Martello Technologies Group keeps “Buy” rating at PI

Ottawa-based Martello, which makes software for managing cloud-base services, reported its second quarter fiscal 2020 results on Wednesday, with revenue of $3.1 million, an increase of 59 per cent year-over-year, and an adjusted EBITDA loss of $1.0 million, compared to a loss of $0.3 million a year ago and a loss of $0.5 million last quarter.

In the quarterly comments, management focused on the company’s revenue model which now features stronger recurring revenue and predictable growth..

“By building a unique technology stack through acquisitions and product development, Martello has achieved solid monthly recurring revenue growth in Q2 FY2020 with exceptionally high gross margins. As we continue to invest in the development of integrated service optimization solutions to grow our monthly recurring revenue, we expect we will begin to see the results of this effort early in FY2021,” writes John Proctor, President and CEO.

Kwan says that lumpy perpetual license sales were an issue for the Q2, where he had called for revenue of $3.4 million and adjusted EBITDA of negative $0.7 million. The analyst noted that Martello’s Mitel customers accounted for 58 per cent of the company’s revenue versus 68 per cent last year and 55 per cent last quarter, with the year-over-year decline driven by the Savision acquisition last year. Kwan pointed to recurring revenue from Mitel Performance Analytics as a highlight, where recurring revenue grew 32 per cent year-over-year.

“We expect organic growth to pick up in the coming quarters, aided by (early) success in cross-selling Elfiq/Savision solutions into MTLO’s large Mitel channel partner/customer base, a refreshed service optimized SD-WAN solution (that has helped MTLO displace a competitor in Mitel’s offering), and MTLO benefiting from its ongoing push to expand its footprint globally with both new channel partners as well as managed service providers (a big opportunity),” writes Kwan.

“As well, its expansion into the Microsoft ecosystem (Office 365, Azure, Teams, Skype for Business) and joining the Microsoft Co-Sell program (MTLO gains access to MSFT’s global ecosystem of sellers and +75 million buyers) could deliver material results next year,” he says.

The analyst has adjusted his fiscal 2020 numbers down slightly, calling for revenue and adjusted EBITDA of $13.7 million and negative $2.9 million (was $14.9 million and negative $1.9 million). His fiscal 2021 forecasts remain unchanged at $19.0 million in revenue and $0.4 million in adjusted EBITDA.

Kwan is also leaving his “Buy” rating unchanged as well as his $0.50 per share target, which represents a projected 12-month return of 47 per cent at the time of publication.

Earlier this fall, Martello announced the closing of a public offering of 15.3 million shares at a price of $0.30 per share for aggregate proceeds of $4.6 million. Management said that the funds would go towards acquisitions, R&D, increasing sales capacity and general corporate purposes.