Martello NEWS

Martello Releases Second Quarter Fiscal 2019 Financial Results

Quarterly revenues of $2.0 million represent 92% growth year-over-year, including organic growth of 21% from increased network performance management software revenues.

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 Ottawa, Ontario (November 27, 2018) – Martello Technologies Group Inc., (“Martello” or the “Company”), a leading provider of network performance management solutions for real-time communications, today released financial results for the second quarter of its 2019 fiscal year, including the three and six months ended September 30, 2018.

Q2 Highlights

  • Reported three and six month revenues of $2.0 million and $3.9 million, representing a year-over-year increase of 92% and 86% respectively. This included organic growth of 21%, from increased network performance management software revenues.
  • Gross margin was stable at 93.6% for the three months ended September 30, 2018, compared to 93.4% for the corresponding quarter in the 2018 fiscal year.
  • Martello’s revenue base continued to diversify in this reporting period, with 67.9% of revenues from network performance management software, a decrease of 32% from the corresponding quarter in the 2018 fiscal year.
  • Adjusted EBITDA, which assesses operating performance before the impact of costs associated with acquisition activity and other non-cash costs, amounted to a loss of $343,298 for the three months ended September 30, 2018 compared to income of $17,114 for the corresponding quarter in the 2018 fiscal year.

“Martello is doing exactly what we said we’d do, and growth in this reporting period reflects the successful execution of the Company’s strategy, which includes organic growth and growth through acquisitions”, said John Proctor, President and CEO of Martello. “This is a testament to our team, the strength of our solutions, and our acquisition and integration capabilities. Growth in revenue year-over-year demonstrates the integration of Elfiq Networks after the December 2017 acquisition, in addition to increased sales of recurring, subscription-based product licenses”.

The Company is well positioned for future growth. Access to public capital markets following the completion of Martello’s reverse takeover (RTO) transaction in this reporting period will fuel new growth opportunities with future merger and acquisition activity. The announced acquisition of Dutch-based software company, Savision on November 1, 2018 is intended to accelerate recurring revenues and provide opportunities to grow Martello’s European sales.

Financial Information

Martello reported revenues of $2.0 million and $3.9 million for the three and six months ending September 30, 2018, representing a year over year increase of 92% and 86% respectively. The growth in revenue is due to organic growth of 21% from network performance management software through the Mitel channel, and revenue from the acquisition of Elfiq Inc. in December 2017.

Statement of operations – Highlights

(in CAD $000’s)

 

For the three and six-months ended

 

  3 months ended 6 months ended
    September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017

Sales

1,964 1,022 3,901 2,101

Loss from operations

(858) (65) (1,620) (295)

Adjusted EBITDA (1)

(343) 17 (592) (72)

Net loss and comprehensive net loss

(2,150) (141) (3,324) (451)

(1)Adjusted EBITDA is a non-GAAP measure defined by management as the Income/(Loss) from operations, as reported, before interest, tax, and adjusted for removing share-based compensation expense, depreciation, amortization and further adjusted to remove acquisition-related costs. Please refer to the September 30, 2018 Management’s Discussion & Analysis under “Adjusted EBITDA (Non-GAAP Measure) for further discussion on this area and a reconciliation of Loss from operations to Adjusted EBITDA.

Balance Sheet – Highlights

(in CAD$000’s)

As at

September 30, 2018

March 31,2018

Cash and Cash Equivalents

7,866

2,141

Working Capital

9,299

3,038

Martello had approximately $9.3 million in working capital as of September 30, 2018 available to fund acquisitions and organic growth, after closing a $7.5 million private placement in June 2018.

Sales

Martello realized growth in organic sales for its network performance management software and for the SD-WAN business of Elfiq Networks, which Martello acquired in December 2017.

Sales represent the sale of network performance management solutions for real-time communications and the sale of hardware and software link balancing and bandwidth management solutions, and maintenance and support services for these solutions.   Martello’s sales are principally indirect, via distributors and value-added resellers.  The Company’s network performance management software is included in Mitel Networks’ Premium Software Assurance plan and Martello earns a fee for each subscriber of the plan.

For the three months ended September 30, 2018 and 2017, the Company earned revenue of $1,964,795 and $1,022,215 respectively.  For the six months ended September 30, 2018 and 2017, the Company earned revenue of $3,901,949 and $2,101,686 respectively.  The year-over-year increases of $942,580 and $1,800,263 for the three and six-months ended September 30, 2018 are driven primarily by the following:

  • Growth in the number of users for Mitel’s premium software assurance program as more customers are requesting to use this platform. Growth year over year on revenue from network performance management is 21% for the six months ended September 30, 2018.
  • The acquisition of Elfiq. Elfiq contributed $639,064 and $1,257,006 in sales in the three and six-months ended September 30, 2018, whereas there was no Elfiq revenue in Q2 FY18.

Expenses

Expenses – Snapshot

(in CAD$000’s)

     

3 months ended September 30

6 months ended September 30

 

2018

2017 2018

2017

Research and development

787

526 1,659

1,126

Sales and marketing

590

109 1,087

253

General and administrative

1,052

336 1,893

745

Depreciation of equipment and leasehold improvements

20

11 41

21

Amortization of intangible assets

106

211

Acquisition-related costs

142

38 379

131

  TOTAL

2,697

1,020 5,270

2,276

Delivering on the Company’s aggressive build and buy strategy, Martello incurred expenses during this reporting period related to acquisitions and the reverse takeover transaction. In addition, the Company had non-cash expenses such as share-based compensation.

For the three months ended September 30, 2018 and 2017, operating expenses totaled $2,697,176 and $1,019,625 respectively, an increase of $1,677,551.   For the six months ended September 30, 2018 and 2017, operating expenses totaled $5,270,530 and $2,276,025 respectively.Delivering on the Company’s aggressive build and buy strategy, Martello incurred expenses during this reporting period related to acquisitions and the reverse takeover transaction. In addition, the Company had non-cash expenses such as share-based compensation.

The expenses for the quarter and six months ended September 30, 2018 include $799,082 and $1,632,621 in Elfiq expenses, respectively.  Elfiq was acquired in December 2017, so no related expenses were included in the three and six months ended September 30, 2017. Excluding the impact of Elfiq, increases total $936,469 and $1,419,884 for the three and six months ended Sept 30, 2018 respectively.

Acquisition related costs increased year over year by $104,668 for the three months ended September 30, and $248,543 for the six months ended September 30.  Costs in the current year in both Q1 and Q2 relate to the integration of Elfiq and the acquisition of Savision and prior year costs related to advisory, due diligence and legal costs for the acquisition of Elfiq.

Adjusted EBITDA Summary (Non-GAAP measure)

Adjusted EBITDA for the three months ended September 30, 2018 amounted to a loss of $343,298 compared to income of $17,114 for the same quarter last year.

For the six months ended September 30, 2018, Adjusted EBITDA amounted to a loss of $592,330 compared to a loss of $72,054 in the same period last year.

Adjusted EBITDA is reconciled and explained in the Management’s Discussion & Analysis under “Adjusted EBITDA (Non-GAAP Measure)”.  Management believes Adjusted EBITDA is a useful financial metric to assess its operating performance before the impact of costs associated with acquisition activity and other non-cash costs, and therefore provides a more useful tool for comparison between reporting periods.

 Subsequent Activities

  • On November 1, 2018, the Company completed the acquisition of Savision B.V., which will enhance its already strong customer base and network performance management capabilities, while expanding its sales presence in Europe.
  • In conjunction with the acquisition of Savision, the Company closed a financing with Royal Bank of Canada (RBC), including a $3 million term loan.

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, excluding Savision, which was acquired on November 1, 2018. All amounts are reported in Canadian dollars.

About Martello Technologies Group

Martello Technologies Group Inc. (TSXV: MTLO) delivers confidence in network performance. Our solutions manage and optimize the performance of real-time services on cloud and enterprise networks and include network and IT performance management software as well as SD-WAN technology. Over the top (OTT) service providers and enterprises around the world rely on Martello’s technology to deliver better service quality and a reliable user experience. Designed for real-time communications such as voice and video, Martello’s solutions detect, identify and address network performance problems BEFORE service quality is impacted. 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.