Honey, I shrunk the revenues

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For me, the most interesting development arising from Seeing Machines’ results last week was house broker Cenkos lowering its share price target from 19p to 15p.

That arguably could provide ‘independent’ justification of Seeing Machines value if a low-ball bid comes in. Understand, I don’t consider Cenkos to be independent myself but in many takeovers the house broker target price is used to support a bid.

I hope I’m wrong but the pattern of communications from Seeing Machines over the course of many months, together with the slow mo correction of problems with fleet looks like carelessness at best.

Smoke and mirrors

On the face of it, the new price target from house broker Cenkos is predicated largely on the basis of lower fleet revenues in the 2019 financial year, bringing down overall revenues and gross profit for Seeing Machines.

So how credible is that fleet revenue estimate?

Cenkos has estimated fleet revenues for 2019 will be only A$14.1m vs. the figure of A$49.1m, which it had forecast as recently as August 3rd.

However, I’m having difficulty working out how such a low figure is even possible given the number of units Fleet has out in the field.

By my calculations in this financial year (2019) Fleet should have recurring revenues from the existing 10,000 fleet units installed up to the end of the 2018 financial year (circa A$17m) plus revenues from the 5,500 that were shipped at the start of 2019 financial year plus a further 4,000 that Cenkos state will be installed by the end of the 2019 financial year.

Seeing Machines itself stated in the RNS announcing its full year results this week: “Total cumulative contracted Fleet (Guardian) revenue of A$82 million as at 30 June 2018. A$50 million revenue yet to be recognised over a three-year period.”

[When I divide $50m by 3 I get £16.6m – what do you get Mr Accountant?]

Well I contacted Seeing Machines via email and this was their reply:

  • “The Cenkos analyst provides his independent view on the Company.


  • Guardian revenue is recognised as follows:
    • Total connected Guardian units is 10,000.
    • TCV is based on total cumulative contract value since Guardian was launched.
    • Contract sizes vary.
    • Revenue is recognised firstly when hardware sales are recognised and secondly, once the unit is connected into the vehicle, monthly recurring revenue is generated.
    • Each fleet varies in contract size and it takes varying amounts of time to connect each vehicle in a fleet to Guardian.


  • TCV was published as A$82 million. A$50 million of that revenue will be recognised over 3 years – ie by end of FY2021.”


Of course, while we’re all pondering about fleet revenues are we possibly missing something? Yes: Seeing Machines is going to be acquired because it’s the leading global DMS and BdMS supplier.

Any potential acquirer probably wants Fleet ‘smoothly transitioned’ (as Cenkos put it in a note on19th September) to a licence model. The beauty of the strategy, the sheer genius, is that it has made Seeing Machines more attractive as a target by both moving the business on and conveniently reducing its short term value.

A potential bidder, let’s call it company ‘B’ for now, can either take advantage of the reduction in SEE’s price while the sale is on or SEE will go it alone and use the extra engineering resource from fleet to help service the multiple auto OEM contracts that are on the way.

And make no mistake those contracts will have to be announced soon. FCA and Toyota are huge wins that finally cement the industry view that Seeing Machines is the Mobileye of DMS.

The window for a cheap sale will have run out within a few months.

Can you hear that clock ticking?

The writer holds stock in Seeing Machines

2 thoughts on “Honey, I shrunk the revenues

  1. I agree with you saying: “I hope I’m wrong but the pattern of communications from Seeing Machines over the course of many months, together with the slow mo correction of problems with fleet looks like carelessness at best.”

    I disagree with the notion that the company is willfully doing stupid things to attract the lowest bid possible. The company is indeed doing stupid things but because of management’s ineptitude. The company’s management does not operate in a vacuum. In order for a sale of the company to be consummated, the support of the major shareholders (see below again for top 7) is required. Those are very shrewd investors. They are also known to be investors with a long term horizon. They will not accept a tender offer that is below the fair market value of the company based on what the company could be worth 5-10 years from now (whatever that number is).

    The fact is the SEE management team is horrible at executing a financially sound business plan. They did not think through their go to market strategy for the fleet business. They did not properly model the manufacturing costs. As SEE is still an emerging company, they are not flush with cash so taking on manufacturing was not smart specially when the cost per unit is relatively high (between $500-$1000). What they are referring to as the new fleet business model is what they should have implemented from the get go. I can think of many ways they went wrong with their go to market strategy for the fleet business.

    What has become clear to me is that Ken Kroeger is not the right guy to lead the company into the next phase of its evolution. When we look back, they hired Mike McAuliffe to replace Ken back in 2016 then he left in 2018. There was reason to that hiring. They were supposed to hire a new CEO but the Board decided to keep Ken as the CEO. Burried in the RNS detailing the final 2017/2018 results is the hiring of a new COO: “Ryan Murphy, former Thales Australia head of Cyber Security has been appointed as the Group’s Chief Operating Officer with effect from 15 October 2018.” To me, this is the most significant piece of news as it signals that the Company/Board has come to the conclusion that Ken needs help… He needs somebody to help with the clean up of the mess that he helped create.

    At any rate, it was good reading your post. We shall all get a better idea of where the company is headed within the next 12 months.

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  2. I bought my first shares in 2013 so I can’t be accused of being “short term.” I really enjoy reading your posts- they are well reasoned!

    I completely agree that the revenue guidance is incomplete at best, more likely inaccurate. For fiscal 2019 revenues to be “comparable” to 2018, Fleet has to be down (though 1/3 of remaining TCV translates into Fleet being up), Automotive can’t grow, – if this is true, management should be fired. And Offroad needs to decline, though Caterpillar is having another stellar year. Aviation immaterial to 2018… so maybe the scientific piece goes to zero and the currency translation is not positive… but even if this is the situation, one could conclude that revenues are going to grow by a meaningful amount. Oh well, I’m just hoping its a case of under promising…

    Regardless, I couldn’t find this topic discussed anywhere, but if the company ends up burning through so much cash that it needs to raise more capital, I hope they have enough wits to raise the primary shares on a better exchange and perhaps up-list/IPO/dual-list on something like the Nasdaq. Because it would have a large enough market cap to get into the Russell2000 and then we aren’t reading every release with a calculator converting revenues, stock prices and TCVs I between USD. AUD and GBP! I believe the Nasdaq could triple its valuation.

    Good luck out there… I’m still primarily invested in SM because of its technology… just hoping management doesnt screw it up and or the board doesnt miss an opportunity to do what’s in the best interests of all stakeholders.

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