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Research: TMT
SenSen’s FY23 preliminary results show robust revenue growth, albeit missing our forecasts slightly. Losses narrowed year-on-year from efficiency initiatives. The strategic shift towards more predictable opex and cloud contracts continues to improve the revenue mix. Margin expansion is expected in FY24 following efficiency measures, with potential for cash flow positivity. Valuation remains at a discount to peers despite SenSen being one of the few with a positive FY24 EBITDA forecast.
Written by
SenSen Networks |
Targeting multiple areas to achieve profitability |
FY23 preliminary results |
Software and comp services |
14 September 2023 |
Share price performance
Business description
Next events
Analysts
SenSen Networks is a research client of Edison Investment Research Limited |
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SenSen’s FY23 preliminary results show robust revenue growth, albeit missing our forecasts slightly. Losses narrowed year-on-year from efficiency initiatives. The strategic shift towards more predictable opex and cloud contracts continues to improve the revenue mix. Margin expansion is expected in FY24 following efficiency measures, with potential for cash flow positivity. Valuation remains at a discount to peers despite SenSen being one of the few with a positive FY24 EBITDA forecast.
Year end |
Revenue (A$m) |
Adj. EBITDA* |
PBT** |
EPS** |
P/sales |
Net debt/ |
06/21 |
5.5 |
(2.2) |
(2.9) |
(0.59) |
6.2 |
(3.9) |
06/22 |
9.1 |
(7.6) |
(8.4) |
(1.40) |
3.7 |
(3.9) |
06/23 |
10.8 |
(5.0) |
(6.0) |
(0.90) |
3.2 |
2.6 |
06/24e |
14.3 |
2.5 |
1.9 |
0.21 |
2.4 |
1.3 |
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 debt includes leases.
Results reflect growth and efficiency
SenSen reported FY23 revenue of A$10.8m, up 18% y-o-y and A$300k less than our forecast, which has remained unchanged since our Q3 update. Slightly lower revenue growth led to a proportional increase in normalised losses for the year, with our cost assumptions broadly in line with the reported numbers. Gross margin expanded by 772bp to 69%, reflecting the group’s shift to selling opex and cloud-based contracts, expanding the share of recurring revenue. Developing its single cloud-based platform strategy has enabled SenSen to onboard customers and scale more efficiently and has been core to the cost reductions realised in FY23 and FY24 to date, explained in more detail below. Our prior net debt forecast of A$1.1m, ex A$1.4m in lease liabilities, was broadly in line with the reported figure.
Further efficiencies identified to reach profitability
SenSen’s expanded product range and new patents could help drive upsells and new contract wins in FY24; the group is seeing encouraging lead indicators across divisions (see our Q423 update). We have reduced our revenue forecast in line with management’s expectation for a longer sales cycle from its pipeline of government contracts. On 14 August, SenSen announced a further 5% headcount reduction, equating to more than A$800k in annualised cost savings and bringing expected total savings to over A$2m. We believe a greater focus on the group’s refined cloud-based platform strategy could increase the sale of higher margin contracts, which could partially offset the impact of lower revenue on profitability. We have reduced our EBITDA estimate by A$1.7m to A$2.5m (pre share-based payments) at an 18% margin, reflecting lower revenue and partially offset by recent cost cuts.
Valuation: Delivering on a lower cost base now key
Across FY23 and FY24 on EV/sales, SenSen trades at a 22% average discount to our AI peer basket, despite being one of the only companies to have a positive EBITDA forecast in FY24. Delivering cash flow profitability in the year and showcasing its ability to scale with a smaller workforce could catalyse the shares.
Summary of results and changes to forecasts
In FY23, SenSen reported an 18% increase in revenue to A$10.8m, which was A$0.3m below our forecast, leading to a proportional increase in normalised operating losses and adjusted LBITDA. Pre-tax profit was also affected by interest costs that were c A$220k higher than our forecast, while shorter useful lives for acquired intangibles had a marginal impact on reported losses. A c A$1m increase in financial leases versus our forecast was the primary driver of the difference in year-end net debt. As part of the cost-saving measures, the company moved offices in Melbourne and Hyderabad to less costly premises where it took out new leases.
Exhibit 1: Summary of results and changes to forecasts
FY23 |
FY24e |
|||||||
A$m |
Forecast |
Actual |
Difference |
y-o-y |
Old |
New |
Change |
y-o-y |
Revenue |
11.1 |
10.8 |
(2.3)% |
18.1% |
17.6 |
14.3 |
(18.5)% |
32.7% |
Gross profit |
7.7 |
7.5 |
(2.4)% |
32.8% |
12.9 |
11.1 |
(13.8)% |
48.4% |
Gross margin |
69.4% |
69.3% |
(0.1)% |
7.7% |
73.2% |
77.5% |
4.3% |
8.2% |
Adjusted EBITDA |
(4.7) |
(5.0) |
(5.2)% |
35.6% |
4.2 |
2.5 |
(38.9)% |
N/A |
Adjusted EBITDA margin |
-43% |
-46% |
(3.3)% |
(46.2)% |
24% |
18% |
(5.9)% |
63.9% |
EBIT (normalised) |
(5.2) |
(5.5) |
(5.5)% |
54.4% |
3.7 |
2.0 |
(44.6)% |
N/A |
PBT (normalised) |
(5.4) |
(6.0) |
(9.5)% |
51.6% |
3.5 |
1.9 |
(46.7)% |
N/A |
EPS - normalised, diluted (c) |
(0.82) |
(0.90) |
(9.3)% |
55.6% |
0.40 |
0.21 |
(46.6)% |
N/A |
Balance sheet & cash flow |
||||||||
Cash flow from operations |
(4.7) |
(4.8) |
(2.0)% |
37.3% |
1.9 |
1.7 |
(12.5)% |
N/A |
Net cash/(debt) including leases |
(1.5) |
(2.6) |
(75.5)% |
(166.3)% |
0.0 |
(1.3) |
N/A |
47.9% |
Source: SenSen accounts, Edison Investment Research
We have lowered our FY24 revenue estimate by 18.5% to A$14.3m, reflecting management’s expectations of elongated sales cycles for its government contracts pipeline. Lead indicators remain positive, underpinned by the growth opportunities from SenSen’s increasingly diversified product portfolio and recent integrations, most notably in its fuel retail division. Further geographic expansion by leveraging its whole product range provides another growth lever.
The heightened focus on selling SenSen’s cloud-based platform solution could enable more efficient customer onboarding and support its lower cost operating strategy. We expect gross margins to also benefit as these software-only contracts can be installed onto existing infrastructure, rather than requiring new hardware like cameras. The transition to a consolidated platform has been key to the latest cost reduction measures and has been centred around integrating its acquired Scancam operations, removing internal silos.
Previously, SenSen had identified A$750k in annualised cost savings to be implemented in Q124 and A$500k from a salary sacrifice scheme announced in Q323. By further refining its strategy, management announced that it has reduced its operating cost base by a further A$800k, following a 5% reduction in headcount. This brings overall annualised cost saving measures to more than A$2m, which could be key to the company achieving cash flow positivity in FY24.
This is in line with our forecasts and management’s expectations.
Our revised FY24 EBITDA forecast is lower at A$2.5m (before share-based payments), reflecting the reduced revenue outlook partially offset by lower opex. We have not incorporated the full A$0.8m annualised impact due to timing in the year and reflecting a slightly higher FY23 administrative cost base than our forecast.
We believe SenSen may still have a small net debt position in FY24 due to higher FY23 net debt than our forecast. Excluding financial leases (current: A$267k, non-current: A$1.1m), we expect the company to move to a small net cash position at end of FY24. We anticipate gross cash will be affected by the company’s expected repayment of the CEO’s A$500k loan.
Exhibit 2: Financial summary
A$'k |
2021 |
2022 |
2023 |
2024e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
5,533 |
9,145 |
10,797 |
14,329 |
Cost of Sales |
(2,030) |
(3,513) |
(3,314) |
(3,224) |
||
Gross Profit |
3,503 |
5,633 |
7,483 |
11,105 |
||
Other income |
2,807 |
2,978 |
2,529 |
2,529 |
||
Oper. expense (not incl. share-based payments) |
(8,524) |
(16,217) |
(15,003) |
(11,096) |
||
Adjusted EBITDA |
|
|
(2,214) |
(7,606) |
(4,991) |
2,538 |
Normalised operating profit |
|
|
(2,685) |
(8,183) |
(5,491) |
2,039 |
Amortisation of acquired intangibles |
(83) |
(536) |
(1,118) |
(1,118) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Share-based payments |
(72) |
(3,173) |
(165) |
(1,000) |
||
Reported operating profit |
(2,840) |
(11,893) |
(6,773) |
(79) |
||
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) |
(5,953) |
1,875 |
Profit Before Tax (reported) |
|
|
(3,016) |
(12,300) |
(7,384) |
(242) |
Reported tax |
(6) |
225 |
(26) |
(1) |
||
Profit After Tax (norm) |
(2,878) |
(8,488) |
(5,989) |
1,500 |
||
Profit After Tax (reported) |
(3,022) |
(12,075) |
(7,409) |
(244) |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(2,878) |
(8,488) |
(5,989) |
1,500 |
||
Net income (reported) |
(3,022) |
(12,075) |
(7,409) |
(244) |
||
Basic average number of shares outstanding (m) |
484 |
608 |
667 |
700 |
||
EPS - basic normalised (c) |
|
|
(0.59) |
(1.40) |
(0.90) |
0.21 |
EPS - diluted normalised (c) |
|
|
(0.59) |
(1.40) |
(0.90) |
0.21 |
EPS - basic reported (c) |
|
|
(0.62) |
(1.99) |
(1.11) |
(0.03) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
47.0 |
65.3 |
18.1 |
32.7 |
||
Gross Margin (%) |
63.3 |
61.6 |
69.3 |
77.5 |
||
EBITDA Margin (%) |
-40.0 |
-83.2 |
-46.2 |
17.7 |
||
Normalised Operating Margin |
-48.5 |
-89.5 |
-50.9 |
14.2 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,168 |
9,127 |
9,052 |
7,896 |
Intangible Assets |
1,300 |
8,281 |
7,322 |
6,204 |
||
Tangible Assets |
800 |
770 |
1,692 |
1,653 |
||
Investments & other |
68 |
75 |
39 |
39 |
||
Current Assets |
|
|
8,022 |
11,391 |
7,286 |
7,741 |
Stocks |
241 |
232 |
486 |
336 |
||
Debtors |
979 |
1,943 |
1,467 |
1,335 |
||
Cash & cash equivalents |
5,176 |
6,214 |
1,898 |
2,635 |
||
Other |
1,625 |
3,002 |
3,435 |
3,435 |
||
Current Liabilities |
|
|
3,946 |
8,185 |
9,415 |
9,052 |
Creditors |
750 |
1,239 |
1,698 |
1,834 |
||
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 |
4,329 |
4,329 |
||
Long Term Liabilities |
|
|
244 |
201 |
1,332 |
1,332 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Lease liabilities |
138 |
183 |
1,091 |
1,091 |
||
Other long term liabilities |
106 |
19 |
241 |
241 |
||
Net Assets |
|
|
6,000 |
12,132 |
5,591 |
5,253 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
6,000 |
12,132 |
5,591 |
5,253 |
CASH FLOW |
||||||
Op Cash Flow before interest and tax |
(3,250) |
(7,770) |
(4,449) |
1,840 |
||
Net interest |
(127) |
(117) |
(335) |
(163) |
||
Tax |
(31) |
0 |
0 |
(1) |
||
Net operating cash flow |
|
|
(3,409) |
(7,887) |
(4,784) |
1,675 |
Capex |
(253) |
(254) |
(151) |
(151) |
||
Acquisitions/disposals |
0 |
(1,080) |
0 |
0 |
||
Equity financing |
7,043 |
9,644 |
0 |
0 |
||
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) |
737 |
||
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 |
(34) |
Closing net debt/(cash) w/ leases |
|
|
(3,871) |
(3,891) |
2,581 |
1,344 |
Source: Edison Investment Research, company accounts
|
|
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