Martello Technologies Group Inc

XTSX:MTLO

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Martello Technologies Group Second Quarter Fiscal 2021 Investor Conference Call.Today's call will provide information and commentary on financial results for the second quarter of the 2021 fiscal year or the 3 and 6 months ended September 30, 2020.We will hear from John Proctor, President and CEO of Martello; and Erin Crowe, Martello's Chief Financial Officer. Following these remarks, John and Erin will take questions from analysts. If you have a question following the call, you can reach Martello at [e-mail], here are a couple of housekeeping notices. [Operator Instructions] This call is being recorded, and we expect that the recording will be available on Martello's website today.We remind you that today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of Martello's news release, which is on their website and on SEDAR. The company's actual performance could differ materially from these statements.We'll begin with a review of the financial results with Martello, CFO, Erin Crowe. Erin?

[Erin Crowe, Chief Financial Officer]

Thank you. Martello's mission is to become a dominant vendor in the enterprise digital experience monitoring, or DEM market, making every user's digital experience productive, whether conducting a video conference or sharing a file.Our DEM solutions give IT teams actionable intelligence to proactively deliver a positive digital experience for users. Martello has thousands of customers in more than 175 countries around the world.Following an active and transformational Q1, during which Martello acquired GSX and closed new financings. In Q2 of fiscal '21, Martello focused on building it's pipeline of sales deals and on integrating GSX.We're pleased to report that just 1 quarter after acquiring GSX, these efforts have already yielded results. Martello added more than 450,000 new Microsoft 365 users to Martello's Gizmo product reaching 2 million licensed users in Q2.In addition, we've seen growth in bookings, revenues, and renewals of the iQ service analytics platform.In addition, in July 2020, Martello sold its Network Performance Management or NPM segment, to focus our resources on the growing DEM opportunity.Now I'll turn to details of our financial results this quarter. In Q2 fiscal '21, I'm pleased to report that our revenue grew by 63% to $4.4 million, with 96% of total revenue recurring. Monthly recurring revenue, or MRR, also grew by 63% compared to the same quarter in the prior year, excluding the discontinued Network Performance Management segment.Once again, we achieved positive adjusted EBITDA. We continue to believe that our growth rates, gross margins, and recurring revenue metrics place us among leading software as a service vendors anywhere and within any sector.As mentioned, revenue of $4.4 million is 63% higher than $2.7 million in the same quarter of the prior year. The acquisition of GSX contributed $1.7 million to the increase. Mitel UC monitoring revenue increased by 3%, offset by a 9% decrease in revenue from IT service analytics. This includes revenue from both the legacy Live Maps business as well as the growing iQ business.Monthly recurring revenue, or MRR, increased by 63% over the same quarter in the prior year to reach $1.42 million, excluding the discontinued NPM segment. Including the discontinued NPM segment, MRR increased by 48% compared to $960,000 in Q2 fiscal '20. The increase in MRR is due to the addition of GSX revenues, which contributed $560,000 in MRR in Q2 fiscal '21.MRR is a non-IFRS measure and represents average monthly recurring revenues earned in fiscal quarter. The MRR measure offers insight into the predictability of Martello's current and future revenue streams.The recurring portion of total revenue was stable at 96% in Q2 fiscal '21 compared to 97% in Q2 fiscal '20.Revenue remains diversified, with Mitel UC monitoring contributing 42% of revenues in Q2 fiscal '21 compared to 58% in Q2 of the prior year. GSX monitoring solutions, including Microsoft 365 monitoring, contributed 39% of revenues in Q2 fiscal '21 was none in the prior year because GSX was acquired in May 2020. IT service analytics contributed 19% in Q2 fiscal '21 compared to 29% in Q2 fiscal '20.In Q2 last year, the discontinued NPM segment contributed 13% of revenue. Revenue from sales of UC Performance Analytics software through the Mitel channel in the 3 months ended September 30, 2020, increased by 3% to $1.85 million compared to $1.8 million reported for the same period in fiscal '20.Martello is engaged with Mitel in several initiatives, which we believe will expand coverage of MPA and Mitel product lines in the future. Gross margin remained strong at 95% in Q2 fiscal '21 compared to 93% in Q2 fiscal '20.The company achieved positive adjusted EBITDA of $304,000 in Q2 fiscal '21 compared to a loss of $985,000 in the same period of fiscal '20. Adjusted EBITDA is a non-IFRS financial measure, which assesses operating performance before the impact of onetime costs associated with acquisition activity, impairment losses, other noncash costs as well as the impact of discontinued operations in fiscal '21.Positive adjusted EBITDA in Q2 fiscal '21 reflects the slight improvement in gross margin, the continuation of temporary risk management measures, including salary and workhour reductions in response to COVID related uncertainty as well as the reclassification of the NPM segment as discontinued operations in the quarter.Recently, the company returned its employees to full salary and work hours and Martello will continue to make investments to accelerate MRR and revenue growth. These investments may impact short-term operating results.Operating expenses for the quarter increased by $1.45 million to $4.76 million from $3.3 million in Q2 fiscal '20. The increase reflects $1.94 million in GSX operating expenses, which included $330,000 in amortization of intangibles, of which there were none in the comparable period.Excluding the impact of these items, operating expenses decreased by 15% or $500,000 compared to the same quarter last year. The decrease in expenses is related to COVID-19 reductions in travel and marketing activities as well as the temporary reductions in salaries and other compensation.Loss from operations was $580,000 compared to a loss of $800,000 in the same period of fiscal '20, a decrease of $220,000. Revenue and gross margin increases were partially offset by increased expenses relating to the acquisition of GSX, including amortization of GSX intangibles and acquisition-related costs. In addition to these items and contributing to net loss, the company incurred higher interest expense on the Vistara term loan, partially offset by foreign exchange gains.The company divested the assets of the NPM segment in Q2 fiscal '21 for total proceeds of $828,000, consisting of cash of $424,000, a promissory note receivable of $100,000 and common shares in the acquiring entity of $304,000. A gain of $220,000 was recognized on the divestment contributing to a gain from discontinued operations of $103,000 in Q2 fiscal '21, as compared to a loss of $650,000 in Q2 fiscal '20.The results of the NPM segment are reported as discontinued operations for all periods presented in the financial statements.As a result of these items, the net loss for Q2 fiscal '21 was $940,000 compared to a net loss of $1.5 million in Q2 fiscal '20. The company's cash and short-term investments balance was $4.2 million at September 30, 2020, compared to $5.9 million at March 31, 2020.The company is confident, subject to risk factors associated with the ongoing COVID-19 crisis that it retains sufficient available cash, working capital, and available revolver to fund organic growth plans going forward.Our long-term DEM strategy will require investment over the next several quarters. This investment may impact short-term operating results as the company positions itself to accelerate MRR and revenue growth in future quarters. I'm glad that our strategic investment in DEM is yielding the early results we've seen in Q2 fiscal '21. Based on sales activities, we are pleased with the trajectory we are seeing.I'll now hand it over to John Proctor for his perspective on Martello's performance and outlook. John?

[John Proctor, President, CEO & Director]

Thanks, Erin. Good morning, everyone, and thank you for joining us today. I'm delighted by Martello's progress through Q2 of fiscal '21 and our outlook for the future. As Erin has noted, we've seen strong year-over-year revenue and MRR growth of 63%. Martello is taking a systematic approach to executing its DEM strategy.In Q2 fiscal '21, these efforts have created a foundation for the company's next phase of growth and have brought early results. Martello's growing market opportunity in DEM is being increasingly recognized by third-party industry analysts and also reflected in our sales pipeline.I think the most compelling indicator that our DEM strategy is working is the addition of 450,000 Microsoft end users in just 5 months since we acquired GSX.For emerging market segments like this in enterprise technology, third-party industry validation and endorsement is important.Leading research firm Gartner recognized Martello in 3 reports published in July 2020. Enterprise management associates recognize us as a DEM vendor to watch in October on the strength of our combined iQ and Gizmo solution for Office 365. Gartner, in an October report on driving the digital workforce, recognized Martello was a key vendor of DEM solutions.None of Martello's competitors in the Microsoft 365 space were also recognized in the report. This growing recognition is happening at the right time for Martello. After surging by 70% in April 2020, Microsoft Teams videoconferencing usage subsequently grew by an additional 50% according to Microsoft in October 2020. As the usage skyrockets for the service, there is growing demand for a solution to monitor the user experience.Martello recently added advanced Teams video monitoring capabilities to its Gizmo product, which is important to true end-user experience analytics.In Q2 fiscal '21, I was pleased that Gizmo also detected a global Microsoft 365 outage, notifying its users before other available methods. This led to an increase in inbound sales inquiries immediately following the outage.This combination of third-party market recognition and exploding usage of Microsoft Teams has had a meaningful impact on our sales activity and product development.As part of the integration of GSX, significant work was done through Q2 to integrate the sales organization, including people, processes, and systems. The team is aligned on driving new business for our DEM products via direct enterprise sales and partnerships as well as cross-selling and upselling in to Martello's current customer base.We've seen some success in the quarter in sales growth for the iQ service analytics platform with bookings, revenues, renewals, and sales pipeline, all increasing in Q2 for this product. In part, this has been driven by a focus on converting the legacy Live Maps customers to iQ and Gizmo.This past quarter, a large law firm and global insurance firm both made the move to iQ, and there are many others who express interest. We're also working on sales strategies to bring iQ and Gizmo to Mitel customers and partners. We've already seen early success here with Mitel partners by pursuing a complete Martello DEM solution, which includes MPA, Gizmo, and iQ. These partners will gain complete end-to-end insight into their unified communications and Office 365 user experience with Martello's DEM solution.Finally, we're seeing a steady stream of OEM based deals from our partnership with Paessler. The progress here has so far exceeded our expectations.Our partnership with Mitel continues to be strong, and we are aligned to their key strategic growth initiatives, including MiCloud Flex. While we expect the MPA business to grow, our overall revenue base continues to diversify, such that this segment of our business now contributes 42% of our revenues compared with 58% a year ago.Even as a sales team and related processes are fully integrated and performing, the operational integration of GSX into Martello is nearing completion. The more complex development of cloud-based multi-tenancy for Gizmo and iQ is progressing well.You may also have seen the news reported this morning that Antoine Leboyer, the former CEO of GSX has joined Martello's Board of Directors. Antoine will replace Niall Gallagher, who has decided not to stand for election this year and is enjoying a well-deserved retirement.I'm delighted that Antoine has agreed to join our Board. I've spent countless hours with Antoine since we began the process of acquiring GSX almost a year ago, and I'm very confident in the value he'll bring to Martello. Antoine has deep knowledge and expertise in building enterprise software companies. He is the visionary behind the development of GSX, Microsoft 365, digital experience monitoring business that has become a key engine of Martello's DEM offering.I'd like to close with my perspective on Martello's outlook. As I've said before, I believe that our stock is undervalued. I do see increasing price support for our stock, which I believe is a reflection of our growing opportunity and demonstrated execution. While I'm pleased with our progress and results, I'm still not satisfied. I'm pushing Martello's leadership team to move fast and invest where needed to capture our growing market opportunity in DEM. I believe we have the kind of market opportunity in front of us that companies rarely see and sales execution will act as a catalyst for the revaluation of our stock.To that end, we are taking a very systematic approach to developing the product features that will close the opportunities in our pipeline and increase MRR over time. We are investing in sales, customer success, and delivery, to ensure our customers have the best experience in the industry and stay with us for many years to come.None of this can be achieved overnight. It takes time, persistence, and investment, and with this approach already yielding early results, I'm extremely confident that our strategy will bring strong results in fiscal 2022. The investments we are making in long-term growth may have a near-term impact on adjusted EBITDA.Erin and I have spent time over the last quarter speaking with retail brokers, institutional funds, and high net worth investors. We've announced sales deals when this has been possible, while respecting the privacy of our customers, and we're planning additional opportunities to share Martello's news, including an investor newsletter. You can register to receive Martello's news in the investor section of our website at martellotech.com.I'd like to thank you all for joining us today and wish continued good health to all of you and your families.Erin and I will now answer your questions. Operator, would you please facilitate the question-and-answer part of this call?

[Operator]

[Operator Instructions]The first question comes from Kevin Krishnaratne with Eight Capital.

[Kevin Krishnaratne, Principal & Equity Analyst]

I have a few questions for you first on the Mitel channel. If I look at the subscription revenue line, it was just shy of $1.8 million, it was $1.9 million in Q1. And if you look in the past few quarters, it's sort of been stuck around this level. Can you talk -- can you unpack this a little bit? Can you talk about any -- what the -- what might churn look like in there, what might the subscriber addition profile look like in there?I know you mentioned you're in discussions with Mitel on some opportunities. I'm just wondering if you could unpack that a little bit because it came in a bit softer than I was expecting. And just over the past few quarters, it looks like it's been pretty -- relatively flattish.

[John Proctor, President, CEO & Director]

Yes. I mean, we're working closely with Mitel on a few strategic initiatives that we believe will increase MPA revenues. And we're also looking at sales of Gizmo and iQ in this channel.I expect that by pursuing these projects, we'll see an increased growth rate from this channel over the medium to long-term.At the same time, Mitel is a $1.3 billion business. So -- and we are their dedicated analytics provider, and you do have thousands of Mitel customers using our software. So we do recognize that the sales in these channels will fluctuate. We do see that with Mitel. And again, we see the challenges of this unified communication space has become very, very busy.But I think we're also seeing our own diversification of revenue streams. And I think that's an important point for us. We reduced them to -- not reduced them, but with our own growth, they've gone to 42% rather than 58% in the comparative year.So I think that -- I get your point on the flatness. But as you can imagine, Mitel is adjusting to this new work from home. They've got new products coming. We've got a whole range of new -- as I said, new projects, strategic initiatives with them. So I think, as I said, over the medium to long-term, we'll see that pick up, as Mitel adjusts.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. That makes sense to me. And I just -- I do want to just dig a little bit more though. It's -- when you look at the number, I mean, there was a bit of churn in a way or was there not. I'm just wondering if you can describe that a little bit.Was there maybe 1 big -- 1 customer loss? Is there -- is it kind of widespread? Or was it maybe customers that are laying off, so there's less monitoring being done? I'm just trying to understand. I can understand the addition maybe coming in softer, but for the number to come down sequentially, I'm just wondering what you're seeing there. Is that just something -- a onetime anomaly, how do you think about that going forward?

[Erin Crowe, Chief Financial Officer]

Yes. So I think there's -- Kevin, I think there's a couple of factors in there. We -- so we don't have full visibility behind like what's happening at the Mitel level on their own churn. We do -- we are aware that they did lose 1 customer at some -- at one point in -- I believe it was in Q1, which would have impacted, obviously, a fairly large customer, I understand, which would have impacted our Q2 revenue to some degree, right?I mean it's a very muted effect for us. But it did affect our subscription revenue number.And then there's also a FX component there as well on our Mitel revenue. So really, it fluctuates to some degree with the U.S. dollar as well because the majority of that revenue is in U.S. dollars.So there's a couple of different things at play there when you look at those numbers. And we are working with Mitel to understand, as John said, some of the opportunities that they see and where we will have those opportunities to drive additional revenue and coverage on the MPA side.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. That's all helpful. Is there a way -- I mean, I'm not looking for necessarily specific guidance, but can you help us set expectations for the next couple of -- maybe the next quarter even just for this specific line?I know it's positive to see that you've come back on with the sales force back to better fuller activity in October. So you must be seeing something good in the pipeline across all the business.I'm just wondering, just before I move to the next section, if you could just help us with this business over the next couple of quarters. I know that you're confident of return to stronger growth later on in the medium-term. But how do we think about that over the next couple of quarters?

[John Proctor, President, CEO & Director]

Yes. As I said, sort of medium to long-term, we're confident. I mean, this is all monthly recurring revenue. It's good, solid margins for us on this business. And as I said, with $1.3 billion, Mitel is not going away anytime soon.And what I see is some -- and I clearly can't talk about Mitel on behalf of Mitel. They've got some really interesting projects. They're recognizing the changes going on that we're involved with. And if I look at some of that, a lot of this [ rate ] goes around these analytics, right, the data that's there. And as we're their sole and only analytic solution and they white label us, we're fully embedded in these programs. It's just that balance.And as Erin said, in this one, even the exchange rate had an effect on this.But I think over the long -- medium to long-term, the decrease will be -- I don't see a decrease. I see it certainly holding as they adjust to this new environment. And as they look at to more cloud -- new cloud solutions, they've integrated Teams, right? That's a good aspect of theirs. They're all recognizing these integrations into other environments are needed as people work from home and the IT environment changes.So you can now accept a Teams call on your Mitel phone system. So and if you can -- sort of the light bulb moment goes on and say, well, hold on, they -- their analytics partner, who's us, already has a Teams analytic solution and they're combining us -- they're combining that together.You can probably work out why their partners who offer Mitel as a service and Office 365 as a service are really interested in bringing this complete DEM solution with iQ, bringing both of those 2 together into one nice package for them.So the acquisition we have done has actually positioned us really, really well to stay even closer to Mitel as they adjust into the new -- this new normal.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. Okay. That's great color there on the Gizmo. That's kind of where I was going next. That -- on the GSX, nice growth there, 6% quarter-over-quarter, if you look at the -- I know you had 1 month in Q1, but if you sort of look at the monthly rate of that and compare that to Q2, it was up nicely 6%, which I think is in line.If you look at the -- maybe for Erin, the breakdown of the revenue was a little bit over $1 million in subscription and then maintenance revenue of $586,000. Are you able to give us the breakdown of Gizmo versus non?

[Erin Crowe, Chief Financial Officer]

Yes. So it's -- the breakdown -- so is between 20% and 25% non-Microsoft, so would be their legacy product and the balance would be the Microsoft product.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. And is the...

[Erin Crowe, Chief Financial Officer]

That has been trending down. So as a percentage of their overall revenue, if I look at the last 4 months.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. And so, nice to see -- that was a great press release that we saw with regards to the -- you added 450,000 users, you're at 2 million. I'm wondering how that growth sort of evolved over the quarter. Is that number -- is the full run rate of the 2 million close to being reflected in the Q3 reported number? If not, how do we think about what the full quarterly revenue would be, say, for your -- for that base?I guess -- because if I look at the -- if I look at this from a quarterly revenue run rate on the Q1 revenue versus what you did in Q2, it kind of relates to about $60,000 worth of revenue. So I'm just wondering how to equate the growth that we saw in the revenue relative to the users that were added.And as a follow-up to that, can you remind us how Gizmo was priced? I know maybe relative to Mitel, because with the Mitel product, I think it's $0.20 per user per month. How do we think about what Gizmo was priced at?

[Erin Crowe, Chief Financial Officer]

Yes. So good question, Kevin. I think when you -- so a portion of the 450,000 users would be reflected in our Q2 revenue. But I think if you -- when you think about the fact that our revenue is over 95% recurring. So it really only gets baked in over time on the revenue piece. So if you think about, say, a $250,000 3-year deal, it's $7,000 of new MRR, right, or let's say, $21,000 in a quarter kind of thing.So it's it does take time to work its way into the revenue, and some of those deals did come in through the quarter, so they wouldn't be fully reflected even the full MRR impact in that in Q2.And I think the other thing to keep in mind, as we just talked about, is that there is a portion of the GSX revenue that is still legacy. We know that is a declining piece of the business. So some of those new revenues, there is a partial decline on those legacy revenues that sunsetting business as well, and that's expected, right? We've talked about that before. So no surprise there.I think what we're pleased to see in Q2 is that there's been growth in the Microsoft 365 space. And so that's obviously in line with our strategy. And then John will just touch on the pricing.

[John Proctor, President, CEO & Director]

Sure. And for pricing, and this is where Gizmo is kind of interesting because it's effectively an add-on or follow-on or upsell to Office 365. And I'd say that in 2 ways. If I look at also 1 of our other partners, you actually don't need Office 365 to have Gizmo, and that's kind of -- I'll come back to pricing because this point is actually important. If you actually install Gizmo, you can model what an Office 365 installation would look like.So if you're in IT environment, that's really important because they spend a lot of time, you spin up Office 365 and find out things don't work probably. That's a fairly expensive problem, particularly if you already started to transition the company over. Whereas if you actually install Gizmo first, you can model this using the synthetic transactions. See how Office 365 will work and fix it before you install Office 365.And then -- but coming back to the pricing point, what we're looking at here is we do by seats. So effectively, what we're looking at here is how many users do you have, and it's -- we align very much to the Office 365 model. And if you look at that, whether that's sold directly by Microsoft or as a service through a Microsoft partner, we align into their pricing and we look around at sort of we trying -- 1 of the biggest -- not challenges, but hurdles, not hurdles we have, but sort of things we focus on that pricing is we need to understand what the customer pay for Office 365 and then line into that.And when I look at Gizmo, nobody is going to pay more than -- an additional 10% more for an add-on. So we're less than 10% of the cost of Office 365 is how I'm going to put it. And then it depends really on what the customer has paid for Office 365 on that pricing.We work very closely with our partners, including Microsoft, who are taking us to a number of customers at the moment to adjust on that basis.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. Okay. That's helpful. And that 10%. The last question, just a thought there. It's really interesting to hear that. Obviously, the synthetic monitoring can be as proactive in nature on installation of Microsoft.You've talked in the past about opportunities potentially down the road for adding other types of software to be predicted, whether that's Salesforce, other SaaS platforms. I'm wondering, are you able to leverage the technology from Gizmo into other pieces of software? Or is it strictly -- I know it's strictly a Microsoft thing today, but just curious on future technology road map, how you're able to potentially leverage what you already have with Gizmo into other type -- other services?

[John Proctor, President, CEO & Director]

Yes. So if you think of it in sort of 2 parts, so the display item or the dashboards that we provide as part of Gizmo, and then is the sort of probe or the analysis tool itself.So what we're looking at here is absolutely the dashboard aspect can certainly be fed by other data. It's the probe that has to be changed. So putting another sort of analytics probe or agent onto the endpoint device or server. So we can see that other -- whether it's Salesforce, SAP or whatever other technology. That's the key piece, but we can then leverage that into the current sort of dashboard system we have. And then this is where iQ plays that key piece of becoming the glue to pull all this together.So if you're in IT team, whether you're running Azure, Google Cloud, SolarWinds, PRTG, what we're pulling there together is this complete picture with Office 365 for an IT team. And we mentioned a couple of those, and we certainly mentioned, recently, an insurance company that's added multiple Azure instances, Office 365, VMware, SolarWinds, you name it, all into 1 big picture. And that becomes the key for us is -- and it's a unique differentiator.When you look at that Office 365 space is we have incredible depth in Office 365, much stronger than our competitors, but we can also pull it into a bigger picture for the IT team and that's where the IT Director or the CIO truly finds a value out of our combination of products.

[Operator]

Next question comes from Daniel Rosenberg with Paradigm Capital.

[Daniel Rosenberg, Analyst]

I had a question regarding the organic growth profile for you guys. So given how much GSX represented in the quarter, I was wondering how you think about organic growth in the near-term versus medium-term trends, would this quarter's results to be reflective of what you see going forward? So if you could elaborate there, please?

[Erin Crowe, Chief Financial Officer]

Yes. So I think I'll start here, and then John can jump in. But I think when we look at the current revenue growth rate, I mean, we're really pleased, obviously, with the 63% growth in the quarter-over-quarter number.I think we're also happy with the fact that we've seen growth from a -- on the new DEM product, particularly on the iQ side, the revenues, the renewals and the pipeline and they're growing and they're trending in the right direction. And we're also seeing the benefits of the work that we've done with some -- and generating a strong pipeline on the GSX side as well on the Microsoft side.The revenue piece in both the IT Service Analytics, iQ or the Savision business and then the GSX business are, to some extent, influenced by the decline in those sunsetting products, right, which we've expected and we've talked about before. So as the proportion of the new business continues to grow and those sunsetting businesses continue to decline, that organic growth will be reflected more clearly in the overall revenue growth in that sort of next couple of quarters, I would say, as we start to -- as we continue to see that trend.

[John Proctor, President, CEO & Director]

Yes. And I'll just add on to that, Daniel. If you look at the growth of Office 365, and you look at sort of the -- what I'm seeing in terms of the pipeline for the Gizmo product, I do see that some point, and I mentioned sort of the percentages, there's a very large likelihood that the Gizmo product and our depth into Office 365 will become a very dominant product for us with that growth.They keep -- the number -- the growth in Office 365, and I mean, even look at the federal government here in Canada, they were supposed to spend 2 years going to Office 365 and they've done it in 3 to 4 months, which is a great piece. But when you do something that quickly, some of the pieces get challenged. So we've been pulled into a number of conversations there.And it's the same happening in Europe. A number of organizations have gone really fast into Office 365. And that's kind of an industry-wide thing. We've -- this COVID and the economic uncertainty in the work from home has been an accelerator to certain aspects of digital transformation. And as part of that accelerator, you don't get to do things probably as tightly and neatly as you want to do. And therefore, you need to understand what is going on. And without our tool, you can't do that.And even this last -- in the last month, Microsoft has pulled us into a discussion with a very large global car manufacturer who are having problems with Teams, and they couldn't understand why, but we can. You put our solution in, and you can understand what's going on.And the nice thing, again, we've added recently with the recent releases is the pixelation issue. So it's not just about voice, it's about video and I think that we're recognizing more and more important. It's -- this is going to be this -- I mean, we called it the new normal. We're not quite sure what that would look like. But certainly, voice and video calls are becoming the norm of expectation in terms of versus just a voice call. So we're moving to that space. And I think that's why you'll see as we tag along or has connected ourselves to this Office 365 growth, that will be a significant driver for us.

[Daniel Rosenberg, Analyst]

Okay. As it relates to the investment that you mentioned to accelerate your growth plans, I was wondering if you could provide some context into what that means, especially as we come out of COVID, and it sounds like you guys are back at kind of a normalized run rate. So should we think of that kind of as a percentage of revenue, what the expense ratios look like prior to COVID for you guys? Or how should we think about that incremental investment going forward?

[John Proctor, President, CEO & Director]

Yes, I'll start on this, and I'll then hand over to Erin. We kind of mentioned this, really, which is we've had to invest in sales and customer success and delivery.A couple of reasons for that, one, which is with an overwhelming pipeline and focus and pulled by Microsoft, we didn't have capacity, particularly in North America because GSX, former GSX and Gizmo European base and they've got a fabulous sales team over in Europe. We were comfortable with the team there, but we didn't have the capacity to deal with demand here in North America. So we've added headcount into sales.And then you've seen some of the recent wins, these are very big enterprise-level clients. You can't struggle with delivery. So we've got to get delivery. So the former CTO of GSX is now our VP of Delivery, and we've got a delivery organization. We're growing under him because you have to have delivery excellence.If you look at these contracts, we want to have retention. We can't afford -- as we put boxes on the front of the truck, we can't afford them to fall off the back. That won't be organic growth. So we want to keep as many boxes on the truck as possible. And therefore, you have to have delivery excellence. So we put some -- we're investing into there as well, and that enables these growth pieces.So really, that's the focus. It's certainly not administrative headcount. It's certainly not in that space. It's very much -- you're either selling or building at the moment is where the investment is. And that comes back to sort of this focus for us. Right, is being as lean and mean as we can and yet still achieve the goals we set ourself.Erin, do you have any follow-on to that?

[Erin Crowe, Chief Financial Officer]

No. I think that's a good sort of way to think about it. If we look at the investments that we're making, as John said, you would see increases in the sales and marketing line item. We'll obviously be looking at R&D as we go forward as well to drive the product piece. But G&A, we wouldn't be looking at any growth -- significant growth on that line item at this point in time.

[Daniel Rosenberg, Analyst]

Okay. And it sounds like your...

[Erin Crowe, Chief Financial Officer]

[indiscernible] historical, obviously, like just thinking back to the fact that we have gone back to the sort of the full more normalized headcount at this point.

[John Proctor, President, CEO & Director]

I'll give you a good example that, which is our HR team, when we absorbed, GSX didn't change, GSX didn't come with an HR team. We didn't add headcount. Our HR team had taken it on. So again, we're going to run as lean as we can and drive, like I said, really the engine of both sales and R&D. So again, if you're not selling or building, it's a very hard question of whether we need it at the moment.

[Daniel Rosenberg, Analyst]

Okay. Last one for me before I pass the line. Just on the accounts payable line, so it seems to have gone down. Was that just related to the divestiture? Or were there any other moving parts? And how should we think about any changes that we see...

[Erin Crowe, Chief Financial Officer]

You're looking at like between Q1 and Q2 or between March and Q2?

[Daniel Rosenberg, Analyst]

Yes, Q1 and Q2.

[Erin Crowe, Chief Financial Officer]

Yes. So I think Q2 was -- or sorry, Q1 was June 30. We had finished the acquisition at that point. There were payables there relating to the acquisition itself and some of the acquisition costs, professional fees, and relating to the financings.So plus there were some GSX payables, so -- that were part of our purchase price adjustment sitting on the balance sheet still at June 30. So we've, I'd say, cleared out a lot of that now through Q2 and probably at a more normalized level at this point.

[Operator]

[Operator Instructions] The next question comes from David Kwan with PI Financial.

[David Kwan, Former Technology Analyst]

I want to get back to what the dynamics with the Mitel business. I appreciate the color you guys had given. Just trying to get a better understanding. Obviously, you talked about not having necessarily visibility into the churn at the Mitel level. But I was wondering, like for your own business, like have you seen any churn or loss in the channel partners? Or is that all -- has that been stable?

[John Proctor, President, CEO & Director]

Good question because, I mean, clearly, you know Mitel, and it's all a partner business.We haven't seen any decrease in partners. It is actually -- we've actually increased volume of conversation with them because what they're doing is they've got to protect their base. And by that I mean, they have -- they offer Mitel as a service. They want to keep offering Mitel as a service. And that becomes really important as they -- as folks take their phones home or they work out how to connect Teams into this Mitel phone system they paid for.So that's increased our volume of saying their deal with increased complexity and concern from their clients. And part of their protecting base is bringing value. And I've kind of said this before, which is nobody is going to drop Microsoft and just keep Mitel, they want to run both.So when you do that, you have to have this solution. So I probably -- like I said, our discussion with their partners has increased because they're running both. And most Mitel partners are large MSPs, systems integrators, who offer more than one solution in many spaces because that's -- they have to, that's their business.So the more we can bring those things together into one picture, the better. And we certainly got a number of folks, Mitel partners who are already starting to pull sort of Gizmo through into their environment because they know that they can then connect that through into the Mitel phone system. So they -- if they're running both as a service, they can reduce their own meantime to respond and costs by pulling that into one picture using iQ.So it's a very positive story in that respect. So I'd say it's almost the inverse churn of partners. It's more of them sort of making sure they're protecting their base and need us to help them do that.

[David Kwan, Former Technology Analyst]

Okay. So I guess, you guys had talked about this last quarter, I think, at the very least, as it relates to Microsoft because we saw last quarter was soft as well, it was flattish versus Q4. That we may not necessarily get back to the historical growth rates that you guys have seen kind of north of 25% to 30%.So maybe kind of looking out over the medium-term at the very least, where do you think that number could go to? Like could it get back to at least the 10% to 15% range, maybe closer to 20%. How should we be thinking about this kind of at least a year out?

[John Proctor, President, CEO & Director]

Yes. So I mean -- and again, I'll kick this off and hand over to Erin for a sort of follow-on. I think if you look at this, there's going to be 2 key growth drivers for us. Obviously, the first one is Gizmo driving this Office 365 space. I'm extremely pleased with the current pipeline. I like what I'm seeing here, I'm looking at the growth aspects, which I like the look of.And then the iQ connectivity, right? We're seeing some really -- recognizing the value. I think we -- and we said this throughout the call, April, May, this time, this year, no CIO wanted a discussion with anybody to buy anything because they were busy trying to adjust their own environment to the new COVID restrictions, et cetera, and the new sort of working environment. That's -- again, that's now starting to change, and they're dealing with a degree of complexity that they haven't seen before.The other thing to recognize is the average CIO in the last year, 2 years, has really changed brilliantly 5 years role. If you go back sort of 3 or 4 years, the CIO used to control the applications in his own data center that ran across his own network in his own office. Now he's outsourced those applications for a third-party that runs them for their own data center, and they run across the Internet to people who work from home.They have very, very little control over that environment. So when the CEO says, what do you guys do? An IT team is much more towards the procurement arm of services rather than they are at delivery of services. And that's a true shift in this -- in the IT ecosystem.And when you think about that, they have to then say, well, where do you, as a CIO bring value? And the answer is you have to be able to say the CIO, everybody, all these services that we bought allow our people to be productive. Well, how do you measure that? You can't unless you've got a DEM solution. And that's kind of the new reality.And I think that's where we'll see the true growth is as the CIOs and IT teams adjust to this new reality of saying that true value in the supply chain is justifying to the CEO and showing to the CEO that the products they have spent money on deliver business productivity rather than just saying, yes, the stuff's on, which is what you'd want to do before. I think that's where we'll see the shift in growth.So sorry, slightly wordy answer, but I think this is where -- when you look at Gartner's point saying DEM is 2 years away from mainstream, we've come in at a perfect time, right? We've got iQ that glues it to altogether. We've been in the DEM space for years with Mitel voice analysis. And we've added Office 365 at a perfect time. So I think this is great timing for us from a growth perspective and pulling ourselves through.So going back to sort of the key point on numbers, yes, I think you'll see these growth engines of Gizmo, the glue of iQ, really pulling this through. And then MPA will just keep churning, right? There we will see Mitel. We'll see them adjust. Do we see MPA going back to 30% levels? Probably not, right? I don't think we'll get there.But certainly, it isn't going away anytime soon, but I think the other 2 will be much, much bigger drivers for us going forward in the future.

[David Kwan, Former Technology Analyst]

So I guess the way it sounds like in terms of the business mix, that's going to be moving even more away from MPA and towards Gizmo and iQ, John?

[John Proctor, President, CEO & Director]

I just think by the nature of their growth, they will do. I don't -- like I said, as we will see steady but small growth in MPA, it isn't going away. But I think the other 2 will have double -- if we look at double figures growth for those 2 I think they will, by that nature, just start to grow bigger.

[David Kwan, Former Technology Analyst]

Okay. I guess I think it ties into my next question, this is really to Savision. We've kind of seen this play out, and you guys have telegraphed this migration moving away from perpetual licenses to subscription agreements. And so that you've seen some churn, obviously, in the customer base and just kind of more flattish to negative revenue growth over the last year.Do you feel like we're now kind of at the point where we could actually start to see the revenues grow at least on a quarter-over-quarter basis?

[Erin Crowe, Chief Financial Officer]

Yes. So David, I'll take that one. Short answer, yes, I do think that we are at a point where we could start to see those revenues growing on a quarter-over-quarter basis.We will still have -- like if I look at that business, there is still a large enough proportion of the revenue that comes from the Live Maps sunsetting product. So there will still be an impact of that sunsetting. But the key for us is looking at the iQ piece, we have seen revenue growth on that. We have seen stronger-than-expected success with the Paessler partnership. So we're -- and we're seeing a really strong pipeline growing there on the iQ business as well.So we really believe that that's where the opportunities lie, and we will continue to see that Live Maps legacy business declining. We're renewing the maintenance and support. And -- but the focus right now is on driving that growth on Live Maps -- on iQ.

[David Kwan, Former Technology Analyst]

Just as it relates to the MRR, I guess, in particular, obviously, we've seen some of the revenue headwinds in the Mitel business and the iQ or more so on the Live Maps side that's impacted the MRR. Could you talk about the impact of the FX, especially on a quarter-over-quarter basis, given that the MRR was down slightly quarter-over-quarter?

[Erin Crowe, Chief Financial Officer]

Yes. So I mean, the FX will impact -- at this point, it will impact all lines of business right now. So the majority of our MPA business is in U.S. dollars. And then on the -- both the iQ and the Savision side and the GSX side, it's in a combination of euros and U.S. dollars. So there's certainly some variability there, and we've seen, obviously, the U.S. dollar fluctuations over the last several months.So those things will impact our MRR as we go forward. And we are looking at that as well and trying to look at how to isolate that as a piece of our MRR fluctuation.

[David Kwan, Former Technology Analyst]

So do you have, I guess, base -- if you assume the same FX rate that you had in Q1 and Q2, what the MRR number would be for Q2?

[Erin Crowe, Chief Financial Officer]

I do not have that off the top of my head, no. But I can certainly look at it. Yes.

[David Kwan, Former Technology Analyst]

Okay. Just, I guess, 1 more question as it relates to the OpEx. Just trying to understand just the impact of you guys kind of going back to pre-pandemic levels for salary and hours and then also these investments for growth, particularly on the sales and marketing side and R&D. How we should be thinking about the OpEx line going forward?So when we look at what the OpEx line was in Q2, kind of all in, it was roughly about $4.8 million. What should we be kind of expecting for Q3 and going forward as a decent run rate?

[Erin Crowe, Chief Financial Officer]

Yes. So if you think about what we said in the MD&A around the fact that our operating expenses in Q2 are about $0.5 million less than they were in the same quarter of the prior year, I think that's a reasonable way to look at getting back to sort of a more standard run rate. And if you look at year-to-date, that would also -- I think it's about $1 million year-to-date that we're ahead.So if you sort of look at the -- about $0.5 million quarterly impact of some of these temporary measures that would be reasonable. And then we've got to think about the fact that, as John mentioned, we are investing on the sales and delivery and customer success piece not at exponential numbers of people, but it's certainly at some moderate increases as we look at the next couple of quarters.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to John Proctor for closing remarks.

[John Proctor, President, CEO & Director]

Thank you. And on behalf of all of us, thank you for your interest in Martello and for all the questions.As mentioned earlier, you can register to receive our upcoming newsletter in the investment section -- investor section of our website. And the recording of today's call will be available on our website later today. You can reach out to our Investor Relations any time by e-mailing [e-mail] you, everyone, and have a great day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.