Spacetalk Limited (SPA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Spacetalk stabilization and Growth Strategy Update. My name is Sam Wells from MWR Communications, and I'm pleased to have joining me from the company today, the following members of Spacetalk's leadership team. Simon Crowther, Chief Executive Officer and Managing Director; Susan Graney, Chief Financial Officer; Tonderai Maenzanise, Interim Chief Financial Officer; as well as Craig Boshier, Chief Operating Officer. Following a brief summary and overview of the strategy update materials released to the ASX this morning, participants will have the opportunity to ask questions of the management team. You can admit the written question via the Q&A function at the bottom of your screen. We will endeavor to get to all questions asked in some cases, combining multiple questions on the same topic. Thank you, and over to you, Simon.

Thanks, Sam. Good morning, everyone, and welcome. Thank you for joining us today, so we can provide you with an update on Spacetalk's gravity and the priorities going forward. I very much view this as the end of Phase 1 of my first 90 days as CEO of Spacetalk. We spent a significant amount of time internally understanding the business, identifying the operational issues and implementing a reset and restructure program that supports the strategy objectives we're going to socialize and discuss with you today. [indiscernible] is to focus on key sectors of opportunity evolve the company to be more software-centric, whilst also fully integrating the hardware we've created in a focused way to have a more enduring relationship with our customers and families. We've all had good reputation in the kids wearable sector, and we now want to extend that relationship for the long term as we introduce new products and long-term customer value. Our desire is to really build enduring shareholder value in a [indiscernible] and consistent way. This strategy today provides the framework highlighting how we will focus our efforts and is the basis for future updates as we start to execute. On that point, I mentioned in my comments at the half year update that we needed some time to implement change and refocus the business for future growth. I'm satisfied we've made significant progress in a short period of time, and today's update is our clear statement of intent. However, the reset is still underway and today is about providing you with an understanding of how we will grow Spacetalk. I plan on providing a more regular update as to our progress and more fuller update at year-end as it starts to all come together. So let's now dive into the strategy and the key areas of focus and opportunity that will help drive the profitability in Australia and beyond. Next slide, please. The strategy has been a considered and detailed examination of the future opportunity for the business. There are 4 aspects that I think are worth highlighting today. The first, our strategy provides us with a real sense of purpose that provides direction and focus and importantly, allows you to clearly understand our priorities. Clarity is valuable, both externally and internally as we're able to hire more effectively, debt goals and KPIs and start to increase the sophistication of our external messaging as we execute against all stated gold. [indiscernible] believer and gold settings and our future market updates will be anchor to how we are progressing against these stated objectives. Second, we clearly understand where we want to play. I feel it is a significant change from the past. We now have a laser-like focus as a provider of lifetime family security, and we aim to be attractive part of the families in Australia and New Zealand. Third, this focus drives our product development, as you'll hear shortly. We've identified specific new products we will deliver against our family security focus over a specific time horizon. This is also beneficial for investors as we will provide a brief update on progress by a variety of channels, including Twitter, while I provide update at facebook_ir. Finally, our strategy allows us to create a cohesive narrative. There is huge benefit knowing what we are and what we stand for and how we add our unique value to families each day. We are now aligned as a one-brand Spacetalk on one domain name, Spacetalk.co. These are small changes at but reflect our focused coordinated thinking. At Spacetalk, we will keep things simple, standard wherever possible and most importantly, focus. But it all starts with understanding our mission and our vision for the business. Next slide, please. Spacetalk vision and mission reflect the whole of life focus and our commitment to family safety. We see a significant opportunity to be a trusted partner for families everywhere, best encapsulated as safety and every stage of life, a neat way to summarize our business focus going forward. This, in turn, supports our clear mission to ensure family safety by providing an ecosystem of products that enable freedom and create enhanced peace of mind. The strategy means nothing if you're not able to execute. I would like to update you on some recent changes and future additions to the team who will help me deliver our commercial goals. Next slide, please. Some of my new colleagues are with me on the call today. Craig Boshier, our Chief Operating Officer, who's going to walk you through the track in a few moments. Chris Neary joined us recently as our Chief Marketing Officer and Head of Digital; Steve Fenton, our Vice President of Sales; Tonderai and Susan, who are leading our finance operation and on the call today as well, but also a bit of an indicator here about where we see the future direction of the business. We're going to be shortly announcing a new addition to the team as we bring on board the new VP of Engineering. We're also as a process of powering a new product had a product management, which is a very important one for us inside the business. And again, as we evolve from being hardware-centric to more software-centric, data is going to play an increasingly informed part of our -- in our business and in our strategy going forward. So upskilling our data capabilities, in particular, having some data science into our organization [indiscernible]. Next slide, please. So at this stage, I'm going to hand over to Craig. Craig has been instrumental in leading the strategy review with myself inside the organization. He's going to walk you through the next few slides and give you some further details about our priorities going forward. Over to you, Fr. Craig.

Thanks, Simon, much appreciated. So our strategy is balanced. So we're going to focus on building strong foundations and organizing in order to deliver growth in a number of specific and focused ways. Underpinning the development of the strategy, we've applied 6 principles. The first is Australia and New Zealand first. That is to say, we are looking at the Australia and New Zealand markets primarily, but we will have a global outlook once the business is stabilized, and we can prove our products, go-to-market and business model in our home environment. The second is whole of Spacetalk. We're going to be focusing not just on children's wearables, which has been a large focus of the business in the past and continuing to renew our focus on our schools business and our seniors offers and propositions. So we're looking across the business at everything we do. Whole of life. This means that we're going to maintain our focus on the young families segment, looking at children's wearables, all of the offers that go around those and also continue to look at the schools and an education offer that we provide whilst building an ecosystem of offers that places Spacetalk at the center, at the center of Family Life, ensuring that we deliver a peace of mind across all generations, and we remain connected to the entire family unit. Being customer-centric. So we're going to move away from talking about individual products and subscriptions to focusing on defined customer segments and creating an ecosystem of products and services that meet those segment needs. Being software-focused and enabled by core hardware means that we see hardware as being a key part of our business into the future. However, we're going to be developing new digital services to keep customers within the Spacetalk ecosystem that enable them to maintain them as a Spacetalk customer beyond the current lifetime of our hardware products, which brings us to building sustainable recurring revenue and increasing our customer lifetime value. We see revenue from licenses and customer subscriptions as being key to maximizing the customer lifetime value of every customer relationship that we build regardless of how they come to Spacetalk. That includes people coming into us as an initial hardware user and maintaining them within our ecosystem and digital products across the entire life cycle of the family. When we talk about being a customer-centric organization, it goes beyond simply talking about our customer segments and their needs. It's going to underpin how we operate as a business. Our segment focus will reflect in how we organize, how we go to market and how we report. Customer insights and understanding of their needs will underpin how we create products and services, engage with customers and ensure that Spacetalk continues to sit at the center of family life. Our situation today is on the left-hand side. We have a mix of products and brands, while they all operate under a single company, there's very little alignment or recognition from customers that is, in fact, the same organization delivering each of these propositions. Spacetalk has a strong brand and good reputation in the ANZ market, and we're going to seek to build on that to deliver all services under a single Spacetalk brand. This has already started, you may have noticed changes to our domain name, and you will see this alignment continue. We're going to move to focus on clear segments, in this case, 4 clear segments, each of which has unique needs, and we're going to build an ecosystem of products and services that retain customers and will share common technology wherever possible. We're going to organize and expand our existing customer data to ensure that we can make more use of our proprietary database, and we can inform customers with targeted offers and ensure targeted engagement across the life cycle of customers with pace too. To go a little deeper on our customer segment. In a had a little bit of flavor as to why we continue to find them attractive and interesting for Spacetalk's business. Young families is going to remain a strong focus. Our main objective here is to engage more customers and to retain them for much longer by offering services that go beyond the current life cycle of a children's wearable device. There are a number of trends which also, I think, help us as a business. There continues to be strong category growth in the kids smartwatch market broadly, globally. There's an increased awareness and increasing awareness effect on children's online safety. There's also increasing smartphone ownership by children in younger groups. Now while this may be seen as a threat to our wearables side of the business, it's also an opportunity for us to continue engagement with children as they get their first handy down smartphone from their parents. We also acknowledge that there are moves to restrict the use of mobile phones in schools. While this may be a threat, it's also an opportunity for us to provide services that allow engagement with hardware in the educational environment to be controlled in a sensible way. In terms of schools and educates. To date, we service a large number of schools across Australia in our engagements with various different states and local education authorities. We see our proposition aligning very well to focus on student well-being. At the core of our product is ensuring that students are safely at scale. And if they're not being able to advise parents, carriers and educators so that they may take appropriate action. We also believe that we enable and assist with a focus on equity and access to education by state education authorities and local educators. We're seeing an increased use of messaging by schools across Australia and New Zealand. And while this may be contributing to a crowded market, we believe that we have a proposition today, which is both low cost, it's relatively slim, and it is relatively agnostic, which means that it can be used by a range of schools without making significant technology changes. We intend to focus on building this business out over the immediate and medium term -- if we turn now to our seniors and vulnerable families segment. Although we've had a device in market for some time, that's been focused on the seniors market, it has not really been taken to market and they're in a focused and dedicated way. We intend to change this, and we intend to look for channel and service partnerships, which will enable our business to maximize sales of hardware, but also bring customers again into our digital ecosystem. There's a number of trends which are helping us in this space. There's a growing age population in Australia and New Zealand. There's an increasing prevalence of the need to age in place at home as continued demands on care workers and places in care facilities are maintained. And there's an increasing in prevalence of lowliness dementia and full risk amongst those aging population, all of which our product is well placed, at least in part to help solve. There's a strong government focus on funding, not just on aging in place, but on NDIS streams, Department of Veterans Affairs and various other streams for assisted technology, and we believe that we're well placed to capitalize on those as an organization. Looking at employees and workers. Our face value this may not appear to fit into our narrative and focus on families. However, many families have individuals who go out to work, and they should be safe in their workplace in order to maintain and return to the foundry unit. There are a large number of loan workers in Australia and New Zealand. This can be anybody from a Coles and Woolworths delivery driver to people changing repressive light tubes in the fire escape at local Westfield and all the way through to people who might be also at risk of duress, for example, counsel [indiscernible] employees have continued duty of care over their employees and contractors, and we're also seeing significant changes in gig economy working and work from home practices and again, making employees loan workers. We already have many of the component parts of a proposition for this market, but it does require a focus in terms of how we go to market, the specific software that will be developed to ensure we can enter this market seamlessly. So this becomes a medium to longer-term focus for us as a business. just now be a little bit more specific in terms of what we'll do over the space of the next 3 horizons. Implementation is going to start with stabilizing the business overall. Simon's also referred to a number of key hires that we've made. We continue to work on business practices, processes and doing the basics well across the organization. As we continue to build out our capability under the Spacetalk brand, we're going to be focused on delivering a number of key and focused outcomes. You will see an increased number of specialists joining the business. We have very strong focus on specialist capability to deliver the strategy. This will include software engineering, segment sales, product design and management, product marketing and data science. In terms of our sales focus, you'll see an increased focus on our young family sales, hardware and software, ensuring that we are maintaining and where possible, increasing our margins, especially in the retail space and ensuring that we are creating additional customer lifetime value from each hardware sale that we make. You'll see a renewed focus on schools and educators. We are currently seeking people to lead that organization from a sales perspective, and you'll see us activate the seniors and volatile family segment. In terms of delivery, new products and services, you'll see the adventure to watch come to market. You'll see us develop and deliver a family-focused mobile virtual network operator, or MVNO, service. And you'll see the development and launch of a device-agnostic mobile application. By that, our current output is at a partner [ output ] is tied to our hardware devices, about watches. We're looking to open up that app to make it available for use with any mobile device. As we start to expand out to the next horizon of 6 to 24 months, we will continue to build out our capability and the strong foundations for growth within the business. And we believe that this will take several months, and we'll do it incrementally as time and commitment allowance. In terms of sales, we're going to be optimizing our sales margins and again, customer lifetime value. And with those new products and services in markets, we'll start to see those become activated and contributing to our reporting. And we'll seek to activate the employers and workers segment after evaluating that carefully, ensuring we have the right proposition and go-to-market plan in place. In terms of delivery, you'll see a budget watch come to market. You'll see product refreshes across both our digital presence and some of our hardware. And you'll see new digital products being launched for several segments. In terms of expansion, we're going to be increasingly and in an ongoing way, evaluating new segments within the ANZ market and new markets outside of Australia and New Zealand, and we see us evaluate options for inorganic growth and take action where appropriate. Over the 3 years plus -- sorry, over the horizon 3, 2 years plus, 24 months plus. At this point, we will be seeking to reenter our overseas markets. We'll look at extending our existing products and we'll be evaluating brand new revenue streams for the business that we haven't yet explored. So Simon, I might pause there and hand back to you.

Yes. Thanks, Craig. So hopefully, we landed some key themes there in terms of our focus. As I said, John, my comments. I think we're therapy now about where we're playing, how we want to show up, how we want to be perceived and our brand equity. We have a clear understanding about what our priorities are in the coming 3 -- next 3 to 6 months as we continue our revolution to become more of a software-centric organization. And my commitment to providing the market with more an ongoing information around our progress against some of the high-level objectives we set today part of our strategic framework. So at this point, I think good to open it up for questions. Happy to have a chat about anything anyone would like to add.

Okay. First question coming from James Tracey at Veritas.

Yes. Thanks, Sam. Thanks Simon, thanks Craig. First question for me is really around international. You had $5 million of revenue from international last year. Can you just explain the rationale for exiting this given that replenishment of existing clients, such as Amazon is relative -- could be relatively low touch and Amazon reviews and things have been generally quite good.

So I'd like to just -- there's a new one there. We haven't exited. We've wound down our proactive presence there to give ourselves the opportunity to reevaluate and reenter those markets in good standing in the future. So how we wind down is important to us, and we're working diligently with distributors and retailers in those markets, make sure that we sell out of existing inventory and we venture on stock as well. So I just want to be clear that everyone understands this is not an exit. This is a wind down and to put things into kind of a holding pattern. I think as a small business, we have to make decisions around how do we build an enduring long-term business and also maximize the opportunity for shareholders as well. And that inevitably is about trade-offs. Our belief is that evolving the company to be more software-centric, building out the ecosystem, establishing our housekeeping or structures or processes, standardizing these things as much as possible, looking for efficiencies inside of our organization and setting ourselves up with a cash generative business model that allows us to be able to be selective about which markets we want to enter back into or reactivate, I think is what we're looking to do at the moment. So my similar clarity in which we said this at the half year, Mark, is to put in place our updated business model and get to cash positive in Australia and New Zealand in as quick time as possible. That's the #1 priority, but also to realize the full potential of the business, which is this ecosystem of tinting software-related products that support our hardware and this hardware before into a much bigger ecosystem. What sits behind that is our MVNO, what sits behind that overall is our ability to be good in terms of managing our relationship marketing with our families and our database as well, which I think is going to be increasingly important going forward. So it's a case of understanding how we were set up over there. The ongoing cost and investment required about that versus the need to sell uses up ideally in the Australia and New Zealand market for a much bigger opportunity, I think, in the future. So it's not a lack of ambition. It's about making the decision the business needs to make in order to be able to regroup and refocus to be able to execute the way that we described in a controlled way, reduce the complexity inside of small organization as well to make sure that we're focused on building at all time of scalable business model. So everything we do in Australia and New Zealand has to have the legs to be able to step offshore, and that comes from being very disciplined around the build very disciplined about the kind of people we're bringing inside our organization and also very disciplined about those processes, the back office processes that it scaling as well. So that's what -- the reason why we're doing it because we think there's a much bigger opportunity for us to focus on medium and long term.

Yes. Yes, that makes sense. I mean my one sort of sentence summary of the strategy is that you're moving from a -- being a smartwatch for kids company towards an ecosystem for family safety company. Can you elaborate a bit on that sort of word ecosystem, what that might mean if you go beyond the smartwatch, particularly, you mentioned bids earlier getting smartphones, historically, that would have been a threat, you throw away the Spacetalk watching you get the iPhone, how can you, I suppose, capitalize on kids in iPhone's in terms of your future product suite?

Yes, it's a great question, and thanks for asking that because it's really important series of point [indiscernible]. I think the first thing is we -- as you heard in the presentation, we're bringing together a series of somewhat uncoordinated and disjointed aspects of our business. For example, our school operation. I think that that's a great area of interest and focus. At the moment, we have a kind of almost a to relationship where we're providing a very valuable service. But we like any kind of brand equity there. No one knows that Spacetalk is providing that brand service period of 10% of school and over 1 million families in the country. I think how we develop a relationship with those families going forward and we'll go much deeper this notion of being a Epicentral family is kind of core to what we're talking about. So being able to bring those different parts of our organization together within a an ecosystem where each of those different parts of our business are interrelated and work together is important. I think to answer your specific question, this is kind of fundamental to the strategy at the moment, we've got -- and we've made good progress in terms of the kids wearable sector. But the reality is that we don't have an enduring relationship with those kids and those families once they outgrow the watch. And so at the epicenter of our thinking is how do we maintain that relationship in the long term. Now many moms and dads to make decisions every day not only about their younger kids, but also about their tweens and their team. Certainly when they hit the tweens and teens age, those kids want smartphones, as you said. That's where our MVNO comes into it. That's where our agnostic apps that we're going to build into it. So that allows us to step from the care 2 moves from having an eventual watch. Somebody decides that they want to move up their first family down smartphone. But we're there as part of that family unit to walk for them in safety, security and peace of mind at the moment data come to expect. But the wearables user, but now it just gets transported on to their first smartphone. And that's exactly the long-term relationship. So we're taking it from a situation where we've got a couple of years perhaps. -- of a relationship with a young child, which we then extend over many years. And at the same time, we've got potentially an MVNO offering for the family. And we've also got clearly genes opportunities as well. So that's what we mean by the canola Family view, where we, as a brand, we're at the epicenter of that family, and we are recognized as offering peace of mind security and safety, but you can see already how that would expand our relationship with those children into over many, many years. That's our objective.

Thanks, James. Thanks for your questions. Moving on here just on hiring activity, given the new hiring, how much would you anticipate your cost base to grow going forward? And is there any lag anticipated before a fire sales impact of those personnel is felt within the business?

So we've gone through a lot of restructuring. This is not about blowing out our FTEs or our cost at all. This is about swapping out some legacy employees, unfortunately, and bringing in people with specialist domain expertise. That's a focus for us to bring in domain experts in specific areas of the organization. So in many cases, it's been swapping out one person for another person who brings in this kind of expertise that we're looking for. But I want to really know everybody, this is about control recruitment. This is about managing our costs at a granular level. And we're always going to be a relatively compact and small organization with sub 550 FTEs at the moment. And I don't see that increasing dramatically at any point anytime soon in the future. I think we're going to be able to get a lot of bankrupt and the people that we're bringing into the organization, a new leadership team, for example, is operating at a high level. And as we're bringing them in more talent into the organization as well. It's a key positions. We can expect to see less unforced errors, better decision-making, the ability to be able to execute in a really efficient way. So it's about getting a higher performance from probably pretty much the same group same number of people.

Great. And just back to the overseas operations. Two questions. First, can you elaborate on how the company is dealing with the return of inventory from these markets? And maybe just touch on some of the key partnerships that the business has set up in those regions.

Well, I'll bring -- ask Craig to comment on a couple of these things well because it's an area he's managing inside the organization. But overall, managing our existing inventory, particularly venture one is key for us. So we're working very gently and very closely with retailers and partners overseas in terms of coming up with effective promotions in order to be able to overall down that inventory. Maybe, Craig, do you want to just maybe make a few comments about where do it.

Yes. Thanks, Simon. So I think in the U.S. market, first of all, we have relatively few retailer relationships where we physically still. So we're working to sell out through those channels and ensure that we've got all of our stock return, and we'll seek other opportunities to sell through and sell out of that stock in the U.S. market. In the U.K., we've clearly got other channels. We've got a number of MNOs, a number of distributors that we're dealing with, and that's both in the U.K. and Europe. Tonderai and I are in the process of engaging with each of those retailers, distributors working through how would you incentivize sellout with a view to taking back as a small amount of stock as possible and where stock is being returned, we're looking at other selling opportunities. That's pretty much where we're up to at the moment, and we'll have more clarity in detail over the coming weeks.

And that very much plays into my earlier comments a few minutes ago about when we're winding down our operations that we're doing it in a very controlled way. It's important to us that we maintain a reputation. We maintain our relationships are in place. And so how we do this and then the control way that we're doing it is very important. So there's a lot of time and effort going into not only managing relationships, but also, as Craig said, how we're merging our inventory as well.

Great. A couple of questions coming in on the[indiscernible] launch. Is this still on track for May? -- presumably, this is just a launch within Australia and New Zealand. And anything else you'd like to...

Yes, on track. I'm really pleased with the way it's progressing. I think as a team coming together for the first time to launch a new product. I think what you'll see in the market is going to be elevated across the board in terms of the quality of our creativity, our point-of-sale materials, our retail coordination, the way we're communicating, generally speaking, in terms of the brand and the tone of voice, I think is elevated. And so overall, very pleasing yes, we are on track for the launch of ENT in the middle of the month.

Great. And just on the strategy execution more broadly. How do shareholders know if and when the business is successful in achieving its revenue and earnings objectives. And likewise, when would you expect to be able to provide some additional color around 2 financial metrics and financial...

Look, I think it's absolutely understood and expected that we need to be able to message the metrics effectively to the market going forward. As I said, I mentioned my comments earlier in the piece, when I said at the half year mark, when I knew that we were going to have to go through a series of restructuring and resetting that we need some time to be able to execute and to get to this point now where we have some clarity around what our priorities are and where we are heading. This is really the level set. This is where we're starting now, and I expect to be able to add increasing amounts of information as we start to roll out products on to give you the market an update in terms of how we're progressing again to delivering some of these key initiatives, for example, our agnostic app, but also recognizing the fact that re in a business where 60% of the revenue is already recurring. -- and that we're close to $8 million in ARR. We're now against the point of some maturity in the coming months where we're going to be able to start to message that more effectively. I want to get to a point of fiscal matters follow where we can demonstrate that we're getting traction that we can demonstrate the fact we've got this ecosystem that's starting to be established in the merger. We can show that with that we've got traction the way that expect. And then you can expect that we will start to report all the metrics and insights you'd expect a confident company like ours to be able to be able to do to demonstrate the progress that we're making. But these things take time in terms of just setup, and that's the takes that we're going through at the moment. I mentioned very earlier at the start of my comments, that we still got some key hires have been in the organizational journeys for the next week or so. We have to turn ourselves from being a hardware-centric organization, which means everything from design and build logistics into a software data delivery organization as well. And that's a culture shift it's a nuance in session, but it's definitely a possible shift. And that's what we're in the middle of doing at the moment. So I would expect by the full year to be able to give you a more fuller update on where we are and what we're doing against some initiatives. And like I say, and my commitment is, is that along the way, where we can. I'll give more information about how we're progressing in terms of some of these propensities well. So people can see the progress that's been made against the state gold.

Well, that's question today. So maybe I'll just pass it back to you, Simon. And anyone else in the team for some closing comments.

Well, thanks, and thanks, everybody, for joining. I appreciate the interest and the support of the company. There's still plenty of work to do, but I think we've made a lot of progress in a very short period of time. I'm excited about what lies ahead. I'm excited to start to demonstrate to you some of the changes that are underway. And the pros in the pooling now we are keen to be judged by our results. and to be judged by those as well. And I can assure you there's a lot of people working very hard inside the organization to deliver what we've talked about today. So I think it's a very different place than it was 90 days ago. It will be a very different place 90 days from now and again by the end of the year. And yes, with that, I'll leave you and look forward to the next update. Thanks very much indeed.

Thanks very much for spending today's talk strategy update. Enjoy the rest of your day, and goodbye. Thank you.

Thanks, everyone.