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SPACETALK LTD (SPA) - Innovative Growth Strategies via an Ecosystem of Interconnected Products.

• Andrew Musgrave

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Step into the world of family technology as we chat with Simon Crowther, the CEO of Spacetalk Limited. Sparked by their remarkable 12% revenue growth, Simon shares how Spacetalk is redefining safe communications for families. By pivoting from hardware towards a subscription-based model, the company has unlocked new avenues for growth while reinforcing its commitment to providing valuable tech solutions for families of all ages. With significant improvements in annual recurring revenue and a focus on leveraging digital retail spaces like Shopify and Amazon, Spacetalk is poised to make waves in the tech market. 

Notably, Simon discusses their strong focus on the seniors market, capturing insights on how their forthcoming software upgrade will enhance user engagement and elevate service offerings. Join us as we dive into the strategies that are not only driving current growth but also paving the way for future innovations in family-centric technology. Don’t miss this opportunity to learn about the evolving landscape of family tech and how SpaceTalk plans to revolutionise it—tune in, subscribe, and keep pace with one of the industry's most exciting journeys!

Andrew Musgrave Host

Welcome to another episode of ASX Briefs, where we engage in insightful discussions with leaders from the most innovative companies listed on the ASX, and today we're pleased to welcome again Simon Crowther, the CEO and Managing Director of Spacetalk Limited, a technology company focused on providing safe and innovative communication solutions for families. Simon, thanks for joining me again and welcome back to the ASX Briefs podcast. 

Simon Crowther Guest

Thank you for having me. 

Andrew Musgrave Host

All right, it's been a little while since we last spoke. So first of all, Spacetalk's revenue grew by 12% and the annual recurring revenue increased 16% to 11 million. So, what are the key drivers behind this impressive growth? 

Simon Crowther Guest

Well. We're executing on the plan as per the strategy. I think we're just focused on doing the basics well, and that means that we're focused on activating our ecosystem of interconnected products. It's still early days, but it's pleasing to be making so much progress. I think the soft locking of our mobile devices to our own Spacetalk mobile network is really key to our strategy, and we're seeing both a reasonably strong sellout of our hardware at retail and in most cases, when someone buys one of the Spacetalk smartwatches from us, there's a corresponding subscription to Spacetalk mobile as well. So that decision to soft lock those devices probably happened about a year or so ago, and I think that's been a fundamentally good decision for the business and something that's actually starting to really start to power our recurring revenue as well. 

Andrew Musgrave Host

Okay, and you achieved a 54% increase in paid mobile subscribers. So why are you focusing on subscriptions and recurring revenue instead of hardware sales? 

Simon Crowther Guest

Well, I think it's both, really, but it's much easier and faster and more capital light for us to be able to scale a software business as opposed to a hardware business. I think hardware is still very important to us going forward. Part of the update we made to the market for the half-year results. We laid all that there for our shareholders in terms of our short-term and more forward-looking strategy for the business. We are very committed to developing competitive and innovative hardware, both for seniors and for the next generation of kids' devices as well. But when you're looking to significantly grow reoccurring revenue, you need a software engine. 

I think what's pleasing about the progress that we've made is that we again made it clear in previous updates that when we launched the version 1.5 of the Spacetalk app, it was very much a compromise built on the existing limitations of the tech stack inside the business. But we still focused on driving software users and subsequently software subscriptions as well. But the really interesting point is going to come with the business when we launch 2.0 version of our app in Q1. That's going to be a completely new tech stack. I think for the first time in the company's history we'll have software that's going to really allow us to be able to drive deeper engagement with users and customers and also give us the opportunity to have software-only subscribers. At the moment, predominantly, an app user is somebody who's also a watch user as well. I think, going forward, part of our strategy is to be able to grow both app only subscriptions and users, as well as subscriptions linked to a smartwatch subscriptions as well 

Andrew Musgrave Host

The company also reported a 96% improvement in EBITDA, bringing losses close to break even. So how has the cost optimization contributed to this turnaround? 

Simon Crowther Guest

Well, since day one. I just celebrated my second anniversary as CEO of the company. I think from day one we were very clear about the fact that we were going to manage our costs effectively and right-size the organization. I think we've demonstrated that quarter on quarter, that we manage the business in a very efficient way. So not only have we right-sized it from a headcount perspective, where the opportunity is presented itself to be able to outsource services, we've done that. We've previously updated the market that we now have. 

Our call center is based in Fiji, and we've experienced some not only efficiencies there but also good service and also contributed to our cost management as well. 

We get more visibility on those costs, which is good, but also where there's opportunity in the business to kind of automate buy rather than build, I think, is another mantra inside the business as well. I think we just made some commonsense decisions around the operating costs in the business and taking out as much cost as we can without sacrificing the right kind of domain expertise inside the business to be able to kind of scale and grow the business going forward. So, I think it's just the culmination of a planned strategy to optimize costs wherever possible inside the organization. I think when you're working with limited cash and limited runway the way that we have been doing it the last year or two it just forces you to be very tight on these things and extract the most value that we can with what we have in order to be able to manoeuvre the business into the position that we have to now where, pleasingly, we are being able to start to deliver the results that I've been hoping to be able to deliver for shareholders for the last two years. 

Andrew Musgrave Host

Okay, and just touching on the financials, the company recently restructured its debt, freeing up $750,000 in cashflow over the next 12 months. So how does this improve financial flexibility for the business? 

Simon Crowther Guest

Well, I think the first thing to say is that this is the situation that we inherited as a leadership team. This relationship, this debt had been put in place prior to us arriving and that's the responsibility that we took on board. With that debt becomes a need to be able to obviously repay it in a structured way. I think, first things first, it was to be able to demonstrate to Pure Asset Management who we we've got a great relationship with, that we are an effective management team, and that we had a plan for the future of the business and that we could start to deliver on that plan. I think what we've demonstrated that, and we have their support and their backing, which is which is fantastic, so they're not only, you know, our bankers, but they're also investors in the organization as well, which I think is really pleasing. But we have to have a plan to be able to repay that and ultimately, that's going to come from our ability to be able to generate cash inside the organization, and that's been my focus from day one is being able to get to a position where we're starting to generate cash and we're on track for that. But I think the important thing to really clarify, perhaps for some shareholders, is some of the caveats that come with having debt, which is, at the end of the day, we have to have a very collaborative relationship with Pure Asset Management, given their status in the organization. I think also that we had a $5 million liability that was due to be repaid in March, in fact next month. 

We've now through, I believe, the ability to demonstrate the fact that we've got a good grip on the business, and we have a plan that's effective and also scalable. 

We've managed to extend the debt and the repayment and also to be able to push that 5 million liability into a situation where we've got a much more flexible approach to repaying that starting next month, which is $100,000 a month on a regular basis going forward, and what that effectively means is that we've taken out those bigger lumpy payments that come across every three or six months that we had on the original schedule, which means, in turn, that we're not kind of having to tie up that, um, that cash going forward. 

So, what we've done is really um raising an opportunity for ourselves over the next two years to really motor on the business model, really be able to show not only pure but also the market, the value of the company by continuing to focus on execution. So, it's really just helped us extend our runway, not tie up that cash in terms of repayments, but also just be able to settle into a more affordable and, I think, cash light way of being able to kind of manage that debt going forward. I feel very confident now, given the relationship but also the way that we've structured the repayments, that we are putting ourselves in a good position to be able to repay that debt in full and on time. And I think that further de-risks Spacetalk for any investors who may, to this point, have been somewhat concerned about how we might be able to afford to repay that. I think we now demonstrated the fact that we can be able to repay that in good order going forward. 

Andrew Musgrave Host

And you had $2.4 million in cash at period end. So, do you anticipate needing additional capital or is Spacetalk on a path to self-sustaining profitability? 

Simon Crowther Guest

I think, realistically, we're always looking at what our options might be in terms of growth. I think we're now in growth mode. I think there's two ways you can do these things. You can do it organically, which can always take time to be able to do that, and then you can look for being able to raise growth capital to be able to accelerate that. I think what we're doing is giving yourself some options. 

It's too early to say at this stage what the plan is, but we've got an ambitious growth agenda. At the moment, we sell a certain number of watches in the Australian market. We want to be able to double and triple the number of hardware sales that we have on an annualized basis going forward and also really want to get our software firing as well in terms of users and subscription sales. In order to be able to do that, we're going to be operating on a multinational basis. In the half-year update, we have a very ambitious plan to be able to further extend our kind of digital retail footprint in the second half of the year. We're looking to be in somewhere between 8 and 12 markets by the end of June very much capital-like strategy but still takes up specialist domain expertise and resources to do it anyway albeit we'll do it in a very cost-effective way and to scale our Amazon and Shopify presences going forward. 

I'd say that in due course we'll take a look at what we need and then, if we need to, then we'll come to the shareholders with a very solid story about what they can expect to see if we are going to raise capital and what the return would be. But I think we've put ourselves in a position now where I like to think that we've demonstrated to the market our ability to be able to manage the business effectively. We've definitely turned a corner, in my opinion, in terms of the position of the business and where we've maneuvered ourselves, and now I really want to accelerate the growth of the business going forward. So, it's an open question, or one which I think I'll answer and update shareholders in due course. 

Andrew Musgrave Host

Okay, and looking at those offshore markets, you've highlighted an international growth strategy, particularly leveraging digital sales channels like Shopify and Amazon. So how does this fit into Spacetalk's broader expansion plans? 

Simon Crowther Guest

Well it’s really important, we can scale our digital channel and software in a capital lite way and I think this is really important. But also, it gives us the opportunity, particularly with kind of these digital retail channels, to be able to trial different things from a digital marketing perspective scale up, scale back, try different propositions in the market. I think the key thing is to establish these storefronts and then I think it becomes a marketing exercise to drive traffic, because there's one thing having them, there's another thing actually transacting and we're able to do. We're developing plans in parallel with each other at the moment, so I expect these stores to make a contribution to our numbers in the second half of the year. This will unfold in due course. 

We're literally in the process of you know, in the weeds of all housekeeping around scaling into these individual markets. It takes a lot of time to do it properly and that's what we're focused on doing. The company's had a few false starts in the past in terms of international scaling up. We're determined to do it the right way this time and in a sustainable way. I mean, that's the key thing to emphasise is that everything we're doing is part of a considered strategy and also sustainable and done properly. So, the setup is worthwhile as taking the time to do it properly, because then we can have solid foundations, if you like, or building blocks, for the next financial year to really start to grow and to kind of scale these different store presence as well. So that doesn't exclude us from having channel partners on the ground or even looking at even traditional retail in due course, but for now the focus is on digital retail and I think that's the right decision. It makes our dollars go as far as possible but also really extends our reach as well. Some of those Amazon and Shopify storefronts are coming online as we speak. 

I expect to be able to give the market a bit of an interim update in due course, as we probably got our English-speaking stores up and running over the course of the next couple of weeks and then towards the end of the second half of the year we'll have our non-English-speaking markets kind of up and running. It takes a little bit longer to do that from a kind of a set-up and a translation perspective, but I think you know I'd be very pleased to get to the end of this financial year having started the year in you know essentially one country, which is Australia. You know, give us a. Yes, we had some retail presence in New Zealand, but we've only really started to expand that this financial year as well. But by the end of this one financial year, we would have gone from one or two markets to 12, and I think I'd be pretty pleased with that. As a result, I think that's a good position for the business overall. 

Andrew Musgrave Host

Okay, and just touching on the senior’s market, the partnership with Talius opens up significant growth in the seniors care segment. So how does Spacetalk plan to tailor its offerings to meet the unique needs of this demographic? 

Simon Crowther Guest

Well, seniors is just a really exciting part of our strategy going forward. I think we've only really started to see the really early stages of the potential here. I think, just to remind listeners and shareholders, at this stage we are working with a legacy device the original Life device really dipping our toe into the water. Talius are a great partner for us to really test our thinking and to get some initial sales going, but in parallel with this, we're also working on as I've said earlier in the conversation SpaceSort 2.0, which is an entirely new software tech stack, which is going to allow us to do and operate at a much higher level than we currently are at the moment, and with that, also the next generation of senior's device as well. It'll be a very different software experience and a very different hardware experience. I think we've got to looking forward to making a couple of updates around this in the near future, about our competitive advantage in this space and how we're going to show up, which is very different than what's gone before. 

I think, though, what's exciting about this is the size of this market opportunity, not just in Australia, but in kind of all developed countries around the world. You've got an aging population, you know, if you think of it as being the over 50s market, um, health and wellness and vitality are really important. I think we've got an aging population, you know, if you think of it as being the over 50s market, health and wellness and vitality are really important. I think we've got we will have a proposition for that. But also, really, what my overarching objective for the business is to move ourselves into being a predictive analytics business. You know, our watches and our sensors will allow us to capture a lot of data, how we can gain insights Using that data. 

Going forward is going to be where I see that we unlock the great value for shareholders, and that's really what we're focused on. I would think that by I've targeted, you know, the end of this calendar year to be in a situation where we can really start to demonstrate to the market and also to our shareholders how this entire ecosystem comes together, and I expect us to be a very different looking business by the end of this year. So, you know, a very unique approach to the senior’s market, both hardware and software, an entirely new tech stack that allows us to go much deeper in terms of our engagement with our customers and prospects, our ability to take a user through a freemium experience that we can't currently do with our existing technology. And the next generation of kids' device, which would be far more age agnostic. So, a very different looking business, a very different looking value proposition in the market and a very different looking set of products and services software and hardware. 

Andrew Musgrave Host

All right, Simon. It's been great to catch up today to get another update on where the company is at, and we look forward to further updates in the upcoming months. 

Simon Crowther Guest

Thanks so much. Look forward to keeping in touch with you in the next update. Thank you very much. 

Andrew Musgrave Host

That concludes this episode of ASX Briefs. Don't forget to subscribe and we look forward to catching you on our next episode.