harmful to juveniles. Requires the scho o ls to pro vide free filtering devices o r so ftware to students
Ohio √ × who wo rk fro m ho me. Requires scho o l districts to pro vide all students engaged in o nline learning a co mputer, at no co st, fo r instructio nal
use. Districts shall pro vide a filtering device o r install filtering so ftware that pro tects against internet access to materials that are o bscene o r
harmful to juveniles o n each co mputer pro vided to students fo r instructio nal use.
Requires scho o l bo ards and publicly-funded libraries to ado pt and enfo rce acceptable use po licies fo r Internet access that include the (1)
use o f so ftware pro grams reaso nably designed to blo ck access to visual depictio ns o f o bscenity, child po rno graphy o r material that is
Pennsylvania √ √ harmful to mino rs; o r (2) selectio n o f o nline servers that blo ck access to visual depictio ns o f o bscenity, child po rno graphy o r material that
is harmful to mino rs.
Requires each scho o l district to ado pt the mo del written po licy develo ped by the Department o f Educatio n that addresses the use o f
Internet filtering measures fo r co mputer access in scho o ls; requires the Department to develo p and po st the mo del fo r use by all scho o l
Rhode Island √ × districts including State scho o ls, charter scho o ls, and mayo ral academies co nsistent with federal law co ntained o n the Department's
website.
South Dakota √ × Requires scho o ls to equip co mputers with filtering so ftware o r to ado pt po licies to restrict mino rs fro m access to o bscene materials.
Requires publicly funded libraries and public scho o l libraries to ado pt po licies intended to reduce the ability o f the user to access websites
South Carolina √ √ displaying o bscene material.
Tennessee √ × Requires the develo pment o f acceptable Internet use po licies fo r public and private scho o ls to pro tect children fro m certain o nline material.
P ro hibits a public library fro m receiving state funds unless the library enfo rces measures to filter Internet access to certain types o f images;
allo ws a public library to blo ck materials that are no t specified in this bill; and allo ws a public library to disable a filter under certain
Utah √ √ circumstances. Requires lo cal scho o l bo ards to ado pt and enfo rce a po licy to restrict access to Internet o r o nline sites that co ntain
o bscene material. Requires a scho o l district o r charter scho o l that purchases educatio nal techno lo gy to ensure that adequate o n and o ff
campus Internet filtering is in place.
Requires public libraries to ado pt Internet use po licies. Requires public scho o ls to ado pt Internet use po licies that 1) pro hibit transmitting o r
Virginia √ √ viewing illegal material o n the Internet, 2) prevent access by students to materials the scho o l determines harmful, 3) select techno lo gy to
filter o r blo ck child po rno graphy and o bscenity.
Source: National Conference of State Legislatures (“NCSL”).
Definitions at wilsonsadvisory.com.au/disclosures.
| Analyst certification
Each analyst of Wilsons Advisory and Stockbroking Limited (ACN 010 529 665: AFSL 238375) (“Wilsons”) whose name appears in this research
certifies that (1) the recommendations and opinions expressed in this research accurately reflect the analyst’s personal, independent and objective views
about any and all of the subject securities or issuers; (2) no part of the analyst’s compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by the analyst in the research; and (3) to the best of the analyst’s knowledge, he/she is not in receipt of
material non-public information about the issuer.
| Disclaimer
This document has been prepared by Wilsons. This communication is not to be disclosed in whole or part or used by any other p arty without Wilsons’
prior written consent. All material presented in this document, unless specifically indicated otherwise, is under copyright to Wilsons. None of the
material, its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express
written permission of Wilsons. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident
of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or
regulation or which would subject Wilsons to any registration or licensing requirement within such jurisdiction.
This document is being supplied to you solely for your information and no action should be taken on the basis of or in reliance on this document. To the
extent that any information prepared by Wilsons contains any financial product advice, it is general advice only and has been prepared by Wilsons
without reference to your objectives, financial situation or needs. You should consider the appropriateness of the advice in light of your own objectives,
financial situation and needs before following or relying on the advice. You should also obtain a copy of, and consider, any relevant disclosure document
before making any decision to acquire a financial product. Please refer to Wilsons’ Financial Services Guide for more information:
wilsonsadvisory.com.au/disclosures. Any person, before acting on any advice contained within this communication, should first consult with a Wilsons
investment adviser to assess whether the advice within this communication is appropriate for their objectives, financial situation and needs. Those acting
upon such information without advice do so entirely at their own risk.
This document provided by Wilsons is current as at the date of the issue but may be superseded by future publications. Wilsons assumes no obligation
to update the information or advise on further developments relating to the company or companies covered in this document (“Companies”) or relevant
financial products. Wilsons has not independently verified all of the information given in this document which is provided at a point in time and may not
contain all necessary information about the Companies. Wilsons makes no warranty, express or implied, concerning any information prepared by
Wilsons. Wilsons expressly disclaims (1) any implied warranty of merchantability or (2) fitness for a particular purpose, including any warranty for the
use or the results of the use of any information prepared by Wilson s with respect to their correctness, quality, accuracy, completeness, reliability,
performance, timeliness, or continued availability. Wilsons’ research content should be viewed as an additional investment resource, not as your sole
source of information. To the fullest extent permitted by law Wilsons, its related bodies corporate and their respective officers, directors, employees or
agents, disclaim any and all liabilities for any loss or damage howsoever arising in connection with the use of this document or its contents. Past
performance does not necessarily indicate a financial product’s likely future performance.
This document may contain “forward-looking statements”. Forward-looking statements, opinions and estimates provided in this document are based on
assumptions and contingencies which are outside the control of Wilsons and are subject to change without notice (including but not limited to economic
conditions, market volatility and company-specific fundamentals), and therefore may not be realised in the future.
This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or
commitment whatsoever.
| Regulatory disclosure
Wilsons restricts research analysts from trading in securities for which they write research. Other Wilsons employees may hold interests in the company,
but none of those interests are material. Wilsons further advises that at the date of this report, neither Wilsons Advisory and Stockbroking Limited or
Wilsons Corporate Finance Limited have any material interests in the company.
Wilsons Advisory and Stockbroking Limited may have a conflict of interest which investors should consider before making an investment decision.
Wilsons Advisory and Stockbroking Limited, Wilsons Corporate Finance Limited and its related bodies corporate trades or may trade as principal in the
securities that are subject of the research report. Wilsons further advises that at the date of this report, neither Wilsons Advisory and Stockbroking
Limited or Wilsons Corporate Finance Limited have any material interests in the company. Wilsons restricts research analysts from trading in securities
for which they write research. Other Wilsons employees may hold interests in the company, but none of those interests are material.
| Wilsons contact
For more information please phone: 1300 655 015 or email: publications@wilsonsadvisory.com.au