SenSen Networks — Sensor AI that generates real-time insights

SenSen Networks is an Australian-headquartered technology company operating in the field of sensor AI in the B2B space, with offices in India, Singapore, Canada and the United States. What makes it unique is it applies AI to monitoring physical spaces in real time, with the focus on adding value by reducing customer costs and assisting them with improving services and increasing revenues. SenSen operates in four primary verticals: smart cities, casinos, retail gas stations and emerging markets. A key component of SenSen’s investment case is its ongoing transition to a ‘pragmatic SaaS’ business model, with a significant portion of contract revenue now coming from higher-margin, recurring software licence revenues. Its growth strategy can be described as a ‘land grab’, where it is winning business and demonstrating momentum across its multiple verticals and geographies.

SenSen reported A$5.5m in revenues in FY21, up 47% y-o-y, with H122’s revenues also up 19% y-o-y to A$3m. We expect revenues to grow 69% in FY22 to A$9.3m, with most growth occurring in the second half of the fiscal year from revenues from recent contract wins in November and December, recurring revenue and new contract wins, though affected by floods in Australia. We also see ARR reaching A$8.2m (in line with company’s guidance of A$8.0–8.4m) and revenue growth of 76% to A$16.4m in FY23e as SenSen advances across the smart city, gaming and retail verticals. Though its operating loss will likely increase in FY22e from investments in R&D and building out staff to support its growth, we forecast SenSen to reach operating profitability by FY24e, moving from an operating loss (EBIT) of A$2.9m in FY21 to a gain of A$1.0m in FY24e, driven by its ongoing transition to a SaaS business model with higher-margin, recurring revenues. A key performance indicator we are watching is that of new customer wins, as we want to see SenSen maintain its recent momentum in contract wins across multiple geographies and verticals.

With elements of AI, vision analytics and SaaS in its business model, we have compared SenSen to three sets of peer groups: small cap AI, AI vision analytics, and small cap SaaS. In spite of a higher forecasted growth rate in the next several years, SenSen trades at 4.8x price/revenue multiple for FY23e, a 34% discount to the 7.2x average of its peer groups. If it traded at that peer multiple, SenSen would be worth A$0.18/share, an upside of 50%. Using a reverse DCF analysis, at its current trading price, we estimate that the market is only implying a revenue CAGR of less than 5.0% for SenSen (with EBITDA margins of 20% or less), considerably less than the c 43% growth rate that several research firms are projecting for the AI market itself.

The nature of its contracts and the timing of its revenue recognition and cash receipts can vary across periods, leading to lumpy revenues and making it difficult to forecast short-term results. It is challenging to forecast the size and timing and successful execution of opportunities available to SenSen, making quantifying the long-term potential difficult. If revenues and expenses are not what management expects, future cash or debt raises may be needed. Recent developments in the Australian gaming segment could also have an impact on its financial results.

As management describes it, SenSen is on the pointy end of AI, addressing the problems that customers face in monitoring physical spaces in real time and then using AI tools to solve them. SenSen’s horizontal technology platform SenDISA, which stands for ‘SenSen Distributed Intelligent Sensor Analytics Platform,’ first takes inputs from multiple sources, such as cameras, lidar, sensor networks, transaction data and GPS. It then fuses and analyses the data, using AI and software to determine and extract what is relevant, and then makes it available to customer enterprise platforms to assist them in making business decisions. The company’s expertise is in hardware selection, the development of suitable AI algorithms and choosing the appropriate processing platforms and architecture to provide the optimal solution to customers. Ultimately, its focus is on helping clients reduce costs, improve their services and grow revenues. For instance, in Brisbane, SenSen’s platform helps the city improve both employee safety and efficiency, increase parking enforcement revenues, and improve the availability of parking for its residents.

As noted before, a key component of SenSen’s investment case is its ongoing transition to a ‘pragmatic SaaS’ business model. We label this pragmatic because the decision to go with a SaaS model or not is based upon the needs of the client, whether it be a city council, gaming company or retail petrol shop.

Its growth strategy can be described as a ‘land grab’, where it is winning business and demonstrating momentum across its multiple verticals and geographies, as illustrated in Exhibit 1. The ‘land grab’ involves:

Notably, these four prongs build on each other, as each new contract win provides more referenceability for potential customers, as well as scope for upsell each year, thus multiplying revenues year-on-year.

SenSen Networks is an Australian-headquartered technology company operating in the field of sensor AI in the B2B space, with offices in India, Singapore, Canada and the United States. It was founded in 2007 and began trading on the Australian Stock Exchange in 2017 under SNS. In September 2020, SenSen received approval to list on the OTCQB market under SSNSF.

As shown in Exhibit 2, SenSen has a wide customer base, with customers from city councils, government entities, universities, gaming companies, hospitals and retail chains across the globe.

SenSen has historically operated in three regions: Australia and New Zealand (ANZ), Asia and North America. As shown in Exhibit 4, in FY21, it generated about 47% of its revenue in ANZ, 36% in North America and 17% in Asia. Since June 2021, SenSen has expanded into the UK with the Hippodrome Casino in London contract, increased its presence in Australia with the Scancam acquisition and concluded contract awards and extensions with Crown Melbourne, Brisbane City Council and Australia’s National Heavy Vehicle Regulator. The North America region is also expanding, contributing 36% of revenues in FY21 (16% in FY20) with the opening of a new headquarters in Las Vegas.

Acquisitions are another key part of SenSen’s strategy, primarily used as gateways into adjacent verticals. Since late 2020, it has completed two key acquisitions: Snap Network Surveillance in December 2020 and Scancam Industries (announced in May 2021, closed in July 2021). The purchase of Snap Network, an Australian company considered by management to be a global leader in AI-powered multi-camera tracking software, was for A$1m in SenSen equity. Its solutions allow surveillance systems and operators to track individuals over large-scale video surveillance environments. By merging Snap’s AI powered multi-camera network technology with SenSen’s automated multi-operating technology, SenSen launched its new SenTRACK product with the capability to automatically detect and track people through entire surveillance networks. The acquisition provides SenSen inroads into several verticals, including US casino markets, airports and universities; airports and universities can be viewed as cities in themselves in that they share many of the same dynamics involving people, vehicles and objects. For instance, Snap’s software could be used for monitoring sensitive areas within airports or for providing security in dormitories.

The purchase of Scancam, Australia’s leading provider of AI solutions for fuel retailers such as BP, Ampol and Chevron, was for a mix of cash (A$1m upfront and up to A$4.1m in deferred consideration) and SenSen stock (A$5.5m in ordinary shares). Scancam’s technology is used to detect and intercept fuel theft in real time. Note that the acquisition was technically in FY22, so it was reflected in H122’s statements. The acquisition provides SenSen an entry into the fuel retail industry, and management expects it to add c A$2.2m in revenue in FY22, of which c A$1m is ARR.

SenSen operates in the B2B space, serving businesses that serve the ultimate consumer. Within the B2B space, it focuses on four verticals (see Exhibit 5). Because the retail and emerging verticals are relatively new, historical financials primarily reflect the casino and smart cities solutions. As displayed in Exhibit 6, smart cities made up 87% of revenues in FY21, while casinos provided 13% of the total. SenSen’s strategy is to establish a foothold and then expand in verticals with significant total addressable markets (TAM), as shown in Exhibit 7.

A smart city is one that uses technology to improve its services to constituents and increase operational efficiencies. These technologies can include software, AI, cloud computing, the Internet of Things, mobile applications and the digitisation of its systems, etc. In the smart cities vertical, there are 10,000 cities across the globe, and the development of smart city technologies and movement towards establishing smart cities provides a healthy tailwind for SenSen. Its goal is to expand from the current 35+ smart cities (each of which may involve multiple contracts) to 100+ in two to three years. In smart cities, the current focus of users is on making roads safer, improving regulatory enforcement, limiting congestion and making parking more available and easier to find.

According to Statista, there are over 4,900 casinos worldwide, providing a large and untapped market for SenSen. Its goal is to grow the Casinos vertical from its current two (as of November 2021, which does not include the recent Hippodrome contract) to over 30 over two to three years, where the focus will be on developing real-time data insights to assist managers and owners to meet their compliance obligations and optimise table operations.

SenSen’s move into Retail comes as a result of the Scancam acquisition, as discussed earlier. There are about 6,500+ fuel retail stores in Australia and New Zealand, and loss through theft is the largest problem, which management estimates to be over A$60m per year across Australia. Prior to bringing SenSen in, usually the only recourse for the store and for law enforcement was to manually replay the video and try to find when and where the theft occurred, though all after the fact. With SenDISA, customers can actually detect and intercept crime as it is happening and get the stolen funds or goods back to the retailer. In other words, the combination of cameras and AI would alert store employees that someone is stealing fuel or goods. SenSen’s target is to expand from 250 fuel stores (from Scancam) to over 1,000 in the next two to three years, including both petrol stations and the broader retail market.

The final vertical, Emerging technologies, relates to smart analytics software used across a variety of surveillance applications with the emphasis on detecting and tracking suspicious behaviour. According to HIS Market research, there are about one billion surveillance cameras across the globe, and SenSen’s goal is to grow its base by a factor of 10 from a 10k+ base. SenSen’s product, SenTRACK, evolved from Force Multiplier, Snap Surveillance’s lead product, and fits well with the requirements of SenSen’s various customer segments where there is a need to track individuals across large-scale camera networks. For instance, there are significant opportunities in an adjacent vertical, smart surveillance, for company logistics and inventory management, where monitoring a physical 3D space could significantly reduce costs.

SenDISA also enables SenSen to scale well across verticals, as the need for physical space monitoring is an issue shared by many verticals. For instance, casinos, smart cities, airports, retail stores and universities must all address security and asset management, as they have the common issue of physical space monitoring. The benefit of SenDISA is that a solution for a customer in one vertical would be transferable to another vertical with little added work, and management describes this as ‘cross pollination’ where it can rapidly adapt solutions across verticals. Tools that work for a casino’s security and asset management in Australia would also be usable in a smart city in Chicago or a university in the UK. The same types of cameras and sensors would be used across each vertical, and once an AI is trained to monitor a location, it can detect movement, discern between individuals who should and should not be in a certain location at a given time, and then identify the latter and sound an alarm.

Furthermore, SenSen also uses a land and expand strategy to grow its business with existing customers and upsell additional services. Management’s approach is that SenSen starts with addressing one or more issues with a customer, with the thought that as the client sees the value of SenDISA, it would naturally lead to expanding the platform into other use cases. For instance, a casino would need help for parking management, security, customer loyalty tracking, gaming tables with chip tracking, etc. SenSen would start with parking management, and then expand it to the other use cases.

SenSen’s strategy is to work with public and private businesses to automate monotonous and laborious tasks. The company’s horizontal technology platform, SenDISA, takes inputs from multiple sources, such as cameras, sensor networks, transaction data and GPS, and then analyses and fuses the data to develop meaningful insights. A camera captures an image or video of an object of interest, and stores that as data. SenSen’s specialty is taking the data or video stream from a camera and converting it into something that people can use to ultimately automate their operations. Furthermore, SenSen’s core capabilities include fusing data from multiple types and numbers of cameras and sensors, like light sensors, video cameras, GPS, radar, temperature sensors, lidar, etc.

To fuse all that data from different sources together, SenSen developed a platform called SenDISA (see Exhibit 8). According to management, it is designed to capture and mesh together data from these disparate sensors and use AI and software to transform the data and make it available to enterprise applications for consumption by customers. Consider data that comes in from a camera; it is unstructured data that is not immediately usable by a customer and contains a mix of relevant and irrelevant content. SenDISA is designed to fuse together the data from all of the different cameras, sensors, etc, determine and extract what is relevant, and then communicate it to the customer’s enterprise software system.

There are many definitions regarding what the term ‘platform’ means, so it is important to define what type of platform SenDISA is and what it is not. The first types of platforms are those developed by major cloud service providers, such as Google, Amazon and Apple, where they have created their own ecosystem and consumers, allowing them to deploy solutions across an opensource environment. For instance, Amazon’s AWS provides a platform and range of tools for companies to develop their own AI-powered applications. However, SenSen management sees these platforms as suitable only for a specific class of problems and believes they fall short of meeting a wide variety of enterprise applications.

In contrast, SenDISA is a product platform, where SenSen has developed different product lines from the same set of tools, algorithms and architecture. It delivers products at scale with highly reusable and flexible pieces, and SenDISA allows SenSen to build and deploy products in a rapid time frame. Management sees SenDISA as being a solution for physical space monitoring that is highly accurate and flexible, able to be used in a variety of situations (parking regulation, office security, casinos, smart cities, highways, etc) rather than being limited to one issue, as seen with platforms that other companies build.

The SenDISA platform consists of three critical components or layers – data fusion, AI algorithms and product software – that work together in order to provide clients with decision support:

Innovations in cloud technologies, mobile connected devices and IoT are proliferating the amount of data available to companies and are primary drivers of AI technology. Companies deploy AI to optimise the level of insight that can be extracted from the data, where its ability to generate quick, accurate analysis, without the need to scale labour and associated costs, provides clear benefits. This is particularly key across SenSen’s verticals, where, for example, a council would not be able to monitor a city in real time to the same scale without AI, due to factors like labour shortages and budgetary constraints.

AI’s advantage over traditional software is its ability to generate informative outputs from unstructured data, such as images, video and text, which forms over 90% of global data. Computer vision refers to a computer’s ability to analyse visual data, such as digital images or video, and is the largest subfield of AI with several applications across industries. This establishes a large addressable market; as yet there are only a handful of companies that have the full-stack capabilities to deploy effective computer vision solutions across verticals. Leading players in the space have significant levels of intellectual property, sophisticated data teams, an ability to attract and retain top AI talent (scientists, engineers, etc) and access to large amounts of data, establishing high barriers to entry.

There are only a couple of publicly listed companies globally in the AI sensor analytics field, likely explained by both high barriers to entry and the large number of alternative applications for computer vision companies, such as healthcare diagnostics and autonomous vehicles. SenseTime is SenSen’s only listed peer with a similar business model, but unlike SenSen, SenseTime has a range of investment sensitivities such as its purported connection to human rights abuses (discussed later on). Other competitors include XY Sense, an Australia-based company that creates AI-powered workplace sensors, and US-based Rhombus Systems, which builds AI-powered video surveillance technology. This limited competition and unsaturated market provide scope for SenSen to capture share in both its existing and new verticals.

User privacy has been a significant headwind to the adoption of computer vision technologies. For instance, Chinese artificial-intelligence company SenseTime Group, which listed via an IPO in Hong Kong, in late December 2021 had, shortly before listing, become subject to US sanctions, which, among other things, preclude US investors from investing in its stock. The US Treasury Department explained that SenseTime, as well as other individuals and entities, was connected to human rights abuse and repression in several countries around the globe, and US investors are prevented from investing in SenseTime. To avoid issues such as these, SenSen has developed sophisticated systems to completely protect user privacy. For instance, SenDISA can blur out facial recognition, identifications, licence plates, faces, etc. if that data is not needed for that customer’s use, as well meeting jurisdictional restrictions where the solution is installed. However, ultimately it is up to the customer to make ethical use of the technology.

SenDISA’s solutions tend to be very ‘sticky,’ so customer retention is high. When SenDISA is installed at a customer’s location, the AI and software outputs are integrated into the customer’s enterprise server stacks, such as data lakes, etc. The solution is sticky in that once all the work has been done to integrate it into multiple systems, it would take substantial time, energy and money to remove or replace a multitude of sensors and equipment and then ‘unplug’ the software and AI outputs from all of those critical systems. It is not just data generation but the platform’s deep integration with the enterprise software and downstream systems that makes it sticky.

The customer retention rate is a key performance indicator for SenSen and according to management, its net retention rate is running at about 120%, greater than the 108% SaaS firm average reported by various firms (such Vista Point Advisors). The net retention rate takes into account the company’s ability to renew existing contracts, upsells and downsells. According to management, in its five-year history as a public company, it has rarely, if ever, lost a customer and its existing customers are buying more each year, thus generating a net retention rate of above 100%.

SenSen actively protects its IP, having developed a substantial and growing patent vault that has more than 60 entries. Its solutions were built upon this IP and the current patent portfolio covers 14 patent families, five of which are granted and the remaining pending. Each patent family consists of a set of related patents registered in the key jurisdictions where the related inventions will eventually be commercialised, such as in the United States, Canada, Australia, Macau and Singapore.

A key component of SenSen’s investment case is its ongoing transition to a SaaS business model with a significant portion of contract revenue now coming from higher-margin, recurring revenues. Revenues can be broken into three buckets and are similar across verticals:

Historically, contracts followed what management calls a ‘capex’ model, where most of the revenue was upfront and was about hardware and equipment, with less recurring revenue. With its business model transition, SenSen has been shifting to an ‘opex’ model, where the contract revenue is spread across the length of the agreement as recurring, higher-margin revenue. To further remove barriers to customer adoption, management in some cases can amortise the upfront charges (including installation) across the contract so that minimal cash is required upfront by the customer. For instance, a retail customer may have paid A$20k upfront under the capex model, but now is only being charged A$2k upfront and paying A$100 per month more across the term of the contract. Ultimately, the goal is to make it an opex decision (with smaller initial amounts and contract charges spread across multiple years) for the customer rather than a capex one with a large upfront payment. With the transition to a SaaS model, the number of ARR customers (ie those who choose the opex model) is accelerating each year, and management estimates it will reach 36 in 2022 (see Exhibit 9).

However, not all customers choose to make the transition to an opex or SaaS type model and prefer the old capex model with most revenue upfront and less recurring licence revenue. That is why we describe SenSen’s model as a ‘pragmatic SaaS’, where pragmatism determines the choice of contract. In other words, customers have the option for the type of contract that best fits them rather than being forced into one type of model. For instance, some municipalities prefer the traditional capex model as that fits well with their budgeted capital spending process, while casino or retail customers may prefer a SaaS model. Overall, the trend is toward SaaS models, but there will be those who continue to choose the old-style contracts for pragmatic reasons.

As shown in Exhibits 10 and 11, this shift to pragmatic SaaS is already resulting increasing recurring revenue across all verticals and geographic areas, and we expect this to accelerate from FY22. ARR, one of SenSen’s key performance metrics calculated by multiplying the monthly recurring revenue (MRR) by 12, grew by 55% in FY20 and 102% in FY21, and management forecasts it to grow by about 100% in FY22 to A$8.0–8.4m (c A$0.65–0.70m MRR). For forecasting purposes, we take the midpoint of A$8.2m.

In Q222, SenSen reported a record quarter of new customer wins with eight new commercial contracts with more than A$4.8m of combined value that will be recognised over the next two to three years. Recent wins include a 36-month A$230k contract with Toowoomba Regional Council for automated parking enforcement, a A$666k contract with EG Australia for fuel service stations, a A$725k contract extension for casino solutions with Crown Melbourne and a contract with the Hippodrome Casino in London for A$430k.

We can also see an acceleration in contract wins over the last several months (see Exhibit 12) increasingly weighted towards recurring revenue. Note that A$4.5m (of this list below) is just the current value of these selected contracts, but the long-term value is likely much more. Many of SenSen’s contracts also have options for adding additional features and models as SenDISA shows its value by reducing costs, raising revenues and improving security, etc, which gives SenSen opportunities to both upsell and grow its ARR even further. Management estimates that customer spend will grow about 110–120% of the first year’s revenue per year due to that upsell, which means that the A$4.5m could expand to A$10–15m due to upselling, new solutions, extended business, etc. For instance, a key Australian smart cities customer signed a contract in 2018 with A$120k recurring licence and maintenance revenue. By 2021, its ARR had increased to c A$500k and is expected to reach A$1m by FY22e as it adds on new services and/or extends its current application to other regions of the city. Recurring revenue from just this one customer grew by a 70% CAGR, illustrating the upsell and growth potential for both existing and new customers.

SenSen’s contracts tend to be three to seven years in length plus options to renew, and are awarded via several mechanisms, including tender processes, request for quotes, etc. As AI is new and contracts can reach multimillion dollar levels, deals with companies in the smart city and casino verticals will often first require a proof of concept (POC) and an enterprise software trial. These paid POCs and trials (about 70% are paid) typically last three to six months, giving SenSen time to understand the client’s needs, and once that POC or trial is successful, SenSen would usually then implement the full solution. The revenues from paid POCs and trials can vary widely, from A$5–20k for a smaller entity to A$150k+ for a larger city trial (eg Chicago) that may take a year. About 90% of successful POCs and trials are converted into full deployment, and it usually takes about 12–18 months in total to move from first contacting a potential client to the signed deal and full implementation.

In FY20, SenSen delivered A$3.8m in revenue, up 1% on the previous year, while ARR grew 33% to A$2.0m. Despite the COVID-19 pandemic, SenSen generated A$5.5m in revenues in FY21, up 47% y-o-y. ARR continued its solid growth, with a step-off point in the month of June 2021 of A$4.1m.

Gross margins improved to 74% in FY20 (from 63% in FY19), though they fell back to 63% in FY21. Like revenues, margins can be lumpy, as they are affected by the timing and type of contracts signed each period, such as how many hardware ‘pods’ are needed for new installations. Overall, we recommend viewing margins across longer timeframes, as gross margin oscillations of ±5% across individual periods do not necessarily indicate a trend.

In FY21, growth was seen across both existing business verticals (SenSen now has four verticals), with smart cities up 42% and casinos climbing 88% as several new customers were added while others extended their commitments or increased orders. The ANZ region rose 17% with both multiple new customers and existing ones who added to or extended their contracts. North America increased 236%, boosted by the opening of the new regional headquarters in Las Vegas.

SenSen's recently released H122 results showed revenue of A$3.0m, growing 19% period-over-period (p-o-p) versus A$2.5m in H121, primarily driven by the Scancam acquisition, which added A$0.8m in revenues. ARR rose to about A$5.3m, and management highlighted eight new contract wins across its verticals with a minimum value of A$4.8m that will be recognised over the next few years. H122’s EBIT loss grew to A$6.9m, increasing from A$0.5m in H121, driven by SenSen’s growth strategy, which includes investments in sales and marketing staff, added R&D for new verticals and increased non-cash share-based expenses. We expect those current investments to support SenSen’s ongoing momentum over the next few years, as much of the growth it is enjoying now is from investments made in prior years.

SenSen recently revised its FY22e guidance from A$11m to A$9.0–9.5m revenue and A$8.0–$8.4m ARR, as floods in Queensland and New South Wales affected revenues from existing smart parking and curbside management customers, as well as the timing of project implementation and some anticipated new contracts in both the smart cities and retail verticals. There have also been delays in the roll out of anti-fuel theft technology in petrol stations due to floods combined with cautious sentiment from customers in this segment from global oil supply and price uncertainty. Importantly, no expected orders or contracts were lost and it is merely the timing of revenue recognition that was shifted to the next financial year. We use the midpoint of management’s guidance or A$9.3m as our FY22 revenue forecast, meaning SenSen will need to recognise about A$6.3m of revenue in H222. Revenues can be lumpy across periods and it is often timing differences that affect revenues and cash collection across individual periods. Much of the recent lumpiness in revenues and margins reflects the momentum in contract wins, and we expect to see such behaviour continue if SenSen continues its rapid growth. On the other hand, the ARR growth is not as affected by the timing of revenue recognition, and we expect to see it continue to grow steadily over our forecast period.

Exhibit 13 provides a bridge from H122’s A$3m to our FY22 estimate of A$9.3m, including A$2.5m from recent contracts, A$2.6m in recurring revenue and A$1.2m in new contracts expected to be signed.

We estimate revenues of A$16.4m in FY23e, up 76% from FY22e, and reaching A$25.0m in FY24e. We expect SenSen’s growth will come from each of its three primary verticals (see Exhibit 14); we do not forecast revenue from the (fourth) emerging markets vertical in the next several years due to its newness. Within this we forecast the customer base in smart cities and gaming to reach c 75 customers by FY24 as well as about 750 petrol service stations. Customer sizes range from small city, gaming or retail customers (less than c A$100k pa) to larger ones with revenues of A$800k+ pa.

Our key forecast assumptions for the three primary verticals are as follows:

SenSen’s transition to a ‘pragmatic SaaS’ business model with a larger portion of higher-margin, recurring revenues should have a meaningful impact on results across all three of its primary verticals (not including the new fourth vertical, emerging markets, as discussed above), as shown in Exhibit 15. We expect overall gross margins to grow steadily over the forecast period, from 63% in FY21 to 76% by FY24e. We expect adjusted EBITDA to turn positive by FY24e at A$3.4m, with a margin of 14%.

At the end of H122 (31 December 2021), SenSen’s assets were primarily cash (A$8.2m), goodwill from its acquisitions (A$5.6m) and intangible assets (A$2.7m). SenSen's debt is primarily a loan for A$0.45m, and we expect this loan to be paid off in about FY24, as the company builds up its cash position and generates positive free cash flow. Major cash inflows and outflows in H122 (aside from the usual customer receipts and payments to suppliers and employees) included A$9.7m (net) from the share issuance (discussed below), a A$1.5m inflow from government grants, A$0.8m proceeds from borrowing and a A$1.3m repayment of debt. At this time, SenSen does not expect to need further capital raises nor raise significant amounts of debt to fund general operations. Management expects that any capital infusions or additional debt financing would be for acquisitions, expansions into new verticals or other special situations.

In addition to the two acquisitions in FY21 (discussed earlier), there were also two capital raises: one in FY21 and one in 1H22. In January 2021, SenSen raised A$7.15m to accelerate revenue and extend delivery capabilities to global customers, especially in the United States. In late calendar 2021 (fiscal H122), it held a successful placement targeting A$10m from both institutional and individual investors, with the plan to use the proceeds for investing in sales and marketing, fund R&D and technology and to fund working capital.

We expect SNS operating cash flows to improve from FY21’s net cash consumption of A$3.4m, driven by improving sales and gross margins and reach positive levels by FY24. We expect capex to remain within a range of A$0.3–0.4m (A$0.1m in FY21), excluding acquisitions.

It is difficult to value a firm that is several years away from profitability, so we use price/revenue multiples as a way to determine a relative valuation for SenSen. Its business model has elements of AI, vision analytics and SaaS, and there are few, if any, competitors that cover such a wide range of services. As a result, one way to value SenSen is to compare it to three groups of peers – small cap AI, AI vision analytics and small cap SaaS (see Exhibit 16). The three groups currently trade at an average of 10.2x price/revenue FY1e, a 22% premium to SenSen’s 8.4x, and 7.2x price/revenue FY2e, 51% above SenSen’s 4.8x. Moreover, as shown in Exhibit 17, our estimates for SenSen’s revenue growth in FY22e and FY23e (69% and 76%, respectively) are considerably larger than the market’s estimates for competitor growth in both years. Part of the gap in valuation and growth estimates could be due to SenSen rising off a smaller revenue base and being earlier in its life cycle than competitors. If SenSen were valued at the peer multiples, it would trade at about A$0.16–0.18/share.

We believe a reverse DCF is a way to determine the market expectations for SenSen. Our reverse analysis in Exhibit 18 assumes a constant revenue growth and EBITDA margin for FY24e–31e, 10.5% WACC and 3% terminal growth, and suggests that at a A$0.12 share price, the market is implying low revenue growth rates of no more than 5.0% and EBITDA margins of 20% or less. Both the growth rates and margins are considerably less than what we believe SenSen could achieve.