Martello's revenues flatten in Q2 amid falling demand for legacy products

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After posting double-digit revenue growth earlier in the pandemic, Martello Technologies plateaued in its fiscal 2022 second quarter as gains from its Microsoft sales channel were offset by falling demand for its legacy products.

The Kanata-based network troubleshooting software firm this week reported revenues of $4.41 million for the three-month period ending Sept. 30, virtually unchanged from $4.4 million in the same period in 2020.

Martello (TSX-V:MTLO) booked a net loss of $1.72 million, up from $940,000 a year earlier. The company said operating expenses rose nearly eight per cent year-over-year thanks to increased spending on sales, marketing and R&D as well as a return to full salaries after employees’ pay had been cut earlier in the COVID-19 crisis to contain costs.

Martello, which helps customers detect and repair problems in their high-speed communications networks, now gets its income from two main sources: performance-analytics software aimed at Mitel customers and analytics and network-monitoring platforms for Teams and other Microsoft products.

The company’s revenues soared during the height of the pandemic as the shift to remote work, the rise of streaming services such as Netflix and a host of other factors combined to put more strain on wireless networks. 

While overall sales levelled off dramatically in the second quarter, Martello officials said this week they’re seeing “encouraging” signs of growth in the firm’s Microsoft revenue stream, fuelled by rising demand for a new product introduced in September called Vantage DX that’s aimed at Teams users.

The Microsoft sales channel now accounts for 47 per cent of Martello’s revenues, up from 44 per cent in the second quarter of 2020.

Company officials said customers that rushed to deploy Microsoft Teams to their workforces at the outset of the pandemic are now looking for ways to get more out of the software, creating “new complexity for IT departments” that are managing wireless networks.

“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,” CEO John Proctor said in a statement. 

“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.”

Martello had $4.83 million in cash on hand at the end of the quarter, down from $8.52 million in March. The company said it believes it has “sufficient cash to fund ongoing organic growth.”

About 2.9 million Microsoft customers now use Martello’s platform. The Kanata company says that’s on track to rise to 3.5 million by the middle of the 2023 fiscal year.