Martello Reports Fourth Quarter and Fiscal 2019 Financial Results with 78% of $10.4M Annual Revenues Recurring

News provided by

Martello Technologies Group

Jul 17, 2019, 06:30 ET

Annual revenues grow more than 103% year over year, while quarterly revenues of $3.4 million represent a 99% increase over the same period of 2018.

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OTTAWA, July 17, 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 fourth quarter and fiscal year ended March 31, 2019.

Q4 and FY2019 Highlights

  • Martello had an active year, completing its second acquisition and integrating the two acquired companies, closing a $7.5 million private placement, and going public on the TSXV. The Company has developed a core competency to target, acquire and integrate revenue extending assets, and continues to onboard these acquired businesses onto Martello's technology platform to accelerate revenue growth in the future.
  • The Company reported annual revenues of $10.4 million in F2019, representing an increase of 103% compared to the 2018 fiscal year.
  • Revenue in the fourth quarter of F2019 was $3.4 million, an increase of 99% over the same period in F2018.
  • Recurring revenue was 78% in the fourth quarter of fiscal 2019 and 78% for the year ending March 31, 2019.
  • Organic revenue from sales of Martello's UC performance analytics software to the Mitel channel grew 33% in F2019 compared to F2018.
  • The Company's revenue base continued to expand and diversify, with sales of unified communications (UC) performance analytics software contributing 46% of revenues in Q4 F2019, compared to 69% in Q4 F2018.
  • Gross margin as a percentage of revenue was 93% for fiscal 2019 and 92% for the three months ended March 31, 2019, compared to 94% in fiscal 2018 and 93.5% for the three months ended March 31, 2018.
  • The loss from operations in Q4 F2019 was $1.3 million compared to a loss of $613,395 in Q4 F2018. For the year ending March 31, 2019, the loss from operations was $4.3 million compared to $927,678 for the year ending March 31, 2018.
  • 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 $827,238 for the three months ended March 31, 2019 and $1.7 million for the twelve months ended March 31, 2019. This compares to losses of $205,650 and $22,120 respectively for the three and twelve months ended March 31, 2018.
  • Martello made significant investments in fiscal 2019, certain of which were non-recurring and non-cash, increasing the Company's operating expenses as a result. These investments, which included people and systems, have established a strong platform for responsible growth, both organically and in a capacity to target and acquire revenue extension assets in the future.
  • Martello is an increasingly global company, with triple digit year over year growth (fiscal 2019 compared to fiscal 2018) in Europe, Asia and Latin America driven by acquisitions, expansion of the Mitel channel and growth of the Company's sales and marketing team.

"Steady and strong revenue growth in the 2019 fiscal year, both organically and through acquisitions has created the foundation to accelerate Martello's business", said John Proctor, President and CEO of Martello. "Having invested significantly in people and systems, Martello is now well positioned to target and acquire accretive assets and drive responsible growth going forward".

Business Highlights

During the fourth quarter Martello achieved the following milestones:

Subsequent Activities

Subsequent to March 31, 2019, Martello achieved the following milestones:

Financial Highlights

Note: The information contained in the following tables, including the Remaining balance and Variance calculations, is intended to assist in the year over year comparison and provide additional clarity on the year over year results.

Martello reported revenues of $10.4 million for the year ended March 31, 2019, and $3.4 million in the three months ended March 31, 2019. This represented an increase of 103% and 99% respectively over the same period in the prior year, and can be attributed to both organic growth and the acquisition of Savision in November 2018. Savision contributed $1.9 million in revenue in the 2019 fiscal year.

Financial Highlights

(in 000's)

March 31

2019

March 31

2018

March 31

2019

March 31

2018



(3 months ended)

     (12 months ended)

Sales

$

3,368

1,692

10,360

5,100

Cost of Goods Sold

267

109

707

288










Gross Margin

3,101

1,582

9,653

4,812

Gross Margin

%

92.1%

93.5%

93.2%

94.3%

Operating Expenses

4,413

2,196

13,922

5,739

Loss from operations

(1,312)

(613)

(4,269)

(928)

Other income/(expense)

95

58

(1,688)

(72)

Loss before income tax

(1,217)

(556)

(5,958)

(999)

Income tax recovery

148

75

546

75

Net Loss

(1,069)

(480)

(5,412)

(924)

Comprehensive loss

$

(1,547)

(480)

(5,359)

(924)










EBITDA (1)

$

(843)

(421)

(5,034)

(833)

Adjusted EBITDA (1)

$

(827)

(206)

(1,689)

(22)


(1)

Non-IFRS measure.  See "Non-IFRS Financial Measures".

Gross margin as a percentage of revenue remained strong at 93% for fiscal 2019 and 92% for the three months ended March 31, 2019. This is only a slight decrease from 94.3% in fiscal 2018 and 93.5% for the three months ended March 31, 2018, and is due to the acquisitions of Savision and Elfiq, which brought the overall margin down slightly.

Sales and Gross Margin

Q4 2019

(in CAD $000's)

Three months ended

Twelve months ended


March 31

March 31


2019

2018

2019

2018

Sales

3,368

1,692

10,360

5,100

Cost of Goods Sold

267

109

707

288

Gross margin

$

3,101

1,583

9,653

4,812

%

92.1%

93.5%

93.2%

94.3%

Revenue grew 30% between Q4 FY2019 and Q4 2018, excluding Savision. This reflects organic growth of 33% from the Mitel channel, due to an increase in recurring revenue from the number of users for Mitel's premium software assurance program and an increase in fees from Mitel resulting from the amendment to the Company's agreement with Mitel. In addition there was organic growth of 26% from SD-WAN and link-balancing sales. The gross margin at 92% is comparable to the same period in FY18.

FY 2019

Sales and Gross Margin – Twelve months ended 




(in CAD $000's)








March 31, 2019



Total

Elfiq

 Savision

Remaining
balance*









Sales

10,360

2,573

1,853

5,934

Cost of goods sold

707

355

113

239

Gross margin

$

9,653

2,218

1,740

5,694


%

93.2%

86.2%

93.9%

96.0%











March 31, 2018

FY19 v. FY18


Total

Elfiq

 Savision

Remaining
balance*

Variance








Sales

5,100

650

-

4,450

1,484

Cost of goods sold

288

62

-

226

13

Gross margin

$

4,812

588

-

4,224

1,471

%

94.3%

90.4%

94.9%

1.0%

* To facilitate comparison with fiscal year 2018, the Remaining balance represents the results of the Company's operations in fiscal year 2019 without contributions from Savision (acquired in fiscal year 2019) and Elfiq (acquired December 15, 2017).  The analysis compares the Remaining balance to the comparable period in FY2018.

For the twelve months ended March 31, 2019 and 2018, the Company earned revenue of $10.4 million and $5.1 million, respectively and had gross margins of $9.7 million (93.2%) and $4.8 million (94.3%) respectively.

Recurring revenue, which was 78% of total revenues in the fourth quarter of fiscal 2019 and for the year ending March 31, 2019, 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 ("UC"). 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.

Excluding Savision and Elfiq, the 33% organic revenue growth is due primarily to an increase in the number of users for Mitel's premium software assurance program and growth in the fees per user received from Mitel in Q4 resulting from the amendment to the agreement with Mitel. The gross margin at 93.2% is comparable to the same period last year (94.9%).

Cost of goods sold represents the costs of hardware, installation and delivery, sales commissions and web services.

Customer Growth

Sales included subscription-based software sales and renewals, perpetual software and hardware sales, and the sales of maintenance and support contracts.

Martello generates revenue from both new business and the renewal of existing software and maintenance subscriptions. In the fourth quarter of fiscal 2019, the Company earned business from customers including Sonepar Canada, the United States Postal Service, and the Dublin Airport Authority.

Martello has been in business since 2009, with subsidiaries in business since 2003. In this time, the Company has developed longstanding relationships with customers and partners that have continued to renew and grow their Martello solutions over time. These include Frost Bank (8 years), Leiden University Medical Center (13 years), Mandarin Oriental Hotel Group (11 years), 4Sight Communications (6 years) and KPMG NL (12 years).

Martello saw global sales growth in the fiscal year ended March 31, 2019, compared with the fiscal year ended March 31, 2018. Significant growth was seen in Europe (198% increase), Asia (301% increase), Latin America (345%) and the United States (89%). Regional growth has been driven by the acquisition of Savision, which is based in Amsterdam, expansion of the Mitel channel, and the growth of Martello's sales and marketing team.

March 31, 2019

March 31, 2018

$

$



Revenue for the period ended

Canada

4,578,349

2,835,845

United States

2,532,936

1,333,892

Europe

2,042,185

683,246

Asia

623,818

155,398

Latin America

267,456

60,002

Australia

247,521

-

Other

67,287

31,612

Total revenue

10,359,552

5,099,995

Expenses

In fiscal 2019 the Company made investments in people, research and development and sales and marketing activities, and foundational systems which will enable the company to scale. In doing so, Martello has established a core capacity for future organic growth and acquisition activity.

Expenses – Twelve months ended






(in CAD $000's)








March 31, 2019



Total

Elfiq

 Savision

Remaining
balance*

Research and development

4,031

1,052

584

2,395

Sales and marketing

3,292

1,271

944

1,077

General and administrative

4,611

797

429

3,385

Depreciation

104

31

17

56

Amortization

712

-

-

712

Acquisition-related costs

1,172

-

-

1,172

TOTAL

13,922

3,150

1,974

8,798



















March 31, 2018

(Increase)/
Decrease *


Total

Elfiq

 Savision

Remaining
balance*

Research and development

2,330

194

-

2,136

(259)

Sales and marketing

877

292

-

585

(493)

General and administrative

1,791

194

-

1,597

(1,788)

Depreciation

62

14

-

48

(8)

Amortization

123

-

-

123

(589)

Acquisition-related costs

556

-

-

556

(616)

TOTAL

5,739

694

-

5,045

(3,753)

* To facilitate comparison with fiscal year 2018, the remaining balance represents the results of the Company's operations in fiscal year 2019 without contributions from Savision (acquired in fiscal year 2019) and Elfiq (acquired December 15, 2017).  The analysis compares the Remaining balance to the comparable period in FY2018.

For the twelve months ended March 31, 2019 and 2018, operating expenses totaled $13.9 million and $5.7 million, respectively. Excluding Elfiq and Savision, expenses increased by $3.8 million. As Savision was acquired on November 1, 2018 and Elfiq was acquired on December 15, 2017, the following year over year analysis excludes Savision and Elfiq.  

While sales increased significantly in both the three and twelve months ended March 31, 2019, there were also increased expenses due to a variety of factors, including investment in sales and marketing headcount and activities, increased acquisition costs, the complexity of reporting requirements, and increased share-based compensation.

Research and development cost increased by $259,115 due to new headcount added during the year in development, innovation and technical support, higher share-based compensation costs (non-cash), general salary increases, and an investment in additional development tools. 

The increase in sales and marketing expenses of $492,841 was due in large part to a focus on expanding the Company's brand awareness and communications and increased presence at industry events. The Company has invested in a new website, increased public relations activity, and conference and trade show sponsorship and attendance. Compensation costs also increased year over year due to growth in the team aligned with the above strategy, new sales resources, general salary increases and non-cash stock-based compensation expense.

General and administrative expenses include salaries for finance, human resources and executive staff, as well as general corporate expenditures including consulting fees, legal and professional fees, insurance and office rent. General and administrative expenses increased by $1.8 million in FY19. This was due to significant investments to enable the company to scale and establish its platform for future growth. Director fees and professional fees for accounting, audit, tax and legal increased due to the additional complexity associated with the reverse acquisition transaction and public company reporting. Costs in the current year also include investment in research and advisory services and in new systems and implementation costs, which were not incurred in the prior year. Salaries and share-based compensation expense increased, relating to additional executive staff, the accelerated vesting of certain stock options as a result of the RTO, and an expanded finance team required for both internal and external reporting needs.  

Amortization relates to the amortization of intangible assets identified upon the acquisition of Elfiq and Savision. Given the timing of the acquisitions, costs in FY18 related only to the Elfiq acquisition whereas FY19 includes both Elfiq and Savision.

Acquisition related costs relate to the integration of Elfiq and the acquisition of Savision, including a success fee paid to the M&A advisor for the Savision transaction. Prior year costs related to advisory, due diligence, legal costs and a success fee for the acquisition of Elfiq.

Loss from Operations

The loss from operations for the three months ended March 31, 2019 and 2018 was $1.3 million and $613,395 respectively, an increase of $698,177. For the twelve months ended March 31, 2019 and 2018, the loss from operations was $4.3 million and $927,678, respectively, an increase of $3.3 million.

Excluding the impact of Savision, the loss from operations increased $633,017 year over year for the three-month period ended March 31, 2019. Excluding the impact of Savision and Elfiq, the loss from operations increased $2.3 million year over year for the twelve-month period ended March 31, 2019.

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 March 31, 2019 was a loss of $827,238, compared to a loss of $205,650 in the three months ended March 31, 2018.

Adjusted EBITDA in the twelve months ended March 31, 2019 was a loss of $1,689,272, compared to a loss of $22,120 in the twelve months ended March 31, 2018.

EBITDA and Adjusted EBITDA

March 31,

2019

March 31

2018

March 31

2019

March 31

2018



(Three months ended)

     (Twelve months ended)











Net income (loss)

$

(1,068,948)

$

(480,314)

$

(5,411,800)

$

(923,985)











Interest income

(2)

(10,422)

(876)

(29,986)

(12,890)

Interest expense

(2)

57,162

20,132

87,400

57,275

Accretion of long-term debt

(2)

16,829

(33,931)

50,347

(63,111)

Income tax recovery

(2)

(147,817)

(75,436)

(545,887)

(75,436)

Depreciation

(2)

32,977

26,116

103,899

62,261

Amortization

(2)

277,577

123,014

712,429

123,015

EBITDA

(1)

(842,642)

(421,295)

(5,033,598)

(832,871)











Reverse acquisition costs

(2)

-

-

776,933

-

Reverse acquisition transaction cost

(2)

-

-

1,040,012

-

Foreign exchange (gain) loss

(2)

39,743

(39,299)

(18,632)

90,469

Other income

(2)

(198,119)

-

(217,642)

-

Share-based compensation expenses

(3)

87,957

59,535

591,953

164,148

Acquisition-related costs

(2)

85,823

195,409

1,171,702

556,134

Adjusted EBITDA

(1)

$

(827,238)

$

(205,650)

$

(1,689,272)

$

(22,120)


(1)

Non-IFRS measure. See "Non-IFRS Financial Measures".

(2)

Per the Statements of net loss and comprehensive loss

(3)

Share-based compensation expense per the Statement of cash flows

Share Capital

The Company had 191,237,568 shares issued and outstanding as of March 31, 2019.

The number of common shares has been retrospectively adjusted to reflect the share exchange in connection with the reverse takeover transaction of 3.2 shares issued in the Company for each share of Martello Corp. 

In Q4 2019, the following transactions in the share capital of Martello occurred:

  • 32,000 common shares were issued upon the exercise of options for proceeds of $4,160 (NIL in Q4 2018);
  • 64,000 unvested options were forfeited (96,000 in Q4 FY18);
  • 1,281,500 options were issued with an exercise price of $0.335 and 424,000 options were issued with an exercise price of $0.38.

Cashflow and Capital Resources Summary

At March 31, 2019, the Company had $6.65M of cash and restricted cash on hand, and $4.9M of net working capital to fund operations and growth.

Cashflow Summary

(in CAD $000's)


Twelve months ended
 March 31

2019

2018

Operating activities

Loss before income tax

(5,958)

(999)

Items not affecting cash

1,642

876

Total cash flows provided by (used in) operations

(4,315)

(124)



Investing Activities

Proceeds from short-term investments

-

2,024

Cash acquired on reverse acquisition

637

-

Additions to equipment and leasehold improvements

(161)

(68)

Acquisition of subsidiary

(1,506)

(1,324)

Total cash flows provided by (used in) investing activities

(1,030)

632



Financing activities

Proceeds from issuance of common shares 

7,540

750

Proceeds from exercise of stock options 

82

-

Proceeds from long-term debt 

2,948

239

Proceeds from line of credit 

-

100

Repayment of line of credit 

(120)

-

Repayment of long-term debt 

(602)

(178)

Total cash flows provided by (used in) financing activities

9,848

912



Net change in cash and restricted cash

4,503

1,420

Cash, beginning of period

2,141

721

Effects of currency translation on cash and cash equivalents

5

-

Cash and restricted cash, end of period

6,649

2,141

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 the RBC Loan and drew $3,000,000 on the term loan. The RBC Loan also includes a $1,000,000 revolving facility which is undrawn as of the date of this 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. 

Outlook

Martello intends to continue executing on its strategy of organic growth and growth through acquisition activity. The Company has enough funding for operations for the foreseeable future.

The Company continues to diversify its customer base with the acquisition of Savision in Q32019. This reduces the proportion of Martello's revenue from the Mitel channel, even as revenues continue to increase from this channel.

In addition, the Company has established a strong platform for future acquisitions with investments to expand the research and development team, 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.

The financial statements and notes 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.

Conference Call Details

Martello will host a conference call and audio webcast with John Proctor, President & CEO and Erin Crowe, CFO at 10:00 AM Eastern Time on July 17, 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 July 17, 2019.

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

CONTACTS: Tracy King, Vice President of Marketing, [email protected], 613.271.5989 x 2112; John Proctor, President & CEO, [email protected], 613.271.5989

Related Links

https://martellotech.com/

Organization Profile

Martello Technologies Group