Mobile sell-off refocuses Mitel, CEO McBee said after Q4 loss

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Mitel Networks CEO Rich McBee struck an optimistic tone about the Ottawa-based firm’s post-mobile future, despite announcing a loss in the company’s fourth quarter Thursday.

The decision to sell off its mobile division at a loss refocuses the company to its traditional growth model of converting existing on-premise customers to its cloud-based services, he told OBJ in an interview.

Mitel said in December that its mobile division, acquired through a $560-million purchase of Mavenir two years ago, would be sold at a loss to Sierra Private Investments LP in a deal worth $385 million plus equity. That deal is close to being finalized, Mr. McBee said on an earnings call Thursday.

Mr. McBee told OBJ that the decision to divest its mobile division aligned with investors’ desires to “simplify the story” of the Kanata-based enterprise communications firm, a move analysts also hailed in December.

He said that while Mitel was hitting the right metrics in its mobile vertical, shareholders found the division “distracting” from Mitel’s core on-premise and cloud-based business.

The other significant reason was the directions of both the mobile and cloud sectors. Both, Mr. McBee said, required significant investment to continue its growth trajectory, and Mitel’s size would not allow it to invest in both verticals and see adequate returns.

“The bad choice would’ve been to make no choice,” he said.

While Mitel could have invested in mobile ahead of the advent of 5G connectivity, he said it made more sense to refocus on the company’s core business model.

The sale made a heavy short-term impact on Mitel’s fourth quarter results, which saw the company report a $209 million net loss. The loss can primarily be attributed to a $218 million goodwill impairment charge, which immediately follows whenever a company sells off an asset at a lower price than its value at acquisition. Excluding this charge, non-GAAP net income stood at $32 million for the quarter, a decrease from $36.3 million a year previous.

Total company revenues stood at $310.9 million for the quarter, compared to $342 million year-over-year. Of this quarter’s revenues, $51.1 million were from the mobile division.

The mobile sale, which Mr. McBee said will not affect the jobs of any Ottawa employees, will allow Mitel to hold a share buyback program for investors and pay off a significant portion of its debt. He adds that the company is still well-positioned to make acquisitions, but that it must be careful to make investments that will contribute to its current business model.

That model, as Mr. McBee outlined briefly in the earnings call, revolves around developing more application-based technology. These apps will make calls smarter, such as allowing attorneys to press a button to automatically record call times with clients and bill accordingly.

By integrating its communications technology into the Internet of Things, Mr. McBee said Mitel can “give machines a voice.” He gave OBJ the example of a sensor detecting a water leak and calling a plumber itself.

He said the company has been demoing these features at trade shows, and that he’s “really excited about that capability.”

The other opportunity for Mitel has come in the form of Kanata-competitor Avaya’s filing for Chapter 11 protection in January. Mitel has positioned itself as an alternative for Avaya’s customers, whom Mr. McBee said are “first class, some of the biggest brands in the world.” In a press release announcing its Q4 results, the company announced it had successfully converted the French municipality of Marseille, a former Avaya customer, over to its portfolio.

Before now, he said, high-profile clients such as the city in southern France had no idea Mitel existed.

“This has been a big moment of discovery for people,” Mr. McBee said. “This has given us the opportunity to talk to these customers.”

Mitel’s (NASDAQ:MITL,TSX:MNW) shares reacted poorly to the company’s fourth quarter results, dropping as low as $8.70 on Thursday morning after starting the day at $9.52.