SPACETALK LTD (SPA) - Can One Telco Customer Become A Whole Family?

A kids smartwatch can be a solid business. A family safety platform that telcos can deploy to millions of customers is a very different ambition, and that’s what we explore with Simon Crowther, CEO and Managing Director of Spacetalk Limited (ASX: SPA).

We start with the core product that built the Spacetalk brand: a kids safety smartwatch that gives parents peace of mind through location features and a locked-down contact experience, without social media or a browser. Then we move into the real strategic shift, away from being device-led and towards being software-led and mobile-led, including a re-platforming to AWS designed to support scale in Australia and overseas.

Simon is candid about the November app launch and the data migration issues that followed, why the team chose a deliberate operational reset, and what “back on track” looks like in practice: falling support tickets, ongoing app updates, and new premium features on the way. We also unpack the metrics investors care about, including subscriber growth, mobile ARR, and how family safety features like content filtering can lift retention and extend customer lifetime value beyond the watch years into the first phone years.

From there, we dig into the commercial roadmap: cost savings, a push towards cash positive operations, and the opportunity in telco distribution. Simon explains the value proposition for partners like Vodafone and TPG, the idea of moving from a one-to-one telco customer relationship to a family dynamic, and why international interest is building across Europe and beyond alongside CY26 ARR guidance of $20m to $25m.

Subscribe for more ASX company insights, share this episode with a mate who follows small caps, and leave a review with your biggest takeaway. What part of Spacetalk’s pivot matters most to you: platform stability, family safety software, or telco scale?

Transcript

Andrew Musgrave

Welcome back to another episode of ASX Briefs, where we bring you the latest insights from ASX listed companies, and today we welcome back Simon Crowther, the CEO and Managing Director of Spacetalk Limited. Spacetalk is an Australian technology company developing hardware and software solutions to provide safety at every stage of life. Simon, great to have you with me again and welcome back to the ASX Briefs podcast.

Simon Crowther

Thank you very much. Good to be here.

Andrew Musgrave

Now, Simon, for investors that are new to the Spacetalk story, can you give us a brief overview of the company, what you do, who you serve, and where you are in your strategic evolution?

Simon Crowther

Yeah, very happy to. So, I think it's really almost like a tailor two stories, really. It's the business that has the legacy customers at the moment, which is kids' safety smartwatch business. Spacetalk has got a good brand and recognition and track record, particularly in the Australian market over the last kind of seven or eight years in particular. we've really built our profile and early stage of the monetization of the business, essentially on selling smartwatches, kids' safety smartwatches to parents who really have got kids who are too young to have their first mobile phone. But parents want the peace of mind and knowing where their kids are in a lockdown ecosystem where they've got complete control over who can contact that watch. The watch being essentially a 4G cellular phone on the wrist, but without any social media or without a browser. So very much a closed ecosystem, very much focused on privacy and making sure that when kids are out having a little bit of freedom, you know, we're seeing typically they get one of these watches when they're kind of seven or eight, nine years of age, keep it for a couple of years until they're ready for the first mobile phone. We're very much trusted by parents to be able to provide them with that kind of peace of mind when the kids are out playing or maybe going to and from the school gates and other kinds of use cases as well. So, that's the core of the business. We soft lock those devices to our own MVNO, a mobile virtual network operator on the Telstra wholesale network, Spacetalk Mobile, and we soft lock those devices to our own mobile network, and we now have in effect nearly 100% subscription rates attached to the sale of a device. So, for us, we offer a decent quality product to parents for their kids. At the same time, we pick up recurring revenue through a mobile or wearable subscription for that device as well. So that's the kind of the BAU business. That's the business that I've been running for the last three years. But it was much bigger opportunity than that, which is the ability to be less about the hardware going forward, more about being software-led and mobile-led. And we've been going through a very significant transformation over the last 12 months in particular, with the launch of a new platform, a new software experience, a completely new re-platforming of the business. We migrated from Azure to AWS, modern infrastructure and modern technology, with the objective being to really scale our mobile business not only in Australia, but also in key markets overseas as well. And importantly, have a very compelling software proposition that fuses both location safety, you know, the physical aspect is that person in the right place at the right time? Are they okay? And are they on track? But also, I think very timely given the fact that we have a social media ban in Australia now, we've long since identified the opportunity of including in our software what we call family safety, which is essentially content filtering for tweens and teens. That means that the parent retains control of the mobile device, whether that's Android or Apple, and through our app is able to essentially lock down that device and make sure that they're able to filter the content and the app experiences and the sites that they don't want their kids to be able to access, perhaps during the school day. So, there's less distractions. And that's something that we're going to be rolling out over the course of the next couple of months. And so big, big shift in terms of business model, big shift away from relying on the sale of a device in order to be able to generate a subscription and in the near future, being able to drive the growth of the business to cash positive and beyond through both a fusion of software at the Spacetalk app and also compelling kind of mobile products as well, a bundle with that software experience.

Andrew Musgrave

And in your in the quarter, you did have a deliberate reset following the recent platform launch, as you mentioned. So, can you explain what the reset actually involved operationally and why you felt it was the right call to prioritize platform stability over near-term growth?

Simon Crowther

Yeah, as many of your listeners will know and investors in Spacetalk, we had a very ambitious tech development plan last year, which culminated in the launch of the new app. But it's also quite a complex re-platforming that was undertaken as well, as we moved from one cloud service provider to another. That's not a trivial thing to do. I think it's fair to say that when we launched the app on November the 15th, we had some technical issues that meant that the whilst the app always worked, it didn't work to the quality experience that we always envisaged with for our customers and our users. And the primary reason for that was that we were using a vendor as part of the AWS Amazon Web Services environment that was recommended to us to actually manage that data migration. There's quite a significant amount of data that we migrated from one cloud infrastructure to the other. We had issues with that migration, and they unfortunately impacted some of our customers. And we worked hard in the months after that to really identify what those issues were and in the vast majority of cases, remedy those. But I think it's fair to say that our Q3, so January to March, was very much a stabilization, consolidation period for us to get ahead of the issues that we had immediately after the app launch. Investors and listeners of this session today will know that sometimes things happen with technology rollouts, they don't necessarily go according to plan. The important thing is now that we're back on track. It's certainly the fact that we had some setbacks during the quarter, the Q3 quarter. So, we took the opportunity of understanding the issues, going through a very much a focused stabilization period and really making sure that we took care of our customers. And I think what we've seen now is the end of that particular period as we go into our Q4 period, is that, in particular, our customer support tickets now have reset back to pre-November 15th app launch levels, which is good. That means that we're addressing most of the issues and most days for most of our customers, which is very reassuring. We continue to release a number of app updates over the course of the last couple of months, continuing on the stabilization kind of process. We've in fact we've launched another one today in terms of stability and making sure things are really working well and better. And in the course of the next month or so, we'll be rolling out a number of big updates in terms of adding new premium features to the app as well. So, you know, it certainly didn't go without a few hiccups, but we're back on track and most importantly, and this is a really important thing, is that we haven't churned a significant number of our customers as a result of that experience. Our base is still there. What we realized through that process was we have a large number of very loyal customers who you know let us know both the good things and the not so good things, and we value that feedback, and but also the role that we play in a family dynamic is really interesting and something that we really greatly value. And we have far more insight around that. We had a lot of parents who've got vulnerable kids or special needs kids who rely on us. We take that responsibility very seriously, and I think it's been a useful but challenging journey, and we're now ahead of it, and I think we're in a much better position as a result of it. And like I say, the important thing is that we've managed to maintain our base, we've grown our mobile revenues still by double digits, which is really important. That's been something that's really driven the ARR in the business over the last kind of couple of years. And also, we've positioned ourselves now to be close to executing the contract with TPG and Vodafone and a growing pipeline of telco-related opportunities overseas as well. So, yeah, but a bit of a challenging period, no doubt, but we've come through it and we're better for it and we're on track now to continue to deliver.

Andrew Musgrave

Looking now at that customer base, your active mobile subscriptions grew 18% year on year to 57,900, and Spacetalk Mobile ARR is now tracking at $8.3 million, up 11%. So, how important is that subscriber growth to the long-term thesis? And what does the mix of annual versus monthly plans tell you about retention?

Simon Crowther

A couple of things to say on that. I think it's really pleasing that we've seen the significant growth, you know, really over the last couple of years, particularly when we took the business decision to lock or soft lock our devices to our own Spacetalk mobile network. I think that was a really important business decision that we took a couple of years ago. So, that we were able to essentially, in most cases, and nearly 100% of cases, the sale of a watch at retail or online via our own Shopify store or marketplaces like eBay results in a subscription. And in most cases now it's a mobile wearable subscription to Spacetalk mobile. We still have the app subscriptions coming in as well. But I think we've seen a mix or revenue mix kind of evolve and continue to evolve over the last year or two. And I think going forward, particularly when we launch the premium features in the app and the premium tiers and our ability to be able to upsell app users who may not be at the end of the day a watch user. That's a really important thing to stress is that we've built this platform so that we can have software and mobile only experiences with a whole new group of users and customers going forward, which is not reliant on a device. Devices have been a really good way to continue to grow the business and drive our ARR. But there's only so many watches that we can sell in the Australian market. We are the biggest player in the market. So, the growth from device sales is always going to be a limiting factor. We knew that. We knew that a couple of years ago. That's why it's been so important for us to kind of deliver a platform, a software-led platform. That's going to be the thing that allows us to have a much deeper engagement with our user base going forward, but also for us to be able to have software subscriptions going forward. It's much easier for us to be able to sell and scale a software business than it is a hardware business. You know, that's one of the inherent challenges of running a hardware business is it ties up our cash and is difficult to manage from a cash flow perspective. Software, on the other hand, and our mobile products are far easier, more cost-effective, and we tend to get cash straight away. So, it’s a really good place for us to be. And that that mix of revenues will continue to evolve as we see far more mobile subscriptions coming in. And I think one of the key things for us going forward over the next quarter or two will be our ability now to package a unique software experience, so a family safety app with premium features in there, like content filtering, bundled with one of our mobile handset products. So again, one of the key strategic objectives that we identified a couple of years ago was that we wanted to extend our customer lifetime value. And being device-led, our customer lifetime value is measured in only a couple of years, because by the time that the child had been using the watch for a couple of years, they were really desperate for their first mobile phone. At that point, Spacetalk didn't have a product to migrate them to. We do now, and we increasingly we'll have a much more compelling product in the next month or two when we roll out family safety, which is essentially content filtering. So, the parents' ability to be able to block YouTube and all those other apps, Roblox and various other things that parents don't want their kids to be using or want to be able to effectively manage their screen time, particularly when they're at school or out with their friends or out of home. We're going to have a very compelling software experience for parents to be able to do that in a very intuitive kind of way. You bundle that for free with one of our mobile handset plans. We've got a very compelling proposition, not only in the Australian market, but in other markets overseas as well. And now we've got MVNOs set up in the UK, we've got an MVNO in the US. We're also rolling out and establishing MVNOs in Germany and Sweden as well. So, by the end of the quarter, going into the new financial year, we'll have five MVNOs, a unique software proposition, and a growing subscriber base.

Andrew Musgrave

Staying on the financials, you've identified $3.5 million in the annualized cost savings to be delivered from Q4 FY26. So where are those savings coming from? And how confident are you in the timeline for bringing operating expenditure back to pre-launch levels?

Simon Crowther

Yeah, so it's the absolute priority of myself and the management team to get our business to being cash positive or at least be able to demonstrate to our investors that we're on well on the way to being able to do that. That flows from our ability to have a scalable and attractive business model. It's taken us time to be able to go through this hard transformation from one end-of-life platform that we had, which we inherited, to re-platform the entire business and build that software and build that mobile base. We've now got the foundations in place. It's taken us three years to get to this point. We're still in the devices business, but we are de-risking ourselves from being reliant on that devices business going forward. So, the absolute number one priority is to live within our means, have a high margin, highly scalable business model that's coming together now. And the next release of our software, coupled with the fact that we'll execute on the contract with TPG and Vodafone, will be then deployed to Vodafone's postpaid base. I've indicated in previous announcements to the market, that that's a significant number of their customers, 2.8 million customers. This is all new, nobody else in the world is doing what we're doing. And I think what's really important is that it's not just a software experience, it's all smarts that sit behind there, something that we call customer value management. So, our ability to be able to deliver a whole range of new insights to a telco, not only just in Australia, but other markets that we envisage being able to roll out our software too. So, they have got objectives around customer lifetime value, minimizing customer acquisition costs, average revenue per user. These are all the key metrics that telcos in every market around the world is really focused on. We believe we've got a compelling proposition for telcos in that we are able to allow them to extend their relationship from having a one-on-one customer relationship to a family relationship. And that's really something we are really excited about being able to demonstrate not only to our customers, as in Vodafone and TPG, but also to our investors as well, how this really scales quite rapidly going forward. So, in terms of answering your question around the cost space, we've seen as our revenue mixers moved, as we've re-platformed, as we've introduced efficiencies into our business and our business model, we've seen the opportunity of kind of taking costs out as we go along. And again, on this path to being a sustainable and cash-positive business. And that's really our number one goal. And, yeah, it's all it's as we de-risk ourselves from devices and hardware, as we focus more on software, I think investors will see our shareholders will see just a change in that kind of you know OPEX kind of going forward. And we will, you know, I think we'll just bring more and more efficiency into the organization and into the business.

Andrew Musgrave

And looking at that MOU with TPG, can you walk us through what the MOU covers, what the 12-month initial distribution framework looks like in practice, and what milestones need to be hit before a formal contract is signed?

Simon Crowther

Yeah, so we I think it really is a pivotal moment in the journey of you know, loss making kids devices business in Australia to a multinational kind of software and mobile business, you know, with a high with a you know, with a very scalable business model. I mean, these things take time, they take time to be able to do that, to do it properly. You know, and I appreciate the fact that we've got some shareholders of being in with the story for quite some time now. And I appreciate there's a degree of frustration. But I want to kind of emphasize that I've always kept it focused on the strategic and never traded off the long term just for a short, the short term has always been about putting the right building blocks in place and testing our hypothesis and knowing that we had something I think was unique and compelling and would be really good for our for our investors and our shareholders. TPG, the Vodafone deal is exciting on a number of levels. It validates our thinking from a strategic perspective. I think it also gives us an opportunity, our home market, to be able to deploy our software to the kind of user base that you know would ordinarily cost us a significant amount of money to be able to acquire reach of that level to even have the possibility of talking to 2.8 million prospects would be a significant undertaking and very expensive. Our ability to be able to deploy our software within the Vodafone base on a co-branded basis. So, this is going to be a Vodafone and Spacetalk app, which is fantastic because we obviously get the benefits of being associated with a global brand, you know, and considering where we are as a very small Australian brand, that's a huge opportunity because it also opens up conversations overseas as well, because yeah, everyone looks at what is happening in this market from a telco perspective. We're considered to be quite progressive. I think we're very close to that contract being executed. We're really pleased with the partnership type arrangement that we have with our friends at TPG and Vodafone as well. We are looking to be able to deploy our software in the new financial year. We'll also be deploying an update to our own app, as I've said already, with content filtering and the family safety aspect early in the new financial year as well. So, the first half of the new financial year is all you know boding very well in terms of can continue to complete the transformations of being software-led and hardware enabled. I think it's new. I think that our ability to be able to demonstrate value to Vodafone, so not just from a software experience for Vodafone customers. That's one aspect of it, we want to deliver a great experience for Vodafone customers. So, they're going to be able to download it for free. Part of the arrangement with Vodafone is that they will be able to cover the cost of that on a monthly basis. So that's great as well. And then I think our ability to be able to show the value to Vodafone customers through the quality of the experience of the software is something that we're really, really focused on. That's going to be really good out of the gate. But equally, our ability to show Vodafone value in terms of how we can drive deeper engagement for them with their customers and other members of their customers' family, because that's an important part of our value proposition, is not only having a one-to-one relationship with a Vodafone customer, but how can we also attract other members of that family dynamic into the app as well for the first time? So, we extend Vodafone's reach beyond just their existing customer base. And I think that's the value that we want to bring not only to Vodafone here in Australia, but also to other telcos that we're talking to in other markets around the world as well. Take them beyond their existing one-to-one relationship with their customer into a family dynamic and then the ability to demonstrate how we can cross-sell and upsell other products and services to that group as well, kind of going forward. And that's really the opportunity for us as a business.

Andrew Musgrave

Looking now beyond TPG, you flagged a qualified pipeline of telco partnerships across APAC, Europe, and North America at various stages of engagement. So, can you give investors a sense of the scale of that pipeline and what is the typical progression from this point?

Simon Crowther

Yeah, we've got active conversations in Europe. You know, we've got a number of conversations underway, particularly in the UK market. I'm you know quietly confident that we're going to have some good news for our investors and listeners in the next couple of months. It's all on track. I mean, bear in mind the fact we haven't actually launched the product yet, but we're still getting a lot of interest. And so, I think the next three to six months is pivotal for the future of the organization. And we're manoeuvring ourselves into a really interesting situation and position as a small business with big aspirations. I think we're putting all those building blocks in place. So, the first thing is to fully execute the contract with TPG and Vodafone. That's coming, and I'm very confident that's gone happen sooner rather than later. I wouldn't like to put a specific date on it, but it's imminent, which is good. I think the other thing as well is that we've been invited to attend one of the leading MVNO conferences in Europe at the beginning of June, MVNO's World. And we've also been invited to speak at that event as well. So, we're hosting a session. And that session is on what we call the family graph and how we're building a platform that allows telcos around the world to be able to engage in a much more meaningful and deeper way with not only their customers, but importantly those customers' families and related parties as well. So, we're now being invited to global conferences to talk about our platform, our software, and our ability to help telcos build their business without one kid's watching site. So, it's significant transformation from where we were to where we are and the kinds of organizations that we're talking to and how we're sharing it as an organization as well, kind of going forward. So, I encourage your listeners and our shareholders to kind of look at the MVNO conference happening in Amsterdam, beginning of June. And we're going to be one of the speakers at that conference. It's pretty exciting times for the organization.

Andrew Musgrave

All right. Lastly, Simon, you've reaffirmed calendar year 26 ARR guidance of $20 to $25 million. So, what message would you like to leave with investors about the progress of the company?

Simon Crowther

That we are incredibly focused on delivering results. You know, it's going to be about deal flow, it's going to be about results. You know, we all recognize that. we live in the public domain. We're judged on the progress that we make. I'm extremely confident that the next couple of quarters are going to be positive for the company for our shareholders. it's all starting to come together. I'm very confident of that. And I think my number one priority at the moment is closing off the deal that we've indicated with our friends at TPG as quickly as we can. And, then looking forward to updating the market in due course for other deals as they become apparent. But, yeah, we are excited about the future, and I think we're in a good position.

Andrew Musgrave

Okay, Simon. Well, it's been great to chat again. So, thanks for your time, and we look forward to further updates from Spacetalk in the upcoming months.

Simon Crowther

Thank you so much. Thanks. Thanks very much for your time.

Andrew Musgrave

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