Recurring portion of revenues grows to 87%
while gross margins remain strong at 93%.
/NOT FOR DISTRIBUTION TO UNITED
STATES NEWSWIRE SERVICES OR FOR RELEASE, PUBLICATION,
DISTRIBUTION OR DISSEMINATION DIRECTLY, OR INDIRECTLY, IN WHOLE OR
IN PART, IN OR INTO THE UNITED
STATES./
OTTAWA, Aug. 28, 2019 /CNW/ - Martello Technologies
Group Inc., ("Martello" or the "Company") (TSXV: MTLO), a leading
provider of technology solutions that deliver clarity and control
of complex IT environments deployed in thousands of locations
around the world, today released financial results for the first
quarter of the 2020 fiscal year, the three months ended
June 30, 2019.
Q1 F2020 Highlights
- Revenue in the first quarter of FY2020 was $3.3 million, an increase of 72% over the same
period in FY2019. Organic revenue from sales of unified
communications (UC) performance analytics software to the Mitel
channel grew 37% this quarter, compared to Q1 FY2019.
- Recurring revenue was 87% in the first quarter of fiscal 2020,
which was higher than Q1 FY2019, due to strong recurring revenue
from IT Operations analytics software and a higher proportion of
recurring revenue from the SD-WAN and link balancing product
line.
- Gross margin as a percentage of revenue was 92.7% for the first
quarter of fiscal 2020, compared to 93.5% in Q1 FY2019.
- The loss from operations in Q1 FY2020 was $963,080 compared to a loss of $762,638 in Q1 FY2019. Q1 FY2020 includes
non-cash amortization of $258,084
from the acquisitions of Elfiq and Savision, and acquisition
related costs of $30,878.
- Adjusted EBITDA, a non-IFRS financial measure which assesses
operating performance before the impact of costs associated with
acquisition activity and other non-cash costs, amounted to a loss
of $498,414 for the three months
ended June 30, 2019 compared to a
loss of $249,042 for the three months
ended June 30, 2018.
- The increased loss from operations quarter over quarter and
Adjusted EBITDA loss is due to investments in sales, sales
operations, marketing and support services, as well as new systems,
for the purpose of creating a strong platform for revenue growth.
In addition, professional and other fees have increased as a result
of public company reporting requirements and investor relations
activities.
"Martello is a solid investment grade technology company with
significant upside and a trusted technology platform from which to
grow", said John Proctor, President
and CEO of Martello. "Strong recurring revenues and exceptional
gross margins offer stability and predictability, while our global
client base and expanding portfolio of products brings diversity to
our business model. This stability and diversity can offer downside
protection in a volatile market".
Outlook
Martello's technology stack continues to expand through
acquisitions, and with thousands of customers around the world
using the Company's products, this creates a strong foundation from
which to drive business in new and existing sales channels. The
Company continues to pursue its strategy of organic growth through
development of integrated solutions which address the network
challenges relating to unified communications and enterprise
applications, and through the expansion of the Company's
distribution network for existing and integrated solutions.
At the same time the Company is aligning its inorganic growth,
through acquisition, with this integrated approach to ensure both
sales and R&D efficiencies. Growth will continue to be a blend
of the organic and inorganic with a systematic approach ensuring
the alignment of both.
The Company has enough funding for operations for the
foreseeable future. Martello's recurring revenue, strong gross
margins, global client base and expanding product portfolio offer
stability to the business. Cross selling current products down
acquired channels and selling acquired products down current
channels remains key to the Company's growth strategy.
In addition, the Company has established a strong platform for
future acquisitions with investments to expand the R&D and
product management teams, enhance sales and marketing activities,
and implement new systems to drive efficiencies. As a result,
future acquisitions will integrate more effectively, enhancing the
Company's product lines and driving additional revenue and
EBITDA.
Conference Call Details
Martello will host a conference call and audio webcast with
John Proctor, President & CEO
and Erin Crowe, CFO at 8:00 AM Eastern Time on August 28, 2019.
Canada/USA Toll Free: 1-800-319-4610
International Toll: +1-604-638-5340
Callers should dial in 5 – 10 min prior to the scheduled start
time and simply ask to join the Martello call.
An audio recording of the call will be available on August 28, 2019.
Investor Day
Martello will host an Investor Day in Toronto, Canada on Tuesday, September 24th. The event
will be hosted by Martello CEO John
Proctor and Co-Chairmen Sir Terry
Matthews and Bruce Linton.
Interested brokers and analysts can register to attend on
Martello's website.
Business Highlights
During the first quarter of fiscal 2020 Martello achieved the
following milestones:
- Martello moved up 20 spots on the widely respected Branham300
listing of Canada's top ICT
(Information and Communications Technology) companies, after
debuting on the list in 2018.
- The Company announced a partnership with GuestTek to deliver
reliable high speed internet access (HSIA) to some of the world's
most respected hotel brands.
- Martello showcased a proof of concept developed in
collaboration with BlackBerry QNX which demonstrated that
Martello's technology could maintain network connectivity for
mobile IoT applications such as autonomous vehicles.
- Martello extended its relationship with longstanding customer
Leiden University Medical Center (LUMC) in the Netherlands, to provide a solution
improving the performance of hybrid cloud-based services.
Subsequent Activities
Subsequent to June 30, 2019,
Martello achieved the following milestones:
- Responded to demand for IT Service Assurance Solutions for
Large Enterprises and MSPs by teaming with Paessler AG, to simplify
IT service assurance for complex IT environments.
- Announced that global IT service integrator Onepoint purchased
a three year subscription to Martello's software for a single
service-oriented view of their infrastructure, improving their
quality of service.
- Partnered with Suria Business Solutions, a provider of IP
Telephony and Unified Communications & Collaboration (UCC)
systems, applications, service and solutions to more than 500
customers in Malaysia and
Indonesia.
Financial Highlights
Martello reported revenues of $3.3
million in the first quarter of fiscal 2020, a 72% increase
over the same period of the 2019 fiscal year, due to organic growth
and the acquisition of Savision in November
2018. Gross margin remained strong at 92.7%.
|
|
|
|
|
Financial
Highlights
|
|
|
|
|
(in CAD
$000's)
|
|
June 30
2019
|
|
June 30
2018
|
|
|
Three months
ended
|
Sales
|
$
|
3,332
|
|
1,937
|
Cost of Goods
Sold
|
|
245
|
|
126
|
|
|
|
|
|
Gross
margin
|
|
3,088
|
|
1,811
|
Gross
Margin
|
%
|
92.7%
|
|
93.5%
|
|
|
|
|
|
Operating
Expenses
|
|
4,051
|
|
2,573
|
Loss from
operations
|
|
(963)
|
|
(763)
|
Other
income/(expense)
|
|
(140)
|
|
(439)
|
|
|
|
|
|
Loss before income
tax
|
|
(1,103)
|
|
(1,202)
|
Income tax
recovery
|
|
213
|
|
28
|
Net
Loss
|
|
(890)
|
|
(1,174)
|
|
|
|
|
|
Comprehensive
loss
|
$
|
(971)
|
|
(1,174)
|
|
|
|
|
|
EBITDA(1)
|
$
|
706
|
|
(1,060)
|
Adjusted
EBITDA(1)
|
$
|
498
|
|
(249)
|
|
|
|
|
|
(1) Non-IFRS measure.
See "Non-IFRS Financial Measures".
|
Sales and Gross Margin
|
Sales and Gross
Margin – Three months ended
|
(in CAD
$000's)
|
|
|
June 30,
2019
|
|
|
|
|
|
|
Total
|
Savision
|
Remaining
balance*
|
|
June 30,
2018
|
|
Variance
|
Sales
|
|
3,332
|
952
|
2,380
|
|
1,937
|
|
443
|
Cost of goods
sold
|
|
245
|
71
|
174
|
|
126
|
|
47
|
Gross
margin
|
$
|
3,088
|
881
|
2,207
|
|
1,811
|
|
396
|
|
%
|
92.7%
|
92.5%
|
92.7%
|
|
93.5%
|
|
-0.8%
|
|
* To facilitate
comparison with the three months ended June 30, 2018, the Remaining
balance represents the results of the Company's operations in Q1
FY20 without contributions from Savision (acquired in November
2018). The analysis compares the Remaining balance to the
comparable period in FY2019.
|
Sales represent:
(a) the sale of UC performance management solutions for
real-time communications;
(b) the sale of hardware and software link balancing and
bandwidth management solutions, and maintenance and support
services for these solutions; and
(c) the sale of perpetual and subscription software
licenses for visualization of IT systems management data, and
maintenance and support services for these solutions.
Martello offers subscription sales (software/hardware as a
service), product sales (network appliances) and software licence
sales. Martello's sales are both indirect, via distributors and
value-added resellers, and direct to enterprises. Martello's
UC performance analytics software is included in Mitel's premium
software assurance plans (Mitel Performance Analytics or 'MPA') and
Martello earns a monthly fee for each subscriber to the plan.
Recurring revenue includes fees earned on a monthly per-user
basis, fees earned monthly from device usage and revenue from
subscription to software licenses, all from performance analytics
for unified communications. In addition, recurring revenue
includes maintenance programs on hardware and software link
balancing and bandwidth management solutions; subscription sales,
maintenance and support on the licenses for visualization of IT
systems management data; and support for UC enterprise management
software.
Cost of goods sold represents the costs of hardware, delivery
and installation, sales commissions and web services.
Performance of Operating Segments
The Company operates in three operating segments: 1)
Unified communications performance analytics software; 2) SD-WAN
and link-balancing hardware and software; and 3) IT operations
analytics software. These segments engage in business
activities from which they earn revenues from subscription and
perpetual software licenses, hardware, maintenance and support, and
training and professional services.
Segmented revenue for the 3 months ended June 30, 2019 and June 30,
2018 is summarized as follows.
|
|
|
|
|
|
Unified
communications
performance a
nalytics
|
SDWAN
Technology
|
IT operations
analytics
|
Total
|
For the
three-month period ended June 30, 2019
|
$
|
$
|
$
|
$
|
Revenue at a point in
time
|
|
|
|
|
Hardware
|
4,740
|
234,122
|
-
|
238,862
|
Perpetual
licenses
|
7,721
|
20,061
|
75,883
|
103,665
|
Training and
professional services
|
22,910
|
22,255
|
74,420
|
119,585
|
Revenue recognized
over time
|
|
|
|
|
Subscription
licenses
|
1,763,357
|
7,507
|
436,488
|
2,207,352
|
Maintenance and
Support
|
18,377
|
279,190
|
365,122
|
662,689
|
Total
revenue
|
1,817,105
|
563,135
|
951,913
|
3,332,153
|
|
|
|
|
|
|
|
|
|
|
|
Unified
communications
performance
analytics
|
SDWAN
Technology
|
IT operations
analytics
|
Total
|
For the
three-month period ended June 30, 2018
|
$
|
$
|
$
|
$
|
Revenue at a point in
time
|
|
|
|
|
Hardware
|
11,864
|
109,356
|
-
|
121,220
|
Perpetual
licenses
|
23,437
|
-
|
-
|
23,437
|
Training and
professional services
|
-
|
44,495
|
-
|
44,495
|
Revenue recognized
over time
|
|
|
|
|
Subscription
licenses
|
1,283,911
|
271,368
|
-
|
1,555,279
|
Maintenance and
Support
|
-
|
192,723
|
-
|
192,723
|
Total
revenue
|
1,319,212
|
617,942
|
-
|
1,937,154
|
Revenue grew 23% between Q1 FY2019 and Q1 FY2020, excluding
Savision. This reflects organic growth of 37% from the Mitel
channel, due to an increase in recurring revenue from the number of
users for Mitel's premium software assurance program, a one-time
adjustment to revenue of $154,683,
and an increase in fees from Mitel resulting from the amendment to
the Company's agreement with Mitel.
SD-WAN and link balancing sales declined 9% in Q1 FY2020. In Q1
FY2019 SD-WAN revenue included services and training revenue of
$45,000 which was non-recurring, as
well as a small export grant which was completed in Q1
FY2019. No similar services and training or grant
revenue was earned in Q1 FY2020. These decreases were
partially offset by an increase in maintenance and support revenue
quarter over quarter. Martello is undertaking a planned
strategic shift to focus on the growing market demand for the
optimization of real-time services with SD-WAN technology, which
the Company expects will create a recurring revenue opportunity for
this line of business.
The gross margin at 92.7% is slightly below the same period in
FY2019 (93.5%), as a result of increases in web hosting costs due
to testing requirements in the quarter.
Customer Growth
Martello generates revenue from both new business and the
renewal of existing software and maintenance subscriptions. In the
first quarter of fiscal 2020, the Company's focus was on generating
recurring, subscription based deals and renewals. In the Savision
line of business Martello sold or renewed software subscriptions to
customers including Covia, Richweb and Onepoint. Other customers
that Martello earned business from in Q1 FY2020 included Indian
Prairie School District, United Nations, Innova IT and Mandarin
Oriental Hotels in Asia and
Northern Africa.
Martello continued to see global sales growth in the first
quarter of fiscal 2020, with 56% of revenues derived outside of
Canada. In Q1 FY2020 the Company
signed new partner Suria Business Solutions in Malaysia, and new customers in regions such as
Colombia, Czech Republic, Belgium, the United
Kingdom, the United States,
New Zealand, Norway, the
Netherlands, France,
Qatar and Peru.
|
|
|
|
June 30,
2019
|
June 30,
2018
|
|
$
|
$
|
Revenue for the
period ended
|
|
|
Canada
|
1,479,691
|
1,065,944
|
United
States
|
742,127
|
470,348
|
Europe
|
740,392
|
182,484
|
Asia
|
171,124
|
21,282
|
Latin
America
|
37,501
|
180,642
|
Australia
|
80,122
|
-
|
Other
|
81,196
|
16,454
|
Total
revenue
|
3,332,153
|
1,937,154
|
Expenses
|
Expenses – Three
months ended
|
(in CAD
$000's)
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Decrease/
(Increase)*
|
|
Total
|
Savision
|
Remaining
balance*
|
|
|
|
|
Research and
development
|
1,172
|
355
|
817
|
|
841
|
|
24
|
Sales and
marketing
|
1,320
|
594
|
727
|
|
498
|
|
(229)
|
General and
administrative
|
1,189
|
236
|
953
|
|
872
|
|
(81)
|
Depreciation
|
81
|
28
|
53
|
|
20
|
|
(33)
|
Amortization
|
258
|
-
|
258
|
|
105
|
|
(153)
|
Acquisition-related
costs
|
31
|
-
|
31
|
|
237
|
|
206
|
TOTAL
|
4,051
|
1,212
|
2,838
|
|
2,573
|
|
(265)
|
|
* To facilitate
comparison with fiscal year 2019, the Remaining balance represents
the results of the Company's operations in fiscal year 2020 without
contributions from Savision (acquired in November 2018)
operations. The analysis compares the Remaining balance to
the comparable period in FY2019.
|
For the three months ended June 30,
2019, operating expenses increased by $1,477,299. Excluding Savision, the
increase was $264,926. As
Savision was acquired on November 1,
2018 the following year over year analysis excludes
Savision.
Research and development ("R&D") expenses decreased
$23,787 quarter over quarter.
R&D expenses include salaries and other benefits and
compensation for the research and development team as well as any
sub-contract costs and development tools. The decrease in
R&D costs is due to IRAP funding in FY2020 which is greater
than the SRED credits in Q1 FY2019, offset partially by increased
headcount relating to investment in product management and
developers.
Sales and marketing costs increased $228,754 from Q1 FY2019 to Q1 FY2020.
This was due to the investment in marketing and sales resources to
develop capacity for future revenue growth.
General and administrative costs increased by $80,548 due to investments being made in creating
a foundation for future growth, primarily shared services headcount
additions and implementation of new software systems. In
addition, the increase is driven by investor relations activities,
and audit, tax, director and other professional fees associated
with being a public company.
Acquisition related costs in Q1 FY20 relate to M&A advisor
fees. Costs in Q1 FY19 related to the acquisition of Elfiq
and preliminary costs associated with the Savision
transaction.
EBITDA and Adjusted EBITDA Summary (Non-IFRS financial
measures)
The Company's "EBITDA" and "Adjusted EBITDA" are non-IFRS
financial measures used by management that do not have any
standardized meaning prescribed by IFRS and may not be comparable
to similar measures presented by other companies. EBITDA is
calculated as net loss before interest income, interest expense,
accretion of long-term debt, income tax recovery, depreciation and
amortization. Adjusted EBITDA is calculated as EBITDA
excluding share-based compensation expense, reverse acquisition
costs, acquisition-related costs and foreign exchange
gain/loss. Management believes Adjusted EBITDA is a useful
financial metric to assess its operating performance on an adjusted
basis as described above.
Adjusted EBITDA in the three months ended June 30, 2019 was a loss of $498,414, compared to a loss of $249,032 in the three months ended June 30, 2019. As further described in Martello's
Management Discussion and Analysis (MD&A) for Q1 FY2020 under
"Changes in accounting policy", the Company adopted IFRS 16, Leases
("IFRS 16") using the modified retrospective approach on
April 1, 2019 and, accordingly,
comparative figures were not restated. Depreciation expense on
right-of-use assets of $42,858 has
been classified as Depreciation for the three months ended
June 30, 2019, and included in the
Adjusted EBITDA reconciliation. For more information on
EBITDA and Adjusted EBITDA, consult the MD&A document for Q1
FY2020, available on sedar.com
|
|
|
|
|
EBITDA and
Adjusted EBITDA
|
|
June
30,
2019
|
|
June 30
2018
|
|
|
(Three months
ended)
|
|
|
|
|
|
Net income
(loss)
|
$
|
(890,253)
|
|
(1,173,661)
|
|
|
|
|
|
Interest
income
|
(2)
|
(10,826)
|
|
(1,440)
|
Interest
expense
|
(2)
|
52,295
|
|
2,519
|
Accretion of
long-term debt
|
(2)
|
16,219
|
|
15,183
|
Income tax
recovery
|
(2)
|
(212,540)
|
|
(28,153)
|
Depreciation
|
(2)
|
80,693
|
|
20,226
|
Amortization
|
(2)
|
258,084
|
|
105,440
|
EBITDA
|
|
(706,328)
|
|
(1,059,886)
|
|
|
|
|
|
Reverse acquisition
transaction cost
|
(2)
|
-
|
|
383,410
|
Foreign exchange
(gain) loss
|
(2)
|
82,025
|
|
46,773
|
Other
income
|
(2)
|
-
|
|
(7,269)
|
Share-based
compensation expenses
|
(1)
|
95,011
|
|
151,081
|
Acquisition-related
costs
|
(2)
|
30,878
|
|
236,859
|
Adjusted
EBITDA
|
|
(498,414)
|
|
(249,032)
|
|
|
|
|
|
(1) Share-based
compensation expense per the Statement of cash flows
|
(2) Per the
Statement of net loss and comprehensive net loss
|
Cashflow and Capital Resources Summary
At June 30, 2019, the Company had
$6.65M of cash and restricted cash on
hand, and $3.7M of net working
capital to fund operations and growth.
Cashflow
Summary
|
|
(in CAD
$000's)
|
|
|
Three months
ended
June 30
|
|
|
2019
|
|
2018
|
Operating
activities
|
|
|
|
Loss before income
tax
|
(1,103)
|
|
(1,202)
|
Items not affecting
cash
|
1,400
|
|
282
|
Total cash flows
provided by (used in) operations)
|
297
|
|
(920)
|
|
|
|
|
Investing
Activities
|
|
|
|
Additions to equipment
and leasehold improvements
|
(48)
|
|
(22)
|
Total cash flows
provided used in investing activities
|
(48)
|
|
(22)
|
|
|
|
|
Financing
activities
|
|
|
|
Proceeds from issuance
of common shares
|
-
|
|
7,540
|
Proceeds from exercise
of stock options
|
-
|
|
11
|
Proceeds from
long-term debt
|
12
|
|
-
|
Repayment of line of
credit
|
-
|
|
(120)
|
Repayment of lease
obligations
|
(50)
|
|
-
|
Repayment of long-term
debt
|
(243)
|
|
(102)
|
Total cash flows
provided by (used in) financing activities
|
(281)
|
|
7,329
|
|
|
|
|
Net change in cash
and restricted cash
|
(32)
|
|
6,387
|
Cash and restricted
cash, beginning of period
|
6,649
|
|
2,141
|
Effects of currency
translation on cash and cash equivalents
|
(8)
|
|
-
|
Cash and
restricted cash, end of period
|
6,610
|
|
8,529
|
The Company's objectives in managing its liquidity and capital
structure are to generate sufficient cash to fund the Company's
operating objectives, including organic growth and growth through
acquisitions.
To date, the Company has financed its operations through the
issuance of common shares, raising of long-term debt, as well as
the receipt of government loans, investment tax credits and revenue
generated from the sale of its products and services.
For the foreseeable future, the Company expects to continue
financing its operations through raising equity capital and
long-term debt to strengthen its financial position and to provide
sufficient cash reserves for growth and development of the
business. In addition, the Company is focused on
generating cashflow from operations while maintaining strong
investment in research and development to maintain current revenue
and drive increased growth.
In June 2018, the Company closed a
private placement of $7,585,311,
which is being used to fund general working capital, possible
future acquisitions and to support the reverse takeover
transaction.
In September 2018, the Company
entered into an agreement with NRC-IRAP to fund up to $2,000,000 of development costs over three years
for certain projects including the hiring of additional staff.
On November 1, 2018, in connection
with the Savision acquisition, the company closed a loan facility
with RBC and drew $3,000,000 on the
term loan. The loan also includes a $1,000,000 revolving facility which is undrawn as
of the date of Martello's Q1F2020 MD&A.
The Company believes that cashflow from operations, the receipt
of funds from the private placement, proceeds from the RBC Loan and
available cash and working capital will be sufficient to fund
organic growth over the next year.
Balance Sheet - Highlights
|
|
|
|
Balance Sheet -
Highlights
(in CAD $000's)
|
|
June 30
2019
|
March 31
2019
|
|
|
|
Cash and restricted
cash
|
$
|
6,610
|
6,649
|
Working
capital
|
|
3,717
|
4,930
|
|
|
|
|
Total
Assets
|
|
28,703
|
29,523
|
Total
Liabilities
|
|
11,266
|
11,209
|
Share capital and
contributed surplus(1)
|
|
29,996
|
29,901
|
Accumulated deficit
and cumulative translation adjustment
|
|
(12,558)
|
(11,587)
|
|
|
|
|
Shares issued and
outstanding
|
#
|
191,238
|
191,238
|
|
|
(1)
|
The Company had
191,237,568 shares issued and outstanding as at June 30, 2019
(191,237,568 as at March 31, 2019).
|
The financial statements, notes and Management Discussion and
Analysis ("MD&A") are available under the Company's profile on
SEDAR at www.sedar.com, and on Martello's website at
www.martellotech.com. The financial statements include the
wholly-owned subsidiaries of Martello. All amounts are reported in
Canadian dollars.
One institutional investment firm has initiated research
coverage of Martello. The Company does not endorse the research of
third party institutions.
About Martello Technologies Group
Martello Technologies Group Inc. (TSXV: MTLO) is a technology
company that provides clarity and control of complex IT
infrastructures. The company develops products and solutions that
monitor, manage and optimize the performance of real-time
applications on networks, while giving IT teams and service
providers control and visibility of their entire IT infrastructure.
Martello's products include SD-WAN technology, network performance
management software, and IT analytics software. Martello
Technologies Group is a public company headquartered in
Ottawa, Canada with offices in
Montreal, Amsterdam, Paris, Dallas
and New York. Learn more at
http://www.martellotech.com
This press release does not constitute an offer of the
securities of the Company for sale in the
United States. The securities of the Company have not been
registered under the United States Securities Act of 1933, (the
"1933 Act") as amended, and may not be offered or sold within
the United States absent
registration or an exemption from registration under the 1933
Act.
This press release shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of
the securities in any state in which such offer, solicitation or
sale would be unlawful.
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this news
release.
Cautionary Note Regarding Forward-Looking
Statements
The forward-looking statements contained in this news release
are made as of the date of this news release. Except as required by
law, the Company disclaims any intention and assume no obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by applicable securities law. Additionally, the Company
undertakes no obligation to comment on the expectations of, or
statements made, by third parties in respect of the matters
discussed above.
SOURCE Martello Technologies Group