Martello Technologies Group – $MTLO.v

I’ve been writing lots about more traditional and statistical investment opportunities. I think it’s important to be flexible to some degree with your portfolio. I will never be the investor who buys a business at 20x revenue, but I’m not against buying one that has not earned a profit, is growing fast, and isn’t cheap or traditional.

Martello is an interesting example. I recently picked up some shares. It’s still a small position at this point, but that can change.

Background (pasted from TIKR.com)

Martello Technologies Group Inc. develops and sells products and solutions that optimize the performance of real-time applications on cloud and enterprise networks. The company operates through three segments: Performance Analytics, Network Performance Management, and IT Visualization. Its products include unified communications (UC) performance management software, IT systems visualization software, and software-defined wide area network (SD-WAN) technologies. The company also offers Martello iQ, a service monitoring and analytics platform; ATLAS, a SD-WAN solution with security, optimization, virtual private network, and failover components; and Martello Vantage suite of products to prevent, detect, troubleshoot, and address UC performance problems, such as delay, jitter, packet loss, and poor voice quality. In addition, it offers subscription and perpetual software licensing, maintenance and support, and training and professional services, as well as hardware products, cloud connectors, and virtual LBX devices. The company serves education, hospitality, healthcare, and professional service industries, as well as enterprise networks, remote works, and service providers. It operates in Canada, the United States, Europe, Asia, the Latin America, Australia, and internationally. Martello Technologies Group Inc. is headquartered in Ottawa, Canada.

We’ve all experienced some disruptions with some virtual meetings regardless of the platform used. Digital Experience Monitoring helps businesses take a proactive approach to cloud based collaboration and productivity.

Their website has some useful information on the topic.

The company has integrated with Mitel very well and should see revenue increase if there is an increase in Mitel’s business. Mitel has sales over 1 billion and over 4,000 employees.

Financials

As you can see they just hit EBITDA break even last quarter if you adjust for some one-time expenses.

Management

The C-suite seems fairly stacked for a company of this size.

The CEO has been on BNN a few times and always seems quite measured. He also did a TEDx Talk that I think is worth a listen. He has a background in the military and experience in Cyber Security.

The CFO recently won an award and well qualified given all the capital allocation decisions in front of the company at this growth stage.

The remainder of the team has deep experience in product development, talent acquisition, marketing, among other things.

Management owns about 3% of the company. I wish it was a little more.

Board

Similar to the executive team, the board has characteristics of a much larger company.

Sir Terry Matthews is on the board as co-chair. He cofounded Mitel and is obviously well connected. He owns about 15% of the common shares.

The other co-chair is Bruce Linton of Canopy Growth Group. Canadian retail investors will be familiar with him.

The co-founder of Martello (Niall Gallagher) is also on the board as well.

The board owns about 20% of the outstanding shares with 15% coming from Matthews. The board does not give me the impression that they are simply rent seeking buddies of the executive team, which is really nice to see.

The audit and compensation committee are comprised of independent directors.

Execution to date

The company has been focused on building recurring revenue through organic growth and through acquisitions.

Of course, the acquisitions have come with increased recurring revenue and it’s likely too early to judge if the prices paid were too high or at a fair price.

Risks

  • capital raise could happen to accelerate M&A activity
  • poor outcome from a deal
  • low insider ownership
  • share count is over 200mil, I usually prefer businesses with less outstanding shares
  • retail shareholder base can lead to volatile gyrations in the share price
  • increase in expenses as the economy reopens could be quicker than revenue growth

Milestones

Some milestones I can identify that would bring me more confidence in their execution and encourage me to add to my position:

  • several quarters of positive EBITDA
  • full integration of GSX (acquired in early 2020)
  • insider buying
  • another acquisition
  • getting MRR (monthly recurring revenue) growing organically

The shirt….

In July of 2019, Bruce Linton appeared on BNN to discuss being terminated as co-CEO of Canopy Growth. He was wearing a Martello Technologies and the shares took off from 0.20 to over 0.70. Now I don’t know what his intentions were by wearing the shirt, and I’m not going to speculate. The CEO appeared shortly after to discuss the business. I think John Proctor did a good job explaining the business and managing expectations.

I think this goes to show how primitive the venture market is. Linton was in the filings for Martello for about a year. If you type $MTLO into the search bar in Twitter you get some interesting comments around this time. Hopefully, the shareholder base is a little more focused on the business not the share price now, but who knows.

Conclusion

I think MTLO is a decent bet at today’s price. There seems to be some stability in the investor base after the run-up (and subsequent run-down) in 2019. The business seems to be building a base of recurring revenue while having a service that should be in demand for the foreseeable future. Monitoring the business performance is critical at this stage in their life and risk management via position sizing is my strategy.

Anyone else own MTLO?

Thanks,

Dean

*The author is long MTLO at time of writing. Thanks Chip and Liam for sharing notes.

3 Comments

Filed under Company Analysis

3 responses to “Martello Technologies Group – $MTLO.v

  1. Interesting – not sure i understand the stickiness of the technology though.
    What keeps Microsoft or Mitel to produce a similar product and offer its end users?

    • Hey. Thanks for commenting. I think that your example is a legitimate threat to the business. Given the history and interconnectedness, I think that Mitel is unlikely to develop their own personal digital experience monitoring to work across different platforms.
      I can see MSFT digging deeper and spending more on developing a virtual meeting platform with the user experience in mind. It is something to keep an eye on and something I am going to try to get a better handle on.

      Thanks,

      Dean

  2. Interesting, not sure i understand the stickiness of the technology though – what keeps Microsoft and Mitel from producing similar technology and offer it their customers?

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