September 27, 2018

VIDEO: Martello Technologies Group Inc (CVE:MTLO) Strong Margins Create Investor Opportunity

Midas Letter
Midas Letter
VIDEO: Martello Technologies Group Inc (CVE:MTLO) Strong Margins Create Investor Opportunity

Martello Technologies Group Inc (CVE:MTLO) makes large networks more efficient and its clients include governments and financial institutions in 150 countries. CEO John Proctor provides an overview of Martello, discusses Martello becoming a publicly traded company, and describes its “build and buy” strategy. Proctor explains that unlike many IT enterprise-level efficiency groups, Martello’s margins are really good and offer investors a positive experience. Proctor expects the company to increase its monthly recurring revenue and capital expenditures from 60/40 to 80/20 over the next few years. Additionally, the company’s software services already have margins nearing 90 percent and the company forecasts at least 10 percent organic growth over the next 12-36 months.


James West:   Hey, welcome back. My guest in this segment is John Proctor. He’s the President and CEO of Martello Technologies Group, trading on the TSX Venture under the symbol MTLO. John, welcome.

John Proctor: Pleasure to be here.

[stock_chart symbol=”MTLO:TSV” align=”left” range=”5D”]

James West:   John, can we start with an overview: what exactly is the business of Martello Technologies?

John Proctor: So in a nutshell, what we do is make these big giant networks more efficient. So best example I can give, if you think about a building like this one – everybody’s trying to stream these days, everybody’s trying to connect to the Cloud services, they want to stream their CRM, they want to stream movies, and somewhere there’s some kid playing, you know, video games across the same network.

What we do is make that network efficient. And we’ve said, what is the business priority? SO if you’re a business, and you’re trying to do all these clever things, what is the most important things for you in all the priorities? So, for instance, phone calls. Voice over IP. Then video conference, and then you might select the others, and all those come down. But at the same time, if you can make those more efficient, you don’t actually need the same amount of bandwidth; so you’re paying for less, effectively, data pipe than you should do, but still getting the same level of service as if you were.

And I think again, as we see greater demand on that data bandwidth requirements, then we will always have, you know, work to do.

James West:   Huh. I think we might look into becoming a client, because we have, of course, we keep two networks going, and one of them, you know, we have data flowing to the broadcast channel and from the internet back into the broadcast channel, and then everybody in these various offices is editing to servers and everything, and we’re constantly having collisions and data failures in the critical environments. Like, during a show, suddenly the NDIs aren’t working, and that’s the kind of thing you do?

John Proctor: That’s exactly what we solve for multiple customers. And if I look at our customer base – and we’ve got thousands of customers in over 150 countries – and they range from giant government departments to manufacturers to financial institutions and everything in between, and the problem you’ve described, you know, is exactly what we solve.

We are very much a market-driven organization. We didn’t build tech and then try and find a market for it; we know what the market is, and we are solving those problems currently for thousands of customers.

James West:   Excellent. So a small enterprise like mine that probably does maybe $5 million a year, that’s not too small?

John Proctor: Not at all, and I mean, again, there is competition. We know that. At the giant enterprise level, who will take on, you know, a big financial institution like RBC or something like that, which we can also work with; but we’re priced more competitively. So for a mid-tier enterprise like yourselves, we’re a much better fit than some of our much bigger, much better-known competition.

James West:   Wow, this will be some of the best coverage I’ve ever done – actually becoming a client of the interviewing company.

John Proctor: What a fabulous way to make this work!

James West:   [laughter] Okay, so then, who are your largest customers right now, or is that something you can disclose?

John Proctor: So without going into sort of names and sort of, you know, people we haven’t got permission to talk about, think about global hotel chains, end to end across the world, and what they will do is exactly what I described: they will put us inside their environment, they want to keep their front office and their back office separate, and when you go there, they want the customer experience to work. They want that, when you’re in your room and you want your Wi-Fi to work, you’re on a business trip and you want to make voice calls on Skype or something like that, we make that experience work.

The other thing we do, which is kind of one of the things that as a techie I think is quite cool, is if some guy’s digging the road outside and, you know, cuts the fibre, we fail over wireless. So this hotel will never go down; it will always have connectivity.

And then there’s other things, which is, quite often hotels will have more than one internet service provider for that redundancy, and when it’s working well, we can just balance and say this traffic needs to go this way and this traffic needs to go that way. Again, it’s all about the customer experience and that hospitality.

But the example you gave earlier about small enterprise, hospitality is relatively small margin; they want a box that they can use fairly easily, there isn’t a dedicated IT guy at the hotel, so the box has to just work and has to be the right price, and we fit all those conditions.

James West:   Hmm, I am definitely going to examine becoming a client. Okay, so you made a very interesting point, and in my exposure to other IT enterprise-level sort of efficiency groups, I’ve constantly been faced with the reality as an investor that the margins are razor-thin, because the space is so competitive. And so how do you propose to offer investors a positive experience under those conditions?

John Proctor: Our margins are really, really good. So we have a mixture of monthly recurring revenue and capital expenditures from our clients, and we balance that fairly well; it’s about 60/40, and over the next few years, you’ll see that increase, as we go more towards sort of 80 percent monthly recurring revenue. But we’re also a mixture of software as a service and a little bit of hardware, so yes, there’s hardware, there’s capital expenditures to buy the hardware, but our software as a service, our margins are heading up towards 90 percent.

So you think about that from a revenue perspective, when we’re already hitting 90 percent margins, we’re a very solid, steady business in that respect, when we can achieve those margins at this stage of our public offering.

James West:   Is that because you specialize in these sort of sub-segments, the SD wave and the voice over internet protocol?

John Proctor: Yeah. So if you look at these networking areas, we’re really focused on making sure they’re efficient and they work, but we’ve been around for nine years, and I do kind of joke we’re a sort of a nine-year overnight success. But what those nine years have meant is we’ve got all the building blocks built, right? The bases are all there; we’re not a speculative company. I know that’s a little bit different sometimes with people saying ‘You’re on the TSX-V, you must be speculative’. The answer is, we’re not. When you come with thousands of clients already and in 150 countries and running at over 90 percent margins, you know, there’s a very solid business base being built.

But what we’re seeing now, I mean, if I look at sort of where we’re going, what going public means, is now we’re going to run our build and buy strategy. Because a lot of small tech companies in Canada, they kind of hit a bit of a ceiling. There’s a ceiling you can’t get through, you kind of break even, you’re doing well, but you can’t get that big leap into the next level. We’re using our go-public to change that and let ourselves go bigger, so a build-and-buy strategy.

And the reason that’s important is, tech’s moving so fast. With all our clients keep saying Hey, you solve this problem with your SD-WAN and your UC software, etcetera. Can you solve this one as well? And the answer is yes; sometimes we’ll take to build it, but other time it’s no, no, hold on, there’s a small company over there that we want to buy, because this customer has a problem; build them in, become accretive to us, and solve a customer’s problem much more quickly than if we tried to build it from scratch.

James West:   I see. Okay, then, in the context of being a nine-year company that’s been private and now you’re public, did you go public because your financials are in such great shape that it’s time to shout it from the rooftops, kind of thing?

John Proctor: There’s a little bit of that. Our financials always were in good shape. Yes, we’ve invested quite a lot this year non-recurring investment in going public, but it’s also to break that barrier, and again, you know, you’ve looked at us. Our Board is, you know, people like Terry Matthews, Bruce Linton, Colley Clarke, Mike Michalyshyn, there’s a really strong, active Board. So having their guidance to say Now is the time on your journey to do this, is key. And you look at people like Bruce and Terry who’ve taken many companies public; we’ve got the right expertise on the Board to help guide us and drive that perspective.

James West:   Sure. So in terms of the next 12, 24, 36 months, what is your financial projection?

John Proctor: So final project is, obviously, we’re going to grow. We are, we’ve talked about acquisition. We are going to acquire; that will obviously start to create those bumps, and we will see organic growth as well, and we forecast at least 10 percent organic growth, but then acquisition on top of that, as well. So our finances are only going to go up, and we’ll see the overheads this year greatly decrease. You know, going public evn with an RTO is not necessarily the cheapest thing to do; but we’ve done that investment, and that’s sort of done now, it’s settled, and it allows us to go forward.

James West:   Okay. So the company is a profitable enterprise at this point?

John Proctor: We’re breaking even. You know, notwithstanding the cost of going public.

James West:   As a growing enterprise…okay, that’s great. So, in terms of acquisitions, what is it that you’re looking for? More companies like I saw that you had recently acquired, it had an interesting name…

John Proctor: Yeah, Elifq. We caught Elfiq.

James West:   Okay.

John Proctor: So again, it gives an interesting – so this year alone, we’ve integrated one acquisition, we’ve done an oversubscribed private placement, and we’ve gone public. For a fairly small company, those are three fairly significant things to get done in one year alone.

For an acquisition process, what we’re looking for is companies that are accretive, and I mean by that is, truly the 1+1=3. It’s great to buy, you know, buy another company and you stick it alongside and you do great. But what I’m looking for is the piece in the middle where we can create something new that solves the client’s problem, together. That three point – because then it really is a valuable acquisition.

And again, I’m not looking for the startup company; I’m looking for that company that’s done well by itself, can’t get through the barrier, and wants to come and work with us. And what’s interesting, we’re already having the phone calls. Already having people calling us up saying, “So, hey, I’m this kind of company, and we heard about you, and we think we’d be a good addition to what you’re trying to achieve.” So the word is out there. But yeah, I mean, if I look at that and say bringing these companies together has to be accretive to the whole, and I think again, you look at sort of what shareholders are looking for – they’re looking for that. They’re looking that level of integration where the true value can be made out of the acquisition rather than just sort of plugs alongside and does its own thing.

James West:   Okay, John, that’s a great introduction to the company. We’ll leave it there and come back to you in a quarter’s time. Thanks for joining me today.

John Proctor: Great. Thank you, James, appreciate it.

Related Articles


Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.