Mitel Networks (TSX:MNW) yesterday reported its Q2, 2013 results. The Ottawa-based company, which came back home to Canada with a TSX listing this past summer, earned (US) $1.9-million on revenue of $145.5-million, which down from the $154.6-million topline the company posted in the same period last year.
CEO Rich McBee said the quarter was a return to form: “In the second quarter, we exceeded our guidance across all metrics and achieved record overall gross margin of 56.2 per cent despite a challenging macroeconomic environment,” he said. “We saw solid revenue growth of 5 per cent sequentially in our business, which was attributable to our disciplined execution across the entire company, continued improvements on our channel-focused sales model, and product leadership in virtualization and cloud offerings.”
Cormark analyst Richard Tse says Mitel’s Q1, which was reported in August, was “dismal”. However, he says, the company’s efforts to drive down costs are already proving to be beneficial to the bottom line. He says the company’s “meaningful lift” in gross margin to a record 56.2% “reflects delivery on a strategy to increase the revenue mix to higher margin products.” Noting that shares of Mitel have pulled back 41% since he downgraded the stock on August 9th to a “Market Perform”, Tse says the risk-to-reward profile on the stock looks a lot better. Without changing his $5 target price, Tse today upgraded Mitel to a BUY.
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Mitel’s roots go all the way back to 1973, when Corel founder Michael Cowpland and Canadian telecom legend Terry Matthews, who had met at Nortel forerunner Bell Northern Labs, intended to import and sell cordless electric lawnmowers. When their first shipment of lawnmowers was lost at sea, the pair began to produce a telephony tone receiver product that was based on Cowpland’s Ph.D. thesis.
By 1981, Mitel had reached the $100 million dollar annual revenue mark. Then, in 1985 British Telecom acquired a controlling interest in the company. Matthews then went on to form Newbridge Networks, which was sold for more than $7 billion to Alcatel in 2000. This made Terry Matthews, who emigrated to Canada in the 1960′s, the first billionaire in the history of Wales. Cowpland went on to found Corel which, at one point, was Canada’s largest tech company.
In April of 2010, With Matthews as its chairman, Mitel went public for the second time. Mitel IPO’d on the Nasdaq at $14 a share, but the IPO was not a success. In January of 2011, the company brought in industry veteran Rich McBee from Danaher to right the ship. McBee presides over a new Mitel with increasing revenue, record gross margins and an growing sweet spot in moving small and medium sized businesses to the cloud.
Tse says one of Mitel’s relative strengths has been investment into new products that give the company an edge over its peers. He says the company’s edge in virtualized and cloud solutions is beginning to increase its penetration, particularly in the SMB market. The Cormark analyst says this, combined with recent efforts to increase the size of its sales channel bode well for future sales.