Martello Technologies Group Inc V.MTLO

Good growth and generating cash flow

[Acura001]

Q3 FY21 Highlights

• In Q3 FY21, Martello completed the integration of GSX and made progress on key DEM product innovation initiatives which are expected to expand the Company's addressable market and increase the number of Microsoft users on Martello's platform. At the end of Q3 FY21, there were 2.17 million Microsoft users on the Company's DEM platform.
   
• Revenue of $4.63M was 61% higher in Q3 FY21 than the $2.88M reported for the same quarter in the prior year, and continued to diversify, with the following year over year segment performance:
  • The acquisition of GSX contributed $1.88M to the year-over-year increase, and 41% of total revenues (nil in Q3 FY20). 
  • Mitel UC performance analytics revenue increased by 5% or $.10M, contributing 42% of total revenues (56% in Q3 FY20). 
  • IT Service Analytics revenue decreased by $.23M or 23%, contributing 17% of total revenues (30% in Q3 FY20). The decrease in this segment was due to the shift from perpetual to recurring revenue, and an expected revenue decline from the legacy product (Live Maps) in this segment. 
     
• Sequential results from Q2 FY21 to Q3 FY21 offer further insight into the trajectories of Martello's key DEM solutions and declining legacy product lines:
  • Microsoft DEM revenue grew by 17%, representing 40% of total revenue in the quarter (36% in Q2 FY21). 
  • Legacy product line revenue declined by 16%, offsetting DEM growth. Legacy product revenue as a whole represented 17% of total revenue in Q3 FY21 (21% in Q2 FY21).
     
• In Q3 FY21, monthly recurring revenue ("MRR") reached $1.49M, a 64% increase over Q3 FY20 MRR of $0.91M, excluding the discontinued NPM segment, and a 4.9% sequential increase compared to Q2 FY21. The year over year increase in MRR is due in part to the addition of acquired GSX revenues, which contributed $0.61Min MRR in Q3 FY21 as well as increased royalties from UC performance analytics. These increases were offset by reduced license and maintenance and support revenue primarily related to legacy products. MRR is a non-IFRS measure and represents average monthly recurring revenues earned in a fiscal quarter. The MRR measure offers insight into the predictability of Martello's current and future revenue streams. 
   
• The recurring portion of total revenue was 96% in Q3 FY21, compared to 94% in Q3 FY20. 
   
• Gross margin remained strong and stable, decreasing slightly to 93% in Q3 FY21, compared to 94% in Q3 FY20. 
   
• Operating expenses increased by 53% or $1.89M to $5.45M in Q3 FY21, compared to $3.56M in Q3 FY20. The increase reflects $1.99M in GSX operating expenses, including $0.34M in amortization of intangibles (nil in FY20). Excluding the impact of GSX, operating expenses decreased by 3% between Q3 FY20 and Q3 FY21. This was due to decreases in Sales and Marketing and General and Administrative expenses, partially offset by an increase of $0.12M in Research and Development. Expense decreases resulted from the implementation of strategic cost reduction initiatives early in FY21, related to uncertainties around the COVID-19 pandemic.
   
• Adjusted EBITDA (a non-IFRS measure) in Q3 FY21 was a loss of $0.26M, compared to a loss of $0.84M in the same period of FY20. The improvement in Adjusted EBITDA is due to the sale of the NPM segment in Q2 FY21 as well as the implementation of temporary measures related to COVID-19 risks, including reduced travel and event expenses and reduced salaries for a portion of the reporting period.
   
• Loss from operations increased by $0.29Mto $1.13M compared to a loss of $0.84M in the same period of FY20. Amortization of GSX intangibles increased expenses, while revenue increased and was partially offset by other operating expenses related to GSX.
   
• In addition to the items above, the Company incurred higher interest expense in Q3 FY21 as compared to Q3 FY20, due to a higher rate and balance on the term loan facility established earlier in FY21. 
   
• The Q3 FY21 net loss of $1.46M ($0.01 per share) has increased from $1.33M in the same period in FY20 ($0.00 per share) as a result of the items outlined above. In addition, Q3 FY20 included a loss from discontinued operations of $0.51M (nil in Q3 FY21). 
   
• The Company divested the assets of the NPM segment in Q2 FY21. The results of the NPM segment are reported as discontinued operations for all periods presented in the financial statements, and herein, except where indicated. 
   
• Year-to-date total revenue increased by 48% to $12.36M compared to $8.34M for the same period in the previous year. Gross margins reported year-to-date were 94%, stable compared to gross margins of 94% reported for the same period last year. Adjusted EBITDA year-to-date was a gain of $.24M compared to an adjusted EBITDA loss of $2.31M for the first three quarters of FY20.
   
• The Company's cash and short-term investments balance was $4.05M at December 31, 2020, compared to $5.9Mat March 31, 2020. Although there is significant global economic uncertainty resulting from COVID-19 which may further impact operations, at this time the Company believes operations can be funded by available cash and other available funding sources. 
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