Martello Technologies’ bumpy financial ride continued in the first quarter of fiscal 2024 as the Kanata-based company reported a four per cent year-over-year drop in revenues amid its ongoing shift to a new flagship product line.
Martello, which makes software that helps customers detect and repair issues with their high-speed communications networks, reported total sales of just over $4 million for the three-month period ending June 30, down from $4.2 million the previous year.
The decline was largely due to a 25 per cent drop in sales of the firm’s legacy software, which is being gradually phased out as Martello focuses on growing the market for its new Vantage DX troubleshooting software designed for Microsoft Teams customers.
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While revenue from the Vantage DX channel rose to $510,000 in the first quarter compared with $15,000 a year earlier, it wasn’t enough to offset a $570,000 decrease in sales of Martello’s sunsetting legacy products.
In a news release on Tuesday, Martello said it is “executing a strategy to convert certain legacy customers to the Vantage DX platform.”
The publicly traded firm generates its income from two main sources: performance-analytics software targeted at Mitel customers and analytics and network-monitoring platforms for Microsoft 365 and Teams users.
While Martello started out serving mainly Mitel customers, the Microsoft sales channel has gained ground as the number of Teams users soared during the pandemic.
But Mitel customers continue to represent a significant source of income for the firm, accounting for 45 per cent of total revenues in the first quarter.
Martello’s overall monthly recurring revenues fell to $1.31 million from $1.38 million in the first quarter of 2023, which the company attributed to declining subscriptions and related maintenance and support revenues from its legacy products.
Despite the drop in sales, the company still managed to trim its net loss to $1.21 million, a slight decrease from the $1.23-million loss it reported a year earlier.
Martello’s operating expenses were down 15 per cent year-over-year as a result of layoffs and other cost-cutting measures it implemented early in fiscal 2023. The company had 75 employees as of June 30, down from about 100 a year earlier.
In a statement, Martello president and CEO John Proctor said the decline in legacy revenues was expected, adding he believes the firm is on the right track.
“The proactive measures we’ve taken to streamline costs and manage debt in FY23 will set Martello up for success,” Proctor said. “We are focused on driving Vantage DX revenue growth and continuing to develop our strong Mitel business. As legacy product revenue sunsets, we expect overall revenue growth will deliver value to shareholders.”
Earlier this month, the company announced it had paid off its debt to Toronto-based Vistara Capital Partners, which helped finance the company’s $18.7-million acquisition of network-monitoring software firm GSX Participations with a US$8-million loan in early 2020.
Under the original terms, the loan was to be repaid in full by the end of May 2023.
Martello negotiated a 120-day extension just days before the deadline, but managed to clear the debt from its books earlier thanks to a $3-million top-up of an existing loan from Wesley Clover International, a venture capital firm founded by Martello chair Terry Matthews.
In addition, Wesley Clover extended the maturity date of the refinanced loan, which now has a principal of US$5.3 million, to Aug. 28, 2026.
In a statement, Martello CFO Jim Clark said refinancing the firm’s debt will give it “additional runway to deliver net accretive growth and positive adjusted EBITDA” while deferring the cash outlay for another three years.
Martello shares were down half a cent to two and a half cents Tuesday afternoon on the TSX Venture Exchange.
The firm’s stock has been steadily falling since hitting 28 cents in November 2020, when sales of its products boomed as the volume of traffic on wireless networks soared during the pandemic.
