Mitel: Did Not Ship Booked Orders


Last June, Mitel announced a pretty strong Q412 quarter. The company was firing on all cylinders. Here are some of those highlights:

  • Revenue from operations for the fourth quarter up 4%
  • Gross margins from operations were 55.6%, up from 52.2% in the fourth quarter of fiscal 2011.
  • Non-GAAP net income from operations for the fourth quarter were a record $0.30 per share.
  • Net income from for the fourth quarter was $0.89 per share compared to $0.07 per share last year.
  • Revenue from operations for fiscal year 2012 was $611.8 million, compared to revenue of $589.3 million for fiscal 2011.
  • Gross margins were 53.8%, up 52.2% in fiscal 2011.
  • Non-GAAP net income from operations for fiscal 2012 grew 36%

This was CEO McBee’s first full fiscal. In that period he managed to improve nearly every measure. The company successfully implemented a number of huge changes, launched a new product, and re-energized its channel. McBee hinted Mitel was ready to make acquisitions again, and he appeared to be about a foot taller. It was a great run until yesterday.

Yesterday Mitel updated guidance. Mitel now believes Q113 will come in around $138.5 million (+/- $500k) well short of the $150 million – $155 million it had previously suggested. Wall Street hates it when executives can’t accurately predict the future. Though Mitel did offer a perfectly reasonable explanation: “Our results reflect orders booked that did not ship in the quarter, implementation delays on several customer projects and a general deterioration in the macro environment.”

Orders booked that did not ship? What does this mean? The company booked orders that weren’t orders or got orders but could not ship them? Who’s booking these orders? Who’s shipping them? Mitel actually does both because it doesn’t have a two tier distributor. Speaking of distribution when is Mitel going to sell off its CommSource and DataNet division? But it isn’t completely Mitel’s booking and shipping errors causing the shortfall – customers delayed projects too. Also, the macro environment deteriorated.

All seems minor enough. All those booked orders will likely ship as soon as the conveyor belts in the warehouse are serviced. Q2 should be strong, right?

Shareholders are not so sure. Despite Mitel’s clear explanation the stock still dropped. Before the announcement the stock was heading north. It closed yesterday at $4.34 – near a 52 week high. But now it’s down over 26%. Even worse, some of those shareholders may have gotten in at the $12/share IPO price in 2010. The good news is Mitel has experience with missed quarters, so McBee wasted no time with corrective measures. Prior to the close of Q2 in October, Mitel will restructure to eliminate approximately 200 full-time employees and close facilities.

Yes it is a familiar tune. Not just at Mitel, but if you hadn’t heard the macro environment is deteriorating. In the past few months layoffs took place at Polycom, Cisco, HP, Nokia, and maybe Avaya. The problem is there are limits to how many times you can play the ‘reduce staff and close facilities’ card.

It is a shame because the products seem pretty solid. In fact, just this week Nemertes awarded Mitel as the top challenger in IP Telephony (Pilothouse Awards). The company appears way ahead of the pack in terms of its virtualization capabilities and relationship with VMware. The channel is energized with the results and new products. Mitel’s AnyWare hosted service stacks nicely against most cloud services from the other premises-based vendors. The folks at Mitel are some of the hardest working hosers in Canada, and I hope their efforts will soon be rewarded. 

Dave Michels