Mitel Networks Corporation


Mitel is a leading provider of enterprise communications systems delivered through the cloud or conventional premise-based systems.  Mitel’s growth has recently been uninspiring as businesses slowly transition from older phone systems to newer ones – the opportunity does exist, it’s just taking place slowly.  There has been consolidation in the industry and Mitel might eventually be sold which is likely the main reason I own the shares.  They made a mis-step by acquiring a company providing converged communications solutions for wireless phones, at the time the company billed this as a very strategic acquisition.  They subsequently sold this business (for a loss) because of the amount of investment it would take and they felt investors were not reflecting its value in the company’s stock but the growth in that division was offsetting declines in their traditional business.  Perhaps investors were factoring that division in its valuation but were affording a lower multiple on its traditional business.  The company used the proceeds of that sale to pay down debt, improving its balance sheet and reducing its interest expense.  During 2Q17 the company announced an agreement to acquire ShoreTel, further enhancing its reach and value proposition.

 

Mitel reports in $U.S.

 

Ests:    4Q17   1Q18   FY17    FY18

Revs    345.9   314.8   1.05b   1.3b

EPS      .26       .14       .63       0.92

 

P=$US 9.22, $CAD 11.70, net debt+585.8m, def revs=224.9m, D/C=63%, 70% incl def revs, TTM EPS = 0.65, P/E=14X

 

4Q17   .27 vs .22, est 0.26, FY17 EPS 0.65 vs 0.60

  • Revs 355.9m, +4% organic, GM 55.4% vs 54.0%, adj EBITDA 60.4m vs 42.7m, 17% vs 16.2%, FY17 adj EBITDA 144.6m vs 129.6m, Cloud and subscription ~41% of total revs
  • Total Cloud seats +35.8% to 4.2m, recurring +107% to 1.13m
  • Cloud bookings solid with Mitel legacy +18%
  • Raised cost savings estimate to $75m up from 60m
  • 1Q Guidance: Revs 300-320m, adj EBITDA 28-38m (vs 21m), EPS .07-.13 (vs .09, est .14)

3Q17   .16 vs .12, est .19

  • Revs +3% to 241.5m incl 7.7m from ShoreTel, +1% ex fx, GM 55.1% vs 53.2%, EBITDA 34.2m vs 27.3m, 14.2% vs 11.6%
  • Total cloud seats +46% to 3.88m, recurring +107% to 1.03m
  • Closed ShoreTel acquisition at end of quarter. 
  • 4Q Guidance: Revs 335-360m (est 347), GM 56.5-58.5%, EBITDA 14-18%, EPS .22-.32, est .27

2Q 17.13 vs .18, est .14 down from .17

  • Revs -8.3% to 238.6m
  • Mgmt noted a distinct acceleration into hosted cloud solutions and services, significant increase in sales funnel and record bookings in 2Q, also noticed a move upmarket from SMB to mid-market and enterprise, responded with an organizational change to improve customer experience and reduce opex.
  • Total cloud seats +39% to 3.44m, recurring +48% to 665.6k
  • Closed Toshiba in 2Q, announced agreement to buy ShoreTel for $430m after having tried to acquire the company a few years ago, expect 60m in cost savings with 40m in 12m
  • Company has been constrained by installation capacity, has been investing to increase capacity and expect to see some impact on cloud revenues in 2H.
  • 3Q Guidance: Revs 225-250m (est 251.5m), EPS .13-.22

1Q17   .09 vs .08, est .08

  • Revs -4.2% to 223.1m (-2.2% ex fx), Product -4.7%, svcs -9.5%, cloud +9.9%, GM 53.3% vs 53.1%, adj EBITDA 21.0m vs 22.7m
  • Highlighted some large and encouraging deals
  • Total cloud seats +48.7% to 3.26m, recurring +40% to 588k
  • Enacting a 10% workforce reduction to be done before year end, expect $30m annualized savings, have been capacity constrained on retail cloud business, bookings have been solid.
  • 2Q Guidance: Revs 230-255m, EPS .10-.19, est .17
  • Stock selling off 5% after hours likely due to midpoint of guidance being below est, not overly inspiring results.