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Kanata flagship Mitel beats Q4 estimates on strength of new units
James Bagnall, Ottawa Citizen
Published on: February 25, 2016 | Last Updated: February 25, 2016 11:14 AM EST
Mitel CEO Rich McBee has completely re-made Mitel Networks since arriving 5 years ago. Jim Bagnall / Ottawa Citizen
Now entering his sixth year at the helm of one of this city’s high-tech flagships, Mitel Networks CEO Rich McBee says he and the firm are in a good place.
“We’ve got the right strategy and we’re executing it,” he told analysts during a conference call to explain fourth quarter results, “We’re fine with where we are.”
At first glance, it’s a puzzling statement. Mitel reported sales of $335.7 million (all figures U.S.) for the three months ended December – essentially flat compared to the same period a year earlier. Earnings were 29 cents per share, up from 27 cents in the fourth quarter of 2014.
These results were slightly better than analysts had forecast but there’s little sign here of a company on the move.
Not until you begin to peel back the layers.
When Mitel founder Terence Matthews invited McBee to try his hand at remaking the telecommunications equipment maker, he had a pretty good idea that radical change was necessary. And McBee, a former senior executive with U.S.-based Danaher, has delivered on that part of it.
In the past few years Mitel has shelled out more than $1 billion to acquire a handful of companies to extended its reach in geography and technology. The Kanata firm is now three firms in one – each with vastly differently trajectories.
Meantime, the company is squeezing all the synergies it can from its recent acquisitions. Mitel’s worldwide head count at the end of 2015 was 4,466 – down 45 from Sept. 30. (About 600 employees work out of global headquarters in Kanata).
Mitel continues to generate sufficient cash to pare part of its debt, which stood at $634 million on Dec. 31, thanks in part to the Mavenir purchase. Last month chief financial officer Steve Spooner said the firm made a voluntary pre-payment of $25 million.
“Mitel is firing on all cylinders,” he said Thursday, referring to the performance in cloud and mobile, and its ability to generate record quarterly operating profits (earnings before taxes, interest costs and amortization).
Spooner said he expected company revenues in the current quarter would range between $270 million and $295 million, with adjusted earnings of between 3 cents and 9 cents. When it was pointed out to him that the earnings projection looked weaker than expected, Spooner explained that while Mitel generates about half its sales from January to June, it traditionally accumulates just 28 per cent of its annual profits in that period. It was a seasonal thing, he added.
As Spooner continued his presentation it was apparent just how complicated Mitel has become to measure. He offered different metrics for the influence of currency, acquisitions, business segments, normal accounting rules and adjusted estimates.
What does it mean? This is a grindingly tough business. McBee is absorbing multiple companies while manoeuvring through a profound transition in his industry’s buying behaviour. This as economists are trimming their forecasts for global growth.
Measured against this, Mitel’s performance has been superb. Whether that will be enough to satisfy shareholders is the big unknown.
James Bagnall, Ottawa CitizenPublished on: February 25, 2016 | Last Updated: February 25, 2016 11:14 AM EST
Mitel CEO Rich McBee has completely re-made Mitel Networks since arriving 5 years ago. Jim Bagnall / Ottawa Citizen
Now entering his sixth year at the helm of one of this city’s high-tech flagships, Mitel Networks CEO Rich McBee says he and the firm are in a good place.
“We’ve got the right strategy and we’re executing it,” he told analysts during a conference call to explain fourth quarter results, “We’re fine with where we are.”
At first glance, it’s a puzzling statement. Mitel reported sales of $335.7 million (all figures U.S.) for the three months ended December – essentially flat compared to the same period a year earlier. Earnings were 29 cents per share, up from 27 cents in the fourth quarter of 2014.
These results were slightly better than analysts had forecast but there’s little sign here of a company on the move.
Not until you begin to peel back the layers.
When Mitel founder Terence Matthews invited McBee to try his hand at remaking the telecommunications equipment maker, he had a pretty good idea that radical change was necessary. And McBee, a former senior executive with U.S.-based Danaher, has delivered on that part of it.
In the past few years Mitel has shelled out more than $1 billion to acquire a handful of companies to extended its reach in geography and technology. The Kanata firm is now three firms in one – each with vastly differently trajectories.
- Mitel’s traditional business – telecom gear for business and government – is in retreat for the moment but still accounts for 70 per cent of revenues. This unit shrank 14 per cent year over year in the fourth quarter.
- Cloud-based revenues – up 44 per cent year over year — are helping make up the difference. Rather than paying upfront for telecom systems that are installed onsite, many customers are switching to communications services they can rent instead from Mitel’s own servers (the cloud). Cloud revenues made up 13 per cent of revenues in the fourth quarter.
- Mitel entered the mobile business in a big way with last year’s $560 million acquisition of Mavenir, a Texas firm. Mitel recorded fourth-quarter sales of $58.2 million in this segment – up 73 per cent compared to a year earlier (assuming Mavenir had been part of Mitel).
Meantime, the company is squeezing all the synergies it can from its recent acquisitions. Mitel’s worldwide head count at the end of 2015 was 4,466 – down 45 from Sept. 30. (About 600 employees work out of global headquarters in Kanata).
Mitel continues to generate sufficient cash to pare part of its debt, which stood at $634 million on Dec. 31, thanks in part to the Mavenir purchase. Last month chief financial officer Steve Spooner said the firm made a voluntary pre-payment of $25 million.
“Mitel is firing on all cylinders,” he said Thursday, referring to the performance in cloud and mobile, and its ability to generate record quarterly operating profits (earnings before taxes, interest costs and amortization).
Spooner said he expected company revenues in the current quarter would range between $270 million and $295 million, with adjusted earnings of between 3 cents and 9 cents. When it was pointed out to him that the earnings projection looked weaker than expected, Spooner explained that while Mitel generates about half its sales from January to June, it traditionally accumulates just 28 per cent of its annual profits in that period. It was a seasonal thing, he added.
As Spooner continued his presentation it was apparent just how complicated Mitel has become to measure. He offered different metrics for the influence of currency, acquisitions, business segments, normal accounting rules and adjusted estimates.
What does it mean? This is a grindingly tough business. McBee is absorbing multiple companies while manoeuvring through a profound transition in his industry’s buying behaviour. This as economists are trimming their forecasts for global growth.
Measured against this, Mitel’s performance has been superb. Whether that will be enough to satisfy shareholders is the big unknown.
