Ottawa-based Mitel hunting for acquisitions ‘large and small’

Kanata telecom firm sees rising revenues from expanding cloud business, ShoreTel integration
McBee

As Mitel’s revenues continue to climb, the CEO of the Ottawa-based telecom firm says he’s on the lookout for additional takeover targets.

The Kanata company said Thursday morning that it swung to a loss in the third quarter. Revenues in the three months that ended Sept. 30 were $241.5 million, up from $235.5 million over the same period last year. (All figures in USD.)

Rising revenues can partially be credited to the firm’s acquisition of ShoreTel, which closed on September 25. Revenues from the acquired firm in the final five days of the quarter totalled $7.7 million.

Mitel recorded a net loss of $26.8 million for the quarter, compared to a profit of $25.1 million a year ago. Last year’s earnings benefited from a one-time transaction cancellation fee of $60 million Mitel received after its planned acquisition of Polycom was called off.

Other expenses in the firm’s most recent quarter included restructuring costs associated with the ShoreTel acquisition. Mitel chief financial officer Steve Spooner told analysts on the firm’s earnings call that the company has cut 200 positions as part of its restructuring efforts related to the new acquisition.

Adjusted EBITDA, a non-GAAP measure, put Mitel’s net income at a profit of $20.2 million, as compared to $15 million a year ago.

The firm set its revenue guidance for the fourth quarter between $335 million and $360 million.

Mitel (NASDAQ:MITL) shares ended the day up 1.4 per cent to $11.20 on the Toronto Stock Exchange.

‘The pendulum has definitely swung’

There’s plenty of room in the cloud communications market for more consolidation, Mitel CEO Rich McBee told analysts during the firm’s Q3 conference call.

Mr. McBee said Mitel has the necessary capital to continue to make M&A plays, and that it’s looking out for deals “large and small.” At the close of the quarter, Mitel’s cash in hand and cash equivalents stood at $55.4 million.

Fresh off Mitel’s acquisition of ShoreTel near the end of the quarter, the firm touted a milestone one million recurring cloud seats (total users of the firm’s licensed communication software). That’s a significant jump from the 665,000 seats at the end of the previous quarter, driven by the ShoreTel acquisition and the firm’s improved installation capacity.

During a call with analysts, Mr. McBee said the firm’s annual market outlook found that the cloud-based communications market was growing at a rate of 20 per cent year-over-year, while on-premise had shrunk six per cent.

"Mitel is ideally positioned to turn these changes into opportunity and tracked to turn Mitel from an on-site company with a cloud business into a cloud company with an on-site business."

Mr. McBee expressed that on-premise solutions will still play a major role in the coming years as legacy firms make the slow transition to the cloud.

“But the pendulum has definitely swung, and cloud adoption has gained critical speed and momentum. To survive long-term, and profitably, in our market you have to do both,” he said. He added that having a foot in both markets, as well as hybrid solutions, positions Mitel well to help their long-time customers transition to the cloud, and, in doing so, become sources of recurring revenue.

“As the market continues to evolve, migrate and consolidate, Mitel is ideally positioned to turn these changes into opportunity and tracked to turn Mitel from an on-site company with a cloud business into a cloud company with an on-site business.”