SenSen Networks — Targeting multiple areas to achieve profitability

SenSen Networks (ASX: SNS)

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Research: TMT

SenSen Networks — Targeting multiple areas to achieve profitability

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.

Max Hayes

Written by

Max Hayes

Associate Analyst

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

TMT

SenSen Networks

Targeting multiple areas to achieve profitability

FY23 preliminary results

Software and comp services

14 September 2023

Price

A$0.05

Market cap

A$34m

US$0.64/A$

Net debt (A$m) at 30 June 2023
(includes lease liabilities of A$1.4m)

2.6

Shares in issue

681.2m

Free float

67%

Code

SNS

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.7)

(9.1)

(31.5)

Rel (local)

(8.2)

(9.3)

(32.4)

52-week high/low

A$0.08

A$0.04

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

FY23 annual results

September 2023

Q124 cash flow update

October 2023

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5700

SenSen Networks is a research client of Edison Investment Research Limited

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*
(A$m)

PBT**
(A$m)

EPS**
(c)

P/sales
(x)

Net debt/
(cash)*** (A$m)

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


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.

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 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.

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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