Mitel tops its Q2 guidance by $2.7M

Kanata firm sees opportunities for mergers

It was a disconcerting yet oddly exhilarating second quarter for the folks at Mitel Networks.

The Kanata telecommunications software company made a $2-billion play for California-based Polycom that would have created a $2.5-billion-a-year multinational with nearly 8,000 employees. (All figures U.S. dollars.) But last month Mitel walked away from the deal after declining to match an all-cash offer from a New York fund.

In June, the last month of the second quarter, Mitel chief executive Rich McBee saw Britons vote to leave the European Union, which accounts for nearly half of his firm’s total revenues. The U.K. alone makes up about 10 per cent.

Despite all the uncertainty, Mitel not only pumped out some solid quarterly results, it sees opportunity ahead of it.

“I’ve got a lot of people looking at Mitel,” McBee said Thursday during a conference call, adding that since the Polycom acquisition attempt he has received “a notable increase in the number of calls” from potential merger partners.

“This is a great period of consolidation,” he said, underlining his determination to see Mitel play a key role.

Mitel reported second-quarter revenues of $307.7 million, up three per cent year-over-year assuming all its recent acquisitions had been in place.

While the revenue growth doesn’t appear great on the face of it, the result topped the company’s guidance to analysts by $2.7 million.

It also disguises a profound transition within the firm as its customers shift from buying telecom gear (legacy products) to telecom services (cloud-based technology). Assuming cloud-based revenues continue to grow, Mitel’s overall sales should accelerate.

In the meantime, McBee is squeezing significant cash from Mitel as he melds previous acquisitions (Texas-based Mavenir and Toronto-based Aastra) into a tightly run multinational.

Adjusted second-quarter earnings were $45.9 million, compared with $32.2 million during the same quarter of 2015 on a similar pro forma basis.

Chief financial officer Steve Spooner noted that Mitel, since the beginning of the year, has paid down $65 million of its long-term debt, which stood at $591 million on June 30.

Mitel also expects to receive $60 million from Polycom, the penalty the California firm incurred when it broke up the tentative deal to merge with Mitel.

Spooner said Mitel expects revenues in the current quarter, ending Sept. 30, should come in at $275 million to $295 million, reflecting the traditionally weaker summer results. Mitel’s revenues were $298 million the same quarter a year earlier.

McBee said he is keeping close watch on business conditions in Europe in the wake of the Brexit vote but added, “As of now, it’s business as usual.”

I’ve got a lot of people looking at Mitel … a notable increase in the number of calls. This is a great period of consolidation.