Spacetalk posts improvement in free cash flow
Cost reductions have helped Spacetalk achieve a positive quarter cash flow for the first time since 3Q FY2021.
Australian child safety technology company Spacetalk (ASX: SPA) has posted a $3.3 million improvement in free cash flow for the second quarter of the 2023 financial year compared to the first quarter of FY2021.
It is the first time the company has had a positive quarterly cash flow since the third quarter of FY2021, with a $400,000 increase excluding the proceeds from a recent rights issue.
Spacetalk acting chief executive officer Saurabh Jain said it has been a “fantastic transformation” on the first quarter of 2023 when the company recorded a cash outflow of $2.9 million.
The cash flow improvement follows the cancellation of a lower profitable product line which the company plans to replace with a more viable alternative later this year.
The product line historically accounted for 28% of revenue and 40% of annual recurring revenues (ARR).
Cost reduction program
Spacetalk completed a significant cost reduction program during the period which realised $2 million in annualised savings.
Mr Jain said the reductions will “ensure we have the right cost base for our business as we grow”, with benefits expected to flow over to the next quarter.
Other contributors to the cash flow improvement included the implementation of various changes to Spacetalk’s working capital management such as the shortening of vendor terms, a focus on direct consumer e-commerce sites which demand immediate customer payment, and the introduction of emerging mobile network service JumpySIM which allows for deferred revenues as users pay annually in advance.
Spacetalk reported a total ARR of $7.4 million for the quarter.
Loan restructure
During the quarter, Spacetalk signed a binding term sheet with PURE Asset Management to restructure a $5 million loan facility, including the option to reduce interest rates to 9.5% per annum and extend payment terms.
It is estimated the interest rate reduction will result in an annualised saving of approximately $300,000.
Rights issue
In November, Spacetalk launched a non-renounceable rights issue to raise up to $4 million (before costs) to fund inventory purchases, working capital and loan restructure expenses.
Last month, the company confirmed it had received valid applications under the first stage of the issue for 38.35 million new shares and 19.17 million options raising approximately $1.15 million (before costs).
Spacetalk directors committed to acquiring approximately $230,700 of the shortfall offer, representing 7.69 million new shares and 3.84 million new options.
In total, 46.04 million new shares and 23 million options will be issued to raise a total of $1.38 million (before costs).
The issue’s second stage will stay open until March.
At the end of the quarter, Spacetalk had $4.2 million cash in bank, representing a 55% increase on the previous quarter including the rights issue and 15% excluding the rights issue.