Impressive March quarter drives MGM 20% higher
Shares in information and technology group MGM Wireless Limited (ASX: MWR) surged more than 20% on Monday morning after management provided a trading update for the March quarter.
Key takeaways were a sharp uptick in quarter-on-quarter and year-on-year revenues, as well as a more than doubling in the company’s income from app subscriptions for AllMyTribe.
School communication revenue increased sharply to $900,000.
Importantly, given the volatile financial markets the company had minimal debt of $1.7 million and cash of $6.1 million as at March 31, 2020.
On this note, it is also important to consider the income predictability provided by the increasing levels of recurring income.
Crunching the numbers
Revenues increased 37% compared with the previous corresponding period to $1.9 million.
This was despite a 15% contraction in income from the wearables division.
Subscription revenue of $380,000 from the AllMyTribe app represented an increase of 153% on the previous corresponding period.
As bricks and mortar retailers reduced inventory levels during the quarter, sales of the company’s SPACETALK devices fell 40% compared with the previous corresponding period, generating income of $620,000.
Interestingly, while revenues from the sale of devices was down, the actual number of unit sales to consumers through all sales channels increased by 28% compared with the previous corresponding period which is reflected in the growing subscription revenues that have climbed 19% since December 2019.
On this note, management commented that sales to consumer numbers indicated that consumer demand in Australia and New Zealand during the initial stages of COVID-19 period was consistent with the previous corresponding period and grew in the UK.
Diversification of revenues
MGM has two recurring and separate revenue streams, approximately $1.5 million from the AllMyTribe app and approximately $2.5 million from the group’s School Communication business.
The strength of the company’s balance sheet along with its diversified customer base creates a level of protection in times of economic uncertainty.
AllMyTribe monthly app subscriptions are trending favourably as the company starts the June quarter, increasing to a new monthly record of $130,000 in March 2020, representing 19% subscription growth compared with the previous quarter.
Annualised recurring app revenue grew to $1.5 million, up from $700,000 at March 31, 2019.
Note the favourable comparative data outlined below.
The School Communication Division generated record quarter revenues of $900,000, up by 350% from $200,000 in the previous corresponding period.
The increase is attributable to a 310% surge in the use of messaging by schools due to COVID-19, an increase in the number of new schools purchasing MGM systems due to COVID-19, and the timing of invoicing for annual software licence contracts.
MGM’s established school contracts provide strong, high margin recurring revenue, and during the quarter, the company also entered into a new multi-year agreement with the Western Australian Department of Education.
Reduction in operating costs
Management has undertaken a range of initiatives to ensure that cash is preserved.
Cost-saving measures have included directors and senior management agreeing to reduce pay, staff taking leave without pay and a reduction in full time positions, which are expected in total to lower full time equivalent wage costs by over 20% for the period April to September 30, 2020.
MGM has also reduced discretionary costs and expects to benefit from government support initiatives which will assist in meeting tenancy and other costs.
While COVID-19 has impacted supply chains globally, MGM has continued to meet the demands of its customers without interruptions.
Reflecting on these recent results and explaining the group’s forward strategy chief executive Mark Fortunatow said, “Although overall sales have been sound and recurring revenue is growing, we have taken the necessary actions to reduce costs while the effects of the pandemic remain uncertain.
“We want to preserve our strong liquidity position which provides us with the capacity both to continue to fund our operating expenditure and to grow our business through the release of new and exciting products and services in the short to medium term.”
Challenges and windfalls of COVID 19
While COVID 19 is disrupting businesses in different ways and to varying extents, it has generated significant activity across some of MGM’s products.
School closures have resulted in an increased use of messaging, and from a personal perspective children have been using SPACETALK to keep in touch with their school friends.
Given the ability of parents to control SPACETALK contacts, they have been able to include family members such as grandparents which has helped them to stay in touch with the likes of grandchildren during this time of isolation.
On this note, Fortunatow said, “Our products are well suited for these challenging times.”
“We’re seeing increased usage from children using their SPACETALKs to send messages and make phone calls to their isolated and lonely grandparents, and from messages sent by kids, SPACETALK to SPACETALK, staying in touch with their school friends while they’re not attending school.
“All of this can be done safely, as parents control who can contact their child.
“Our school messaging business is experiencing unprecedented demand and message traffic, as schools, teachers, students and parents use our systems to stay connected.
“The next level for family connectivity is coming with our new SPACETALK smartphone watch for seniors.
‘’We’re creating whole new ways for grandparents to stay connected to their children and grandkids in a fun and engaging way, with additional features that are unique in terms of seniors’ safety, whether in aged care or living independently.’’
Will Boomers flock to new technology
The benefits of being able to communicate from remote locations could be embraced on a permanent basis post the pandemic.
Not only will consumers see the advantages of using the technology, but the experience will leave them comfortable with using this form of communication.
For the moment though, management is taking a measured approach regarding projections, considering it appropriate to withdraw fiscal 2020 guidance released in February.
From a broader perspective, Fortunatow said, "While the company has ample liquidity, it anticipates a softer trading environment for its wearables business due to shutdowns and lockdowns in its Australian, New Zealand and UK markets.
‘’The company’s balance sheet remains strong and MGM has significant headroom in its cash position and working capital.
‘’The company is on track to release its SPACETALK Seniors smartphone watch in June 2020, and SPACETALK 2 children’s watch in time for the Christmas 2020 season.
‘’Amongst many new and breakthrough features, both devices will be 4G with an IP67 waterproof rating and improved battery performance.’’
When the experts at Next Investors have a stock pick, it may pay to listen.
The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.
They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.
Click the link below to see what they are currently investing in.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.