Ottawa-based Martello’s revenues, expenses soar in Q3 on the back of M&A strategy

Martello
Martello Technologies CEO John Proctor.

Martello Technologies’ “build-and-buy” growth strategy is bearing fruit, company officials said Tuesday after the Kanata software firm reported a 136 per cent year-over-year increase in third-quarter revenues.

Martello (TSXV:MTLO) said its revenues for the three-month period ending Dec. 31 were $3.1 million, up substantially from $1.3 million a year earlier. While sales of Martello’s network performance management software to its Mitel channel rose by 44 per cent, most of its growth resulted from new products and services it added in a pair of acquisitions over the previous 12 months.

One of the fastest-growing firms in the Kanata tech park, Martello makes products that help customers detect and troubleshoot problems in their high-speed communications networks. The company – which went public via a reverse takeover last September – now employs nearly 100 people, about half of them in Ottawa and the rest at offices in Montreal, Amsterdam, Paris, Dallas and New York.

Since the beginning of 2018, Martello has embarked on an ambitious plan to diversify and expand its product and customer base, acquiring Montreal software maker Elfiq Networks early last year before buying Netherlands-based IT analytics firm Savision BV last fall.

So far, those deals appear to have achieved their goals.

While the Mitel channel accounted for 90 per cent of Martello’s sales in the third quarter of fiscal 2018, that share fell to just 55 per cent in the most recent three-month period. Meanwhile, nearly two-thirds of the company’s revenues in the third quarter of fiscal 2019 came from foreign sales, compared with 50 per cent a year earlier.

Spending money to make money

But that growth didn’t come without a cost. Martello’s operating expenses jumped nearly $3 million year-over-year to more than $4.2 million. The company posted a net loss of just over $1 million for the quarter, compared with net income of about $9,000 a year earlier.

Martello CEO John Proctor said the firm has ramped up its R&D spending and boosted its sales and marketing payroll as it attempts to carve out a bigger share of the global networking software market.

Martello poured more than $1 million into research and development in the third quarter, or about one-third of its total revenues. In addition, the company spent $945,000 on sales and marketing, with more than 80 per cent of that outlay coming from the Elfiq and Savision sides of the operation.

“You’ve got to go through this investment cycle to be able to present yourself ready for growth, to be able to put all the foundations in and have the right team, to have all the right systems to be able to grow,” Proctor told OBJ Tuesday afternoon.

“A lot of Canadian companies, they sort of balk at this potential struggle and challenge of doing that, which is why they don’t grow.”  

The cost of acquiring other companies goes well beyond just writing a cheque, he added, noting Martello incurred more than $700,000 in expenses during the quarter directly related to its purchase of Savision, including auditing, legal and accounting fees and advisory services.

The CEO said the upside of acquiring Savision, a global company with more than 900 customers in 50 countries, far outweighs the short-term financial hit Martello took to make the deal.

“Most of this investment, we’re not going to need to do again, and the growth numbers then start to work for us,” he said.

M&A prospects abound

Proctor said Martello will continue to aggressively pursue more acquisitions and partnerships with other software providers. He said the company is whittling a list of “40 to 50” potential acquisition targets down to three or four firms it plans to engage in “serious conversations.”

He also said he’s confident Martello’s participation in a new accelerator program run by BlackBerry QNX and Kanata-based L-Spark will expose the firm to new market verticals. As part of the program, Martello software is helping BlackBerry QNX’s platform prioritize the reams of data that flow to and from self-driving cars every second.

Proctor said the partnership with a powerhouse such as BlackBerry QNX could open the door to a wave of new opportunities for Martello in the Internet of Things space.

“If we can do it for autonomous vehicles, effectively we’re connecting the autonomous vehicle to the smart city,” Proctor said. “A smart city is going to have multiple, complex network environment issues and we’re going to solve them as well.”

Martello’s stock was up one cent to 38 cents in late-day trading on the TSX Venture Exchange.