Announcement PDF Annual Report For the Year Ended 30 June 2023 Spacetalk Limited ABN 93 091 351 530 www.spacetalkwatch.com Contents 2023 Highlights 4 Chairman's Letter 6 CEO' Report 8 Corporate directory 10 Directors' report 11 Directors' declaration 34 Independent auditor's report to the members of Spacetalk Limited 35 Auditor's independence declaration 41 Consolidated statement of profit or loss and other comprehensive income 42 Consolidated statement of financial position 44 Consolidated statement of changes in equity 45 Consolidated statement of cash flows 46 Notes to the consolidated financial statements 47 Shareholder information 91 SPA 2023 Highlights +33% Growth in Annual Recurring Revenue vs prior corresponding period (pcp) $8,300,000 ARR 4 Improved revenue mix towards subscription-based revenue with +15ppts vs pcp Total subscriber growth underpinned by Spacetalk Mobile subscriber growth +17% vs pcp Improved group cost base 17% reduction vs pcp 55% Recurring revenue 69,978 Subscribers $12.6m Normalised operating expenses Revenue from continuing operations declined by 9%, reflecting the impact of product rationalisation $13.4m Revenue from continuing operations 2H23 normalised EBITDA of -$0.6m improved by $1.8m vs 1H23 -$0.6m 2H23 Normalised EBITDA 5 Reinventing Spacetalk Letter from the Chair of Spacetalk Limited Dear Shareholders On behalf of the board of directors, I am pleased to present the Company's Annual Report for the 2023 financial year ('FY23'). FY23 has been a truly transformational year for the business, a year in which we repositioned and reinvented Spacetalk to a sustainable business with a clear strategy and high-quality leadership under the helm of Simon Crowther our CEO/ MD to execute this strategy. In FY23, we completely restructured the operations and resolved the limitations of the previous capital strategy to support future profitable growth. All this was done in a very short period of time in particular in the 2nd half of FY23, which is truly remarkable and for which the board of directors would like to thank all employees and leaders in the business. Spacetalk is now an emerging wearables-enabled software subscription and Mobile Virtual Network Operator (MVNO) business centering around the theme of “Family Safety”. While investment was required to support the transformation, the results show already significant improvement in the operational and financial metrics of the business. The capital raise conducted during Q1/FY24 will further enable the delivery of our growth strategy. As we reflect on our journey, I want to also express my heartfelt gratitude to our shareholders for their unwavering support, dedication, and trust in Spacetalk’s vision and leadership. Your belief in our vision and commitment has been another cornerstone of our success, and I am honoured to address you today with sincere appreciation. The journey ahead holds promise and potential, and we are eager to embark on it together, hand in hand. Together, we will continue to build a future that is prosperous and sustainable. GEORG CHMIEL Non-Executive Chair 6 "I want to also express my heartfelt gratitude to our shareholders for their unwavering support, dedication, and trust." GEORG CHMIEL Non-Executive Chair 7 CEO’s Report I am pleased to be able to share with you my reflections on the 2023 financial year and the important work that was undertaken to restructure and refocus the business for sustainable future growth. Change is never easy; however, it is important that the foundational building blocks of Strategy, People, Processes and Product are established and aligned. Since joining Spacetalk in February 2023 I have worked hard with the management team and Board to ensure these building blocks are in place and everyone is aligned around a central common purpose. In May 2023 we updated investors with an important strategy document that laid out the future growth opportunity for Spacetalk. We emphasised that Spacetalk has a clear mission and will evolve beyond children’s wearables to become a whole of family-oriented business delivering peace of mind and freedom to all ages. This new direction for the company offers significant growth potential. To achieve our strategic objective of ‘Safety at Every Stage of Life’, urgent and rapid action was completed during Q3 to temporarily scale back our operations in the US and Europe. This gave us the opportunity to reduce costs and complexity and stabilise our operations in Australia. At the same time, we commenced the upskilling of the organisation, restructured the leadership team and hired domain experts in key roles. Attracting and retaining proven expertise is a key goal and I am pleased with the progress made with the new team working well together. This enabled us to commence rapid product development to bring to life our strategy and demonstrate our ability to execute against a larger addressable market. We have ambitious product delivery plans that support our goal to be a wearables enabled SaaS business with our MVNO Spacetalk Mobile (formerly Jumpy SIM) at the centre of our rapidly evolving ecosystem. We are experiencing pleasing progress throughout the business as we set ourselves up for growth and are on track to deliver all the product priorities we highlighted in our strategic plan. Our key objective is to extend the Spacetalk brand beyond children’s wearables and effectively engage with tweens, teens and seniors for the first time to address a much larger profitable market in Australia, and in due course explore entering new customer segments and overseas expansion opportunities - this is an exciting time for the company and shareholders as we focus on execution and profitability. Change is never easy; I am proud of the work that has been completed in such a short period of time. My thanks to my team who have worked tirelessly, the Spacetalk board who have shown vision by backing a new direction and my gratitude to our shareholders who have given me the opportunity to realise the full potential of the business. SIMON CROWTHER CEO and Managing Director 8 "This is an exciting time for the company and shareholders as we focus on execution and profitability." SIMON CROWTHER CEO and Managing Director 9 DIRECTORS’ REPORT Corporate Directory Registered Office Level 2 104 Frome Road Adelaide SA 5000 Australia Principal place of business Level 2 104 Frome Road Adelaide SA 5000 Australia Telephone: +61 (08) 8104 9555 Facsimile: +61 (08) 8431 2400 Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide SA 5000, Australia Telephone: 1300 556 161 Overseas Callers: -161 3 9415 4000 Facsimile: 1300 534 987 Auditor William Buck (SA) Stock Exchange listing Spacetalk Limited shares are listed on the Australian Securities Exchange (ASX code: SPA) Website www.spacetalkwatch.com 10 DIRECTORS’ REPORT Directors’ Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group or Company') consisting of Spacetalk Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2023. DIRECTORS The following persons were directors of Spacetalk Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: • Georg Chmiel - Chair (appointed 01/07/2022) • Michael Rann (appointed 01/07/2022) • Simon Crowther (appointed 06/02/2023) • Saurabh Jain • Martin Pretty • Brandon Gien • Mark Fortunatow (resigned 14/10/2022) PRINCIPAL ACTIVITIES During the financial year the principal continuing activities of the consolidated entity consisted of: • Development and sales of wearable watches • Development and provision of digital communication solutions such as safety and security platforms for families and schools’ communication platforms • Provision of mobile virtual network operator (MVNO) solutions The company discontinued the following activities during the year: • UK, Europe and USA operations have been wound down • USA MVNO segment is in rundown and is disclosed as part of continuing operations DIVIDENDS There were no dividends paid, recommended or declared during the current or previous financial year. 11 DIRECTORS’ REPORT Information on Directors GEORG CHMIEL Independent Non-Executive Chair MBA (Insead) and Diploma Computer Science (Technical University of Munich) Georg is a business leader, company director and senior advisor with 3 decades of experience in rapidly growing companies and disruptive technologies who brings strong capital market and technology business expertise with extensive global exposure in Asia, Australia, New Zealand, and Europe. Georg is currently Non -Executive Chair and Co-Founder of Juwai-IQI, Asia’s leading prop-tech group. He is also a Non-Executive Director of Centrepoint Alliance (ASX: CAF), BUTN (ASX: BTN) and Kinatico (ASX: KYP). Special responsibilities: Non-Executive Director of Proptech (ASX: PTG) and Executive Chair of iCar Asia (ASX: ICQ) Member of the Audit and Risk Committee Interests in shares: 3,634,848 shares Interests in options: Interests in rights: 1,666,666 options Nil performance rights Former directorships (last 3 years): MIKE RANN Independent Non-Executive Director Master's degree in Politics (University of Auckland) Mike was Premier of South Australia for almost ten years from 2002 to 2011. While Premier, he also served as Minister for Economic Development, the Arts, Sustainability and Climate Change and Social Inclusion. In late 2012 Mike was appointed as Australian High Commissioner to the United Kingdom and was a Governor of the Commonwealth Secretariat. In 2014 he was appointed as Australia’s Ambassador to Italy, San Marino, Albania and Libya, and Permanent Representative to the UN’s World Food Programme and to the Food and Agricultural Organisation. Mike was Chair of the Power of Nutrition (UK) between 2017 and 2022 and was also an Independent Director of Health House International (Australia) until 2023. Other current directorships: Mike is currently the UK and Global Chair of the Climate Group. He is Chair of the South Australia Film Corporation, CEO of Rann Strategy Group and Visiting Professor at King’s College London. Former directorships (last 3 years): Special responsibilities: None None Interests in shares: 393,018 shares Interests in options: 175,000 options Interests in rights: Nil performance rights SIMON CROWTHER CEO and Managing Director BA (Hons) Business Studies & Media from Leeds University (UK) and Master of Business & Enterprise from the University of Melbourne. Simon Crowther is a serial entrepreneur and CEO with over 20 years of commercial success rooted in the technology sector. Simon had his first profitable exit in 2000 which paved the way for increased leadership roles and exits in subsequent years. He is comfortable at transitioning businesses at different operating stages and leading teams from startup, scale up and turnaround across international markets. Simon was CEO with AirMap, Managing Director with Yamaha Motor Ventures & Laboratory Silicon Valley and CEO of Nearmap (ASX: NEA) which he led as a public company and built into a leading geospatial and AI data business with a $1billion plus market cap. 12 Other current directorships: None Former directorships (last 3 years): None Interests in shares: Nil shares Interests in options: Nil options Interests in rights: Nil performance rights DIRECTORS’ REPORT SAURABH JAIN Independent Non-Executive Director B.E Software Eng (UNSW) Executive Master of Business Administration (Australian Graduate School of Management) Master of Business Technology (Australian Graduate School of Management) GAICD (Australian Institute of Company Directors). Saurabh has held senior executive roles at Ventia, Cushman Wakefield, and was the CEO for Urbanise a listed SAAS company. He brings over 26 years of experience in software development, commercialisation and management with experience in APAC, Middle East, North America, and South Africa. His passion is to focus on building amazing technology and then ensure it generates revenue. He started his career with his own startup that he later sold to Telstra. Other current directorships: None Former directorships (last 3 years): Special responsibilities: None Chair of the Remuneration and Nomination Committee and was Acting CEO for five months ending February 2023. Interests in shares: 1,385,455 shares Interests in options: 420,000 options Interests in rights: Nil performance rights MARTIN PRETTY Independent Non-Executive Director Bachelor of Arts (Honours) from The University of Melbourne Graduate Diploma of Applied Finance from Finsia. CFA charter holder Graduate of the Australian Institute of Company Directors. Martin brings over 21 years of experience in the investment and financial services industry and has had deep involvement over that time in investing in and supporting growing Australian technology businesses. He was previously an investment manager with Thorney Investment Group and held management roles at ASXlisted companies Hub24, Bell Financial Group and IWL Limited. Martin also previously worked as a finance journalist with The Australian Financial Review. Other current directorships: Non-executive chairman of ASX-listed home security technology company Scout Security (ASX: SCT), and a non-executive director of ASX-listed financial services group Centrepoint alliance (ASX: CAF), Former directorships (last 3 years): None Special responsibilities: Interests in shares: Chair Audit and Risk Committee Member Remuneration and Nomination Committee 2,703,159 shares Interests in options: 936,363 options Interests in rights: 375,000 performance rights 13 DIRECTORS’ REPORT DR BRANDON GIEN Independent Non-Executive Director Bachelor’s Degree in Industrial Design, Mechanical Engineering (University of Newcastle) Ph.D. in Environmental Design from the University of Canberra’s School of Design and Architecture. Brandon is the CEO of Good Design Australia, Chair of the Australian Good Design Awards, and Deputy Chair of the Australian Design Council. He has spent the past 25 years passionately advocating for the value of good design to improve our social, economic, cultural and environmental quality of life. He is a qualified Industrial Designer and currently an Adjunct Professor of Industrial Design at both the University of Canberra and the University of New South Wales. He became a Senator of the World Design Organization (WDO), the global body for Industrial Design, after serving as President (2013-2015), the first Australian to hold this position. Prior to establishing Good Design Australia, Brandon was the Executive Director of Design Strategy at Standards Australia, recognised by the Australian Government as the nation’s peak standards body. He was made an Honorary Design Ambassador to Japan, an international design advocacy role organised by the Japan Institute of Design Promotion (JDP) was recognised as a Fellow of the Design Institute of Australia. Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: None Member Audit and Risk Management Committee Member Remuneration and Nomination Committee 2,116,935 shares Interests in options: 833,333 options Interests in rights: 375,000 performance rights MARK FORTUNATOW Managing Director and Chief Executive Officer (from 1 July 2022 terminated as CEO on 7 October 2022 and resigned as Director on 14 October 2022). Previously Founder and Executive Chairman to 30 June 2022 More than 24 years of senior executive management experience in marketing, engineering, information systems, finance and customer support. Mr Fortunatow co-founded Spacetalk and led the early stage development of the Spacetalk business. Other current directorships: None Former directorships (last 3 years): None Interests in shares: 18,862,800 shares Interests in options: Nil options Interests in rights: Nil performance rights 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. COMPANY SECRETARY Ms Kim Clark is the Head of Corporate Services for Boardroom Pty Ltd’s Queensland office and currently acts as Company Secretary for various ASX listed and unlisted companies in Australia. Ms Clark is an experienced business professional with 22 years’ experience in banking and finance and six years as inhouse Company Secretary of an ASX 300 company prior to joining Boardroom in April 2013. Kim holds a Certificate III in Financial Services, Graduate Certificate in Commerce, and Certificate of Banking. 14 DIRECTORS’ REPORT MEETINGS OF DIRECTORS The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Georg Chmiel (appointed 01/07/2022) 17 17 - - 3 4 Michael Rann (appointed 01/07/2022) 17 17 - - - - Simon Crowther (appointed 06/02/2023) 5 5 - - - - Saurabh Jain 15 17 2 2 - - Martin Pretty 17 17 2 2 4 4 Brandon Gien 15 17 2 2 3 4 Mark Fortunatow (resigned 14/10/2022) 7 8 - - - - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 15 DIRECTORS’ REPORT Operational and Financial Review The loss for the consolidated entity after providing for income tax amounted to $14,684,760 (30 June 2022: $8,180,110). Results and key performance indicators of the current and prior year are set out below on a normalised basis, adjusting Statutory NPAT for material infrequent items including the impairment of assets, restructuring costs, including redundancy costs and other material one off adjustments. The FY23 results review is performed based on continuing operations following the wind down of overseas operations during the year. Results from discontinued operations are outlined in note 9 to the financial statements. 1. GROUP PERFORMANCE For the year ended 30 June 2023 the Group reported annual recurring revenue (ARR) of $8.3m, 33% up compared with the prior year. The increase in ARR is consistent with the strategic shift towards a subscription-based business model. The Group also recorded strong 2H23 performance with normalised EBITDA of -$0.6m (1H23: -$2.4m), underpinned by the restructure that was completed in Q4/FY23. This provides a solid foundation for future profitability and positive cash generation. The overall 9% decline in revenue from continuing operations is due to device revenue decline. Despite phasing out the Kids watch in Q1/ FY23, the Company managed to minimise the revenue reduction impact during FY23 by introducing the MNVO subscriptions revenue and improved agreements with retail partners and controlled discounting that resulted in improved margins. These improvements were offset by the impact of strategic discounting and promotional activity to sell down large retailer Adventurer 1 inventory as the Company sought to launch new products in Q4 of FY23 and Q2 of FY24. FY23 was a transformational year for the Company, where the focus was restructuring and rebuilding which impacted the profit and loss with a net $4.1m one off non-recurring costs as described below. KEY PERFORMANCE METRICS Year ended 30 June 2023 Year ended 30 June 2022 Change on previous period Change on previous Period $m $m $m % Revenue from continuing operations 13.4 14.8 -1.4 -9% Gross profit from continuing operations 6.7 8.7 -2.0 -23% Gross profit margin 50% 59% -9% -9ppt Operating expenses before one off costs 12.6 15.3 -2.7 -17% Normalised EBITDA from continuing operations -3.0 -1.5 -1.6 107% Annual recurring revenue (ARR) 8.3 6.3 2.1 33% Normalised cash outflow from operations activities -1.7 -5.6 3.8 -69% Subscribers (#) 69,978 59,652 10,326 17% Cash balance 3.0 5.6 -2.6 -46% REVENUE Revenue from continuing operations declined by 9% to $13.4m primarily driven by a 33% ($3.0m) decline in device revenue partially offset by a $1.8m upside in Mobile Virtual Network Operator (MVNO) and Application revenue. During FY23, the MVNO alone generated $1.4m in revenue (2022: NIL). This trend is consistent with the strategic shift towards recurring revenue, which rose to 54% of total revenue during the year (FY22: 39%). MVNO subscriber growth has been robust and consistent since November 2022’s launch, totalling 14,720 subscribers added at the end of the year. As Spacetalk continues to transition to the higher Average Revenue Per User (ARPU) MVNO product, Application subscriber numbers declined 7% to 55,258. App revenue however increased by 13% to $3.8m due to higher average paying users during the year. Schools’ revenue decline of $0.3m (12%) was due to a decline in SMS volume vs prior corresponding period (“pcp”). Detailed analysis is included in the segment performance section on pages 20 - 22 16 DIRECTORS’ REPORT ANNUAL RECURRING REVENUE (ARR) App & MVNO Schools 9.0 8.0 7.0 6.0 2.5 2.5 2.2 2.3 Millions ($) 5.0 2.3 2.5 2.5 4.0 2.7 2.6 2.4 2.4 2.4 1.7 2.3 2.7 2.8 2.9 3.5 3.8 3.8 4.0 5.0 5.6 6.0 Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY24 3.0 2.0 1.0 0 • ARR increased by 33% compared to PCP and 7% on Q3, driven by strong MVNO revenue growth • MVNO revenue represents 31% of ARR • The increase in ARR reflects the strategic shift in focus to a higher yielding subscription model. REVENUE MIX Device Schools 1Q22 2Q22 App MVNO 100% 80% 60% 40% 20% 0 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 • Improved revenue mix with MVNO now 10% of revenue (FY22: NIL) • Recurring revenue comprised 54% of revenue (FY22:39%) and was 60% in (Q4FY22:55%) 17 DIRECTORS’ REPORT GROSS PROFIT The 23% decline in gross profit to $6.7m (excluding other income) is reflective of the decline in device revenue during the year, partially offset by the new MVNO revenue. GP margin declined by 9ppts to 50% primarily due to a decline in device margins because of discounting and promotional activities undertaken during the year to sell off excess Adventurer 1 inventory. The Company is focused on future margin improvement through controlled discounting and promotions, resetting retailer margins, and managing retailer inventory levels. OPERATING EXPENSES Normalised Group operating expenses (including discontinued operations) declined by 17% to $12.6m due to: • $2.7m (33%) reduction in employment expenses to $5.5m. This was due to $0.9m savings in overseas operations and a $0.6m reduction in share-based payments expense. • $0.4m (24%) decline in advertising and marketing expenses due to ~$0.3m spent on retailer support in overseas operations in prior year • an increase in administration expenses of $0.3m partially offset the above decreases. Savings generated by winding down overseas operations present the Company with an opportunity to redeploy costs to value accretive strategic initiatives in the ANZ region. The ANZ cost base has been resized and a significant capability uplift has been achieved through engaging specialists in key roles to aid strategy execution. RECONCILIATION OF NORMALISED EBITDA TO NET PROFIT FROM CONTINUING OPERATIONS. Year ended Year ended 30 June 2023 30 June 2022 Change on previous period Change on previous period $m $m $m % Normalised EBITDA from continuing operations (3.0) (1.5) (1.6) 107% Redundancy costs (0.4) - (0.4) - Restructuring costs (0.6) - (0.6) - Warranty provision reversal 0.4 - 0.4 - Debt restructuring costs (3.4) - (3.4) - 1.7 0.5 1.2 215% EBITDA (5.3) (0.9) (4.4) 471% Depreciation and amortisation (1.8) (3.7) 1.9 (52%) Impairment expenses (3.1) - (3.1) EBIT (10.2) (4.6) (5.6) 121% Interest Expense (0.6) (1.1) 0.5 (44%) Tax expense (0.3) (0.6) 0.4 (60%) Net Loss after income tax expense from continuing operations (11.1) (6.3) (4.8) 75% Fair value gains on derivatives 2H23 normalised EBITDA was -$0.6m (1H23: - $2.4m), underpinned by the business restructure completed during Q4. This sets a solid foundation for future profitability and cash generation, with the cost base resized to drive strategy and revenue growth. NOTES • Redundancy and restructuring costs relate to one off business transformation costs incurred in FY23. • Warranty provision reversal is a large one off non-recurring reversal of warranty provisions in FY23. • Debt restructuring costs are non-cash and relate to the accelerated write off of capitalised transaction costs, recognition of expenses due to issue of warrants to Pure Asset Management (Pure) as part of debt restructuring. • Fair value gains on derivatives are with respect to the fair valuation of the derivative financial liability related to warrants issued to Pure Asset Management. • Depreciation and amortisation relate predominantly to amortisation of capitalised development costs. • Impairment expense is primarily due to the write down of capitalised development costs ($2.3m) and Life watch inventory ($0.8m). 18 DIRECTORS’ REPORT CASHFLOW Year ended Year ended 30 June 2023 30 June 2022 Change on previous period Change on previous period $m $m $m % Normalised cash outflows from operating activities (1.7) (5.6) 3.8 (69%) Restructuring costs (1.7) - (1.7) - - - - - Net cash outflow from operating activities (3.4) (5.6) 2.1 (38%) Cash outflow from investing activities (1.7) (3.3) 1.7 (50%) Cash flows from financing activities 2.5 10.6 (8.1) (76%) - - - - Changes in cash and cash equivalents (2.6) 1.7 (4.3) (258%) Changes in fx rates 0.1 (0.3) 0.4 (128%) Cash balance at the beginning of the year 5.6 4.2 1.4 33% - - - - 3.0 5.6 (2.6) (46%) Closing balance at the end of the year • Improvement in operating cash flows driven by: — 17% ($2.7m) lower operating expenses, partially offset by one off restructuring costs of $1.7m and lower revenue. — $2.7m inflow from reduction in net working capital vs $4.2m outflow due to working capital increase in prior year. • Lower capex spend in FY23 due to optimisation of use of external resources • Lower capital raised in FY23 ($2.7m) vs $11.5m equity and debt capital raised in FY22. FUNDING AND CAPITAL Debt facilities amounting to $5m from Pure Asset Management (Pure) were fully drawn by 30 June 2023. The tenure of the facilities is: • Loan 2 facility of $2m which is due on 1 July 2024: • Loan 1 facility which is due on 20 March 2025. Post year end, an agreement was signed with Pure to restructure the debt facilities. The key changes include: • Aligning the Repayment Date for Loan 1 and Loan 2 to 20 March 2025 from 1 July 2024. • Providing short-term covenant flexibility to facilitate the rollout of Spacetalk’s new Budget Watch in the coming quarter. • Reduction in cash covenants from $1.25m to $1.0m from 1 January 2024. • Agreement on the operating cash flow covenant effective Q2 FY24. As part of this renegotiation, Spacetalk issued to Pure a warrant over 20 million Spacetalk shares, exercisable at any time prior to 31 December 2026. The warrant exercise price will be $0.05 per share with provision for a price adjustment under certain circumstances including but not limited to a change of control or future equity issuances exceeding 15% of shares on issue. The warrant is subject to shareholder approval. 19 DIRECTORS’ REPORT 2. SEGMENT PERFORMANCE The Directors consider the business from a customer perspective, supported by four core products that have been identified as reportable segments: • Device sales • Schools’ subscriptions • App subscriptions • MVNO subscriptions Spacetalk’s profit performance from continuing operations for its four operating segments is summarised in the table below. SUMMARY SEGMENT RESULT A$m FY23 FY22 Change Change % Device 6.1 9.0 (3.0) -33% Schools 2.1 2.4 (0.3) -12% App subscriptions 3.8 3.4 0.4 13% MVNO 1.4 - 1.4 na Revenue 13.4 14.8 (1.5) -10% Device 5.0 5.2 (0.2) -4% Schools 0.1 0.1 - -29% Apps 0.9 0.8 0.1 7% MVNO 0.6 - 0.6 na Cost of Sales 6.6 6.2 0.5 7% Device 1.1 3.8 (2.8) -72% Schools 2.0 2.3 (0.3) -11% Apps 2.9 2.6 0.4 14% MVNO 0.7 - 0.7 na Gross Profit 6.7 8.7 (1.9) -22% 20 DIRECTORS’ REPORT SEGMENT ANALYSIS Device Revenue Device revenue declined by 33% to $6.1m primarily driven by: • A 21% decrease in sales volume from 51,036 units in FY22 to 40,572 units in FY23. • FY22 high sales volume resulted in significant stock in channel that impacted FY23 retailer demand. • Change in sales mix also affected revenue, with the graph below showing sales mix in FY23 compared with FY22. DEVICE SALES MIX Kids Watch Adventurer 1 Adventurer 2 LIFE 60,000 50,000 40,000 32,349 2,456 30,000 20,000 10,000 18,332 35,240 2,684 0 FY22 FY23 — Kids watch, a lower priced product, was 36% of sales volume in FY22 (FY23: 7%) and 28% of sales value (FY23: 5%). — Adventurer 1 volume was 87% of total in FY23 vs 63% in FY22, albeit at 24% lower average price in FY23 vs FY22. — Adventurer 2, which was launched in May 23, was 6% of sales total in FY23. • Th