Child safety technology company Spacetalk (ASX: SPA) has taken the prudent approach of axing 15% of their workforce in an effort to reach their operational break even target sooner, despite sales momentum of their wearable smartwatches for children continuing to grow. 

For the quarter ended 30 June 2022, Spacetalk reported $4.1 million in revenue which represented a 41% increase on the previous corresponding quarter but this wasn’t enough to save the jobs of Spacetalk employees, with the Company “regrettably” reducing its headcount via a spate of redundancies. Included in those was US-based Chief Operating Officer Jim Quinn who was with the Company less than 12 months following successful stints at Apple and FitBit. 

In that time, SpaceTalk secured a reseller agreement with electronics retailer Best Buy which operates more than 1,000 retail stores across North America and has become the major focus of the tech company’s growth ambitions. 

“It is very pleasing to note that our US business has already, from a standing start in late calendar 2021, generated meaningful 4QFY22 revenue. This demonstrates the magnitude of the opportunity in the North America region,” said Spacetalk CEO, Mark Fortunatow. 

“We launched our JumpySIM business in the US late in late June 2022 to enhance our customer experience, and to capture additional recurring revenue and value created from Spacetalk device sales.

“In the 4 weeks since its launch through BestBuy US, JumpySIM has acquired near 50 customers. While this may sound modest, it is just the start. Each JumpySIM subscription comes with a Spacetalk Adventurer sale, another delighted customer to promote our products, and a new recurring revenue stream.” 

Designed for children, the Spacetalk devices are wearable smart watches which allow phone, messaging and GPS functionality but do not have browser-based applications, preventing children from using social media or accessing the unfiltered internet. In addition to the software, parents are able to track the location of the watches from a separate app. 

Given the concerns around child safety, particularly while at school in light of recent events, the North American market is one where Spacetalk can access a lucrative addressable market with minimal market share. 

With those June quarter sales, it takes Spacetalk’s FY22 YTD revenue to $20.7m which is a 37% increase on FY21 where wearable device sales continues to be the core driver of revenue. Other sources include the ongoing subscriptions to operate a sim card in each Spacetalk device which the Company shares with telco providers in some cases, and their legacy division MGM Schools which enables schools to alert parents when their children do not arrive. 

While US distribution through Best Buy expected to deliver a large boost in sales for Spacetalk, the reseller agreement does not have any minimum order requirements and is subject to “in-fill” orders whereby inventory is purchased and held by BestBuy US and “re-filled” as required. 

The redundancy of Quinn as COO comes just 12 months after Spacetalk’s former sales director Ian Hume launched legal action in the Federal Court against Spacetalk for unlawful termination citing insufficient resources to achieve unrealistic sales expectations. In their response to the AFR article published, Spacetalk confirmed that “Hume was dismissed prior to completion of his six month Probationary Period and in accordance with the terms of his Employment Agreement. Notice of Termination was provided by SMS, however that was after the Company was unable to contact Mr. Hume by phone call and email.” 

In FY21, Spacetalk reported $15.1m in revenue with a $1.7m net loss after tax. The company is expected to report their full audited FY22 results next month where operational expense cuts are expected to inch the Company closer towards being break even. 

Last week, a group of Spacetalk shareholders lodged a formal 249D notice to the Company to remove Mark Fortunatow as a Director. A General Meeting of shareholders has been called for 1 September 2022 to vote on the resolution which Spacetalk is recommending shareholders vote against.