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Research: TMT
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.
SenSen Networks |
Momentum and positive cash flow |
Quarterly update |
Software and comp services |
31 January 2024 |
Share price performance
Business description
Next events
Analysts
SenSen Networks is a research client of Edison Investment Research Limited |
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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* |
PBT** |
EPS** |
P/sales |
P/E |
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
|
|
Research: TMT
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