Spacetalk Limited (SPA) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone. My name is Georg Chmiel, and I'm the Chair of Spacetalk Limited, and I will be chairing today's meeting. On behalf of the Board of Directors, it's my pleasure to welcome you all to our Annual General Meeting of Shareholders for 2022. As there's a quorum present, and it is after the appointed time for the meeting, I declare the 2022 Annual General Meeting of Spacetalk open. My fellow directors, Martin Pretty and Brandon Gien, next to me, and Mike Rann, and Saurabh Jain, on the other side of the table, are here in Adelaide, Spacetalk's home city, for meetings with management as well as this Annual General Meeting. The technology that you are logged into allows shareholders, proxy holders and guests to virtually attend the meeting. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxy holders have the ability to submit questions and vote. Written questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on one topic, amalgamated together. Finally, due to time constraints, we might run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail or on our website. For those shareholders who wish to ask a verbal question, an audio question facility is available during this meeting. To use this service, please follow the instructions below the broadcast window on the virtual meeting platform, and the moderator will facilitate your participation in the meeting at the appropriate time. You will be able to listen to the meeting while waiting to ask your question. Prior to asking your question, please state your name and the name of the shareholder who you represent. If you have an issue using the system, please refer to the online meeting guide available at www.computershare.com.au/virtualmeetingguide or contact Computershare on 61-3-9415-4024. I encourage shareholders who are attending online to submit questions and/or requests to address the meeting as early as possible. I will ask the Company Secretary, Kim Clark, to act as moderator for the meeting and to read out any written questions or advice of any shareholders or proxy holders with verbal questions. In the event that I'm disconnected from the meeting and cannot immediately rejoin due to technology failure, Martin Pretty will assume the role of Chair of this meeting. Voting today will be conducted by way of poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a vote icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options per resolution. There is no need to hit a submit or enter button as vote is automatically recorded. You do, however, have the ability to change your vote until the time I declare voting closed. I appoint Ms. Doris Grave of Computershare Investor Services to be returning officer and to conduct the poll. I now declare voting open. Attending from Spacetalk executive team are Jarred Puro, Interim Head of Finance and Company Secretary, Kim Clark. In addition, the company's auditor, Mr. Ian McDonald and Mr. [ Ben Wood ], the company's legal adviser, are also in attendance. The auditor will be available to take questions on the audit report later in the meeting, if so required. No apologies have been received for today's meeting. I will now provide a brief address followed by Saurabh who will provide a company update prior to commencing the formal business of the meeting. Given the geographical dispersion of our shareholders, we are holding this meeting virtually. The directors would have liked to meet you in person, and we will do so in the years to come, but we consider this format as working best at this stage of the company's development. So greetings to you wherever you are located. I'd also like to take this opportunity to welcome any new shareholders who have joined us since our last meeting, and I would like to thank existing shareholders for their ongoing support. Spacetalk is a great company with wonderful products and even a greater potential future. But it is subject to the ebbs and flows of consumer and capital markets. As you all no doubt have witnessed or experienced, the capital markets and global economy have changed over the last 12 months. This has forced many businesses to recalibrate strategies, business models and operating models for this new normal. Spacetalk, like other growing capital-hungry technology businesses, also needs to adapt, and this is our year of adaptation to change. We are not pressing a reset button, but we are shifting gears. After 2 to 3 months of working with the company's Founder and CEO, Mark Fortunatow, to adapt the business in strategy and governance to these new realities and an enhanced governance system, we've come to the conclusion that it was time for a change at the top. A business generating more than $20 million of revenues requires internal change to adapt to accelerating external change. As a result, Mark has left the business in September 2022, and Saurabh was appointed Acting CEO and Managing Director at that time. Saurabh's mandate is to undertake a strategic review of the business with a view to enhance performance and shareholder returns and to position the company on a sustainable, growth-oriented footing. He brings over 25 years of experience in technology-related roles, both from a technical as well as a commercialization perspective. The strategic review of the business has been largely completed. Based on this, we will commence recruitment for a permanent CEO to permit Saurabh to resume as a Non-Executive Director. Apart from human capital, we are also aligning our capital strategy to the business strategy, which includes the restructure of the PURE loan and the raising of additional equity capital to enable the business to grow. Saurabh will provide more color around those aspects. In conclusion, I would also like to thank our customers: the schools, retailers and mobile operators who help deliver our products and services but, ultimately, the families, kids and seniors who use and experience the benefits of what Spacetalk delivers. Without our customers, there will be no Spacetalk. I would also like to thank my fellow directors and Spacetalk team. It has been a demanding period for the company of late, but I believe that we will be stronger for it. And to Spacetalk shareholders, thank you again. I hope we can count on your ongoing support as we strive to seize the opportunities before us. We are all working together to position Spacetalk for long-term sustainable value growth. I will now hand over to Saurabh to provide a company update.

Good morning, Spacetalk shareholders. I'm Saurabh Jain, your Acting CEO and Managing Director. It's a pleasure to be with you here today. As the Chairman noted, I have stepped in as the Acting CEO and Managing Director for a brief period to facilitate a leadership transition and business realignment. We're currently seeking to recruit and appoint a new and permanent CEO, at which point I'll step back into the role of Non-Executive Director. I appreciate the support of the Board and the team here at Spacetalk and all the shareholders I've already met. I look forward to speaking to more of you in due course. One thing that is clear to me is that Spacetalk has fantastic products. And it is these products that provide the foundation for the future. I'd also like to commend Mark Fortunatow and his team for developing these great products, without we will not be here. Although this is a general meeting to discuss our 2022 results and annual report, I will take it that you have read the report and the associated disclosures. I'll instead talk about our business, market, product road maps, give you an update on our regions, cost and cash plan; talk about our debt with PURE and our more recently announced capital raise; and finally, the CEO succession plan. This is our view of the market. On the x-axis, we have the features of the various kids wearables. On the y-axis, we have the price. On the bottom left, we have the trackers by Garmin and Fitbit, low cost, low functionality devices. We class these as trackers. Moving to the right, we have Xplora, Moochies, Pixbee and Gabb with more features but at a higher price point. We class these as budget watches. Moving to the right again, we have Spacetalk's Adventurer, Garmin version 2 and Xplora-X6 Pro in the premium sector. And finally, in the high end, we have the Apple watches and the Oppo smartphones. Against each of these segments here, we have reviewed the attractiveness and our ability to compete out of 50, with the budget being the most attractive and the high end being less attractive to us in our capabilities. Against this backdrop, we've also considered what our competitive advantage is, and it's our software. Here is a brief snapshot of the iOS app rating against the other major players, and we are dominant. So what we want to do is we want to offer a budget watch, at a lower price point that you'll see on that graph than our competitors, powered by our great software. And secondly, we want to get the cost base right so we can reduce the cost of our next-generation Adventurer watch, then there will be an annual update, so we can compete at a lower price point if we want to. From a product strategy perspective, we will launch a new sub-$250, maybe even sub-$200 watch, around middle of the year. Before this, we will also have launched our updated premium watch, it will be better quality at a lower cost point for us. On the services side, we have offered a paid subscription service of $5.99 per month since our first watch was launched in October 2017. In September, we launched our JumpySIM mobile service, which is $16.99 per month in Australia when purchased monthly. We offer an annual plan with a discount. And to date, we've seen 80% user uptake of Jumpy with 50% of those users signing up for the annual plan. This has accelerated our average revenue per user, the ARPU, and will continue to have a strong impact on our working capital. But there is more. As we pivot to a software-focused company, we will be offering more over-the-top services that customers can buy. We hope to have these in market within the next 12 months. Opening in a new market is like a plane taking off, a lot of energy and resources are required. We have found that it takes 3 to 4 years in a new market to scale. In Australia where we entered in December '17, we are the dominant player with over $14 million of gross profit. In EU, U.K., we entered in September '19, we have a healthy and growing gross profit of $1.7 million and the cash burn is now almost negligible. In North America where we entered in December '21, a year ago, we are still small and there is a heavy cash burn. Though when you overlay these 3 regions together and look at our cumulative subscriptions, which is really our active customers after removing churn, we're having near exponential growth. As the EU, U.K. and North America markets mature over the next few years, I'd expect this line to continue to accelerate. All of our growth is possible when we have cash. Historically, we haven't been as prudent as we will be from now. We've announced the cash reduction plan of $2 million. This is underway. In addition, we will supplement this with our working capital improvements as users pay for our services for 12 months upfront. So more work needs to be done. And what our Phase 1 cost optimization plan does is give us the capabilities to optimize the cost base further, something we will aggressively do as we move towards being a quality low-cost operator. In regards to our PURE debt, PURE had been an extremely supportive lender, and we have renegotiated our terms and extended our repayment dates to [ July '24 and March '25 ]. More significantly, we've dramatically reduced our interest rate down to 9.5%, and this will help with our cash burn. Also as part of the renegotiation, we've agreed to a warrant of 90 million shares at a share price that you can see below. If exercised at $0.06, this will give us enough money to pay back our debt to PURE. To help recapitalize the business. As announced, we will be looking to raise up to $4 million by the way of our non-renounceable rights issue at 1:1.65 with a free attaching option at twice the issue price. Let me talk about me and my acting role as the CEO. It's taken me a while to form this view, though I believe we need a CEO that can help us transition from hardware to software, as the future of the business will be in the software of the devices that we sell. We will now commence a recruitment process and will keep the market updated. So to recap what we've spoken about, we have the best user ratings of any app in the market. We are going to continue to use this to create a new budget watch to compete in a different segment. Our software service will increase the ARPU and improve our working capital. The Australian market is mature, with EU, U.K. and North America growing and emerging. We are going to continue to be a quality low-cost operator with a prudent cash management culture. With PURE, we've renegotiated the caveats, reduced the interest rate, saving $310,000 per year, and extending the term of our debt. And we have a clear view on what type of CEO we want to lead the business, with me remaining for as long as needed. I would like to close my interest by thanking my fellow directors, the Spacetalk team and Spacetalk customers. I'd also like to thank you, our shareholders, for your ongoing support. I'll now hand the meeting back to Georg to move on to the formal business of the meeting.

Thank you, Saurabh. Kim, are there any written questions in respect of the presentation or any verbal questions?

Georg, we do have a written question from [ Dorothy O'Butler ] who asks, why is it that Mr. Fortunatow has been terminated when he was the Founder and produced very good results over the years, albeit with little impact on share price over the last couple of years?

Okay. I think I had addressed that in my Chairman's address. So we tried to work with Mark in implementing a stronger governance to the business, which was needed, which also would improve the financial performance of the business, which was suboptimal at that time. And we were not able to do this, and therefore, we sought this change.

I have no other written questions. Do we have any available questions? Sorry, apologies, there are 2 questions that have literally just popped in. The first question being, Xplora recently mentioned on their earnings call that they were seeing the strongest growth in the German market. Do we have plans to enter in a low-cost way?

Yes. So one of the major parts about the change that we're making, we are making it a lot easier for us to enter countries from a low-cost perspective, so that does actually include a lot of the European countries. Look, we're not ready to announce what country we're going in at, but we are looking at Germany and a lot of the others in Europe. France and Italy are some of the other places. And we just want to kind of pick the next country to go into.

Thanks. Saurabh, there is one further question in from Mr. [ Adrian Bunter ] and that is in regards to the rights issue, why would you make it non-renounceable? Renounceable is much better for shareholders and also enables new investors to purchase rights and exercise them, increasing the ability to raise funds.

I mean, the aim of this rights issue is to be a very, very simple, straightforward rights issue. And that's why we have chosen the structure which we have chosen in consultation with our advisers.

I have no further written questions. Do we have any audio questions?

There are no phone questions at this time.

Thank you. The agenda items for our meeting today are shown on the screen. The Notice of the Meeting was available to shareholders from 20 October '22. And so if there's no objection, I shall take the Notice of Meeting as read. Where a vote is required on a particular item, the valid proxies received in advance of the meeting for the proposed resolution will be shown on the screen to enable shareholders to view them as each item is considered. These figures may be varied if a shareholder who submitted a proxy is attending the meeting today and has revoked their proxy. I will address each resolution and any questions received in respect of each resolution during each item of business. I note that as a Chair, I intend to vote undirected proxies held in favor of all resolutions. Your Board recommends that you vote in favor of all resolutions. Annual financial report. The first item of business is for shareholders to receive and consider the 2022 Annual Report, which contains the financial statements of the company for the year ended 30 June 2022, together with the directors' statement and report and the auditor's report on those financial statements. The 2022 Annual Report has been published and was circulated to shareholders requesting a copy and is available on the company's website. I trust everyone has had ample opportunity to consider it. No shareholder vote is required in relation to this item of business. This is an appropriate time to raise any questions on these reports or on our business in general to raise them now. This is also the appropriate time to raise any questions you might have for the auditor, which are relevant to conduct the audit and preparation and content of the audit report. Kim, are there any questions in respect to this item of business?

There are no written questions at this time.

Are there verbal questions?

There are no telephone questions at this time.

There being no further questions, we will move on to the next item, resolution #1. The next item of business is the adoption of the remuneration report for the year ended 30 June 2022. The motion before the meeting is to consider and, if thought fit, pass the following resolution in accordance with Section 250R(2) of the Corporations Act, that, the company adopt the remuneration report for the year ended 30 June 2022 in accordance with Section 250R(2) of the Corporations Act. The remuneration report is contained within the company's 2022 Annual Report. The vote on this resolution is advisory only and does not bind the directors of the company. The proxy details are being displayed. I would like to highlight that in accordance with the Corporations Act, no votes may be cast on this resolution by or on behalf of a member of the company's key management personnel or their closely related parties. I will refer to these people collectively as prohibited voters. A prohibited voter may vote directed proxies where they do so for another person who is not themselves prohibited to vote on. As Chairman, I might also vote undirected proxies for a person that is not a prohibited voter in accordance with my stated voting intention, to vote all available proxies in favor of the resolution. For the purposes of this resolution, a prohibited voter includes a member of the key management personnel named in the remuneration report. Kim, are there any questions in respect of this item of business?

There are no written questions, Georg.

Verbal questions?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. We will now move on to the next item. The next motion before the meeting proposes the reelection of Dr. Brandon Gien as a director. The motion is to consider and, if thought fit, pass the resolution as an ordinary resolution, that, Dr. Brandon Gien who is retiring accordance with Listing Rule 14.5 and clause 13.2 of the constitution, and who offers himself for reelection, is reelected as a Director of the company. The proxy details are displayed. Kim, are there any questions in respect of this item of business?

There are no written questions, Georg.

Do we have any verbal questions from shareholders?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. We will now move on to the next item. As the next resolution is in relation to my election, I will hand over the chairmanship of the meeting to Mr. Martin Pretty.

Thank you, Georg. The next motion before the meeting proposes the election of Georg Chmiel as a Director. The motion is to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, Mr. Georg Chmiel who, having previously been appointed to fill a casual vacancy, retires in accordance with Listing Rule 14.4 and clause 13.5 of the company's constitution and having consented to act and being eligible, be elected as a Director of the company. The proxy details are displayed. Kim, are there any questions in respect of this item of business?

There are no written questions, Martin.

Do we have any verbal questions from shareholders?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. And I will now hand back the chair of the meeting to Georg Chmiel.

Thank you, Martin. The next motion before the meeting proposes the election of Michael Rann as a Director. The motion is to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, Mr. Michael Rann who, having previously been appointed to fill a casual vacancy, retires in accordance with Listing Rule 14.4 and clause 13.5 of the company's constitution and having consented to act and being eligible, be elected as a Director of the company. The proxy details are displayed. Kim, are there any questions in respect to this item of business?

There are no written questions, Georg.

And verbal questions?

There are no phone questions at this time.

Thank you. There being no further questions, I invite you to submit your vote. We will now move on to the next item. The next motion before the meeting proposes the election of Saurabh Jain as a Director. The motion is to consider and if thought fit pass the following resolution as an ordinary resolution, that, Mr. Saurabh Jain who, having previously been appointed to fill a casual vacancy, retires in accordance with Listing Rule 14.4 and clause 13.5 of the company's constitution and having consented to act and being eligible, be elected as a Director of the company. The proxy details are being displayed. Kim, are there any questions in respect to this item of business?

There are no written questions, Georg, at this point.

Are there any verbal questions?

There are no phone questions at this time.

Thank you. There being no further questions, I invite you to submit your vote. We will now move on to the next item. The next motion before the meeting proposes the approval of the company's equity incentive plan. The motion is to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, for the purpose of ASX Listing Rule 7.2, exception 13 and for all other purposes, the company's equity incentive plan, as described in the explanatory memorandum, be approved for the issue of securities under the company's equity incentive plan. The proxy details are being displayed. Kim, are there any questions in respect to this item of business?

There are no written questions, Georg.

And are there any verbal questions?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. We will now move on to the next item. The next motion before the meeting proposes the ratification of the prior issue of 42,105,264 shares. The motion is to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, for the purposes of Listing Rule 7.4 and for all other purposes, approval is given for the ratification of the prior issue of 42,105,264 fully paid ordinary shares, which were issued pursuant to the placement as announced to the ASX on the 2nd of November 2021, and on the terms and conditions set out in the explanatory memorandum. The proxy details are being displayed. Kim, are there any questions in regard to this item of business?

There are no written questions, Georg.

Are there any verbal questions?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. We will now move on to the next item. The next motion before the meeting proposes the adoption of a new constitution. The motion is to consider and, if thought fit, pass the following resolution as a special resolution, that, with effect from the close of this meeting, the existing constitution of the company be repealed in its entirety. In accordance with Section 136(2) of the Corporations Act and the company adopts the constitution contained in Annexure A (sic) [ Annexure C ] as the constitution of the company in accordance with Section 136(1)(b) of the Corporations Act 2001. The proxy details are displayed. Kim, are there any questions in respect of this item?

There are no written questions, Georg.

Do we have any verbal questions?

There are no phone questions at this time.

There being no further questions, we will move on now to the next item. The next motion before the meeting proposes the approval of the 10% placement facility. The motion is to consider and, if thought fit, pass the following resolution as a special resolution, that, pursuant to and in accordance with ASX Listing Rule 7.1A and for all other purposes, shareholders approve the company having additional capacity to issue equity securities up to 10% of the issued capital of the company, at the time of issue, calculated in accordance with the formula prescribed in ASX Listing Rule 7.1A.2 over a 12-month period from the date of the Annual General Meeting at a price no less than that determined pursuant to Listing Rule 7.1A.3 and otherwise on the terms and conditions of the explanatory memorandum. The proxy details are displayed. Kim, are there any questions to this item of business?

There are no written questions, Georg.

Do we have any verbal questions?

There are no phone questions at this time.

There being no further questions, I invite you to submit your vote. We will now move on to the next item. Ladies and gentlemen, please ensure that you have cast your vote on all resolutions. I will now pause to allow time to finalize those votes. [Voting]

Can we go one slide back, please? Because Paul is not closed yet. Okay, voting is now closed, and I formally charge Ms. Grave of Computershare as returning officer to count the votes. We will publish final voting results with the ASX and on our website later today. Thank you for your attendance today. That concludes the formal business of the meeting. There being no further business, I now declare the meeting closed.