UPDATE: CEO sees 'bigger and stronger' Mitel in future

It’s only May, but 2014 has already been year of big changes for Mitel.

By Jacob Serebrin

In January, the Ottawa-based business communications firm completed its acquisition of similarly sized Aastra Technologies of Toronto, turning a company with annual revenues of about $600 million into a billion-dollar market leader.

“Mitel is a different company,” CEO Richard McBee told investors on a conference call on Thursday morning.

That was on display in the company’s latest quarterly results.

First-quarter revenue at Mitel (TSX:MNW) was $241.5 million US, up from $143.1 during the same period the year before. Of that, $89.3 million was generated by the former Aastra during the final two months of the three-month period that ended March 31.

“The company is extremely well-financed. It’s well-positioned in the market,” Mr. McBee said in an interview with OBJ on Thursday afternoon. “When we came together with Aastra, we really solidified our position as a world leader.”

With the acquisition, Mr. McBee said, Mitel is now the No. 1 business communications company in Western Europe.

While the two companies had similar offerings, there was little overlap on a country-by-country basis, he added.

“In Germany, Aastra had 500 employees. We had five,” he said.

The acquisition has boosted Mitel’s headcount significantly. Before the deal, the company had a staff of 1,600, including about 600 at its Kanata headquarters. It total employee count is now up to 3,600.

Mr. McBee said there was also little overlap between the two company’s channel partners, with none among the top 20.

Despite the boost in revenues and the company’s strong cash position, Mitel recorded a net loss during the first quarter of $13.6 million, up from $1.7 million last year.

Mr. McBee said the loss was a result of debt refinancing, necessary for the $392-million purchase of Aastra.

Mitel reported adjusted, non-GAAP, net income of $19.8 million, up from $12.1 million during the same period last year.

The company says it expects to save $75 million a year through synergies between Mitel and the former Aastra operation, up from its original prediction of $50 million.

Much of that, Mr. McBee said, will come from consolidating its supply chain in Europe, where Aastra had six distribution facilities compared with Mitel’s one. That will also cut down on the number of shipping companies it works with and give the company more leverage in negotiating prices, he said.

“There are great economies of scale,” he said. “Especially on the supply chain.”

While Mitel may have gone through some major changes, Mr. McBee said its customers, including those who had done business with Aastra, didn’t see any notable differences.

He said Mitel showed its customers a “product road map” from the beginning and created an application programming interface that would allow the company to continue to develop software that would work with whatever hardware its customers were using.

That approach is necessary given the company’s international focus, said Mr. McBee, since in many markets broadband isn’t a given.

While the company’s revenue from cloud-based offerings is growing quickly, it’s still dwarfed by revenue from Mitel’s on-premise offerings.

Mr. McBee said he doesn’t expect Mitel to be cloud-only for at least a decade. He said 57 per cent of the market is still using the older TDM technology and when companies install a new system, that can last them for up to a decade.

“There’s still a lot of infrastructure in place,” he said. “That’s what I love about this business. There are aspects that move very fast and aspects that have a very long tail.”

With the company’s strong cash position, it announced on Thursday that it has paid down $25 million of its debt, which stood at $355 million at the end of the quarter. That payment will be recorded in Mitel’s second-quarter results.

More acquisitions may be on the horizon, Mr. McBee added.

“The path that I see forward is bigger and stronger,” he said.

He said he wants to maintain the company’s strength in Europe while building the North American business. Mr. McBee said Mitel also expects to see strong growth in Asia and Latin America, where the company has only a small presence.