MGM Wireless (ASX:MWR) Presentation, FNN Online Investor Event, June 2020

Company Presentations

MGM Wireless Limited (ASX:MWR) Chairman and CEO Mark Fortunatow talks about SPACETALK, the company's children’s smartphone safety device, launch of a Seniors' wearable device, impacts of COVID-19 and distribution partners.

So, just a bit about our company, first of all. We're a leading Australian technology company. We provide systems or develop systems to keep families connected. So, there are two parts of our business. There's the new wearables business, which is growing on the phenomenal success of SPACETALK, which is our kids smartphone on a watch for kids between the ages of five and 12. And then our established business has been going since 2001, the school communications business, which we have a very large footprint across Australia and New Zealand with Australian schools. Next slide, please.

The company's been going for quite some time. In fact, we were founded in 2001, we were listed in 2003. From a corporate perspective, we have a market cap of $20 million, and we have a relatively small number of shares on issue. That's despite a recent split. And that's really because for most of the last 17 or 18 years, we've been very profitable. And in fact, we've even been paying dividends along the way. So, we've done very, very few capital raisings along the way. And, in fact, we funded the entire development R&D, and first inventory builds of our SPACETALK wearables business out of the revenue from our schools communication business.

The company is on the cusp of a very significant new growth period on the back of a new device that we're releasing later this month for seniors and a new SPACETALK 2 kids device in time for Christmas. And we've recently supplemented our board with two new appointments, Dr Brandon Gien, who is the CEO and founder of Good Design Australia. The company's always had a very strong design focus, but we're putting even more effort in that regard. And Martin Pretty, who's a very seasoned investment and finance industry specialist, and that's really to help the company grow to the next stage.

Our wearables business is arguably one of the fastest-growing tech sectors in the world, and I'll go through the numbers in a moment. The company is growing at a phenomenal rate. Next slide, please.

So, our wearables watch, as I mentioned, SPACETALK, it's a smartphone on a watch. So, it makes and receives phone calls, sends text messages to a parent-controlled contact list. So, the parent has a parent app that configures the watch, and the kids can make and receive phone calls to the contacts that have been set up, text messages. But very importantly, it's what it doesn't have that's important. So, keeping in mind, this is a device for primary school-aged children. So, it doesn't have access to the open internet, no social media, no YouTube, so that kids can't get bullied on the watch and indeed they cannot be bullies. So, it's a very safe and responsible device. And we're seeing phenomenal success, not just because of the device's quality and how well it works and how well it's been received and how it solves a very real practical problem for families, but also because it represents a tremendous new revenue opportunity for mobile network operators and retailers.

Nobody at the moment, up until SPACETALK, has been selling a safe and responsible device for young children. So, what SPACETALK offers for telcos and for retailers, is the opportunity to grow their business in this fast-growing wearables space without disrupting or cutting into any of the existing revenue. So, while SPACETALK is bringing brand-new revenue growth, it's not displacing anything else in their business, to the companies. Although we only recently launched, we launched in October 2017, SPACETALK is already sold in over 770 stores across Australia, New Zealand and the UK, and we're sold by two mobile network operators. One in New Zealand called Spark, and in the UK through Sky Mobile. Now, Sky Mobile is Europe's largest media entertainment company. They have over 25 million customers, 10 million of which have kids in this five- to 12-year-old bracket. Next slide, please.

So, our business is not just about selling hardware. In fact, we have three revenue streams. Yes, we do make about half of our revenue from device sales, but supplementing that we have our app, the AllMyTribe app that parents use to control the device, and our school communications business. So, we have diversified yet complementary revenue streams, very high quality. Of course, the software as a service of the app is a recurring revenue, and that's already tracking at about an annualised rate at about $1.5 million. And it's growing very quickly. And of course we have an established school communications business. So, it's not just about selling hardware. Strategically the software and the app revenue is very important, and we'll be expanding that out later. Next slide, please.

So, just talking about the actual device itself. As I mentioned before, it's a smartphone in a watch with a GPS for kids the ages of 5-12 with an accompanying AllMyTribe parent-controlled app. So, it's a device the kids that either don't have a mobile phone at the moment because they're too young, or the parents have reluctantly given them a mobile phone to solve the problem of being able to stay in touch with them for just practical things, such as changing pick-up times from schools, allowing them to go out in the afternoon on their own, just solving day-to-day problems. It's interesting now that with the COVID-19 crisis, that a lot of kids have been using SPACETALK to communicate to their lonely grandparents, and it's been a really nice way to stay in touch with them.

We are the market leaders in this very fast-growing space outside of China. There are some suppliers in China that service only the domestic market, but outside of China, we are the market leader. We're seen as a very high-quality, reliable, fashionable device that kids and parents proudly wear and use. Pretty much every major consumer electronics retailer is now on board selling SPACETALK in a very significant way. And of course, JB Hi-Fi lead the way as the leaders in consumer electronics, with Officeworks, The Good Guys, Kogan, Qantas, along with several others. In just about all cases we are already a primary or major supplier to these companies, which is quite remarkable when you think about that the other suppliers for these retailers are companies like Fitbit, Garmin, Apple, Samsung. And to be already in that space and have them as peer suppliers is remarkable for a company that really didn't have a wearables business until about three years ago.

Revenues are growing at a phenomenal rate. For the first half of 2020, we exceeded all of the previous years' revenue. And our revenues from wearables was $6.3 million. And what we're really seeing is the emerging of a very large, new, global opportunity, which is children's wearables. Next slide, please.

So, a very important part of our business is the app. The app is really the control centre that not just enables parents to configure the device and to control how kids use it and when they use it, but also it forms the basis of a whole range of other services that will be incorporated into the AllMyTribe or SPACETALK ecosystem. I mentioned a moment ago that we'll be releasing later this month a device for seniors. That'll connect up into the AllMyTribe app. And we'll have a new device coming up for kids later this year, SPACETALK Kids 2. So, the app allows parents to see where the kids are on demand or where they've been. They can put the watch either automatically or manually to school mode.

Just before Christmas, there was some discussion about the use of kids using wearable devices and phones in school. SPACETALK is absolutely fine because, during school time, it's nothing more than a wristwatch, but at lunchtime and after school, it becomes a fully-functioning phone again. So, schools are fine with it, teachers are fine with it. In fact, schools like it because it enables parents to get a message to their kids during class without getting the school involved and using up valuable teacher and school admin time. Based on our extensive experience working with schools and working through all the nitty-gritty issues of privacy, how to deal with complex family structures, separated families, co-parenting, privacy, data security, we built all of those learnings into the SPACETALK platform. So, it is a very robust high-security platform, but it's not just secure, but actually it is very private. So, we comply with European GDPR regulations. So, all of our company policies adhere to maintaining and preserving and respecting kids and family privacy. Next slide, please.

We're actually in a trading halt at the moment because we're about to announce a major new distribution agreement, our largest in the company's history, imminently. So, we've got some exciting news about to be released imminently. But our business model is really selling through retailers and mobile network operators. And why is that? Because being a new device, especially a powerful device that parents put onto their kids, parents do a great deal of research into this. They discuss whether this is a good device, whether it's a good move or not to put a device like this, or allow their children to wear a device like this.

So, there is a very considerable consideration period, and it's very important that the device be introduced by trusted, respected retailers. So, that's why we put a lot of effort working through retailers to ensure their success. And that's why we have such a trusted network of blue chip retailers selling our device. And in addition to that, our mobile network operators, which offer the added benefit, that rather than always having to come up with the purchase price of the device, plus the ongoing fee for the mobile network connection and the app, they can buy it on a monthly fee. Next slide, please.

This is a really big market we're addressing. Wearables is one of the biggest-growing markets in the world. Globally, wearables is a $52 billion opportunity, smartwatch sales at 27 billion of that, and 30 per cent of all smartwatch sales are going now into this emerging kids category. So, it's a phenomenal market that we are the leader, and we will see that expanding significantly imminently. Next slide, please.

As mentioned before, retailers love it. It gives them access to a brand-new market that doesn't disrupt or cut into any of the existing revenue. Mobile network operators in particular, they put a lot of effort into acquiring new customers when they're teenagers. The great thing is with SPACETALK, is that the mobile network operators pick up the same customer at a much younger age, at lower customer acquisition costs, and then just upgrade them into a smartphone once they're teenagers and going to secondary school. So, they love it. Absolutely love it. Next slide, please.

In Australia, there are about two million kids between the ages of 5-12, representing a revenue potential to us of $1.6 billion. Next slide, please.

And in the UK, it's roughly three times that with a much larger revenue potential. And that's just two Western markets without taking into consideration the USA. Next slide, please.

Revenues are going very strongly. We're on the cusp of entering a new growth period right now, details to be announced very shortly when we come out of the trading halt. Next slide, please.

And finally underpinning our wearables businesses is the established school communication business, which is recording record revenues during this COVID-19 crisis. It's a stable business that's all recurring revenue, and it's represented by very, very high margins. It's generated a great deal of cash flow for us, and it's been able to underpin the expansion into wearables.

So, thank you very much. Watch this space. It's a very exciting time for the company, and it's great to be an Aussie company leading the way in this international global market opportunity.