Mitel Networks Corporation (MITL)

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Mitel Networks (MITL)

Q2 2014 Earnings Call

August 07, 2014 8:30 am ET


Michael W. McCarthy - Vice President of Investor Relations

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

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


Todd Adair Coupland - CIBC World Markets Inc., Research Division

Richard Tse - Cormark Securities Inc., Research Division

Prabhakar Gowrisankaran - Canaccord Genuity, Research Division

Gregory Burns - Sidoti & Company, LLC

Spencer Mitchell - Odeon Capital Group LLC, Research Division

Paul Treiber - RBC Capital Markets, LLC, Research Division



Good day, ladies and gentlemen, and welcome to the Mitel June Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mike McCarthy, Vice President of Investor Relations. Please begin.

Michael W. McCarthy

Thanks, Latoya. Good morning, everyone. It's my pleasure to welcome you to Mitel's discussion of our second quarter 2014 results for the period ended June 30. Earlier this morning, the company issued a press release and filed its Form 10-Q with the U.S. SEC and Canadian Securities Authorities. A copy of both the release and our 10-Q report are available on our website at A replay of this call will be available through the close of business on Friday, August 15, at 5:00 p.m. Eastern. To access that replay, all callers can dial in at (404) 537-3406 and enter passcode 72200477. The webcast will also be archived on Mitel's Investor Relations website until the company reports September quarter results in early November.

On the call this morning is Rich McBee, Mitel's President and CEO; and Steve Spooner, our CFO. Before turning the call over to Rich, I'd like to remind listeners of the live call and subsequent rebroadcasts that some of the statements made during this call are forward-looking statements and may contain forward-looking information within the meaning of applicable U.S. and Canadian securities laws, including forward-looking statements pertaining to, among other things, our future economic performance; general and market conditions; our business strategy, plans and objectives for future operations; industry conditions and growth in the markets in which we compete; and other factors.

Forward-looking statements speak to the date that they are made and are the result and reflect the currently available information or our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Therefore, undue reliance should not be placed on any such statements.

In making these statements, we made certain assumptions regarding, among other things, no unforeseen changes in the -- occurring in the competitive landscape that would affect our industry generally or Mitel in particular; our ability to achieve or sustain profitability in the future; stable foreign exchange and interest rates; a stable or recovering global economic environment; our ability to successfully integrate the acquisition of Aastra and to continue to realize certain synergies; and our ability to implement and achieve our business strategies. Actual events in connection with Mitel's financial results and performance could differ materially from those contemplated, expressed or implied by such forward-looking statements as a result of the various risk factors and uncertainties, including the risk factors described under the heading Risk Factors in Mitel's Transitional Report Form 10-K for the 8-month period ended December 31, 2013, and Mitel's 10-Q for the period ended June 30, 2014, which is filed with the SEC and Canadian Securities Authorities today. Except as required by law, we do not have any intention or obligation to update or make revisions to any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I'd like to now turn the call over to Mitel's President and CEO, Rich McBee, Rich?

Richard D. McBee

Thanks, Mike, and good morning, everyone. I will begin this morning by covering some highlights from the quarter and then provide a brief update on the status of our integration activities. I will then turn the call over to Steve for a detailed review of our financials.

In Q2, Mitel delivered another strong quarter reflected in impressive financial metrics. Revenues for the quarter came in at $288.7 million, a record for Mitel, with gross margins of 52.6%. I'm pleased to report that execution on all of our major initiatives, growth and integration has been outstanding. The team has been working hard to converge opportunities with a high degree of efficiency, and our intense focus continues to pay off through further improvement in our margins, strengthening of our EBITDA and cash generation. As a result, we again are able to announce another voluntary prepayment of $25 million against our existing credit facility, which Steve will cover later in the call.

Our Cloud business had a fantastic quarter. Recurring seats were up by 53,000 over the previous quarter and 37% sequentially to a total of 196,000 seats. This equates to an increase of 98% year-over-year. From a revenue perspective, this represents growth of approximately 34%. With the volume and scale increases we are driving in our Cloud business, which is already consistently profitable, we see potential to further expand our Cloud operating margins in the future.

Our total seat metrics also posted strong growth as Mitel and our strategic channel partners deploying the Powered by Mitel solutions continue to build out cloud capabilities. Now at 750,000 total seats installed, up 128,000 seats, up over 21% from the previous quarter.

I want to take this opportunity to highlight and thank our channel partner, Integra, for being Mitel's top cloud partner in North America for 2013. From 2012 to 2013, Integra recorded an increase of 86% year-over-year cloud sales revenue growth with cloud solutions Powered by Mitel. This is a real world example of the explosive growth and opportunity cloud communications offers for Mitel and our channel partners.

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