Mitel CEO Rich McBee talks about the company’s fiscal 2012

The numbers, which are the last the company will report before coming home to Canada through a co-listing on the TSX, show that new CEO Rich McBee has righted the once-faltering ship, and that Mitel has emerged as a leader in virtualization, posting increased revenue and better margins in the bustling sweet spot that is moving small and medium sized businesses to the cloud.

Immediately following Mitel’s conference call, Cantech Letter’s Nick Waddell caught up with McBee to talk about the fiscal year that was 2012.

Rich, when we last spoke you told me about the importance of meeting your guidance to gain the trust of the street. Today was the fifth quarter in a row you outperformed guidance. Do you feel like you are gaining that trust?

I think we are. There’s no magic number, whether it’s four quarters or six quarters. Candidly, this management team knows that we have to run our play and the most important thing is that we do what we say we are going to do, and guidance is something we take incredibly seriously. I think we are developing credibility. If you look at where the stock has been, we are methodically gaining it back. I have a tongue in cheek saying about stocks: at the end of the day it’s fair market value, plus greed, minus fear. And gaining credibility by executing eliminates fear from the marketplace so people can begin to see the true value of the company.

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This story is brought to you by Serenic (TSXV:SER). Serenic’s market cap of $3.18 million (as of January 27th, 2012) was less than its cash position of $4.03 million (as of Q2, 2012). The company has no debt. Click here for more information.

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How have things changed?

I think we’re coming back. It’s a long road to hoe because you had, for instance, people who had high expectations on the IPO, who expected growth from and IPO value of $14. But the conversations with analysts now are significantly different, they are starting to believe and starting to look at potential upside.

When you are talking about gaining the trust of the street you are talking about Bay Street these days as well as Wall Street. Can you touch on why you wanted to list in Canada and what you expect from it?

Well, obviously we are a Canadian company that is listed on the Nasdaq. When you are on the Nasdaq there are, I don’t know, four-thousand technology companies and for a company doing a turnaround there aren’t enough people to look at you. But being on the TSX there are people who will look at us, and we can capture some value from that interest. I think there is a very natural feeling for us on the TSX and for a lot of our employees it’s kind of like coming home. They are really proud about being able to play on their home court.

You mentioned on the conference call today that your channel program is going well and you have added a number of partners. You are now in San Diego about to host your “Voice of the Customer” day. Has the way you address your customers changed?

Yeah, I think one of the things you have to do is be in tune with your customers at all times. We have had a great year and we want to thank our partners for that, but you can always get better. You have to relentlessly try to improve. So we went to our customers and asked them what we could be doing better. We heard about a lot of great things we are doing and we heard about some things we need to improve. I feel like we are in a place where we have stabilized the ship and we’re getting ready to move to the next level, and the channel partners are going to be key to that. We want to know what’s on their minds and we want to help them be bigger. There’s a little bit of a quid pro quo there because we need them to be a good partner and do things like invest in the training they need, in return we’re gonna work on our end. They want call wait times to be shorter, for example.

M Partners analyst Ron Shuttleworth said in a research update to clients recently that your competitors such as Avaya are struggling with the transition from hardware to software and that Mitel has emerged as a leader in virtualization, do you agree with that?

I think one of the problems that some competitors have is that they have large maintenance contracts in the market that is really tied to legacy stuff and those contracts don’t go away, so that affects their margins. And they are hardware based so customers don’t want to pay maintenance. Because you move over to the IT paradigm -every customers is used to paying software assurance, but they don’t like paying maintenance for hardware! If you buy a software system from us, you must buy software assurance.

Are a lot of your legacy customers taking the first steps towards virtualization?

Yeah, they are, but not in their telephony assets. They are virtualizing some of their mission critical business apps like their SAP or their Oracle or whatever their back-office systems is. We have a seamless software stream across all of our products, are sets work with all the platforms. At other companies, the reality is that transitioning from one technology to another requires changing platforms, and incurs all sorts of training costs. In the industry they call this doing a “forklift” of the platform and that is pretty tough to overcome and gives us a natural advantage.

How are things looking from here big-picture wise? The world, especially Europe, still looks a bit scary…

Well, you can’t be in this business and not understand some of the economic headwinds out there. But we have tried to signal is that we understand this, and we feel we know what it takes to do well in troubled markets, which is differentiation and execution, and we’re very very focused on that. Our guidance for the first quarter reflects that we are confident in continuing year-over-year growth.

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