Martello Reports $3.1 Million in Revenues with 92% Recurring in Second Quarter Fiscal 2020 Financial Results /* Style Definitions */ span.prnews_span { font-size:8pt; font-family:"Arial"; color:black; } a.prnews_a { color:blue; } li.prnews_li { font-size:8pt; font-family:"Arial"; color:black; } p.prnews_p { font-size:0.62em; font-family:"Arial"; color:black; margin:0in; } .prngen10{ BORDER-TOP:black 0pt; BORDER-RIGHT:black 0pt; VERTICAL-ALIGN: BOTTOM; BORDER-BOTTOM:black 1pt solid; TEXT-ALIGN: CENTER; PADDING-LEFT:0.50em; BORDER-LEFT:black 0pt; PADDING-RIGHT:0.50em } .prngen13{ BORDER-TOP:black 0pt; BORDER-RIGHT:black 0pt; VERTICAL-ALIGN: BOTTOM; BORDER-BOTTOM:black 1pt solid; TEXT-ALIGN: RIGHT; PADDING-LEFT:0.50em; BORDER-LEFT:black 0pt; PADDING-RIGHT:0.83em } .prngen24{ BORDER-TOP:black 0pt; BORDER-RIGHT:black 0pt; VERTICAL-ALIGN: BOTTOM; BORDER-BOTTOM:black 0pt; TEXT-ALIGN: RIGHT; PADDING-LEFT:0.50em; BORDER-LEFT:black 0pt; PADDING-RIGHT:0.67em } .prngen21{ BORDER-TOP:black 0pt; BORDER-RIGHT:black 0pt; 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Martello's fiscal year end is March 31. Q2 FY2020 Highlights Revenue in the second quarter of FY2020 was $3.1 million, an increase of 59% over the same period in FY2019. Organic revenue from sales of unified communications (UC) performance analytics software to the Mitel channel grew 34% this quarter, compared to Q2 FY2019.The Monthly Recurring Revenue ("MRR") was approximately $957,000 in Q2 FY2020, an increase of 79% compared to the same quarter in the prior year, and an increase of 4% over Q1 FY2020. MRR is a measure which offers insight into the predictability of Martello's monthly recurring revenue stream, which creates a strong and stable foundation for future growth.Recurring revenue was 92% of total revenue in the second quarter of FY2020, compared to 82% in Q2 FY2019, as recurring revenue from UC Performance Analytics and IT operations analytics (ITOA) software was strong at 98% and 95%, respectively. Gross margin demonstrated continued strength at 91.5% for the second quarter of FY2020, compared to 93.6% in Q2 FY2019. The slight decline is due to an increase in web hosting costs for UC Performance Analytics software and sales commissions for ITOA software. The loss from operations was $1,449,530 compared to a loss of $857,783 in the same period of FY2019. This includes non-cash amortization of $267,253 mainly from the recent acquisitions of Elfiq and Savision.Adjusted EBITDA, a non-IFRS financial measure which assesses operating performance before the impact of one-time costs associated with acquisition activity and non-cash costs, was a loss of $985,457, compared to a loss of $343,298 in the same period of FY2019.The increased loss from operations and Adjusted EBITDA loss was due to accelerated investments in sales, sales operations, marketing and support services and new systems to create a strong platform for future revenue growth. Going forward, these investments are nearing completion and, notwithstanding future acquisitions, expenses should stabilize in the foreseeable future. Having developed a high-quality revenue model that features strong recurring revenue, exceptional gross margins and predictable, stable growth, the Company has established a solid platform to accelerate future growth. The Company will focus on activities that further increase recurring revenue, including channel development, strategic partnerships, integrated product development and acquisitions that are accretive to this objective."Martello is helping businesses to control the performance of their most critical cloud-hosted services, including Office 365 and unified communications", said John Proctor, President and CEO of Martello. "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. We appreciate the vision and patience of our investors, who understand Martello's market opportunity". Outlook Martello helps businesses control the performance of their most critical cloud-hosted services – from Office 365 to other unified communications services, in today's complex network environments. The Company has taken a systematic approach to growing its high-quality recurring revenue stream. Having grown its core business in the Mitel channel, Martello now has millions of telephony users under management by its software, and large amounts of data about how real-time services perform on networks. The Company has acquired businesses whose technology is strategic to Martello's mission to control the performance of services in complex network environments. Martello is integrating these technologies to capture a significant emerging market opportunity: the optimization of business critical services on cloud networks. For example, Office 365 now has 200 million monthly active users, growing the service at a pace of 3 million users per month1.  Gartner has reported that 42% of problems with Office 365 (as reported by users) can be attributed to network performance2. Martello is confident that executing on this service optimization opportunity will grow the Company's high-quality, recurring revenue stream. In pursuing the market opportunity for service optimization solutions to drive recurring revenue growth, Martello is leveraging its SD-WAN and link balancing technology. As this progresses, there has been a decline in one-time SD-WAN and link balancing sales revenue. Martello is actively engaged with a small number of customers who have validated the value proposition for the service optimization solutions currently in development, and expects to have trials underway by the end of fiscal 2020. The Company will focus on the activation and acceleration of strategic partnerships, which can become channels for Martello's acquired product lines and integrated service optimization solutions. These partnerships include Mitel, a channel in which Martello already has thousands of customers, Paessler and Microsoft. In November 2019, Martello joined Microsoft's Co-Sell program, which offers access to Microsoft's global ecosystem of sellers and more than 75 million buyers, to sell Martello's software which provides service assurance analytics for Office 365 and Azure. Channel development is a key area of focus for the Company as part of its systematic approach to recurring revenue growth, and will help accelerate the cross-sell of acquired technologies. The Company will increase channel enablement activity to expand its network of resellers, MSPs and distributors, and address key global regions. The Company believes that it can drive more high-quality, recurring revenue through these channels, including from selling SD-WAN service optimization solutions in the future. The Company's cash position grew to $9M as at September 30th, as a result of the net proceeds of a successful $4.1 million overnight marketed public offering in September. The cash position enhances Martello's capacity to accelerate revenue growth by targeting and acquiring strategic assets, and investing in operations including sales and marketing, and research and development. Conference Call Details Martello will host a conference call and audio webcast with John Proctor, President & CEO and Erin Crowe, CFO at 8:00 AM Eastern Time on November 20, 2019. Canada/USA Toll Free: 1-800-319-4610 International Toll: +1-604-638-5340 Callers should dial in 5 – 10 min prior to the scheduled start time and simply ask to join the Martello call. An audio recording of the call will be available on November 20, 2019 at https://martellotech.investorroom.com/quarterly-results. Investor Day Martello will host an Investor Day in Toronto, Canada on Wednesday, December 4th. The event will be hosted by Martello Co-Chairman Bruce Linton. Interested investors and analysts can register to attend on Martello's website. Business Highlights During the second quarter of fiscal 2020 Martello achieved the following milestones: In September 2019, the Company issued 15,333,332 shares at $0.30, for gross proceeds of $4,600,000 through an overnight marketed public offering with a syndicate of underwriters led by Canaccord Genuity Corp, and including CIBC World Markets Inc. and PI Financial Corp. In September 2019, Martello announced that its unified communications performance analytics software is now monitoring more than one million users in Mitel's network operations center (NOC) as part of a managed service offering. In July 2019, Martello announced that it has teamed with Paessler AG to offer a service assurance solution to large enterprises and managed service providers (MSPs).Subsequent Activities Subsequent to September 30, 2019, Martello achieved the following milestones: In November 2019, Martello announced a strategic partnership with WatchGuard® Technologies, Inc., a global leader in advanced network security solutions, to team Martello's SD-WAN solution with WatchGuard's security products in a bundled offering delivering a secure, high-performance network infrastructure that is unobtrusive and cost-effective to deploy. In November 2019, Martello joined the Microsoft Co-sell program, which provides opportunities to sell Martello's iQ product together with Microsoft, by working to develop the market and enable sales. In October 2019, Martello announced that Australian cyber security solutions and network performance reseller SecureServ had joined its Partner Alliance.Financial Highlights Revenue grew 13% between Q2 FY2020 and Q2 FY2019, excluding Savision. This includes organic growth of 34% from the Mitel channel. Strong recurring revenue growth from this channel was driven by an increase in royalties from Mitel resulting from the amendment to the Company's agreement with Mitel in Q4 FY2019, and an uptick in the number of users subscribed to Mitel's premium software assurance program.   Financial Highlights September 30, September 30, September 30, September 30, (in 000's) 2019 2018 2019 2018 (Three months ended)      (Six months ended) Sales $ 3,116 1,965 6,448 3,902 Cost of Goods Sold 265 125 509 252 Gross Margin 2 ,851 1,839 5,939 3,650 Gross Margin % 91.5% 93.6% 92.1% 93.5% Operating Expenses 4,301 2,697 8,351 5,271 Loss from operations (1,450) (858) (2,413) (1,620) Other income/(expense) (131) (1,427) (271) (1,866) Loss before income tax (1,580) (2,285) (2,683) (3,486) Income tax recovery 84 134 296 163 Net Loss (1,497) (2,150) (2,387) (3,324) Total Comprehensive loss $ (1,773) (2,150) (2,745) (3,324) EBITDA (1) $ (1,156) (2,144) (1,862) (3,204) Adjusted EBITDA(1) $ (985) (343) (1,484) (592) (1) Non-IFRS measure.  See "Non-IFRS Financial Measures".   Sales and Gross Margin   Sales and Gross Margin - Three months ended September 30 September 30 (in 000's) 2019 2018 Total Savision Remaining Balance* Total Variance Sales $ 3,116 897 2,219 1,965 254 Cost of Goods Sold 265 55 210 125 84 Gross Margin 2,851 842 2,009 1,839 170 Gross Margin % 91.5% 93.9% 90.5% 93.6% -3.1% * To facilitate comparison with the three months ended September 30, 2018, the Remaining balance represents the results of the Company's operations in Q2 FY20 without contributions from Savision (acquired in November 2018).  The analysis compares the Remaining balance to the comparable period in FY19. Sales and Gross Margin - Six months ended September 30 September 30 (in 000's) 2019 2018 Total Savision Remaining Balance* Total Variance Sales $ 6,448 1,849 4,599 3,902 697 Cost of Goods Sold 509 126 383 252 132 Gross Margin 5,939 1,723 4,216 3,650 566 Gross Margin % 92.1% 93.2% 91.7% 93.5% -1.9% * To facilitate comparison with the six months ended September 30, 2018, the Remaining balance represents the results of the Company's operations in YTD FY20 without contributions from Savision (acquired in November 2018). The analysis compares the Remaining balance to the comparable period in FY19.   SD-WAN and link balancing sales declined 32% in the three months ended September 30, 2019, and 21% in the six months ended September 30, 2019. The decrease is mainly due to lower one-time hardware and licensing revenue, which was partially offset by an increase in recurring maintenance and support revenue quarter-over-quarter. This reflects Martello's current focus on generating recurring revenue through the development of service optimization solutions. We expect that these solutions will address the mid-tier market's demand for stellar performance of cloud-deployed UC and real-time enterprise systems like Office 365. MRR grew 79% to $957,110 in Q2 FY2020 compared to $535,209 for the same period in FY2019. The growth in MRR is due to the ITOA software MRR of $282,724 for Q2 FY2020 (nil in Q2 FY2019 due to the timing of the Savision acquisition) and an increase in UC Performance Analytics MRR of $143,325. Customer and Partner Growth Martello generates revenue from both new business and the renewal of existing software and maintenance subscriptions. In the second quarter of FY2020, the Company continued to focus on generating recurring, subscription-based deals and renewals through both direct sales and channels. In the ITOA line of business, the majority of the new business in the quarter was subscription-based and recurring, with contracts between one and three years. Martello earned business this quarter from customers including University of Newcastle, City of Ottawa, Heidelberg Cement and University of Massachusetts Boston. Longtime partner and early adopter of Martello's UC analytics software 4Sight Communications said in September that it had improved its remote fix rate to 98% after standardizing on Mitel Performance Analytics (MPA), the software developed by Martello. Martello continued to see global sales growth in the second quarter of FY2020, with 56% of revenues derived outside of Canada. In Q2 FY2020, the Company signed new resellers in Indonesia, Australia, Egypt, Kingdom of Saudi Arabia and France.   Revenue for the period ended September 30, September 30, September 30, September 30, (in 000's) 2019 2018 2019 2018 (Three months ended)      (Six months ended) Canada 1,382 1,030 2,862 2,096 United States 749 545 1,491 1,015 Europe 653 99 1,393 280 Asia 120 143 291 278 Latin America 30 48 67 95 Australia 94 94 174 115 Other 88 5 169 22 Total revenue 3,116 1,965 6,448 3,902   Martello's global growth is also driven by strategic partnerships. In July 2019, the Company announced that it has teamed with Paessler AG to offer a service assurance solution to large enterprises and managed service providers (MSPs). Paessler is the German headquartered network monitoring specialist with more than 200,000 customers worldwide. During Q2 FY2020, Martello's UC Analytics software reached a milestone of 1 million users under monitoring at Mitel's network operations center (NOC) , demonstrating its value as a service assurance solution for managed service providers. Expenses   Expenses - Three months ended September 30 2019 September 30 2018 Decrease /  (Increase)* (in 000's) Total Savision Remaining Balance* Total Research and development $ 1,139 328 811 787 (24) Sales and marketing 1,389 598 791 590 (201) General and administrative 1,395 221 1,174 1,052 (122) Depreciation 81 27 54 20 (34) Amortization 267 - 267 106 (162) Acquisition-related costs 30 - 30 143 113 TOTAL 4,301 1,173 3,127 2,697 (430) Expenses - Six months ended September 30 2019 September 30 2018 Decrease /  (Increase)* (in 000's) Total Savision Remaining Balance* Total Research and development $ 2,311 682 1,628 1,659 31 Sales and marketing 2,710