MITL

Mitel Networks Corporation (MITL)

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Mitel Networks (MITL)

Q3 2013 Earnings Call

February 28, 2013 5:00 pm ET

Executives

Richard D. McBee - Chief Executive Officer, President, Chief Operating Officer and Director

Steven E. Spooner - Chief Financial Officer and Principal Accounting Officer

Analysts

Ashwin Kesireddy - JP Morgan Chase & Co, Research Division

Kiera Kilkowski - BofA Merrill Lynch, Research Division

Ron Shuttleworth - M Partners Inc., Research Division

Todd Coupland - CIBC World Markets Inc., Research Division

Presentation

Operator

Good day, and welcome to the Mitel Networks Third Quarter Earnings Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Monica Gould.

Unknown Executive

Thank you. This is Monica Gould, Mitel Investor Relations, and I'm pleased to welcome you to Mitel Networks Third Quarter Fiscal 2013 Earnings Results Conference Call. At 4:05 p.m. Eastern Time, Mitel published its earnings release to the global newswire. The release is also available on Mitel's Investor Relations website at mitel.com. A replay of the conference call will be available through Tuesday, March 5, 2013. To access the replay, please dial (888) 203-1112 and enter the passcode 6324700. Callers outside the U.S. and Canada should dial (647) 436-0148 and enter passcode 6324700. The webcast will also be archived on Mitel's Investor Relations website for 3 months.

Some of the statements made in this presentation, including the information regarding our financial performance targets for the fourth quarter of fiscal 2013, will be forward-looking statements within the meaning of applicable U.S. and Canadian securities laws. This presentation includes forward-looking statements pertaining to, among other matters, our future economic performance; profitability and financial condition; general global economic conditions; our business strategy, plans and objectives for future operations; our industry and the growth in the markets in which we compete; the cost of operating as a public company; and our ability to implement and achieve our business strategies successfully. These forward-looking statements reflect currently available information or our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.

In making these statements, we have made assumptions regarding, among other things, no unforeseen changes occurring in the competitive landscape that would affect our industry generally or Mitel in particular; a stable or recovering economic environment; no significant event occurring outside the ordinary course of our business; and stable foreign exchange and interest rates. Actual events or Mitel's results, performance, financial position or achievements could differ materially from those contemplated, expressed or implied by such forward-looking statements as a result of various risk factors and uncertainties, including the risk factors described under the heading Risk Factors in Mitel's annual report on Form 10-K, which has been filed with the U.S. Securities and Exchange Commission on June 19, 2012, and filed with Canadian securities authorities. Except as required by law, Mitel is under no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Let me now turn the call over to Mitel's President and CEO, Richard McBee.

Richard D. McBee

Thank you, Monica. Joining me today on the call is Steve Spooner, Mitel's Chief Financial Officer. Q3 was a busy and a successful quarter. We delivered solid revenue and gross margins, each in line with guidance and we also generated strong cash flows. Subsequent to quarter end, we refinanced our debt at favorable terms and signed a Letter of Intent with the prospective buyer for the sale of our DataNet/CommSource business unit, which we anticipate completing as early as tomorrow. I'd like to thank Mitel employees for their hard work to make this quarter such a success.

We are pleased to report revenue for our fiscal third quarter ending January 31 at $142 million and adjusted EBITDA of $22.6 million or 15.9% from continuing operations. Our solid business performance enabled us to refinance our existing credit facilities with new debt on favorable terms. Steve will speak more to this in his remarks. In addition, we utilized excess cash to reduce our overall debt, further strengthening our financial position and operating flexibility. The economic environment continues to be mixed. We saw some softness in our international market, specifically Europe. For my many discussions with customers and partners, there is a real need for operating or modernizing many companies' communication systems. While the timing of customer order remains the big variable, our funnels continued to be strong. We are very well positioned with our clearly differentiated solutions and our industry-leading virtualization capability. In addition, our unique ability to seamlessly move between premise-based and cloud on a single product platform gives us tremendous competitive advantage.

We continued to achieve success in the market with our industry-leading cloud solutions. During the quarter, we demonstrated continual growth in our virtual solutions, a critical technology that enables cloud-based service delivery, virtualize shipment penetration with 27%, up from 12% in the third quarter of last year. More than 40% of our UC application sold today are configured for deployment on virtual machines and that's in comparison to just over 25% a year ago. Our growth in the cloud was further evidenced by the more than 30,000 new cloud users added in the quarter, bringing our total installed base to approximately 228,000. Our innovation and market leadership was recently recognized by Frost & Sullivan, which honored Mitel with the 2013 North American Award for Product Leadership. This award acknowledges our pioneering product developments and realtime communications software virtualization, a critical enabler for the adoption of cloud services, as well as the rapid acceptance that our product innovations have achieved in the marketplace. I want to echo that -- and take the opportunity to also extend my congratulation to the Mitel R&D team for their ingenuity and their hard work that continues to give Mitel and our customers a competitive advantage.

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