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SenSen’s Q324 results reflect the move to a lower cost base that provides a platform for future profitability. Minor delays to the National Heavy Vehicle Regulator (NHVR) contract affected Q3 but should not affect FY24 as most of the deployment is now complete. North American Smart Cities growth is gaining traction via partnerships, underpinning Q424 momentum alongside strong fuel theft solution uptake. Restructuring to drive a return to sustainable free cash flow is mostly complete but resulted in one-off costs. We revise down our FY24 forecasts assuming similar Q4 growth from a lower Q3 base.
SenSen Networks |
Time to scale |
Q324 update |
Software and comp services |
2 May 2024 |
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 Q324 results reflect the move to a lower cost base that provides a platform for future profitability. Minor delays to the National Heavy Vehicle Regulator (NHVR) contract affected Q3 but should not affect FY24 as most of the deployment is now complete. North American Smart Cities growth is gaining traction via partnerships, underpinning Q424 momentum alongside strong fuel theft solution uptake. Restructuring to drive a return to sustainable free cash flow is mostly complete but resulted in one-off costs. We revise down our FY24 forecasts assuming similar Q4 growth from a lower Q3 base.
Year end |
Revenue (A$m) |
Adj. EBITDA* |
PBT** |
EPS** |
P/sales |
Net debt/ |
06/21 |
5.5 |
(2.2) |
(2.9) |
(0.59) |
4.0 |
(3.9) |
06/22 |
9.1 |
(7.6) |
(8.4) |
(1.40) |
2.4 |
(3.9) |
06/23 |
10.8 |
(5.1) |
(6.1) |
(0.91) |
2.0 |
2.6 |
06/24e |
12.5 |
(0.8) |
(1.6) |
(0.21) |
1.8 |
2.1 |
Note: *Adjusted EBITDA excludes non-cash share-based payments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, other income and exceptional items.
Growth opportunities across SenSen
SenSen reported a 16% y-o-y decline in cash receipts to A$2.3m due to minor NHVR contract vehicle delivery delays, but is now operational on 19/22 vehicles and all five trailers. Management expects to receive all the A$1.5m upfront cash before the year-end, plus A$500k recurring revenue with upsell scope (see our November 2023 flash note) from FY25. In North America, the Gtechna partnership continues to support new contract wins, particularly in Canada. Gaining similar traction with its new Blue Systems partnership, which has a greater US focus, and showcasing technological value could catalyse further regional momentum. In Australia, more than 200 fuel stations were added over FY24 to 600+ in total, showing strong adoption. This represents a 10% share of all Australian fuel stations and underpins scope for further expansion.
Restructuring complete for sustainable cash growth
Restructuring focused on headcount reductions as SenSen moves away from software development to customer delivery, but led to one-off costs of c A$0.5m, which contributed to negative free cash flow of A$2.1m in Q3 (H124: +A$572k). We conservatively revise our FY24 revenue forecast down by A$0.5m to A$12.5m (+16% y-o-y), assuming similar Q4 growth from a lower Q3 base. One-off costs drive a greater fall in EBITDA to a loss of A$0.8m (previous: A$0.6m profit). However, the group has identified future IT and auditor cost savings, potentially mitigating the impact of these one-off costs on our EBITDA forecast.
Valuation: Re-rating potential
On an FY24e EV/sales multiple of 1.4x, SenSen trades at a 52% discount to its small-cap AI peers. We maintain the belief that the market overemphasizes short-term disruption from the recent restructuring. The current rating misses the long-term potential for operationally geared global growth, which could drive a re-rating.
Q323 update: Restructuring for operational optimisation
The back-ended nature of SenSen's NHVR contract drove a 16% y-o-y decline in customer cash receipts to A$2.3m in Q324, with the impact attributed to minor delays in receiving vehicles for hardware installation required to operate the system. However, the project has since progressed smoothly, with SenSen receiving 80% of the upfront cash in April and management expecting the remainder by year-end. This contract is expected to generate A$1.5m in upfront revenue for SenSen, plus around A$500k in recurring revenue from FY25, with substantial upsell potential. As a major scale-up with an existing customer, the NHVR deal provides a key case study for the potential value that SenSen's technology can deliver from a single client.
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Exhibit 1: Quarterly progression in customer cash receipts |
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|
Source: SenSen Networks |
As shown in Exhibit 1, Q4 is typically SenSen’s strongest quarter and we believe the company is well positioned to repeat this in FY24. In addition to the NHVR contract, the group reported progress with its North American partner Gtechna, which has provided a strong pipeline of parking solution projects, particularly in Canada. SenSen is working to deliver five additional cities, as well as receiving new SenForce (curbside management solution) orders from three US cities and three Canadian cities. Management hopes its new partnership with Blue Systems, which has a greater US focus, will achieve similar traction as its partnership with Gtechna.
Recent news articles highlight the value of SenSen’s technology in the US via its recent trial with the City of San José, California, demonstrating the platform’s ability to tackle multiple use cases rather than being developed with one use case in mind. (The Guardian and SFGate).
Transitioning to a self-sustaining business
Restructuring the business has been a key theme in FY24. SenSen’s SenDISA platform has been developed to a point that has enabled the company to pivot from software development to delivery focused on a sole Smart Cities opportunity. As a result, the company has been able to lower headcount, the main driver of its cost base, substantially, from a peak of 206 in June 2022 to 74 in March 2024. As shown in Exhibit 2, the bulk of this reduction in Q3 was from its Indian operations, its centre for software development.
Exhibit 2: Decline in headcount, March 2022–24
Closing headcount |
June 22 |
Dec 22 |
June 23 |
Dec 23 |
March 24 |
Australia |
45 |
33 |
32 |
26 |
22 |
India |
145 |
110 |
95 |
85 |
46 |
North America |
16 |
13 |
9 |
7 |
6 |
Total |
206 |
156 |
136 |
118 |
74 |
Source: SenSen Networks
One-off restructuring costs of A$0.5m, as well as a significant upfront working capital requirement to fulfil the NHVR contract, led to an operating cash outflow of A$1.5m, which nevertheless represents y-o-y improvement of A$2.1m. This increase was supported by a A$1.2m y-o-y reduction in ytd operating costs, in line with the cost reduction measures planned in the year.
Clean break from Angel
On the day of the Q3 announcement, SenSen also announced that the transfer of intellectual property from SenSen to Angel Group Co (AGC) is now essentially complete. These rights relate solely to the gaming industry, which SenSen has now exited. As a result, the companies have agreed to file a request for dismissal of all claims and counterclaims between the two businesses by 7 May.
The previously announced A$1.8m placement agreement with Angel has also been terminated, reflecting management’s confidence in executing its strategy without taking further funding while keeping the company’s share register in a more optimal shape. We note that SenSen’s balance sheet remains reasonably well capitalised, with gross cash of A$1.2m and unused facilities of A$1.8m (total financing facilities: A$4m).
New non-executive chairman
On 1 May, SenSen announced the appointment of Mark Brayan as non-executive chairman and director, taking over from SenSen’s founder Subhash Challa, who continues as managing director and CEO. Mark is a proven leader of technology businesses including AI, software, services and outsourcing, highlighted by his previous role as CEO and managing director of Appen, the world’s leading provider of AI training data and testing services, from 2015 to 2023.
Mr Brayan has M&A, investor relations and capital markets experience and a successful track record with technology company founders. He should be a valuable addition to the SenSen team as it transitions to its next growth phase and drive towards profitability.
In its Q3 results, the group also announced that David Smith was stepping down from his role as executive director and chief operating officer, but would continue to work as a non-executive director.
Updates to forecasts
With good Q4 momentum we maintain similar revenue growth expectations to our previous forecast, but off a lower Q3 base. Higher Q3 costs than we were expecting drive a swing to an EBITDA loss for the full year. However, with further cost savings also announced, including cloud and IT cost optimisations, as well as a change in auditor, the company should be well placed to sustain profitability and cash flow generation into FY25 and beyond.
Exhibit 3: Changes to forecasts
FY24e |
||||
A$m |
Old |
Forecast |
Change |
y-o-y |
Revenue |
13.0 |
12.5 |
-4% |
16% |
Gross profit |
10.1 |
9.9 |
-2% |
32% |
Gross margin |
77.5% |
79.0% |
2% |
10% |
EBITDA |
0.6 |
(0.8) |
N/A |
-85% |
EBITDA margin |
5% |
-6% |
-11% |
-44% |
EBIT, normalised |
0.1 |
(1.3) |
N/A |
-77% |
PBT, normalised |
(0.3) |
(1.6) |
N/A |
-74% |
EPS – normalised, diluted (c) |
(0.04) |
(0.21) |
N/A |
-77% |
Cash flow from operations |
0.1 |
(1.0) |
N/A |
-79% |
Net debt/(cash) |
(0.9) |
2.1 |
N/A |
-19% |
Source: SenSen Networks, Edison Investment Research
Additionally, our net debt forecast has been affected by SenSen’s decision to terminate the capital raise with Angel.
Exhibit 4: Financial summary
A$'000s |
2021 |
2022 |
2023 |
2024e |
||
30-June |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
5,533 |
9,145 |
10,797 |
12,489 |
Cost of Sales |
(2,030) |
(3,513) |
(3,314) |
(2,623) |
||
Gross Profit |
3,503 |
5,633 |
7,483 |
9,866 |
||
Other income |
2,807 |
2,978 |
2,529 |
2,297 |
||
Oper. expense (not incl. share-based payments) |
(8,524) |
(16,217) |
(15,102) |
(12,922) |
||
Adjusted EBITDA |
|
|
(2,214) |
(7,606) |
(5,090) |
(759) |
Normalised operating profit |
|
|
(2,685) |
(8,183) |
(5,605) |
(1,301) |
Amortisation of acquired intangibles |
(83) |
(536) |
(960) |
(960) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Share-based payments |
(72) |
(3,173) |
(208) |
(921) |
||
Reported operating profit |
(2,840) |
(11,893) |
(6,773) |
(3,181) |
||
Net Interest |
(176) |
(254) |
(463) |
(250) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(154) |
(148) |
0 |
||
Profit Before Tax (norm) |
|
|
(2,861) |
(8,437) |
(6,068) |
(1,551) |
Profit Before Tax (reported) |
|
|
(3,016) |
(12,300) |
(7,384) |
(3,431) |
Reported tax |
(6) |
225 |
(26) |
(269) |
||
Profit After Tax (norm) |
(2,878) |
(8,488) |
(6,105) |
(1,560) |
||
Profit After Tax (reported) |
(3,022) |
(12,075) |
(7,409) |
(3,701) |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(2,878) |
(8,488) |
(6,105) |
(1,560) |
||
Net income (reported) |
(3,022) |
(12,075) |
(7,409) |
(3,701) |
||
Basic average number of shares outstanding (m) |
484 |
608 |
667 |
727 |
||
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) |
(0.51) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
47.0 |
65.3 |
18.1 |
15.7 |
||
Gross Margin (%) |
63.3 |
61.6 |
69.3 |
79.0 |
||
EBITDA Margin (%) |
-40.0 |
-83.2 |
-47.1 |
-6.1 |
||
Normalised Operating Margin |
-48.5 |
-89.5 |
-51.9 |
-10.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,168 |
9,127 |
9,052 |
9,083 |
Intangible Assets |
1,300 |
8,281 |
7,322 |
7,322 |
||
Tangible Assets |
800 |
770 |
1,692 |
1,722 |
||
Investments & other |
68 |
75 |
39 |
39 |
||
Current Assets |
|
|
8,022 |
11,391 |
7,286 |
6,688 |
Stocks |
241 |
232 |
486 |
352 |
||
Debtors |
979 |
1,943 |
1,467 |
1,540 |
||
Cash & cash equivalents |
5,176 |
6,214 |
1,898 |
1,785 |
||
Other |
1,625 |
3,002 |
3,435 |
3,012 |
||
Current Liabilities |
|
|
3,946 |
8,185 |
9,549 |
9,691 |
Creditors |
750 |
1,239 |
1,714 |
2,896 |
||
Tax and social security |
0 |
0 |
0 |
0 |
||
Short term borrowings |
861 |
1,954 |
3,101 |
2,486 |
||
Lease liabilities |
306 |
185 |
287 |
287 |
||
Other |
2,028 |
4,806 |
4,447 |
4,023 |
||
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 |
4,882 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
6,000 |
12,132 |
5,591 |
4,882 |
CASH FLOW |
||||||
Op Cash Flow before interest and tax |
(3,250) |
(7,770) |
(4,449) |
(772) |
||
Net interest |
(127) |
(117) |
(335) |
(250) |
||
Tax |
(31) |
0 |
0 |
0 |
||
Net operating cash flow |
|
|
(3,409) |
(7,887) |
(4,784) |
(1,022) |
Capex |
(253) |
(254) |
(151) |
(220) |
||
Acquisitions/disposals |
0 |
(1,080) |
0 |
0 |
||
Equity financing |
7,043 |
9,644 |
0 |
2,098 |
||
Borrowings |
(414) |
1,120 |
909 |
(616) |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(253) |
(506) |
(290) |
(352) |
||
Net Cash Flow |
2,714 |
1,037 |
(4,316) |
(113) |
||
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) |
616 |
||
Closing net debt/(cash) |
|
|
(4,315) |
(4,259) |
1,204 |
701 |
Closing net debt/(cash) w/ leases |
|
|
(3,871) |
(3,891) |
2,581 |
2,079 |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
Molten Ventures has recently completed the acquisition of Forward Partners, which allowed Molten to further broaden its portfolio, add a complementary strategy focused on earlier stage companies and potentially provide a pipeline of new core holdings. Furthermore, its recent equity raise gave Molten the funds to pursue new investments in what it currently considers a buyer’s market, with an emphasis on the venture capital (VC) secondary market. In FY24 (to end-March 2024), Molten’s gross portfolio value remained broadly stable on a like-for-like basis (ie excluding the Forward Partners deal and the Seedcamp Fund III secondary investment). Management sees good prospects for realisations in FY25.