SenSen Networks — Momentum and positive cash flow

SenSen Networks (ASX: SNS)

Last close As at 22/02/2024

AUD0.03

0.00 (−3.45%)

Market capitalisation

AUD22m

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Research: TMT

SenSen Networks — Momentum and positive cash flow

Q2 was a pivotal quarter for SenSen, with the business making significant progress commercially, operationally and financially. Customer cash receipts grew 17% to A$3m and the company generated positive cash flows for the first time. Notable wins in Australia with the NHVR and a newly announced contract with Sourcewell in the US should support further growth while further validating SenSen’s technology. The shift to focus the business solely on smart cities is enabling a further $A2m in cost efficiencies to be made, while financial headroom was strengthened by a A$2m (net) entitlement offer. Estimates look well supported and we believe SenSen looks well positioned to remain self-funding and generate positive cash flows on an annual basis.

Written by

Dan Ridsdale

Head of Technology

Digital signals flying over highway. Digital transformation. Internet of Things.

TMT

SenSen Networks

Momentum and positive cash flow

Quarterly update

Software and comp services

31 January 2024

Price

A$0.03

Market cap

A$22m

£/A$1.92

Estimated net cash (A$m) at 31 December 2023

1.35

Shares in issue

771.2m

Free float

67%

Code

SNS

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.4)

(27.5)

(51.4)

Rel (local)

(9.4)

(35.6)

(52.3)

52-week high/low

A$0.06

A$0.03

Business description

SenSen Networks, an Australia-based technology company, operates in the field of sensory artificial intelligence and provides ‘live awareness’. By applying its SenDISA AI platform to physical space monitoring, it extracts real-time insights that can be used in smart cities.

Next events

H1 results

March 2024

Analysts

Dan Ridsdale

+44 (0)20 3077 5700

Max Hayes

+44 (0)20 3077 5700

SenSen Networks is a research client of Edison Investment Research Limited

Q2 was a pivotal quarter for SenSen, with the business making significant progress commercially, operationally and financially. Customer cash receipts grew 17% to A$3m and the company generated positive cash flows for the first time. Notable wins in Australia with the NHVR and a newly announced contract with Sourcewell in the US should support further growth while further validating SenSen’s technology. The shift to focus the business solely on smart cities is enabling a further $A2m in cost efficiencies to be made, while financial headroom was strengthened by a A$2m (net) entitlement offer. Estimates look well supported and we believe SenSen looks well positioned to remain self-funding and generate positive cash flows on an annual basis.

Year end

Revenue (A$m)

Adj. EBITDA*
(A$m)

PBT**
(A$m)

EPS**
(c)

P/sales
(x)

P/E
(x)

06/21

5.5

(2.2)

(2.9)

(0.59)

3.6

N/M

06/22

9.1

(7.6)

(8.4)

(1.40)

2.2

N/M

06/23

10.8

(5.1)

(6.1)

(0.91)

1.8

N/M

06/24e

13.4

2.6

1.9

0.21

1.5

14.0

Note: *Adjusted EBITDA excludes non-cash share-based payments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, other income and exceptional items.

Record receipts, cash flow positive for first time

Customer cash receipts were A$3.0m in Q1 and A$6.1m in H1, up 17% y-o-y in both periods, with receipt of SenSen’s annual A$2.5m R&D grant boosting operating cash flows. With cost reductions implemented in FY23 and H124 also contributing, the company generated inaugural positive operating cash flows in the quarter (A$1.7m from an A$0.7m outflow Q123) and on a ytd basis (A$0.6m versus A$2.2m outflow in H123).

Business momentum, further cost reductions

New business wins in the quarter further support SenSen’s growth prospects. Management expects the contract with Australia’s National Heavy Vehicle Regulator (NHVR) to generate A$1.5m in upfront (and c A$0.5m in recurring) revenue, with substantial scope to expand. Growth prospects in the potentially transformative US market have also taken a step forward with a newly announced contract win with Sourcewell for its Curb Management solution. Meanwhile, a significant further cost reduction programme has been announced, which is expected to reduce annual costs by A$2.0m for a one-off cost of c A$0.5m in Q3.

Forecasts unchanged, but much better underpinned

We are not changing our forecasts. With the bulk of the A$1.5m NHVR contract due to be delivered in H2, our A$13.4m revenue forecast looks well supported. Restructuring and hardware costs for NHVR, together with the absence of the R&D grant, will likely result in cash consumption in Q3, but we believe SenSen is on a trajectory to deliver profitable, cash-generative growth on an annual basis. We believe the company’s global market opportunity could support a significant scaling up of revenues, which is not reflected in its FY24e 1.5x sales rating. Further smart city wins, particularly in the US, would be a key lead indicator of SenSen’s ability to deliver on this potential and drive a re-rating upwards.

Progress across multiple fronts

Partnership-led progress in North America

Building a platform for growth in the US has been a key strategic focus for management, with CEO Subhash Challa spending significant time in the country with a view to opening up the potential of a market many times the size of Australia. While cracking the US market is often an expensive, time-consuming endeavour for many tech companies, SenSen has established some promising partnerships, which in our view have the potential to drive scalable growth in the world’s largest market for software.

The company’s first partnership in North America, with GTechna, a Canadian provider of parking and traffic control software, has already yielded contracts with at least 11 Canadian cities, primarily for parking/traffic enforcement use cases.

In the Q2 update, SenSen announced that through another partner, Blue Systems, a US-based smart mobility solutions provider (and a subsidiary of Paris-listed Bolloré Group), it has won a contract with Sourcewell for the latter’s curb-side monitoring solution. Sourcewell is a government-owned cooperative purchasing organisation serving both state and local government in the US. It seeks to identify the key needs of its customer base and issues requests for proposal (RFPs) for solutions that address these needs. It then evaluates the submitted proposals and selects one or multiple winners. We therefore expect that being selected by Sourcewell should significantly streamline SenSen’s business development activities in the US by removing the requirement for it to go through a new tender process with each government client.

NHVR contract to contribute in H2

Management expects the company’s win with NHVR, announced in November, to generate A$1.5m in upfront revenue and c A$500k in annual recurring revenue. The upfront proportion is scheduled to be delivered in H2, providing substantial support for our A$13.4m FY24 revenue estimate (on the basis that customer cash receipts of A$6.1m in H1 will largely reflect revenues).

The NHVR win is a major scale-up with an existing customer, providing important validation of both SenSen’s technology and its ‘land and expand’ strategy, while retaining further upsell potential with expansion into Queensland the most obvious opportunity.

Focus on smart cities, consolidation enabling further cost optimisations

Cost reductions made in CY23 have played a significant part in enabling the business to achieve operational cash flow positivity in H124. SenSen has announced a programme to reduce annual costs by a further A$2m, with a A$0.5m restructuring charge incurred in Q324. These cost reductions will be achieved mainly through reducing the company’s headcount by 33 to c 80 and versus a peak of 220 during COVID. The business will also be reorganised around clearer commercial, IT, operational and finance lines. Further costs are expected to be released by consolidating cloud providers, facilitated through consolidating Scancam (the forecourt retail business) onto a single platform and through delivery to a standardised product roadmap, reducing the incidence of customer customisations or change requests.

The company also plans to strengthen its board, bringing in an independent chair, with Subhash Challa (currently executive chair and CEO) remaining as CEO. Four existing leaders will take on expanded roles: Nathan Rogers becomes chief commercial officer, overseeing clients and markets; Duc Vo leads the India shared service team as chief technology officer; Surendra Sanka will concentrate on project delivery as director of operations; and Christian Stevens will add company secretarial duties to his CFO role. David Smith will step down from his position as executive director and COO, but remain a non-executive director. SenSen is also initiating a third-party review of its board performance and seeks a new independent chair.

Balance sheet strengthening

At period end, SenSen had net cash (excluding leases) of A$1.35m comprising debt of A$1.50m and gross cash of A$2.84m, with total facilities of A$3.73m available, giving it much improved headroom to execute its strategy versus the A$1.2m net debt position at end FY23.

The proceeds from the entitlement offer (A$2.0m net) were received in the quarter, of which A$900k will be used to fund the initial hardware component of the NHVR contract and the balance to support other working capital requirements.

The placement of 45m shares with Angel to raise A$1.8m as part of the IP infringement settlement has yet to take place. The shares will be issued once proceedings are dismissed, which is expected this year.

Exhibit 1: Financial summary

A$'0003

2021

2022

2023

2024e

30-June

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

5,533

9,145

10,797

13,447

Cost of Sales

(2,030)

(3,513)

(3,314)

(3,026)

Gross Profit

3,503

5,633

7,483

10,421

Other income

2,807

2,978

2,529

2,529

Oper. expense (not incl. share-based payments)

(8,524)

(16,217)

(15,102)

(10,371)

Adjusted EBITDA

 

 

(2,214)

(7,606)

(5,090)

2,579

Normalised operating profit

 

 

(2,685)

(8,183)

(5,605)

2,037

Amortisation of acquired intangibles

(83)

(536)

(960)

(960)

Exceptionals

0

0

0

0

Share-based payments

(72)

(3,173)

(208)

(1,000)

Reported operating profit

(2,840)

(11,893)

(6,773)

77

Net Interest

(176)

(254)

(463)

(163)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

(154)

(148)

0

Profit Before Tax (norm)

 

 

(2,861)

(8,437)

(6,068)

1,874

Profit Before Tax (reported)

 

 

(3,016)

(12,300)

(7,384)

(86)

Reported tax

(6)

225

(26)

(1)

Profit After Tax (norm)

(2,878)

(8,488)

(6,105)

1,499

Profit After Tax (reported)

(3,022)

(12,075)

(7,409)

(86)

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(2,878)

(8,488)

(6,105)

1,499

Net income (reported)

(3,022)

(12,075)

(7,409)

(86)

Basic average number of shares outstanding (m)

484

608

667

723

EPS - basic normalised (c)

 

 

(0.59)

(1.40)

(0.91)

0.21

EPS - diluted normalised (c)

 

 

(0.59)

(1.40)

(0.91)

0.21

EPS - basic reported (c)

 

 

(0.62)

(1.99)

(1.11)

(0.01)

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

47.0

65.3

18.1

24.5

Gross Margin (%)

63.3

61.6

69.3

77.5

EBITDA Margin (%)

-40.0

-83.2

-47.1

19.2

Normalised Operating Margin

-48.5

-89.5

-51.9

15.1

BALANCE SHEET

Fixed Assets

 

 

2,168

9,127

9,052

8,054

Intangible Assets

1,300

8,281

7,322

6,362

Tangible Assets

800

770

1,692

1,653

Investments & other

68

75

39

39

Current Assets

 

 

8,022

11,391

7,286

11,516

Stocks

241

232

486

315

Debtors

979

1,943

1,467

1,253

Cash & cash equivalents

5,176

6,214

1,898

6,513

Other

1,625

3,002

3,435

3,435

Current Liabilities

 

 

3,946

8,185

9,549

9,049

Creditors

750

1,239

1,714

1,714

Tax and social security

0

0

0

0

Short term borrowings

861

1,954

3,101

2,601

Lease liabilities

306

185

287

287

Other

2,028

4,806

4,447

4,447

Long Term Liabilities

 

 

244

201

1,198

1,198

Long term borrowings

0

0

0

0

Lease liabilities

138

183

1,091

1,091

Other long term liabilities

106

19

107

107

Net Assets

 

 

6,000

12,132

5,591

9,322

Minority interests

0

0

0

0

Shareholders' equity

 

 

6,000

12,132

5,591

9,322

CASH FLOW

Op Cash Flow before interest and tax

(3,250)

(7,770)

(4,449)

1,963

Net interest

(127)

(117)

(335)

(163)

Tax

(31)

0

0

(1)

Net operating cash flow

 

 

(3,409)

(7,887)

(4,784)

1,799

Capex

(253)

(254)

(151)

(151)

Acquisitions/disposals

0

(1,080)

0

0

Equity financing

7,043

9,644

0

3,754

Borrowings

(414)

1,120

909

(500)

Dividends

0

0

0

0

Other

(253)

(506)

(290)

(287)

Net Cash Flow

2,714

1,037

(4,316)

4,615

Opening net debt/(cash)

 

 

(1,150)

(4,315)

(4,259)

1,204

FX

0

0

0

0

Movement in borrowings

451

(1,093)

(1,147)

500

Closing net debt/(cash)

 

 

(4,315)

(4,259)

1,204

(3,911)

Closing net debt/(cash) w/ leases

 

 

(3,871)

(3,891)

2,581

(2,534)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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