Martello Reports Financial Results for the Second Quarter of Fiscal 2022

Canada NewsWire

OTTAWA, ON, Nov. 23, 2021

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Microsoft DEM revenue increases for a second consecutive quarter, reaching nearly 50% of total revenues.

   -- Total revenue of $4.41M, with 98% recurring and gross margins of 92%. 
   -- Microsoft DEM revenue grew sequentially by 7% from Q1 to Q2 FY22, 
      reaching $2.06M and 47% of total revenue. 
   -- Adjusted EBITDA loss of $0.30M improved from Q1 FY22 adjusted EBITDA loss 
      of $.96M. 
   -- The number of Microsoft users on Martello's DEM platform reached 2.9M, up 
      from 2.8M in Q1 FY22. 
   -- Vantage DX launch accelerated sales activity for the Microsoft DEM 
      business. 
   -- Microsoft Global Solutions Alliance program provides new channels to 
      market for Vantage DX. 

OTTAWA, ON, Nov. 23, 2021 /CNW/ - Martello Technologies Group Inc., ("Martello" or the "Company") (TSXV: MTLO), a leading developer of enterprise digital experience monitoring ("DEM") solutions for thousands of customers around the world, today released financial results for the three months ended September 30, 2021. Martello software provides businesses with actionable insights on the performance and user experience of cloud services such as video conferencing and unified communications (UC), with a focus on Microsoft 365 and Microsoft Teams.

"Martello sharpened its competitive edge with the launch of Vantage DX in Q2 FY22, while we deepened our engagement with Microsoft by joining the Global Solutions Alliance program," said John Proctor, President and CEO of Martello. "Vantage DX is a game-changer for Martello, integrating a unique set of capabilities that are the result of our investments in acquisitions and product development. Working closely with Microsoft, large channel partners and enterprise IT, we are building Vantage DX momentum as businesses increasingly seek solutions to manage the complexity of Microsoft Teams performance for a hybrid workforce."

"I'm pleased that Martello has achieved sequential growth in the Microsoft DEM segment for a second consecutive quarter," said Erin Crowe, Martello's Chief Financial Officer. "Our investments in Microsoft DEM continue to bring revenue growth in this segment as it reaches nearly 50% of our total revenue in Q2 FY22. We've seen encouraging sales activity since the launch of Vantage DX, which we believe reflects new demand for Microsoft Teams performance management related to the IT complexity of hybrid work models."

Q2 FY22 Financial Highlights

(in Canadian dollars) 
Financial               September    September    September    September 30, 
Highlights              30,          30,          30, 
(in 000's)              2021         2020         2021         2020 
                        (Three months ended)      (Six months ended) 
Sales                $        4,413        4,395        8,814          7,722 
Cost of Goods Sold              348          215          776            407 
Gross Margin                  4,065        4,180        8,038          7,315 
Gross Margin         %        92.1%        95.1%        91.2%          94.7% 
Operating Expenses            5,135        4,762       10,831          8,987 
Loss from 
 operations                 (1,070)        (583)      (2,793)        (1,672) 
Other 
 income/(expense)             (626)        (390)      (1,135)        (1,004) 
Loss from continuing 
 operations before 
 income tax                 (1,695)        (973)      (3,928)        (2,676) 
Income tax 
 recovery                      (23)         (68)           42           (20) 
Net loss from 
 continuing 
 operations                 (1,719)      (1,040)      (3,886)        (2,695) 
Loss from discontinued 
 operations, net of 
 tax                              -          103            -          (320) 
Net loss                    (1,719)        (937)      (3,886)        (3,016) 
Total 
 Comprehensive 
 loss                $      (1,780)         (69)      (3,940)        (2,196) 
EBITDA (1)           $        (601)          400      (1,727)          (870) 
Adjusted EBITDA(1)   $        (297)          304      (1,253)            504 
(1) Non-IFRS measure. See "Non-IFRS 
 Financial Measures". 
   -- Revenues of $4.41M increased by $0.01M compared to $4.40M in the same 
      quarter of FY21, reflecting growth from the acquisition of GSX which was 
      partially offset by legacy product revenue declines and the impact of 
      foreign currency conversion in Martello's Mitel UC Monitoring segment. 
   -- Revenue quality continued to be strong: 
   -- The recurring portion of total revenue was 98% in Q2 FY22 (96% in Q2 
      FY21). 
   -- Gross margin was 92% in Q2 FY22, compared to 95% in Q2 FY21. This slight 
      decrease was primarily the result of lower gross margins on Microsoft 365 
      Monitoring due to higher hosting costs and sales and distributor 
      commissions. 
   -- In Q2 FY22, MRR (monthly recurring revenue) was $1.44M, an increase of 1% 
      compared to Q2 FY21 MRR of $1.42M. The increase in MRR is due to an 
      increase in subscription licenses in IT Service Analytics and Microsoft 
      365 (GSX), partially offset by a decrease in royalties from Mitel UC 
      Monitoring (decrease in USD-CAD exchange rate) and a decrease in 
      maintenance and support revenue. MRR is a non-IFRS measure and represents 
      average monthly recurring revenues earned in a fiscal quarter. 
   -- Operating expenses of $5.14M were 7.8% above the $4.76M reported in Q2 
      FY21. Investments in sales, marketing and R&D have contributed to the 
      year over year increase, in addition to a return to full salaries 
      compared to the same period in the prior year, when measures were 
      implemented to manage operational risks and uncertainties related to the 
      COVID-19 pandemic. Other increases include spending on market research, 
      software and other office costs and professional fees, as well as lower 
      government incentives. 
   -- Adjusted EBITDA (a non-IFRS measure) in Q2 FY22 is a loss of $0.30M, 
      compared to a gain of $0.30M in the same period of FY21. The decrease in 
      Adjusted EBITDA is due to higher operating losses associated with the 
      return to normalized operations. 
   -- The Q2 FY22 net loss of $1.72M has increased from the same period in FY21 
      ($0.94M) as a result of the items outlined above and higher losses on 
      foreign exchange partially offset by lower financing fees, adjustments to 
      interest expense on the Vistara term loan and a gain from discontinued 
      operations in the prior year. 
   -- The Company's cash and short-term investments balance was $4.83M at 
      September 30, 2021, compared to $8.52M at March 31, 2021. Net working 
      capital was $2.70M at September 30, 2021 compared to $4.50M at March 31, 
      2021.  The Company believes it has sufficient cash to fund ongoing 
      organic growth. 

Q2 FY22 Business and Segment Highlights

   -- In Q2 FY22 and subsequent to the quarter, businesses shifted their focus 
      from rapidly deploying Microsoft Teams to optimizing and managing its 
      performance. Dependence on Microsoft Teams for organizational 
      productivity has grown while the popularity of hybrid work models has 
      created new complexity for IT departments. As a result, Martello has seen 
      increased demand for Vantage DX for Microsoft Teams since the solution's 
      launch in September 2021. 
   -- After joining the Microsoft Global Solutions Alliance program in August 
      2021, Martello has made progress towards key milestones such as reaching 
      transact-ready status on the Microsoft Azure marketplace. Becoming 
      transact-ready means that Microsoft sellers will be incented to sell 
      Vantage DX via the Azure marketplace. 
   -- Increased engagement with Microsoft has helped Martello identify the 
      highest value and most strategic partnerships to pursue, with Microsoft's 
      support. The Company's focus in Q2 FY22 and subsequent to the quarter has 
      been on developing and advancing relationships with these prospective 
      partners, as well as value added resellers and MSPs. 
   -- The number of Microsoft users on Martello's DEM platform increased to 
      2.9M in Q2 FY22, from 2.8M in Q1 FY22. Based on FY22 YTD results, 
      Martello is currently targeting to reach 3.5M Microsoft users on its 
      platform in the first half of the next fiscal year. 
   -- Regarding the sequential growth of Martello's Microsoft DEM revenue, 
      excluding the impact of legacy products: 
   -- The leading driver of Q2 FY22 revenue was Microsoft DEM, with 47% of 
      revenues from this growing revenue stream (44% in Q1 FY22), while 41% was 
      generated from Martello's Monitoring - Mitel UC business (42% in Q1 FY22), 
      and 13% was from legacy products (14% in Q1 FY22). 
   -- The Microsoft DEM revenue stream includes the two active DEM products in 
      the Monitoring -- Microsoft 365 and Analytics -- IT Service Analytics 
      reporting segments, which are targeted at the Microsoft market (Gizmo and 
      iQ). This revenue stream grew by 7% or $0.13M sequentially (Q1 FY22 to Q2 
      FY22). 
   -- The Legacy Products revenue stream includes the two legacy products in 
      the reporting segments above (Domino and Livemaps). Legacy products 
      revenue declined by 9% or $.06M sequentially from Q1 FY22 to Q2 FY22. 

Conference Call Details

Martello will host a conference call with John Proctor, President & CEO and Erin Crowe, CFO at 8:00 AM Eastern Time on Wednesday, November 24, 2021, to discuss the Q2 FY22 financial results.

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