Focus on kerbside management and North America paying off
While SenSen’s technology can be deployed for a wide range of applications, management’s
key focus is on exploiting the opportunity in kerbside (or curbside in the US) management
and enforcement in the US. We believe that the progress made to date is a clear indication
that SenSen has a strong product/market fit. The ability to repeatedly sell the same
product (rather than bespoke solutions across a range of use cases) is also key to
driving operational leverage.
Large addressable market and strong product market fit
Despite the more narrow focus on kerbside management, we believe the market is large
enough to support revenue many times SenSen’s current level. The company’s technology
is used in 16 Canadian and six US towns and cities, whereas there are approximately
1,400 towns and cities in the US and Canada with a population of more than 50,000
(cities of c 50,000 people are a common size for gtechna, SenSen’s most active channel
partner to date). The contracts with Calgary and Montreal indicate that SenSen’s direct
sales team can sell multi-million-dollar solutions into larger cities, with an annual
value of more than $1 per capita. (Calgary: population 1.4 million, contract value
A$1.9m in the first year, A$4.6m over five years; Montreal: population 1.8 million,
contract value A$1.7m in the first year, up to A$17.7m over five years.) There are
approximately 50 cities in North America with a population of more than 500,000 and
a further 75 with a population of more than 250,000.
As SenSen grows its customer base, it expands its opportunity for upselling to cover
more kerb length or add additional capability. It is important to note that SenSen
has a very low churn rate (not disclosed, but described by management as negligible),
which means the lifetime value of each new customer win is typically a multiple of
first year revenue.
| Exhibit 1: Growing customer base equals more upselling potential |
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| Source: SenSen Networks |
Partners and new products driving growth into the long tail
SenSen is also continuing to grow and nurture its base of channel partners, an initiative
that is key to expanding into smaller cities and into the US. The provision of a demonstration
car (SenForce) equipped with SenSen’s software and hardware to key partners has delivered
good results, enabling conversion ratios to improve and sales cycles to be shortened.
A new pole-mounted camera solution is also under development, designed to provide
an easy-to-implement solution to local governments, thus accelerating the rate of
new customer capture.
Financials: Maiden profits in FY25e, operationally geared model
We are initiating forecasts for FY25, assuming 12% y-o-y revenue growth (20% growth
in H2). We believe this forecast is conservative, providing some contingency for the
possibility that completion/revenue recognition of a portion of the Canadian contracts
shifts to FY26. With gross margins expected to remain healthy (we forecast 76%) and
opex expected to remain relatively flat, incremental growth drops strongly through
to margins. As a result, we expect the company to register an inaugural profit at
the EBITDA and adjusted EPS levels.
Our forecast is for a slight reduction in net cash in H2. Cash collection was significantly
ahead of revenues in H1 due to upfront payments for work from one of the large Canadian
customers to be completed in H2. Reflecting this, short-term contract liabilities
were A$1.6m in H125 versus A$0.4m in FY24. Government R&D grants (estimated at A$2m
in FY25) are received in the first half but recognised on the P&L across the year.
Nevertheless, we believe SenSen is now on a firm footing to generate sustained positive
cash flows as it continues to grow and margins expand.
We will extend our forecasts when visibility allows, but believe that SenSen has established
a foundation for operationally geared, cash-generative growth.
| Exhibit 2: Revenue and operating model |
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| Source: Company data, Edison Investment Research |
