SenSen Networks — Record receipts and restructuring

SenSen Networks (ASX: SNS)

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Research: TMT

SenSen Networks — Record receipts and restructuring

SenSen Networks (SNS) maintained its streak of record year-on-year cash receipts in Q223, with customer receipts up 70% against Q222 to A$2.6m. SNS continues to see growth across its key verticals of smart cities, gaming, retail and surveillance, boosting annual recurring revenues (ARR) to c A$8m, and leaving the company well on track to meet management’s expected ARR of A$10m by the end of FY23. SNS’s operational restructuring and previously announced A$2.5m in cost saving efforts should support management’s goal of cash flow neutrality by the end of the fiscal year. These results lead us to maintain our forecasts and if SenSen can continue to grow ARR, then the valuation gap between peers can potentially close.

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TMT

SenSen Networks

Record receipts and restructuring

Q223 activity report

Software and comp services

30 January 2023

Price

A$0.06

Market cap

A$41m

US$0.71/A$

Pro forma net cash (A$m) at 31 December 2022 (including leases)

1.4

Shares in issue

678.7m

Free float

67%

Code

SNS

Primary exchange

ASX

Secondary exchange

OTCQB

Share price performance

%

1m

3m

12m

Abs

(4.8)

(14.5)

(56.3)

Rel (local)

(10.0)

(21.9)

(59.7)

52-week high/low

A$0.14

A$0.05

Business description

SenSen Networks, an Australian-based technology company, operates in the field of sensor artificial intelligence. By applying its SenDISA AI platform to physical space monitoring, it extracts real-time insights for customers. It provides solutions to customers in the smart city, gaming, retail and surveillance verticals.

Next events

H123 results

February 2023

Analysts

Ken Mestemacher, CFA

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

SenSen Networks is a research client of Edison Investment Research Limited

SenSen Networks (SNS) maintained its streak of record year-on-year cash receipts in Q223, with customer receipts up 70% against Q222 to A$2.6m. SNS continues to see growth across its key verticals of smart cities, gaming, retail and surveillance, boosting annual recurring revenues (ARR) to c A$8m, and leaving the company well on track to meet management’s expected ARR of A$10m by the end of FY23. SNS’s operational restructuring and previously announced A$2.5m in cost saving efforts should support management’s goal of cash flow neutrality by the end of the fiscal year. These results lead us to maintain our forecasts and if SenSen can continue to grow ARR, then the valuation gap between peers can potentially close.

Year end

Revenue
(A$m)

Adjusted
EBITDA* (A$m)

PBT**
(A$m)

EPS**

(c)

P/sales

(x)

Net cash***

(A$m)

06/21

5.5

(2.2)

(3.0)

(0.62)

7.4

3.9

06/22

9.1

(7.8)

(12.3)

(2.02)

4.5

3.9

06/23e

15.5

(2.8)

(5.6)

(0.83)

2.6

2.5

06/24e

23.5

3.2

0.4

0.05

1.7

3.5

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

Q223: Another quarter of record cash receipt growth

Live Awareness company SenSen generated its eighth consecutive period of year-on-year cash receipt growth, with cash receipts up 70% over Q222 to A$2.6m. Net cash from operations of A$0.7m was boosted by A$2.3m from an R&D tax grant. Excluding the annual tax benefit, net cash used was A$1.6m, a reduction of about A$1.2m against Q123. To mitigate the impact of seasonality on its short-term liquidity, SenSen also entered into A$1.9m in financing arrangements. The company reported gross Q223 cash and equivalents of A$3.7m, and we estimate net cash of A$1.4m.

Working towards cash-flow neutrality

In Q223, management executed an operational restructuring as part of its drive to reach cash flow neutrality by the end of FY23 and to become cash flow positive shortly thereafter. Resources in areas such as sales, marketing, etc, will now be shared among verticals, which should improve operational gearing as SenSen scales its business. Moreover, as part of its previously announced A$2.5m reduction in operating costs, management reduced 26 full-time positions and converted two more to part time. We continue to expect free cash flow to reach positive levels by FY24e, lessening the need for future debt or capital raises to fund operations.

Valuation: ARR and liquidity key to reducing gap

At a 1.7x FY24e price/revenue multiple, SenSen’s shares continue to trade at a discount to its small-cap AI, SaaS and AI vision analytics peers. While some of the gap could be due to the company’s cash liquidity situation, SenSen is forecasted to generate higher growth rates than its peers. We expect key drivers of the share price to include evidence of an improving cash situation and ARR growth from wins across the globe in SNS’s key verticals.

Exhibit 1: Financial summary

A$000s

2021

2022

2023e

2024e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

5,533

9,145

15,500

23,500

Cost of Sales

(2,030)

(3,513)

(4,683)

(6,455)

Gross Profit

3,503

5,633

10,817

17,045

Other Income

2,807

2,978

3,275

3,603

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

(9,078)

(17,330)

(17,950)

(18,561)

Share-based payments (non-cash)

(72)

(3,173)

(1,500)

(1,500)

EBITDA

(2,209)

(7,751)

(2,779)

3,199

Operating Profit (before except.)

(2,835)

(12,038)

(5,349)

596

Exceptionals

(6)

145

(9)

(9)

Operating Profit (EBIT)

(2,840)

(11,893)

(5,357)

587

Net Interest

(176)

(254)

(237)

(162)

Profit Before Tax (norm)

(3,011)

(12,292)

(5,586)

434

Profit Before Tax (reported)

(3,016)

(12,300)

(5,594)

425

Tax

(6)

8

(34)

(85)

Other

-

-

-

-

Profit After Tax (norm)

(3,016)

(12,284)

(5,619)

349

Profit After Tax (reported)

(3,022)

(12,292)

(5,628)

340

Average Number of Shares Outstanding (m)

484

608

678

721

EPS - normalised (c)

(0.62)

(2.02)

(0.83)

0.05

EPS - reported (c)

(0.62)

(2.02)

(0.83)

0.05

Dividend per share (c)

-

-

-

-

 

 

Gross Margin (%)

63.3%

61.6%

69.8%

72.5%

EBITDA Margin (%)

N/A

N/A

N/A

13.6%

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

2.5%

 

 

BALANCE SHEET

 

 

Fixed Assets

2,168

9,127

8,733

8,319

Intangible Assets

1,300

8,281

7,681

7,081

Tangible Assets

391

435

641

827

Other

477

410

410

410

Current Assets

8,022

11,391

11,570

11,967

Stocks

241

232

232

232

Debtors

979

1,943

3,000

4,400

Cash & cash equivalents

5,176

6,214

5,336

4,333

Other

1,625

3,002

3,002

3,002

Current Liabilities

(3,640)

(7,999)

(10,060)

(8,237)

Creditors

(750)

(1,239)

(2,500)

(2,000)

Short-term borrowings

(861)

(1,954)

(2,454)

(454)

Lease liabilities

(306)

(185)

(185)

(185)

Other

(1,723)

(4,621)

(4,920)

(5,597)

Long-term liabilities

(244)

(506)

(508)

(510)

Long-term borrowings

-

-

-

-

Lease liabilities

(138)

(183)

(183)

(183)

Other long-term liabilities

(106)

(324)

(325)

(327)

Net assets

6,305

12,012

9,734

11,539

Minority interests

-

-

-

-

Shareholder equity

6,305

12,012

9,734

11,539

 

 

CASH FLOW

 

 

Operating Cash Flow

(3,250)

(7,632)

(2,502)

1,935

Net Interest

(127)

(73)

(237)

(162)

Tax

(31)

(232)

(34)

(85)

Capex

(253)

(220)

(400)

(400)

Acquisitions/disposals

-

(1,010)

-

-

Equity financing

7,043

9,644

2,070

-

Dividends

-

-

-

-

Other*

(667)

560

224

(2,290)

Net Cash Flow

2,714

1,037

(878)

(1,002)

Opening net debt/(cash) w/o Leases

(1,150)

(4,315)

(4,259)

(2,881)

HP finance leases initiated

-

-

-

-

Exchange rate movements

-

-

-

-

Other

451

(1,093)

(500)

2,000

Closing net debt/(cash)

(4,315)

(4,259)

(2,881)

(3,879)

Closing net debt/(cash) w/ Leases

(3,871)

(3,891)

(2,513)

(3,511)

Source: SenSen Networks, 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 2023 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 2023 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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