Spacetalk Limited (SPA) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Spacetalk's exciting webinar today. My name is Russell Katz, and I'm representing the Capital Network. And with us, we have Simon, Tonderai and Craig. Simon will be presenting the annual report and talking a little bit about the capital raise as well. This is a very exciting time for Spacetalk. As you saw from our ASX announcement last week, we had a very exciting annual results. And there will be time for questions at the end. If you wish to send the questions, please do at the Q&A. We also received a few questions ahead of time, which I will be addressing at the end of the event. So without further ado, I'm going to turn it over to Simon, who is going to go through the webinar.

Thanks, Russell. Good morning, everybody, and thanks for joining us this morning. It's my real pleasure to be able to update you on recent progress and highlight how we plan to allocate funds to support our growth strategy and provide you some insight as to what to expect in terms of new product releases and updates in the coming weeks and the next couple of months. I'm delighted to be joined by 2 really important colleagues of mine. Tonderai, our CFO, will provide you an overview of our financial performance and details of our growing recurring revenue base. And Craig, our COO, who will relate our strategy, which we released in May, to specific product initiatives that will drive the growth and performance of the business. We come a long way in a short period of time, and I'm grateful for the support of the Board, shareholders and my team at Spacetalk who have worked extremely hard to reset the business and position us for growth. Next slide, please. We are a completely new business and organization. And I think it's really important that we start this update by emphasizing the new focus and position of the business. Change is never easy, and we've completed the necessary reset of the business, and we have -- now have a clear market positioning, a focused strategy, which supports everything you will hear today, new leadership team and ambitious goals. In a short period of time since taking over leadership of Spacetalk in February, we've evolved from a consumer electronics business, targeting young children, to what we are today, a wearables enabled software subscription and mobile virtual network operator business. We're extending our reach beyond young children to target families. And for the first time, we're going to be able to retain older kids as they've naturally transitioned from our watches to their first mobile phones. As you'll hear, we have a raft of new initiatives that support this focus as we zero in on becoming a $20 million to $25 million annual recurring revenue business within 3 years. That goal excludes device sales, which also power our subscription uptake and remain an important part of our thinking. I'm excited about the position of the business and our growth potential, which flows from a clear understanding about our market opportunity of what makes us different and compelling. Our objective is to build an ecosystem of products and services that extend customer lifetime value beyond just young children and support the growth of our subscription revenue. This slide neatly summarizes our approach to building the Spacetalk business in the coming months and years. We have 1 theme, as you've heard, which is family, and that anchors all of our thinking. We have 2 emotional experiences: freedom and peace of mind, which is important whatever your stage of life. 3 product sets. Wearables hardware and our increasingly sophisticated and unified companion apps, our mobile virtual network, Spacetalk Mobile, which is at the core of our ecosystem. Our schools messaging suite, which will enable us to talk directly with families of kids that go to school and the schools directly. 4 customer segments. Schools and educators, young families, seniors and vulnerable families, all of which we've fully activated already and continue to grow and focus on. And finally, more of a medium-term aspiration, employers and workers. And finally, 5 revenue streams. Spacetalk watch sales, Spacetalk mobile subscriptions, Spacetalk family app subscriptions, Spacetalk software subscriptions, and Spacetalk schools SMS sales. We're starting to see the flow-through of our strategy into our numbers as we complete the reset and focus on execution. And now Tonderai will now provide you with an overview of our performance and some pleasing trends that will underpin our future growth.

Thanks, Simon, and good morning, everyone. The business strategy we set is already delivering tangible results. Q4 of FY '23 was a pivotal and transformational quarter for the business, with a focus on restructuring and resetting the business and strategy. Despite that, we achieved strong operational performance in second half of the year with an underlying EBITDA of minus $600,000 versus minus $2.8 million in the first half of the financial year. This strong performance sets the foundation for future profitability and positive cash generation. Over the last 4 quarters, ARR increased by 30% from $6.5 million to $8.3 million, underpinned by the rapid growth of MVNO revenue. This also represents a 50% growth in combined App and MVNO revenue over the same period. This has resulted in MVNO being 31% of ARR in June '23, from 0% in June '22. MVNO is a higher average revenue per customer compared to the App revenue, and the shift during the years set the foundation for future revenue growth. MVNO paying subscribers, represented by the orange bar graphs, grew to 14,720 since launch in October 2022 at a compound monthly growth rate of 67%. The combined MVNO and App subscribers grew by 18% over the same period to just under 70,000. This result demonstrates a strong focus on building a subscription forecast business with recurring revenue streams. The shift in the business model has resulted in a step improvement in revenue mix compared to prior year. For FY '23, recurring revenue, which consists of MVNO, App and Schools revenue was 54% of total revenue compared with 39% in FY '22, an increase of 15 percentage points. This is an important shift as it sets the company towards generating positive cash flow as a result of lower investment in working capital, upfront cash receipts on annual subscriptions and higher profitability as revenue shifts towards higher margin streams. So looking at FY '23 results, we delivered strong results despite significant changes in the business. The decline in revenue, in device revenue was partially offset by strong MVNO and App revenue performance, with App revenue increasing by 13% year-on-year and MVNO contributing $1.4 million over 8 months. Device revenue was impacted by discounting and promotional activity to sell down Adventurer 1 inventory and the impact of discontinuing the lower-priced kids watch. FY '24 will focus on clearing residual U.K. and Europe Adventurer 1 inventory in time for launch of the budget watch in the second quarter of this financial year. The streamlining of the products and continued MVNO growth set a strong foundation for forecast revenue of $18 million to $19 million in FY '24. We will continue focusing on ARR growth in FY '24, with forecast ARR of $11 million to $12 million. Cost-to-income ratio remained stable in FY '23 with a 11% decline in OpEx from continuing operations fully offset by a 9% decline in revenue from continuing operations. The company is focused on controlling costs and improving the cost-to-income ratio in the future.

Thanks, Tonderai. So in May, we put out a detailed strategy presentation, which really laid the foundations for the future growth of the company. and really set out a statement of intent in terms of what our priorities would be from a product and delivery perspective. One thing we are as a business is focused and disciplined in terms of execution, as you will see in the coming weeks and months through a series of updates and announcements to the market around new product initiatives, which support the future growth of the company. And I'm delighted now that Craig can give you a bit of a walk through how the strategy we put out in May is now turning into an execution plan, which I think I'm very excited about. Over to you, Craig.

Thanks, Simon. So I'm pleased to share that we made significant progress towards the delivery of our stabilization and growth strategy that we presented in May. We've shared here some key highlights under the 3 pillars that we established in May: capability, sales and product delivery. Looking first at capability. In May, we committed to hiring key executives and building specialist capability in the building -- in the business, as we continue to build the basics of doing the business function as well. In terms of progress, we've hired around about 16 people since February without having meaningful head count to the business as we've continued to reset. Key hires include a Head of Product, establishing a product management function within the business that didn't previously exist. We've also hired a Head of Engineering, establishing rigor around our software and hardware engineering practices. Both of these roles are going to be key to the continued success of Spacetalk and the launch of multiple products over the space of the next few months. We also have continued to increase our specialist skills, including a data-led product and growth marketing roles within the business. We've also reset underperforming areas of the business, including finance, operations, sales and marketing. Looking now at sales in May, we said that we will continue to focus on young families, schools and educators and our seniors and vulnerable family segment, with a future focus on employers and workers. This has included both optimizing our existing sales and establishing new partnerships, channels and future products. We've increased our retailer margins and set shared goals with our major retail channels. We've added 90 new retail sites to our distribution network in partnership with Rebel. We've increased our Q4 revenue from continuing operations compared to our previous year. We have a dedicated focus now on our school sales and on our seniors and vulnerable family sales, including the life product, which I'll talk about later. Looking now on product. In May, we committed to launching 2 new watches to market, establishing new MVNO plans, launching agnostic mobile app and reviewing our schools messaging platform. I'm pleased to say that we've exceeded our expectations in this area since sharing that strategy with you. Since May and before the end of this year -- sorry, since February, in fact, and before the end of this year, we intend to have 6 new products in market. From a hardware perspective, we've already launched our Adventurer 2 watch. That's doing well for our retail channels. In October, we hope to launch our Loop or budget watch, and that will be in time for the peak selling periods of Black Friday and Christmas. In November, or shortly after, we expect to go live with new MVNO plans. We're currently working with our mobile network operator, Telstra, to agree these plans and set ourselves up for success. This will include extending our current MVNO presence beyond wearables plans into handset plans and in the future, data plans. In September, we plan on launching our family app. This is previously referred to as the agnostic app. Probably best to think of this as a virtual smartwatch. It allows a retention pathway for children who are currently using our wearables devices. Assumes they outgrow that device, we can move them over to using a virtual version of that device on their first smartphone, after the hand-me-down iPhone or Android device. And the new MVNO plans will support that transition by allowing us to simply take the SIM card out of their watch and place it into that new handset and transition the plan over to something which is suitable for a mobile phone. It is a worth spending a couple of moments talking about Life Watch. Our Life Watch has been completely reengineered from a software or firmware perspective, and we plan on launching this device to market in the space of the next month or so. The Life Watch now meets the Australian standard description of an mPERS or a mobile personal emergency response system device, which will essentially create a brand-new product -- or a new product line for us and also opens the door to a brand new market with new distribution channels. We'll share more on that in the not-too-distant future. We're also launching a brand-new version of our schools messaging app. This is particularly important for a couple of reasons. Firstly, it's going to allow parents for the first time ever, the ability to opt in to further communications and offers from Spacetalk. And we're pleased to share that we've had agreement from a number of our education partners to allow this to happen. Secondly, the new app is built on an entirely new architecture, a entirely new tech stack. This will allow us to make changes that have not been possible to date with our companion apps, with our family apps, to bring together a unified digital experience for customers in the future. In summary, there's a lot going on in the product area of our business, all with a key focus on establishing new product lines, new revenue streams, and importantly, allowing us to retain customers that are brought into the Spacetalk product ecosystem, by hardware, become our MVNO customers, and enabling us to retain those customers and have established a relationship with them as individuals and as entire families into the future.

Thanks, Craig. So I thought I'd like to close things off just by reminding ourselves and reflecting on the fact that we have a solid foundation to -- we proved some product market fit, and we continue to build on that initial product market fit, and we are really excited about the new products that we're going to be bringing to market in the short term. But we think we've got the foundation now to power the growth of Spacetalk in the coming quarters. Our focused strategy and the domain expertise we've introduced in key positions in the business will support our growth to becoming this $20 million to $25 million recurring revenue business, excluding device sales going forward. So many of that might seem like a lofty goal, we feel confident we can execute against that. I'm very excited about the potential of the business. Some highlights of what we're already doing well. We're already talking to 10% of Australian schools, through Spacetalk Schools. We want to increase that share of the market, so we have our fair share. Spacetalk Mobile has over 12,500 subscribers in Australia, and we intend to be a meaningful player in the Australian MVNO sector. We have well over 40,000 active Spacetalk watches in Australia as well at the moment, and tens of thousands of paying Spacetalk App subscribers. So we're starting to do the basics well, and this is a solid foundation to support the future growth aspirations of the business. And I think, by the time the Christmas update comes around, by the time we're in the middle of the Christmas and holiday, key part of our selling period, I'm really looking forward to being able to update you in the second half of the year about some of the progress we're going to be making in the coming months. We've got a lot going on inside our small business. As Craig said, launching half a dozen new products between now and the end of the year. And so it's an exciting time inside Spacetalk, particularly for the team, the new team, a small team who are working extremely hard. We're in a good position to deliver on ambitious plans. And as I said, I'm really looking forward to updating you further about our new product releases, literally in the next couple of weeks and the next month or 2. So thanks very much, everybody. And with that, we'll open ourselves up for some questions. Thanks very much.

Hello, everybody. Thank you for tuning in. Now we do have a few questions. [Operator Instructions] So to start out with, we have 1 from James Tracey. He says, hi Simon, Craig and Tonderai. Could you please provide more detail on how the relaunch Spacetalk App works? Specifically, can you expand on how you will engage kids throughout the entire product life cycle.

Thank you, James. That's a great question. It's a product question. And I think, well, I'll let Craig walk you through that, but let me just start by saying, from a family app perspective, because I think that's the thrust of the question. And the key thing to emphasize is that historically, well, we had a kids business, that's done well. But when that child has outgrown their wearables device, they naturally churned off the Spacetalk product and platform. We're now designing an ecosystem that retains that child, minimizes that churn and retains that relationship for -- we're aiming multiple years to come, taking them through the tween and teen stage. So we're excited about the potential of this opportunity to retain that relationship and to interact with that child through the various coming stages of their life kind of going forward. Maybe we can just talk for a moment about how long that might work from a practical perspective?

Yes, absolutely. So I think the point that Simon made there around product ecosystem is incredibly important. So today, we acquire most of our MVNO customers, essentially free of charge. The SIM card is included in a box with a hardware device, and they sign up by simply putting that into their watch. The challenge that we have is that, that watch has a relatively limited lifetime of usage. Kids basically outgrow the device. I personally experienced this as a parent, my older son is now 11. And the Spacetalk watches, it's no longer a thing he wants. He wants a smartphone. At that point, we've lost that child from our ecosystem, and we've lost the revenue stream from our MVNO as well. By launching new products to market, including new MVNO plans and the new family app, we'll be able to deliver the same benefits or many of the same benefits that our watch products currently deliver because that need hasn't gone away. There's still a need for parents to feel that peace of mind, to ensure that we know where the child is, to ensure that child is navigating, for example, from school and back safely or with their friends safely, but to basically doing it through a different platform. So the family app will deliver many of those location safety benefits that the watch delivers. It won't deliver some of the features that the watch delivers, simply because we can't change the operating systems of those devices. So for example, we will not be restricting messaging coming from other people. We will not necessarily be restricting the number of people that the child can call. But that's because this is aimed out to an older age group of children that don't necessarily require those levels of protection. So in a nutshell, that's how the application will work and that's how it fits within our product ecosystem as well.

Just a few follow-up questions that we have that are related to the app and product ecosystem. One question that we had was, where can -- can you outline the thinking behind the entire product ecosystem that has been unveiled recently? And the other question, which was related, was by Chris, and he asked, if you could outline a little bit the strategy to persuade Life 360 users to switch over to the Spacetalk Family App? And what will the cost be for the family app, the customer has the Spacetalk mobile phone plan.

There's quite a few questions there to [indiscernible]. Let me try and deal with some of those. I think the ecosystem we have in mind reflects our view of the family, the family unit. So everything we're doing, and you can see this in the strategy and also in the coming new product releases, is about being able to engage with the family unit in its entirety. So at the low end, we continue to focus on innovation around our wearables devices for kids. I'm very excited about the Loop product that's coming to market in Q2. It's a really nice product, a high-quality product. I think it's going to do well for us. I'm excited about it. So we're going to have solid proposition for our kids wearables business. The Family App, when it launches, which in the next month or so, is our first step towards being able to -- as we said several times, being able to essentially open up an entire new market for Spacetalk, which is teens and tweens. So there's older kids, say, if you're like 11-plus, that market opportunity hasn't existed for the business before. So that's completely greenfield for us, which is exciting. And that's 2 things. So new customers to the brand. How we will need to evolve our marketing to be -- to skew to an older user is going to be an interesting challenge for Chris Neary, our CMO, and his team are doing an excellent job inside our organization. So that's an interesting opportunity for us ahead. I think, so bringing new customers in is good, but I also think how we can transition effectively our existing customers. That is our #1 focus at the moment. How do we retain, from a subscription perspective, how do we migrate those customers at the right time into our Family App, and until other MVNO plans as well. So we really are starting to focus on the good challenges that a subscription business like ours has, which is our growing footprint of products and our ability to go and migrate a customer through different steps and different kind of product experiences as well. So it's new. It's exciting. I think, investors should think about this as being completely new market opportunity. We've considerably increased the total addressable market for ourselves in the Australian market because we're not just relying on young children anymore. And that's an exciting thing in itself. At the other end of the spectrum, create such life product. A lot of you will know the fact we've had this product for several years now. And we've repurposed this in a more focused way, as Craig mentioned. It's -- our focus is less now on a smartwatch for seniors being sold through retail and more on how do we position this as a legitimate and high-performing mPERS device for seniors and other vulnerable people. And that's going to be an interesting and exciting announcement you can look forward to in the coming weeks as we look to commercialize this in an effective way for the first time as we are very close to announcing some partnerships with 24/7 monitoring services out there as well. So that's another key feature for us. How can we bring grandma and grandad into our ecosystem as well, also part of that family unit, and to be able to have a proposition for them. And then right in the middle of that, and this is why our MVNO strategy is so important. Spacetalk Mobile is the glue that binds our entire ecosystem together. And so that's why you're going to see some evolution around our product offering there, in terms of our growth and our movement towards voice and data plans, which we think are really important. So when that child wants to move to its first mobile device, we've got a plan for you. And at the moment, that we're likely going to be making our purchase decision and an App for you to be able to use as well. So it's all going to be very sticky, very integrated, and we're going to get extremely good at being a data-driven organization where we have a customer at the epicenter of our business. And we get really effective app to be able to engage with them, retain them, upsell inside sales, all the key metrics that you'd expect from a subscription business is going to be the things that we start to message to the market going forward. Can you add to that, Craig?

Yes. I might just say that the best way to think about our ecosystem is -- to massively simplify it is 3 pillars: connectivity, hardware and software. And we're looking at offering connectivity, a hardware product and/or a software product to an -- for entire family unit across their entire life cycle. One of the things that we didn't mention earlier about the Loop product is that, when this goes to market, it will actually be soft locked to our MVNO network. So 100% of users of the Loop watch product will become MVNO customers. Our challenge then really is around retention. And it's around putting new products and services, whether that's an MVNO product, or a software or hardware product, in front of the family at the right stage of life. Underpinning all of this, we are massively enriching our data capabilities as well to ensure that we've captured using entire family unit data to allow us to position those products really effectively.

Fantastic. I think that it's definitely an exciting time. And there's definitely a lot more coming out. Obviously, as the team has said, so we do have a few announcements. So there's not -- we can't go into as much detail on those aspects. I know that we have a lot of very specific product questions that are being asked. And it's good to see people excited about the new ecosystem that we're launching. A few -- I think we'll handle a few more product-specific questions before moving on. Ian Cameron said, you mentioned employees and workers. Can you expand on that just a little bit -- talk about how that fits in to the products?

Absolutely. So we're currently in the process of building up our product offering for seniors and vulnerable families. That's starting with the reimagination, the complete redevelopment of our Life Watch and the digital artifacts that go along with that. If you look at what we're delivering for that particular device, so being redeveloped as an mPERS device also enables it to be connected through to 24/7 monitoring providers, of which we will be an agnostic product. The major use case for that type of device is among seniors, who are at risk or potentially a full risk, and that lends itself into the Life product having automatic full detection, SOS functions and so on and so forth. If you squint slightly and look at that use case, it has a huge amount of application for employees and workers, especially those who work in dangerous environments, high dangerous. For example, we've got workers at risk of duress who may benefit from the same SOS functions. And we're going to continue to build out that product offering but also the positioning of that product suite with that market in due course. The reason we're not chasing both of those in parallel is we want to get the entire product suite working in the way that we intended to work with the one segment of seniors and vulnerable families first. And then in time, we will move over to focus on a brand-new segment. If we try and do too much at the same time, we'll end up doing nothing well.

We're just going to another number of questions, more about the products. But I think we should move on at this point to some other topics. Although I do appreciate all the interest, it's great to see.

So on that point, as I've said, the important thing is we're close to being able to roll these products out. So investors are not going to have to wait. This is not a conceptual or a theory. It's not sometime in the future. We're right in execution phase right now. So I'd say within the next couple of weeks, we'll start the first phase of making some announcements around some important product updates. I think the first cap of the ranks would be our updated Spacetalk Schools App. So that's something to look forward to. And then we -- I think the next month, that will be our Family App as well. So our aim is by -- before the end of Q1, to have some fairly significant announcements about new product initiatives out in the marketplace. It sets nicely for the remaining 3 quarters of the year. So things look forward to in the near future for sure.

Yes. And as Simon said earlier, transparencies. We're definitely going to start. We're definitely going to be keeping the market updated and producing those metrics that Simon had mentioned earlier. So that's definitely something to look forward to going forward in a very short period of time. So moving on to the capital raise. We had a few questions, and I'm going to kind of move a few together because they're similar. So with regards to the current capital raise, can you discuss where specific -- those funds will specifically be used and what the focus of it is going forward?

Tonderai, do you want to comment on that? So you can come again, Russell?

So what is the use case for the funds? And what is the focus of those funds that are currently being raised?

Yes. So our focus at the moment is to make sure we execute our strategic priorities within FY '24. So we we've already incurred quite a significant amount of development cost in the products that Craig and Simon spoke about. And this is actually to sort of like move us into the next phase of the products that we need to execute for the second half of the financial year. In addition to that, we've got normal working capital sort of like requirements that we need to run the business. So those 2 areas will be the significant uses for this capital.

I'd also just emphasize the fact that we run a really tight ship at Spacetalk. We make all our dollars go a long way. We're a very small team, with sub-50 FTEs. I think the last count, we have about 41 FTEs. I think we achieved a lot with a very small team. So -- we've also spent very little money in reality since the -- my tenure in February. All those dollars have gone in a very focused way, around the product and the reset of the business as well. So as Tonderai said, this is all about execution and the support of our business goals going forward. We've got a stated goal of getting the business to -- into a cash positive position in the second half of the year. That's where our focus is. That's going to flow from good financial practices, solid housekeeping, all the things that we put in place in the last 6 months as well. And this notion of discipline around execution, which is something that we talk about inside the business every day and alignment. So we reduce the temptation of our shiny things and focus on executing per the plan. So the plan we put out in May was, again, not conceptual. It was for you to be able to look at and reflect on how we're progressing against the deliverables that we stated in that plan. And so the bulk of the money that we're raising at the moment is going to be focused on our ability to be able to execute effectively and to get the business to this cash flow position that we've stated we want to achieve in the second half of the year.

Yes. I do just want to highlight the report that we released last week really does show exactly what Simon is saying. That the business is being very well streamlined and that it's important to note that the funds that are being raised are for very hard targets. And that a lot of the R&D spend, as Tonderai said, has already been booked, and that these funds are being really used to move to the next stage. So moving on to some other topics that we've been asked about. I do just want to say that, the team is actually currently -- in Sydney, we did get a question about location. And I am based in Sydney. A lot of -- so the -- it is important to note that we are very Australian focused, and that the team is constantly in communication with other members. So if you want to talk about that a little bit, Simon, I know that this is -- it's something that has been asked a few questions. But I think it's coming -- it's real.

I believe there's a few rumors kicking around about various people's location and our nocturnal interests. All I can say to you is that we're very much focused on -- the business is our #1 priority. People are putting a huge amount of effort on a day-to-day basis. And I'm very grateful for the support we have, from both the leadership team and the rest of the Spacetalk group. People working extremely hard. In terms of location, here we are. We're talking to you from Sydney today. I, as many of you know, will know that I've lived in Australia, Sydney for a long time. I'm a hybrid at the moment. I'm in Sydney every 4 weeks, for a couple of weeks at a time. And my stated aim is to be transitioning back to Sydney full time in the not-so-distant future. Both Tonderai and Craig live in Sydney and are fully in the business every single day. So I think from a resource perspective, we have all time zones covered, which I think is only a good thing.

Absolutely. The other question that we had is surrounding the schools and any work with the government, surrounding that support that has been -- support there. Is there any communication with the government around the schools program?

I can answer a couple of those questions. So we have agreements in place with 2 Department for Education at a state level within Australia. I'm pleased to share that we have recently renewed our contract with both of those departments for either a year or multiyear arrangements. So -- pleasingly, our schools business is a continuing area of focus for us. We've recently hired a Head of BD for our schools area. We'll continue to improve and refine that product as well. And, yes more news to follow.

And just the last question is, what -- if you had to put it into 3 bullet points as to what shareholders should really look forward to over the next 6 months, what would be the main things that shareholders should keep an eye on for?

Stability, focused execution -- only 3, okay? No surprises, fall on fourth. And I think, all run at gain to a cash positive position for the business would be the 4 things to look down, comes in mind.

Excellent. So that is the time we have for today's webinar. I want to thank everybody for joining. And clearly, it's a very exciting time at Spacetalk. The transition is going extremely well, as you can see. We have a lot of exciting things coming down the pipeline. So thank you again for everybody joining us, and I hope you have a great rest of your day.

Thanks so much, everyone.

Thank you. See you next time.