Quantum growth - 'growth, growth, growth', page-63

In MGM's 6 month report for the period ending Dec 2018, the company reported a positive EBITDA despite only being in JB stores for two months up to that date and despite a heavy advertising campaign during the period. They also reported "Over 6,200 monthly App subscribers as at Dec 31, with a further 3,100 added in January 2019." So the March quarter saw very strong sales to customers with advertising expenditure probably lower and advertising costs definitely much lower after the March quarter with advertising then predominantly online only. The point here is that the Australian Spacetalk business appears to already be cash flow positive since first hitting the JB stores.
They reported a cash balance of $2.4 mill at Dec 31 2018. Monthly app revenue at Jan 2019 was $47,000 per month and growing very rapidly month on month. Growth from Dec to Jan was 50%.
If the Australian business has remained only mildly cash flow positive and assuming the company would have had a significant amount owing in from MGM's sales to JB, Spark and other stores for the Christmas stock of watches, and sales in the March quarter were strong again as reported, then the cash position should have improved significantly from the $2.4 mill, probably leaving at least the full $2.4 mill cash balance of Dec 31 available for the UK expansion.
On the 18th of January, MWR announced they were entering the UK market and despite the healthy cash position, "MGM Wireless will drawdown a further $500,000 of its existing $2m convertible note funding facility to finance the inventory build to support the UK launch".
They subsequently announced that they would draw a further $250,000 in May and just after receiving those funds, another $250,000 again in July and again "The funds will be used to manufacture additional inventory of the Company’s SPACETALK children’s phone+watch".
Ignoring any positive cash flow from the business, that should be a total of $3.4mill available for the purchase of inventory predominantly for the UK as the Australian business appears at the very least self funded. According to Cannacord's research from last month, the watch is landed in Australia at around $100 per watch. That's higher than my estimate but I'll use Cannacord's number. At $100 per watch, $3.4 mill buys 34,000 watches. That's well above the company's own total sales guidance for Australia and NZ combined for the 12 months to the end of Sep 2019 (29,300 watches).
It's also worth remembering here that Sky pays up front for both the watches and the app fees meaning strong cash flow for MGM even before the watches are purchased by UK customers. During the recent investor call, Mark said that they receive "the full wholesale payment on the device as Sky order it". "We're not reliant on any protracted payment terms or anything like that". He also said they re-negotiated payment terms with their manufacturers, further boosting cash availability and that the "cash position is very healthy" and "all inventory is currently all paid for".
However, despite having enough cash to have landed at least 34,000 watches for the UK, 5 days ago on the 12th of this month MGM has announced it will draw yet another $250,000 for, you guessed it - "The funds will be used to manufacture additional inventory of the Company’s SPACETALK children’s phone+watch required for future and existing distribution arrangements". Clearly the company doesn't appear to believe that something in the region of 34,000 watches is enough for the near term and will soon have fresh cash for another approx 2,500 watches.

Also during the investor call, when asked about sales expectations, Mark first compared the affordability of the watches in Australia at $349 up front plus app fee plus mobile fees and then compared that to what he considered a much more affordable total UK cost of 10 pound per month all inclusive over 36 months and then went on to answer the question on UK sales expectation - "at least triple of what we have done in Australia" and "I think it will actually be a whole lot more at such an attractive pricing level". He also stated that while margins were a little lower, there was no need for large advertising campaigns as QVC and Sky were going to be taking care of that at their own expense.
QVC "are a premium shopping channel" "they have four channels, two on free to air and two on cable" and "they will be producing at their own expense 30 and 45 shows exclusively dedicated to Spacetalk". He also said they have engaged one of their top presenters, who is a "Mum" who they fly around the world to present their premium products. They will be kicking off later this month on the bank holiday (26th Aug) and also on a Saturday. So in around a week, Sky will be emailing and posting catalogues on Spactealk to 10 million of their own subscribers who have children in the 5-12 year age group. While that's fresh in the minds of those subscribers, that will be followed with QVC's 30 and 45 minute dedicated Spacetalk promotions. Any of Sky's subscribers that hadn't bought through Sky's campaign but are considering a purchase that happen to see QVC's advertising may be persuaded by that advertising to go ahead with the purchase. That is very nice timing for these two separate advertising campaigns paid for by our partners.
As stated in a previous post of mine recently, a half of one percent of that targeted 10 million subscriber base with children purchasing one watch, works out to 50,000 watches - assuming they only buy for for one child. Makes me wonder if around 37,000 watches is going to be enough for the next month in the UK. Luckily MGM receives funds from Sky upfront so they can already order more watches again as soon as they receive orders from Sky.