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Mitel Reports First Quarter 2014 Financial Results
Recurring Cloud Seat Growth of 73%
Synergy Targets Expanded to
Strong Cash Position Enables
As Reported | Pro-forma** | |||
Q1-2014* | Q1- 2013 | Q1-2014 | Q1- 2013 | |
Revenue | 241.5 | 143.1 | 277.4 | 273.5 |
Net loss | -13.6 | -1.7 | -30.8 | -8.8 |
Non-GAAP Net Income | 19.8 | 12.1 | 16.9 | 14.0 |
Adjusted EBITDA | 35.6 | 23.0 | 32.8 | 27.7 |
*Q1-2014 includes two months of Aastra | ||||
**consists of the combined results of |
"I am extremely pleased with the progress
"Since acquiring Aastra at the end of January, we have moved decisively to integrate the two organizations and to quickly identify and capitalize on synergy opportunities. As a result, we have identified significant additional supply chain efficiencies allowing us to revise our synergy target to
Financial Highlights
AS REPORTED:
-
Total revenue increased 69% to
$241.5 million from first quarter 2013, primarily as a result of the Aastra acquisition, which contributed$89.3 million of revenue. - Gross margins were 53.6%, down from 56.5% in the prior year, reflecting the acquisition of Aastra, which was a lower gross margin business.
-
Net loss was
$13.6 million compared to a net loss of$1.7 million in the prior year, driven principally by debt retirement costs. -
Adjusted EBITDA was
$35.6 million compared to$23.0 million in the year ago period, due to a combination of EBITDA growth from the legacyMitel business and EBITDA resulting from the acquisition of Aastra. -
Non-GAAP net income for the first quarter of 2014 was
$19.8 million , or$0.22 per diluted share, compared to$12.1 million , or$0.22 per diluted share in the first quarter of 2013. The number of non-GAAP weighted-average common shares outstanding was 88.5 million and 56.2 million, respectively. -
Operating cash flow for the
March 2014 quarter was$26.8 million compared to$9.7 million in theMarch 2013 quarter. -
Cash and cash equivalents as of
March 31, 2014 were$136.0 million .
PRO-FORMA:
-
Total revenue increased 1.4% to
$277.4 million up from$273.5 million in first quarter 2013. - Gross margins were 51.9%, up from 49.2% in the prior year.
-
Net loss was
$30.8 million compared to a net loss of$8.8 million in the prior year, driven principally by deal related and restructuring costs and debt retirement costs. -
Adjusted EBITDA was
$32.8 million compared to$27.7 million in the year ago period, reflecting improved operating performance. -
Non-GAAP net income for the first quarter of 2014 was
$16.9 million , or$0.16 per diluted share, compared to$14.0 million , or$0.14 per diluted share in the first quarter of 2013. The number of non-GAAP weighted-average common shares outstanding was 103.9 million and 100.4 million, respectively.
During the first quarter of 2014, in connection with the acquisition of Aastra, the Company reorganized its business. As a result,
Highlighted below is a table of cloud operational metrics. This information reflects results on a pro-forma basis, as if the Aastra acquisition had been completed on
Cloud Operational Metrics | |||||
Q1'13 | Q2 '13 | Q3'13 | Q4'13 | Q1 '14 | |
Total |
379,048 | 431,886 | 497,489 | 566,562 | 625,699 |
Recurring |
82,319 | 98,727 | 115,870 | 121,314 | 142,600 |
Retail Cloud Monthly Average Revenue Per User (ARPU) | $ 49 | $ 48 | $ 46 | $ 48 | $ 48 |
Retail Cloud Average # of Seats per Customer | 33 | 32 | 33 | 31 | 32 |
Retail Cloud Monthly Customer Churn | 0.6% | 0.7% | 0.7% | 0.5% | 0.6% |
"We are pleased with our execution in our first completed quarter post the Aastra acquisition. The team is meeting or beating their integration timelines and initial synergy targets, and we expect this to translate into improved operational performance and enhanced shareholder value. We also strengthened our capital structure with the successful refinancing of our credit facilities at attractive rates. Given the strength of our cash position, we are announcing that today we will be making a voluntary pre-payment of
Business Highlights
During the quarter, in addition to the acquisition of Aastra, two strategic technology companies were acquired and several new products were rolled out.
-
The acquisition of Telepo, a provider of cloud solutions in
Europe (completed by Aastra inJanuary 2014 ), and acquisition of contact center call recording supplier OAISYS, broadens the company's technological capabilities.- Telepo's multi-tenant solution offers best-in-class mobile integration, including the full range of standard voice, PBX and call center features.
-
OAISYS software solutions provide call recording and analytics capabilities used in regulatory compliance and quality monitoring requirements.
-
MiContact Center 7.0 enables businesses to engage customers using their preferred media and devices, simplifying customer interaction by incorporating mobile chat, self-service and outbound capabilities that are designed to increase sales and drive lead generation.
-
MiCloud Enterprise UCaaS is now available in
the United States , with plans to introduce it in other countries in the second quarter. This Powered byMitel cloud offering is designed to enable channel partners to offer white-label solutions via the cloud.
-
Mitel 6800i series phones utilize standards based SIP protocols, offering broad interoperability with support for both premise and cloud services, providingMitel customers with the best path for migrating their communications to the cloud.
Business Outlook
-
GAAP revenue is expected to be in the range of
$278 million to$293 million . - GAAP gross margin percentage is expected to be in the range of 50.5% to 52.0%.
-
GAAP revenue and GAAP gross margin reflect an estimated
$2.7 million reduction to revenue and gross margin relating to the effect of deferred revenue purchase price adjustments. -
Non-GAAP operating expenses as a percentage of revenue are expected to be in the range of 41% to 43%. Non-GAAP operating expenses consist of SG&A and R&D expenses, excluding estimated amortization of
$14.0 million for acquisition-related intangible assets, estimated stock-based compensation expense of$1.3 million .
Conference Call Information
Non-GAAP Financial Measurements
This press release includes references to non-GAAP financial measures including adjusted EBITDA, non-GAAP net income and non-GAAP operating expenses. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. We use these non-GAAP financial measures to assist management and investors in understanding our past financial performance and prospects for the future, including changes in our operating results, trends and marketplace performance, exclusive of unusual events or factors which do not directly affect what we consider to be our core operating performance. Non-GAAP measures are among the primary indicators management uses as a basis for our planning and forecasting of future periods. Investors are cautioned that non-GAAP financial measures should not be relied upon as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Please see the reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measure attached to this release.
Forward Looking Statements
Some of the statements in this press release are forward-looking statements (or forward-looking information) within the meaning of applicable U.S. and Canadian securities laws. These include statements using the words target, outlook, may, will, should, could, estimate, continue, expect, intend, plan, predict, potential, project and anticipate, and similar statements which do not describe the present or provide information about the past. There is no guarantee that the expected events or expected results will actually occur. Such statements reflect the current views of management of
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MITEL NETWORKS CORPORATION | ||
CONSOLIDATED BALANCE SHEETS | ||
(in millions of US dollars) | ||
(unaudited) | ||
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2014 | 2013 | |
ASSETS | ||
Current assets: | ||
Cash and cash equivalents | $ 136.0 | $ 40.2 |
Accounts receivable | 222.4 | 104.3 |
Sales-type lease receivables | 23.8 | 13.9 |
Inventories | 92.6 | 36.9 |
Deferred tax asset | 27.9 | 17.3 |
Other current assets | 54.9 | 26.5 |
557.6 | 239.1 | |
Non-current portion of sales-type lease receivables | 25.5 | 12.1 |
Deferred tax asset | 124.1 | 127.5 |
Property and equipment | 52.5 | 28.5 |
Identifiable intangible assets | 217.8 | 50.7 |
Goodwill | 328.5 | 147.3 |
Other non-current assets | 19.6 | 15.3 |
$ 1,325.6 | $ 620.5 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | ||
Current liabilities: | ||
Accounts payable and accrued liabilities | $ 204.5 | $ 82.8 |
Current portion of deferred revenue | 72.0 | 39.4 |
Current portion of long-term debt | 9.5 | 5.3 |
286.0 | 127.5 | |
Long-term debt | 357.1 | 264.2 |
Lease recourse liability | 3.0 | 3.5 |
Long-term portion of deferred revenue | 30.2 | 16.6 |
Deferred tax liability | 34.1 | 14.4 |
Pension liability | 91.3 | 57.3 |
Other non-current liabilities | 30.5 | 18.6 |
832.2 | 502.1 | |
Shareholders' equity | 493.4 | 118.4 |
$ 1,325.6 | $ 620.5 |
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STATEMENT OF OPERATIONS | ||||
(in millions of US dollars) | ||||
(unaudited) | ||||
US GAAP As Reported | Proforma | US GAAP As Reported | Proforma | |
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |
|
|
|
|
|
Revenues | $ 241.5 | $ 277.4 | $ 143.1 | $ 273.5 |
Cost of revenues | 112.1 | 133.4 | 62.3 | 139.0 |
Gross margin | 129.4 | 144.0 | 80.8 | 134.5 |
Expenses: | ||||
Selling, general and administrative | 88.2 | 104.4 | 54.5 | 98.9 |
Research and development | 26.3 | 31.9 | 13.8 | 32.6 |
Special charges and restructuring costs | 13.2 | 28.2 | 1.4 | 2.3 |
Loss on litigation settlement | -- | -- | 0.1 | 0.1 |
127.7 | 164.5 | 69.8 | 133.9 | |
Operating income (loss) from continuing operations | 1.7 | (20.5) | 11.0 | 0.6 |
Interest expense | (5.9) | (6.0) | (5.4) | (5.5) |
Debt retirement costs | (14.7) | (14.7) | (2.6) | (2.6) |
Fair value adjustment on derivative instruments | -- | -- | -- | 0.4 |
Other income (loss) | 0.1 | (0.9) | 0.1 | 1.2 |
Income (loss) from continuing operations, before income taxes | (18.8) | (42.1) | 3.1 | (5.9) |
Current income tax recovery (expense) | 0.3 | 5.8 | 0.6 | (0.1) |
Deferred income tax recovery (expense) | 4.9 | 5.5 | (2.4) | 0.2 |
Net income (loss) from continuing operations | (13.6) | (30.8) | 1.3 | (5.8) |
Net loss from discontinued operations | -- | -- | (3.0) | (3.0) |
Net loss from continuing operations | $ (13.6) | $ (30.8) | $ (1.7) | $ (8.8) |
Non-GAAP measures: | ||||
Adjusted EBITDA | 35.6 | 32.8 | 23.0 | 27.7 |
Non-GAAP net income | 19.8 | 16.9 | 12.1 | 14.0 |
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Cash flow information | ||||
(in millions of US dollars) | ||||
(unaudited) | ||||
As Reported | As Reported | |||
Quarter Ended | Quarter Ended | |||
|
|
|||
Cash provided by (used in): | ||||
Net cash provided by operating activities | $ 26.8 | $ 9.7 | ||
Net cash used in investing activities | (9.4) | (1.6) | ||
Net cash provided by (used in) financing activities | 77.4 | (37.2) | ||
Effect of exchange rate changes on cash balances | 1.0 | (1.7) | ||
Net increase (decrease) in cash and cash equivalents | 95.8 | (30.8) | ||
Cash and cash equivalents, beginning of period | 40.2 | 70.2 | ||
Cash and cash equivalents, end of period | $ 136.0 | $ 39.4 | ||
Additional information on capital expenditures: | ||||
Capital expenditures acquired with cash | 3.2 | 1.6 | ||
Capital expenditures financed through capital leases | 1.2 | 1.3 | ||
Total capital expenditures | $ 4.4 | $ 2.9 |
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Segmented Information | ||||||
(in millions of US dollars) | ||||||
(unaudited) | ||||||
U.S. GAAP, As Reported | Proforma | |||||
Quarter Ended |
Quarter Ended |
|||||
Premise | Cloud | Premise | Cloud | |||
Revenues | segment | segment | Total | segment | segment | Total |
Product | $ 159.8 | $ 6.7 | $ 166.5 | $ 186.4 | $ 7.4 | $ 193.8 |
Services | 55.9 | -- | 55.9 | 63.5 | 0.2 | 63.7 |
Cloud Recurring | -- | 19.1 | 19.1 | -- | 19.9 | 19.9 |
Total revenues | $ 215.7 | $ 25.8 | $ 241.5 | $ 249.9 | $ 27.5 | $ 277.4 |
Gross margin | ||||||
Product | $ 95.3 | $ 3.2 | $ 98.5 | $ 107.3 | $ 3.5 | $ 110.8 |
Services | 21.6 | -- | 21.6 | 23.6 | -- | 23.6 |
Cloud Recurring | -- | 9.3 | 9.3 | -- | 9.6 | 9.6 |
Total gross margin | $ 116.9 | $ 12.5 | $ 129.4 | $ 130.9 | $ 13.1 | $ 144.0 |
U.S. GAAP, As Reported | Proforma | |||||
Quarter Ended |
Quarter Ended |
|||||
Premise | Cloud | Premise | Cloud | |||
Revenues | segment | segment | Total | segment | segment | Total |
Product | $ 87.1 | $ 1.2 | $ 88.3 | $ 187.9 | $ 2.4 | $ 190.3 |
Services | 42.7 | -- | 42.7 | 68.7 | 0.4 | 69.1 |
Cloud Recurring | -- | 12.1 | 12.1 | -- | 14.1 | 14.1 |
Total revenues | $ 129.8 | $ 13.3 | $ 143.1 | $ 256.6 | $ 16.9 | $ 273.5 |
Gross margin | ||||||
Product | $ 58.0 | $ 0.8 | $ 58.8 | $ 102.5 | $ 1.5 | $ 104.0 |
Services | 16.4 | -- | 16.4 | 23.5 | 0.3 | 23.8 |
Cloud Recurring | -- | 5.6 | 5.6 | -- | 6.7 | 6.7 |
Total gross margin | $ 74.4 | $ 6.4 | $ 80.8 | $ 126.0 | $ 8.5 | $ 134.5 |
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Reconciliation of Net Income (Loss) to Adjusted EBITDA | ||||
(in millions of US dollars) | ||||
(unaudited) | ||||
US GAAP As Reported | Proforma | US GAAP As Reported | Proforma | |
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |
|
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|
|
Net loss | $ (13.6) | $ (30.8) | $ (1.7) | $ (8.8) |
Net loss from discontinued operations | -- | -- | 3.0 | 3.0 |
Net income (loss) from continuing operations | (13.6) | (30.8) | 1.3 | (5.8) |
Adjustments: | ||||
Interest expense | 5.9 | 6.0 | 5.4 | 5.5 |
Income tax expense (recovery) | (5.2) | (11.3) | 1.8 | (0.1) |
Amortization and depreciation | 16.2 | 19.5 | 8.9 | 18.5 |
Foreign exchange loss (gain) | 0.3 | 1.3 | 0.5 | (0.3) |
Special charges and restructuring costs | 13.2 | 28.2 | 1.4 | 2.3 |
Stock-based compensation | 1.3 | 1.3 | 1.1 | 1.3 |
Loss on litigation settlement | -- | -- | 0.1 | 0.1 |
Debt retirement costs | 14.7 | 14.7 | 2.6 | 2.6 |
Acquisition accounting for deferred revenue | 2.8 | 3.9 | -- | 3.9 |
Other | -- | -- | -- | (0.2) |
Adjusted EBITDA from continuing operations | 35.6 | 32.8 | 23.1 | 27.8 |
Adjusted EBITDA from discontinued operations(1) | -- | -- | (0.1) | (0.1) |
Adjusted EBITDA | $ 35.6 | $ 32.8 | $ 23.0 | $ 27.7 |
(1) The reconciliation of net loss from discontinued operations to Adjusted EBITDA from discontinued operations for the three months ended |
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Reconciliation of Net Income (Loss) to Non-GAAP Net Income | ||||
(in millions of US dollars, except per share amounts) | ||||
(unaudited) | ||||
US GAAP As Reported | Proforma | US GAAP As Reported | Proforma | |
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |
|
|
|
|
|
Net income (loss) from continuing operations | $ (13.6) | $ (30.8) | $ 1.3 | $ (5.8) |
Income tax expense (recovery) | (5.2) | (11.3) | 1.8 | (0.1) |
Net income (loss) from continuing operations, before income taxes | (18.8) | (42.1) | 3.1 | (5.9) |
Adjustments: | ||||
Foreign exchange loss (gain) | 0.3 | 1.3 | 0.5 | (0.3) |
Special charges and restructuring costs | 13.2 | 28.2 | 1.4 | 2.3 |
Stock-based compensation | 1.3 | 1.3 | 1.1 | 1.3 |
Loss on litigation settlement | -- | -- | 0.1 | 0.1 |
Amortization of acquisition-related intangibles assets | 11.3 | 13.8 | 5.6 | 13.0 |
Debt retirement costs | 14.7 | 14.7 | 2.6 | 2.6 |
Acquisition accounting for deferred revenue | 2.8 | 3.9 | -- | 3.9 |
Other | -- | -- | -- | (0.2) |
Non-GAAP net income from continuing operations, before income taxes | 24.8 | 21.1 | 14.4 | 16.8 |
Non-GAAP tax expense(1) | (5.0) | (4.2) | (2.2) | (2.7) |
Non-GAAP net income from continuing operations | 19.8 | 16.9 | 12.2 | 14.1 |
Non-GAAP net loss from discontinued operations | -- | -- | (0.1) | (0.1) |
Non-GAAP net income | $ 19.8 | $ 16.9 | $ 12.1 | $ 14.0 |
. | . | |||
Non-GAAP net income per share, diluted: | ||||
Non-GAAP net income per common share from continuing operations | $ 0.22 | $ 0.16 | $ 0.22 | $ 0.14 |
Non-GAAP net loss per common share from discontinued operations | $ -- | $ -- | $ -- | $ -- |
Non-GAAP net income per common share | $ 0.22 | $ 0.16 | $ 0.22 | $ 0.14 |
Non-GAAP weighted-average number of common shares outstanding (in millions): | 88.5 | 103.9 | 56.2 | 100.4 |
(1) Non-GAAP tax expense for 2013 is based on an estimated effective tax rate of 15% for |
STATEMENT OF OPERATIONS | ||||
QUARTER ENDED |
||||
(in millions of US dollars) | ||||
(unaudited) | ||||
|
Aastra and | Purchase price | Proforma results | |
as reported(1) | Telepo(2) | adjustments(3) | of operations | |
Revenues | $ 241.5 | $ 37.0 | $ (1.1)(4) | $ 277.4 |
Cost of revenues | 112.1 | 21.3 | -- | 133.4 |
Gross margin | 129.4 | 15.7 | (1.1) | 144.0 |
Expenses: | ||||
Selling, general and administrative | 88.2 | 14.4 | 1.8(5) | 104.4 |
Research and development | 26.3 | 5.6 | -- | 31.9 |
Special charges and restructuring costs | 13.2 | 15.0 | -- | 28.2 |
Loss on litigation settlement | -- | -- | -- | -- |
127.7 | 35.0 | 1.8 | 164.5 | |
Operating income (loss) | 1.7 | (19.3) | (2.9) | (20.5) |
Interest expense | (5.9) | (0.1) | -- | (6.0) |
Debt retirement costs | (14.7) | -- | -- | (14.7) |
Other income (loss) | 0.1 | (1.0) | -- | (0.9) |
Income (loss), before income taxes | (18.8) | (20.4) | (2.9) | (42.1) |
Current income tax recovery (expense) | 0.3 | 5.5 | -- | 5.8 |
Deferred income tax recovery (expense) | 4.9 | -- | 0.6(6) | 5.5 |
Net income (loss) | $ (13.6) | $ (14.9) | $ (2.3) | $ (30.8) |
(1) Consists of the results of operations of |
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(2) Consists of the results of operations of Aastra and Telepo for the month of |
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(3) Consists of purchase price allocation adjustments relating to Aastra and Telepo results for the month of January included in the pro-forma period. | ||||
(4) Relates to the reduction in revenues as a result of the valuation of deferred revenue being below the historical book value. | ||||
(5) Relates to the amortization of intangibles acquired in the acquisition of Aastra. | ||||
(6) Relates to the tax effect on the above adjustments using an effective tax rate of 20%. |
STATEMENT OF OPERATIONS | ||||
QUARTER ENDED |
||||
(in millions of US dollars) | ||||
(unaudited) | ||||
|
Aastra and | Purchase price | Proforma results | |
as reported(1) | Telepo(2) | adjustments(3) | of operations | |
Revenues | $ 143.1 | $ 134.3 | $ (3.9)(4) | $ 273.5 |
Cost of revenues | 62.3 | 76.7 | -- | 139.0 |
Gross margin | 80.8 | 57.6 | (3.9) | 134.5 |
Expenses: | ||||
Selling, general and administrative | 54.5 | 39.3 | 5.1(5) | 98.9 |
Research and development | 13.8 | 18.8 | -- | 32.6 |
Special charges and restructuring costs | 1.4 | 0.9 | -- | 2.3 |
Loss on litigation settlement | 0.1 | -- | -- | 0.1 |
69.8 | 59.0 | 5.1 | 133.9 | |
Operating income (loss) from continuing operations | 11.0 | (1.4) | (9.0) | 0.6 |
Interest expense | (5.4) | (0.1) | -- | (5.5) |
Debt retirement costs | (2.6) | -- | -- | (2.6) |
Fair value adjustment on derivative instruments | -- | 0.4 | -- | 0.4 |
Other income | 0.1 | 1.1 | -- | 1.2 |
Income from continuing operations, before income taxes | 3.1 | -- | (9.0) | (5.9) |
Current income tax recovery (expense) | 0.6 | (0.7) | -- | (0.1) |
Deferred income tax recovery (expense) | (2.4) | 0.8 | 1.8(6) | 0.2 |
Net income (loss) from continuing operations | 1.3 | 0.1 | (7.2) | (5.8) |
Net loss from discontinued operations | (3.0) | -- | -- | (3.0) |
Net income (loss) from continuing operations | $ (1.7) | $ 0.1 | $ (7.2) | $ (8.8) |
(1) Consists of the results of operations of |
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(2) Consists of the results of operations of Aastra and Telepo. | ||||
(3) Consists of purchase price allocation adjustments relating to Aastra and Telepo results for the quarter included in the pro-forma period. | ||||
(4) Relates to the reduction in revenues as a result of the valuation of deferred revenue being below the historical book value. | ||||
(5) Relates to the amortization of intangibles acquired in the acquisition of Aastra. | ||||
(6) Relates to the tax effect on the above adjustments using an effective tax rate of 20%. |
CONTACT:Source:Amy MacLeod (media), 613-592-2122 x71245, amy_macleod@mitel.comMichael McCarthy (investor relations), 469-574-8134, michael_mccarthy@mitel.com
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