John, what does Martello Technologies do?
We bring clarity and control to complex digital environments. What we mean by that is: the typical IT environment has any number of problems occurring, and the people responsible for this infrastructure can’t always figure out where the issues are or how to fix them. We address this problem by providing a range of solutions that identify, visualize and help people fix performance issues. Our solutions are also being increasingly recognized for their potential to manage the performance of complex IoT applications, where network connectivity and performance are critical. We recently began a collaboration with BlackBerry/QNX to develop a network performance solution for autonomous vehicles.
Why is network performance and diagnostics important to your customers?
The problems that are created in complex IT environments are business impacting. For example, if your call centre phones aren’t ringing or your point of sale system can’t connect, there’s lost revenue. The CIO needs to know why it happened, how to fix it and how to prevent it in the future. The culprit can be anything from bandwidth capacity and constraints to misconfigured hardware.
What is your sales model?
Our products are largely sold through channels – more than 150 resellers, managed service providers and distributors around the world. We also sell direct to large enterprises and government clients.
Who would you most compare yourself to, or see most often when you are competing for customers?
We compete with network performance and SD-WAN solution providers like Netscout and VeloCloud. What we see is that Martello wins when the customer is price conscious and fairly tech savvy. That was validated last fall when Frost & Sullivan selected Martello as the Price/Value leader in network performance management, ahead of some very large and well funded competitors.
How do you make money and what are your gross margins?
Our margins are over 90%. For the six months ended September 30 2018, our gross margin was approximately $3.65 million on $3.9 million in sales. We make money through sales of software subscriptions and perpetual licenses, including royalties that we receive from Mitel for each user of the software we sell into this channel. We also sell hardware, on a subscription or perpetual basis and maintenance contracts for the hardware.
Why are your gross margins so high?
A large portion of our business is selling software as a service. In Q2 2018, approximately 64% of that recurring business was through the Mitel channel, in which we receive a royalty for each Mitel user of our software. Our cost of sales is relatively low in that context, since we are able to take advantage of Mitel’s existing channel to market.
How quickly is your recurring revenue growing compared to your total revenue?
Recurring revenue was close to 70% of our sales in our most recent quarter. We expect this will continue to grow, since we acquired Savision, an IT analytics software company in October 2018. Savision has a higher proportion of recurring revenue which will drive increases in Martello’s overall percentage of recurring revenue.
Why did you choose to go public last year?
Technology is evolving at a really fast pace, and we knew there were more problems we could solve for our customers if we could get solutions to market quickly. To do that, we looked at where we could acquire and what sorts of products we could build ourselves. To fuel that, we needed greater access to capital. In June 2018, prior to going public, we closed an oversubscribed private placement of $7.5 million, which demonstrated to us that the market saw the potential of our opportunity.
You made two acquisitions last year. Who were they and why did you buy those assets?
We acquired Elfiq Networks, a Montreal-based SD-WAN company in December 2017, and Savision in November of 2018. Savision is based in the Netherlands and develops IT analytics. We look for acquisitions that will be accretive to our mission to address complexity in the IT infrastructure, from a technology, talent and customer base perspective. The Elfiq acquisition complemented our product line with a technologically superior SD-WAN solution. The Savision acquisition expanded our sales presence, giving us a European salesforce overnight, and their IT analytics software is a good fit for our mission.
What should we expect to see from Martello Technologies in the future? Do you plan to buy more companies?
We remain a financially solid Canadian headquartered company that is growing globally. We’re focused on our organic revenue growth and have added bench strength to make it happen, with Chief Revenue Officer Stefanie Richheimer (former CEO of Savision) driving sales. We do plan additional acquisitions, and we’re looking at potential targets. By going public we have increased brand recognition and awareness in the market which has provided increased opportunities for discussion with potential partners, targets and investors. We’re really looking at the range of challenges that CIOs are facing today, and the kinds of solutions that will solve them and help grow our business. We are looking forward to meeting investors at the Cantech conference at the end of January.