Spacetalk Limited (SPA) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Georg Chmiel, and I'm the Chair of Spacetalk Limited, and I will be the Chair for 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 2024. As there's a quorum present, and it's after the appointed time for the meeting, I declare the 2024 Annual General Meeting of Spacetalk Limited open. My fellow directors, Mike Rann, Martin Pretty and Simon Crowther join us today also. Thank you to everyone attending via the online AGM technology today. The online AGM technology allows shareholders, proxy holders and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxy holders have the ability to ask questions and submit votes. Questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions or comments, we will not address them until the relevant time of the meeting. Please also note that your question may be moderated or, if we receive multiple questions on the same topic, will be merged together. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail or by posting responses on our website. We will certainly give you our best efforts to answer everybody's questions. Voting today will be conducted by way of poll on all items. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. For those attending this meeting and voting on the online AGM technology, if you're eligible to vote at this meeting, a new polling 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. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. I appoint Boardroom Pty Limited, our share registry, to be returning officers. I now declare voting open and will provide ample notice to complete your voting prior to the close of the voting. Attending from the Spacetalk executive team are Gerhard Beukes, CFO; and Company Secretary, Kim Larkin. In addition, the company auditor, Matthew King of William Buck, is also in attendance. Our auditors 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 our CEO, Simon, who will provide a company update prior to commencing the formal business of the meeting. The last year has been a pivotal year for Spacetalk, marked by the successful execution of our corporate strategy centered around Safety at Every Stage of Life. This vision has driven our transition from a loss-making kids wearables business to a more sustainable, software-enabled company. This transformation was achieved while rebuilding the operations, at the same time significantly increasing recurring revenue and margins, building a strong customer base and decreasing costs. It was achieved in a very short period, effectively 18 months, with very limited financial resources. Our efforts to expand into new markets besides Australia, which are New Zealand, Finland and now U.K. and U.S., and introduce innovative products such as Life, Spacetalk Mobile and others, have positioned us for strong growth. We continue to prioritize operational efficiency, but our focus has also expanded to drive topline growth through diversified revenue streams and strategic partnerships. As we move into the second quarter of FY25, we are committed to accelerating growth, expanding our market presence, and continuing to innovate. By doing so, we will build long-term value for our shareholders and capitalize on the many opportunities ahead. I would like to take the opportunity to thank our CEO/MD Simon Crowther and the Spacetalk team for their hard work and dedication in this pivotal year. I would also like to thank you, our shareholders, as well as lender Pure, for their strong support of our exciting journey, and our directors who shared their necessary experience and hard work for the transition of this business. I will now hand over to Simon to provide a company update.

Thanks, Georg. Good afternoon, everyone. It's a pleasure to have the opportunity to meet with you all again today at our Annual General Meeting and my second as Chief Executive Officer. Last year was my first full financial year leading the business and we made significant progress as we executed on the strategy we communicated to you in May 2023. The share price has not yet caught up with the improvements we are continuing to make, but I'm confident we are on track to build a growth business with a sustainable model. I would like to take the opportunity to reflect on what we achieved last year and why, with your support, we are putting ourselves in a position to deliver good returns to shareholders. It's taken time to lay the foundations for future growth. Each quarter, we make progress, and each quarter, we've reported that the metrics of the business have improved. Given the seasonal nature of the business, it's important to compare previous corresponding periods to understand the progress we are making. The impact of seasonality will reduce over time as we fully activate software sales, but for now, seasonality is still a factor, particularly in the first half of our year when we purchase inventory. Whilst we have an ambitious agenda, I feel we are balancing long-term opportunity and value creation with consistent progress quarter by quarter. Today, I would like to briefly unpack this progress with you by reflecting on a few things: one, my first full year leading the business; two, our success in delivering on every single item we identified in May 2023 as strategic priorities; three, our success resetting and refocusing the business; four, the improvements in our financial metrics; five, our recent new firmware release and upcoming upgraded new app; and six, the future of the business, including a collaboration with Neuroscience Research Australia. Let me take a few minutes to set the scene and the important work we undertook last year to set us up for the future and to deliver $20 million to $25 million annual recurring revenue by 2026. FY '24 was a foundational year in our turnaround story and the completion of Phase 1 whereby we refocused the organization as promised. We transformed a $14.6 million loss in FY '23 to generating free cash flow of $300,000 (sic) [ $370,000 ] in Q4 of FY '24. This sets us up for Phase 2, currently underway, focusing on growth and repositioning the business to be software-led. We have delivered every item we identified in May 2023. It's a long list but worth highlighting some key decisions, such as temporarily winding down overseas operations to preserve cash, effectively selling the large amount of the legacy ADVENTURER inventory, aligning the Spacetalk brand and launching a more budget-friendly Loop watch. All these initiatives drive our ‘fit-to-scale’ mindset which, in turn, has helped to deliver a turnaround in our metrics. We have raised growth capital, reentered overseas markets in a focused and disciplined manner, reduced our costs through measured offshoring and invested in growing digital revenues by upgrading our Shopify e-commerce platform and resetting our Amazon stores globally. Our metrics continue to reflect the positive impact our efforts have had in FY '24 compared to previous years. Gross profit has increased 32%, reflecting strong performance across both mobile services and hardware sales. Spacetalk Mobile subscribers increased 110%. We now have well over 35,000 subscribers and growing driven by the soft-locking of our devices to our own network. We also reported a 17% improvement in cash flow from operating activities, reflecting the impact of resetting the organization and streamlining costs. We have a clear growth agenda which we have detailed in previous presentations and updates. It's all there, and we continue to focus on the execution of our strategy in FY '25. So where are we now? And how are things progressing? And what is our growth engine? The initiatives underway in the first half of the current financial year set us up for important outcomes in the second half and beyond, and help complete our transformation to being software-led. Q1 delivered solid progress. And when we compare to prior corresponding periods, we delivered 100% growth in paying subscribers to Spacetalk Mobile, 35% increase in gross profit driven by our focus on higher-margin subscriptions, and a 56% improvement in cash flow from operating activities. We completed a successful capital raise to fund inventory and the scoping of our next generation hardware for kids, teens and seniors. We continue to grow our distribution points. Recent deals include Elisa in Finland and Optus in Australia, a growing presence in New Zealand and a promising reseller agreement to sell our Seniors Life smart watches. We continue to develop new retail channels to support sales of kid’s hardware whilst growing our e-commerce sales and software subscriptions. Optimizing digital channels will enable us to scale the business quicker and more cost effectively. Our software strategy is designed to deliver a subscription engine that the business currently lacks. Whilst the soft-locking of our hardware to Spacetalk Mobile has proved effective, the all new Spacetalk App, targeted for release mid next year, will deliver a step change for the business. For the first time it will give us the opportunity to bring new users and customers into the Spacetalk ecosystem without the need to purchase a device, but more on this in a moment. We have continued to build a positive relationship with Pure Asset Management, a very key relationship. Pure has supported refinancing and restructuring of our debt. This has given us the time to repay the loan in a focused and structured manner, starting in March 2025 and maturing in March 2027. We feel confident both in terms of the support we have received from Pure and with the time frame we have agreed. As I said earlier, we will put in place a software engine in the business to drive high margin subscription sales. My expectation as we launch our new software is that we will increase our active user velocity and put ourselves in a position to meet our debt obligation and position Spacetalk as an attractive long-term hold for shareholders. The first step in our software strategy has already started. We recently released a significant firmware update for our ADVENTURER and Loop devices, extending battery life and making health and well-being more accessible, and upgrading the visual design to make it a much sleeker experience. We're targeting the release of another firmware update for back-to-school to enable AI on ADVENTURER devices. Watch this space, but I'm excited to demonstrate our ability to respond to a kid's sentiment, anticipating their needs for support and help during a typical day. Shortly, we will roll out a significant update to the current Spacetalk App. It's worth providing some context for this and why it is a very, very important release. Our current App serves a purpose and receives generally positive reviews, but it's flawed, and we have limited opportunities to further develop it. Why not simply build a new one, you might ask. Well, our current tech stack was built to sell hardware and not for one-to-one engagement. The app requires an upgrade to deliver on our goal to deepen relationships with each member of the family. We are unable to easily add new features, offer a freemium model or offer a software-only experience. In short, it was designed to be device rather than people-centric. Our priority has been to stabilize and reset the business to give ourselves the opportunity to assess and rebuild our tech to support our strategic priorities and drive software sales. The upcoming 1.5 release of our app, to be released shortly, is a significant and pragmatic step and a bridge to launching the Spacetalk 2.0 platform and app next calendar year. The entire app has been overhauled and made simpler and more intuitive to use. Key features that are currently largely under-utilized features, such as safe zones, will be easier to set up and therefore, will deepen our engagement with our customers who will spend more time using the app. The app will also have new capabilities, such as SOS for customers who need access to help immediately or to set a timer to alert people if they find themselves in difficulty. This release will allow us to target an increase in monthly active users and growth in our app subscription numbers. You will recall we currently offer our app for free with a Spacetalk Mobile subscription and as a result, we have seen a trade-off. Whilst overall app users have grown, paying app subscribers have declined as our paid mobile subs have increased. I am confident we can expect growth in our monthly active users as we welcome new users to Spacetalk who have not purchased a watch to use our app for free for a period until we can transition them to our new platform, Spacetalk 2.0. I expect this will flow through to increasing numbers of paid app subscribers in due course. 2.0 will be a scalable, state-of-the-art platform, enabling us to offer users a freemium experience and customers a feature-rich app that will fully bring to life our vison of safety at every stage of life. It will provide us with the tools to deepen our relationships with individuals and families as we continue to build our position as a trusted family brand. The future of Spacetalk is the delivery of a great software experience for users and customers that also unlocks additional features when you pair it with a Spacetalk device, talking of which, we are progressing the next generation of Spacetalk hardware and expect to see a new approach. Bear in mind, ADVENTURER 2, Loop and Life are products that predate the new leadership team joining the company. Whilst we maximize the remaining life of these devices to drive subscriptions, the future is about age-agnostic devices with broader appeal, sleeker design, lower costs to manufacture, less complexity for the business to manage and a focus on capturing user data within our ecosystem with an emphasis on privacy, so we can deliver unique insights and predictive analytics related to safety, health and wellbeing. The seniors’ market is a significant opportunity for us. I look forward to updating you on how Spacetalk will address societal challenges, such as helping with the early detection of dementia through gait analysis and allowing our more vulnerable customers to age safely in place whilst providing them with the peace of mind that comes from 24/7 monitoring. This is quite the departure from a kids hardware-centric business only 18 months ago. I'm delighted to announce our collaboration with Neuroscience Research Australia, or NeuRA, and Dr. Lloyd Chan. We are building on Dr. Chan's PhD research at UNSW to enable us to extract insights from our wrist-based sensors that will detect health risks and predict health outcomes. As we roll out Spacetalk 2.0, we will have a platform that provides us with the capabilities to predict changes in a customer's well-being and alert them, all their caregivers, to seek medical intervention. We believe this has value for government payers, government health care providers, home care providers and health insurers. Over the next 12 months, and by the time we reconvene for our next AGM, I envisage a different position and outlook for Spacetalk. I am confident the current value of the company is short term and does not reflect the progress that has been made. I am more excited about our future now than I have ever been as we implement our growth initiatives. My thanks to all of you, our shareholders, for your support, the support from Pure Asset Management, Georg and the rest of the Spacetalk Board, and to my team for their hard work. There are exciting announcements and progress ahead and I look forward to seeing this flow through to our results in due course. I'll now hand back over to Georg to move on to the formal business of the meeting.

Thank you, Simon. Kim, are there any written questions in respect of these presentations?

Chair, there are no questions at this time, either written or verbal.

Okay. Thank you. Thank you so much. The agenda for our meeting today are shown on the screen. The Notice of Meeting dated 17th of October 2024 was made available to all shareholders. And if there is no objection, I shall take the Notice of Meeting as read. When 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. I will address each resolution and any questions received in respect of each resolution during each item of business. I note that as Chair, I intend to vote undirected proxies in favor of all resolutions. Your Board recommends that you vote in favor of all resolutions. The first item of business is for shareholders to receive and consider the 2024 annual report, which contains the financial statements of the company for the year ended 30 June 2024, together with the directors' statement and report and the auditor's report on those financial statements. The 2024 annual report has been published and was circulated to shareholders requesting a copy and is available on the company's website. I trust everybody 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 may have of the auditor, which are relevant to the conduct of the audit and preparation and content of the audit report. Kim, are there any questions related to this item of business, written or verbal?

Chair, there are no questions at this time.

We will move on to the next item. The next item of business is the adoption of the remuneration report for the year ended 30th of June 2024. 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 2024 in accordance with Section 250R(2) of the Corporations Act. The remuneration report is contained within the company's 2024 annual report. The vote on this resolution is advisory only and does not bind the directors of the company. The proxy details are displayed. I would like to highlight that in accordance with the Corporation 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 a prohibited voter. As Chair, I may also vote undirected proxies for a person that is not a prohibited vote in accordance with my stated voting intention, to vote all available proxies in favor of this resolution. For the purpose of this resolution, a prohibited voter includes a member of the key management personnel named in the remuneration report. Kim, are there any written or verbal questions to this item of business?

Chair, there are no questions at this time.

Thank you. There being no further questions, I invite you to submit your vote. The next motion before the meeting proposes the reelection of Michael Rann as Director. The motion is, to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, Mr. Michael Rann, who retires in accordance with Listing Rule 14.5 and clause 19.3 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, verbally or written?

Chair, there are no questions at this time.

There being no further questions, I invite you to submit your vote. The next motion before the meeting proposes the ratification of the prior issue of 36,175,893 shares and 18,087,950 options. 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, shareholders ratify the prior issue of 36,175,893 shares and 18,087,950 options, which were issued pursuant to a placement as announced to the ASX on 16 September 2024, and on the terms and conditions set out in the explanatory memorandum. The proxy details are displayed. Kim, are there any written or verbal questions with regard to this item of business?

Chair, there are no questions at this time.

There being no further questions, I invite you to submit your vote. The next motion before the meeting proposes the issue of performance rights to Executive Director, Simon Crowther. The motion is, to consider and, if thought fit, pass the following resolution as an ordinary resolution, that, pursuant to Section 208(1)(a) of the Corporations Act, Listing Rule 10.14 and for all other purposes, shareholders approve the granting of 10 million performance rights to Mr. Simon Crowther, Chief Executive Officer and Managing Director, or his nominee, under the company's equity incentive plan and on the terms and conditions set out in the explanatory memorandum. The proxy details are displayed. Kim, are there any written or verbal questions with regard to this item of business?

Chair, there are no questions at this time.

There being no further questions, I invite you to submit your vote. The next motion before the meeting propose the issue of performance rights to nonexecutive directors. The motion is, to consider and, if thought fit, pass the following resolutions as ordinary resolutions, that, pursuant to Section 208(1)(a) of the Corporations Act and Listing Rule 10.14 and for all other purposes, shareholders approve the granting of 1,323,664 performance rights to Mr. Georg Chmiel, Non-Executive Director, or his nominee; 882,443 performance rights to Mr. Martin Pretty, Non-Executive Director, or his nominee; 882,443 performance rights to Mr. Michael Rann, Non-Executive Director, or his nominee, under the company's equity incentive plan and on the terms and conditions more particularly described in the explanatory memorandum. The proxy details are displayed. Kim, are there any questions in respect to this item of business?

Chair, there are no questions at this time.

There being no further questions, we will move on to the next item. The next motion before the meeting proposes the approval of consolidation of capital. The motion is, to consider and, if thought fit, pass the following resolution as ordinary resolution, that, pursuant to Section 254H of the Corporation Act and for all other purposes, the issued capital of the company be consolidated on the basis that every 10 shares be consolidated to 1 share; every 10 options, performance rights or warrants be consolidated to 1 option performance right and warrant, as applicable; and where this consolidation results in a fraction of a security being held, the company be authorized to round that fraction up to the nearest whole number, with the consolidation to take effect in accordance with the timetable and otherwise on the terms and conditions described in the explanatory memorandum accompanying this notice. The proxy details are being displayed. Kim, are there any questions in regards to this item?

Chair, there are no questions at this time.

There being no further questions, we will move on to the next item. Ladies and gentlemen, please ensure that you have cast your vote on all resolutions. I will now pause for 90 seconds to allow you time to finalize those votes. We will publish final voting results with the ASX later today. [Voting]

Okay. That concludes the formal business of the meeting. We thank you for your attendance today. There being no further business, I now declare the meeting closed.