SenSen Networks Ltd (ASX:SNS, OTCQB:SNNSF) has maintained its streak of record year-on-year cash receipts by achieving a growth in customer receipts of 70% to A$2.6 million in Q2’23 compared to Q2’22.
Edison Investment Research noted that SenSen continues to see growth across its key verticals of smart cities, gaming, retail and surveillance, boosting annual recurring revenues (ARR) to ~A$8 million.
The investment research firm expects key drivers of SenSen’s share price to include evidence of an improving cash situation and ARR growth from wins across the globe in key verticals.
The following is an extract from Edison’s research update:
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.
Q223: Another quarter of record cash receipt growth
Live Awareness company SenSen generated its eighth consecutive period of yearon-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.