‘We have to be more focused’: Martello cuts 15% of workforce in bid to become cash-flow positive

John Proctor
John Proctor

Martello Technologies said Wednesday it’s cutting more than 15 per cent of its workforce and slashing spending across the board as it looks to right its financial ship in the wake of a market storm that’s pummelled the Canadian tech industry.

The Kanata software firm said it’s laying off 15 employees, while another five positions that are currently vacant will not be filled. That will reduce Martello’s headcount to just under 80 people.

The staff cuts – which CEO John Proctor said will affect all departments – are part of a company-wide effort aimed at reducing the firm’s overall expenditures by 20 per cent, or about $4 million a year. 

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To that end, Martello is trimming consulting expenses, shrinking its foreign office footprint and renegotiating third-party agreements in a bid to “accelerate positive cashflow and profitable revenue growth” in what’s been a year to forget so far for many Canadian tech firms.

“As we looked at the economy, looked at where things are going, we said, ‘We have to be more focused,’” Proctor told Techopia on Wednesday afternoon. “When you become more focused, you can create more efficiencies.”

“Let’s be blunt – the stock price is ugly. With that stock price where it is, there’s not a lot you can do as a publicly traded company.”

While big tech players such as Shopify have dominated the headlines with recent news of layoffs amid collapsing valuations, micro-caps like Martello have also taken a beating.

The Kanata company was trading at just three cents on the TSX Venture Exchange Wednesday afternoon. Its stock has dropped five cents since the start of 2022 and is down significantly from its 52-week high of 14 cents set last September – grim facts not lost on Proctor.

“Let’s be blunt – the stock price is ugly,” he said. “With that stock price where it is, there’s not a lot you can do as a publicly traded company – your hands become more tied in terms of flexibility and raising capital.”

It’s somewhat of a reversal of fortunes for Martello, which, like many software companies, was riding high earlier in the pandemic only to bear the brunt of changing market forces.

Martello – which makes products that help customers detect and troubleshoot problems in their high-speed communications networks – makes its money from two main sources: performance-analytics software aimed at Mitel customers and analytics and network-monitoring  platforms for Microsoft 365 and Teams users.

IT budget cutbacks

The firm boomed at the dawn of the COVID-19 crisis 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, driving up demand for its services. 

But Proctor said sales began to cool off as IT departments scaled back budgets the longer the pandemic dragged on. Meanwhile, corporate decision-making became more decentralized in a work-from-home world, extending sales cycles and delaying new contract signings.

After revenues surged 50 per cent in fiscal 2021 compared with the previous year, Martello’s sales flatlined in fiscal 2022. The firm continued to pour more money into marketing, sales and R&D in an effort to expand its customer base, pushing its net loss from $6.4 million in 2021 to $8.2 million a year later.

As stock prices have fallen amid widespread selloffs, investors have become increasingly reluctant to jump into the market, Proctor said, causing share values to fall even further.

“It’s a bit of a perfect storm in many ways for the tech sector,” he said. “This is not just us. The Canadian tech sector – especially the micro-caps like ourselves – are all being beaten by the ugly stock stick. All of us are kind of doing the old, ‘Let’s put all this on hold until this settles down.’ We’re all kind of hanging on to make sure we get through this phase.”

Undaunted, Proctor said a leaner Martello is taking a more targeted sales approach as it works with partners around the world to market its flagship Vantage DX troubleshooting software for Microsoft users.

While he said the Mitel sales funnel is still “really important,” Microsoft customers accounted for 47 per cent of Martello’s revenues in fiscal 2022, up from 41 per cent a year earlier. Proctor said he expects that share to keep rising as Martello’s sales partners channel more of their efforts into promoting Vantage.

“The horsepower we’ve got will focus on that Vantage growth, which is an exciting, growing part of the business,” he said. 

“We’ve got some fairly big clients coming on board. We’ve got more trials going on than we’ve ever had, and we’ve closed more new business on that side than we ever have as well.”

Proctor said all the pieces are in place for Martello to reach its goal of becoming cash-flow positive sooner rather than later. 

“With the potential recession coming, our runway got shorter,” he conceded. “We’ve still got the airplane – we just have to take some of the equipment out that no longer helps us achieve the goals we think we need to.”

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