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2014 03 17_-_sidoti__co_-_18th_annual_emerging_growth_research_institutional_investor_forum_-_ny

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  • 1. Sidoti & Co. 18th Annual Emerging Growth Research Institutional Investor Forum Mitel Networks March 17, 2014
  • 2. 2 SAFE HARBOR STATEMENT Forward Looking Statements Some of the statements in this document and presentation 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 Mitel and Aastra and are subject to a number of risks and uncertainties. These statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, corporate approvals, regulatory approvals, operational factors and other factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. All forward-looking statements attributable to Mitel and Aastra, or persons acting on their behalf, and are expressly qualified in their entirety by the cautionary statements set forth in this paragraph. Undue reliance should not be placed on such statements. Forward- looking statements speak only as of the date they are made. In addition, material risks that could cause results of operations to differ include the merged company’s ability to achieve or sustain profitability in the future; fluctuations in the quarterly and annual revenues and operating results; fluctuations in foreign exchange rates; current and ongoing global economic instability; intense competition; reliance on channel partners for a significant component of sales; dependence upon a small number of outside contract manufacturers to manufacture products; the ability to successfully integrate the acquisition and realize certain synergies; and, our ability to implement and achieve our business strategies successfully. Additional risks are described under the heading “Risk Factors” in Mitel’s Annual Report on Form 10-K and Aastra’s Annual Information Form. Except as required by law, we do not have any intention or obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements. You are advised, however, to consult any further public disclosures made by Mitel and Aastra on related subjects in reports and communications filed on Electronic Data-Gathering, Analysis, and Retrieval (EDGAR) or System for Electronic Document Analysis and Retrieval (SEDAR). Non-GAAP Financial Measurements This presentation includes references to non-GAAP financial measures including adjusted EBITDA, non-GAAP 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 included in this presentation and, if not contained in this presentation, contained in Mitel’s Reports on Form 8-K which have been filed with the U.S. Securities and Exchange Commission on June 24, 2013 (fiscal 2013), August 29, 2013 (Q1 of fiscal 2014) and December 5, 2013 (Q2 of fiscal 2014).
  • 3. Mitel Acquires Aastra - Resulting in a $1B Global Player
  • 4. 4 Mitel to Acquire Aastra - Transaction Overview • On November 10, 2013, Mitel (NASDAQ: MITL, TSX: MNW), signed a definitive agreement to acquire the outstanding shares of Aastra Technologies Ltd. (TSX: AAH) • Acquisition valued at $286M, or 6.0x LTM ending 9/30/13 Aastra Adjusted EBITDA of $48M • Combination creates a leading provider of business communications and collaboration solutions for the worldwide SMB and Enterprise market • The combined Company will retain the Mitel brand, will trade on NASDAQ and TSX under Mitel’s listing and will be headquartered in Ottawa, Ontario, Canada • Pro Forma shareholder ownership of 57% Mitel and 43% Aastra • Pro Forma LTM Revenue of $1,161M and EBITDA of $148M (1) • As a part of this transaction, the Company refinanced Mitel’s existing Credit Facilities with the following Senior Secured Credit Facilities: • $50M Senior Secured Revolving Credit Facility • $355M Senior Secured Term Loan B • Pro Forma Company will have $76M of cash on the balance sheet at closing, in addition to $25M of cash set aside to pre-fund integration • Expected net leverage at close of 2.0x to Mitel’s current net leverage of 2.4x • Aastra shareholders approved transaction on January 9, 2014 • The transaction closed on January 31, 2014 (1) EBITDA includes $12.5M of synergies. LTM period represents 9/30/13 for Mitel and 9/30/13 for Aastra.
  • 5. 5 Combination Creates Global Leader In SMB and Enterprise Communications and Collaboration Mitel Aastra • Provides business communications and collaboration software and services to the SMB market worldwide • Strong presence in North America and U.K. • Channel sales model with 1,400 partners globally • ~9,000 SME and Enterprise customers in over 100 countries • Installed base of over 10 million end users • More than 336,000 Cloud users • Strong financial profile - One of the most profitable enterprise communications companies - LTM 10/31/13 Revenue: $579.4M - Gross and EBITDA margin expansion over past several years • ~1,800 employees • 1,700 patent portfolio and virtualization solutions • Develops and delivers communications products and applications for the global enterprise and SMB market • Strong presence in Europe, holds #1 / #2 position in several key markets • Channel partners in more than 100 countries and premium partners with more than 1,000 resellers • Installed base of over 50 million end users • Strong financial profile - Profitable over 62 consecutive quarters - LTM 9/30/13 Revenue: $593.0M - Strong cash generation over the past several years • ~1,900 employees • Emerging Cloud business gaining traction Strong Strategic Rationale Segment Leading Financial and Leverage Profile Expanded Geographic Footprint and Market Leadership Enhanced Scale and Strong Synergy Potential Comprehensive and Focused Solution Portfolio
  • 6. 6 Strategic Rationale of Combination Segment Leading Financial And Leverage Profile • Strong cumulative free cash flow profile – combined free cash flow of more than $225M in last 2.5 years • Strengthens long-term financial model and reduces net leverage near 2.0x • “Must own” enterprise communications stock with enhanced liquidity • Strong deleveraging profile Enhanced Scale And Strong Synergy Potential Comprehensive And Focused Solution Portfolio Expanded Geographic Footprint And Market Leadership • Increased scale – over $1B in annual revenue • Strong synergies further enhance profitability and lower implied leverage • Approximately $50M run rate synergies with low execution risk • Expanded global sales channel that is complementary with minimal overlap • Management with extensive and proven M&A integration and cost removal expertise • Combined market leadership – #1 player in Western Europe and #5 global provider • Enhanced global presence with expanded base of 60M end users • ~$100M Cloud business • Well-positioned to take share from peers that have external challenges • Ability to sell “best-of-breed” products and next generation solutions to large installed base • Large installed customer base with clear upgrade path to IP and the Cloud • Significant channel and market expansion • Enhanced portfolio and Cloud leadership
  • 7. (1) LTM as of 10/31/2013. (2) LTM as of 9/30/2013. Americas 71.9% EMEA 25.2% Asia Pacific 2.9% Broad And Diverse Revenue Base Mitel Pro Forma Revenues $1.2B LTM 9/30/2013 7 Revenue By Geography Americas: $501.1 EMEA: $627.9 Asia Pacific: $40.2 Mitel (1) Aastra (2) Pro Forma Americas 14.4% EMEA 81.7% Asia Pacific 3.9% Americas 43.2% EMEA 53.3% Asia Pacific 3.4%
  • 8. Business Overview - Mitel
  • 9. A Market Leader in IP-Based Communications Solutions 9 Mitel LTM 10/31/13: $579M Mitel Communication Solutions (“MCS”) LTM 10/31/13: $481M Mitel NetSolutions (“MNS”) LTM 10/31/13: $86M Other LTM 10/31/13: $12M Description Growth Drivers • Unified Communication and Collaboration solutions includes: IP telephony, desktop devices and software applications • In the top 5 with ~7% worldwide market share. Ranked #2 in the U.K. and #4 in the U.S., #3 in Canada and #2 in the Netherlands • Competitive advantage – virtualized, hardware agnostic platform offering flexibility and cost efficiency relative to Cisco and Avaya • Favorable mix evolution (product/service, hardware/software) and product cost reductions driving leverage • TDM to IP / UCC • Virtualization • Portfolio strength • Network and hosted services, mobile services and broadband connectivity to the U.S. market • Primarily provides data center, Cloud services and CLEC to small businesses • Main competitors include 8x8, Cbeyond, ShoreTel and Ring Central • New services, migration to bundled services and improved cost management driving margins • SIP trunking • Hosted • Mobility • Products and related services that complement the Company’s core unified communications offering • Core unified communications offering Strong, global market position with a compelling value-based solution High gross margins, no R&D and minimum CapEx. Valuable, loyal customers and recurring maintenance revenue base Cross-selling opportunities Note: Financials in USD and fiscal year ending April 30. (USD $ millions)
  • 10. Strong Vertical Expertise With Highly Diverse Customer Base 10 Hospitality Diverse Customer Base FinanceGovernmentEducation Retail Healthcare Strength in Verticals
  • 11. Leverage The Core: Maintain Focus On Large And Growing Market $11.7B (1)(2) Market Size 5-7% Growth $454M LTM Sales MiVoice Call routing software Communications endpoints Hardware gateways MiCollab Unified messaging UC & Mobile clients Web, Video & Audio conferencing Application & Mobility gateways Growth Drivers 37% Int’l63% NA Geographic Mix 1. Large and growing market 2. Improved execution in the U.S. 3. Industry leading virtualization with best path to Cloud 4. Growth of software assurance and support revenue 11 37% 63% Note: Financials represents fiscal year ending April 30. (1) Gartner Forecast: Enterprise Telephony Equipment, Worldwide, 2010-2017, 2Q13 Update. (2) Gartner Forecast: Enterprise Unified Communications Infrastructure, Worldwide, 2009-2016.
  • 12. Contact Center: Large Market With Priority Spending $5.2B (1)(2) Market Size 5-15% (3) Market Growth $27M LTM Sales Growth Drivers 50% Int’l50% NA Geographic Mix Note: Financials represents fiscal year ending April 30. (1) Ovum, Global Contact Center Technology Spending Forecast: 2011-2016. (2) Gartner Market Trends: Contact Center as a Service, North America, 2012; global market based on Mitel estimate of North America as a percentage of worldwide revenues. (3) Lower rate applies to premise based with basic functionality; hosted and advanced Contact Center features growing much faster. 1. Growth of the Market and growth of ARPU 2. Increase Contact Center Attachment to Mitel IPT 3. Attachment of MiContact Center to Lync Enterprise Voice 4. Growth of Cloud Contact Centers MiContact Center Multi-channel inbound routing & Interactive Voice Response Historical, Real Time & Forecast Reports Workforce Management CRM integration Agent productivity suite Scale to ~1,000 agents MiContact Center (Lync) MiContact Center (Cloud) 50%50% 12
  • 13. Note: Financials represents fiscal year ending April 30. (1) T3i Group, InfoTrack for Unified Communications, 2013 Enterprise & SMB Market Forecast (U.S.); global market based on Mitel estimate of U.S. as a percentage of worldwide revenues. Cloud Solutions: Exploiting New Revenue Opportunity ~$5.2B (1) Market Size 25-30% Market Growth ~330K LTM Installed Seats YoY Cloud Growth Brand MiCloud Retail Business Cloud Branded and Billed by Mitel MiCloud: Powered by Mitel Business+Enterprise Cloud - Branded & Billed by Service Provider MiCloud Enterprise Multi Channel Delivery Growth Drivers 37% Int’l Business – Mitel Network Solutions • Mitel Cloud and network business – $84M revenue • Cloud communications and related services for businesses • Over $100M in contracted but unbilled revenue • 74% recurring revenue 63% NA Geographic Mix 1. Rapid Market Growth 2. Increased Sales and Marketing Investments 3. Powered by Mitel Service Provider & Channel Programs 4. Industry Leading Virtualization and Best Path to Cloud 71% 13 37% 63%
  • 14. 14 Mitel Has Successfully Expanded Gross Margins Note: Fiscal year ends April 30. The operations of DataNet / CommSource are recorded as discontinued operations and therefore are excluded from the periods presented. Emerging / Future • Software platforms • IP sets • Software applications • Software assurance TargetFY12 53.8% 57-59% Historical • Legacy platforms • Legacy sets • Legacy services 52.2% FY11 Hardware and Software Revenue Mix Gross Margins FY13 YTD 55.3% 68% 71% 75% 78% 81% 32% 29% 25% 22% 19% FY 2010 FY 2011 FY 2012 FY 2013 LTM 10/31/2013Software Hardware
  • 15. Financial Overview 15 Note: Fiscal year ends April 30. Numbers may not sum due to rounding. (1) Adjusts for the purchase of intangibles associated with prarieFyre acquisition. Quarterly Revenue & Adjusted EBITDAHistorical Revenue by Geography Revenues by Segment EBITDA Less Capital Expenditures (1) (USD $ millions) $589 $612 $577 $579 FY 2011 FY 2012 FY 2013 LTM 10/31/13 Mitel Communication Solutions NetSolutions Other $589 $612 $577 $579 FY 2011 FY 2012 FY 2013 LTM 10/31/13 United States EMEA Canada and CALA Asia Pacific $64 $71 $65 $81 FY 2011 FY 2012 FY 2013 LTM 10/31/13 $151 $158 $139 $146 $142 $151 $142 $145 $21 $27 $13 $24 $23 $26 $21 $25 Q3 FY12 Q4FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Revenue Adjusted. EBITDA
  • 16. Business Overview - Aastra
  • 17. • Growth in aerospace market 30+ Years Of Evolution 1983-1992 • Growth in consumer telephone devices 1993-1999 • Growth by acquisition 2000-2010 2003 • Ascom (Swiss) • SMB market in Western Europe 2005 • EADS (French) • LME market in France 2005 • DeTeWe (Germany) • SMB and LME market in Germany 2008 • Ericsson (Sweden) • Global LME market Acquisitions Aastra has evolved into a leading player in the Enterprise Communications market 17
  • 18. • Voice to Multimedia • Switch to Applications • Premise Based to Cloud • Fixed to Mobile • Proprietary to Open Standards Full Range Of Open Standard IP-Based And Traditional Communications Strategy SIP Call Manager Common Fixed & Mobile End‐User Solutions Common Applications 18 • Installed base of over 50 million lines • Tier 1 Channel Partners across the globe • Unparalleled presence in carriers • ~1,900 employees in over 30 offices
  • 19. • Direct presence across Europe • Indirect presence across Eastern Europe through: • Aastra clusters: • Austria: Central and Eastern Europe • Russia: CIS • Strong presence with carriers • Tier 1 distribution channels Dominant Footprint In Key European Markets Countries with Direct Presence Countries with Indirect Presence Russia Finland Sweden Norway Germany France Spain Portugal Italy Great Britain Austria Switzerland Belgium Netherlands Denmark Ireland Sales 80% Europe (50% France + Germany) Estonia Poland Czech Rep. Slovakia Hungary Romania Greece Turkey KazakhstanUkraine Croatia 19
  • 20. $144M Rank: #4 9% $94M Rank: #2 30% $54M Rank: #1 30% $32M Spain: #1 23% Portugal: #4 7% $28M Rank: #1 18% $52M Sweden: #1 39% Denmark: #2 21% Finland: #2 27% Norway: #3 17% Municipality in Norway Swedish Tax Authority Top Tier Channels And Customers In Key European Markets Country Sales (1) Key Partners Key Customers Market Share (2) Germany France Switzerland Belgium Nordic (1) Based on LTM 9/30/2013 metrics with a CAD to USD exchange rate based on average exchange rate over the LTM period. (2) MZA PBX / IP PBX Market, World Quarterly Edition, TTM Q3 2012 – Q2 2013. Spain & Portugal 20
  • 21. • Indirect sales for Terminals • Carriers • Distributors • Over 1,000 resellers • Indirect, with a direct touch model for medium to large systems (2,000 – 50,000) • MX-ONE® • Direct sales for very large systems (5,000 – 100,000) • Clearspan® • Cloud Services – Clearspan® ideally positioned for growth (5,000 – 1M+) Significant Growth Opportunity In The U.S. • Internet2 is an exceptional community of U.S. and international leaders in research, academia, industry and government who create and collaborate via innovative technologies • AT&T is a leading provider of wireless, Wi-Fi, high speed Internet, Cloud services, voice, advanced TV services and IP-based business communications services • XO Communications is a leading nationwide provider of advanced communications, managed network and IT infrastructure services for business, large enterprise and wholesale customers Channel Partners 21
  • 22. $147 $147 $137 $175 $134 $151 $140 $8 $8 $7 $21 $4 $13 $11 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Revenue Adjusted EBITDA Financial Overview 22 Adjusted EBITDA and Margin (1)Historical Revenue by Geography Quarterly Revenue and Adj. EBITDA Adj. EBITDA Less CapEx (1) Adjusted EBITDA calculated as Reported EBITDA plus special charges and restructuring, loss on litigation settlement and finance income on leases less R&D Tax Credits. (C$ millions) $717 $693 $607 $593 FY 2010 FY 2011 FY 2012 LTM 9/30/2013 Other North America Europe $68 $64 $44 $48 9% 9% 7% 8% FY 2010 FY 2011 FY 2012 LTM 9/30/2013 Adjusted EBITDA Adjusted EBITDA Margin $57 $58 $38 $40 FY 2010 FY 2011 FY 2012 LTM 9/2013
  • 23. Integration Plan
  • 24. Jun ‘13 Mitel acquired prairieFyre Executives With Extensive M&A Integration And Cost Removal Experience 24 Aug ‘07 Mitel acquired Inter-Tel Mar ‘13 Completed divestiture of DataNet / CommSource to EarthBend Aug ‘07 Mitel acquired LAKE Comm. Apr ‘08 Aastra acquired Ericsson Enterprise Communication Division Mar ‘12 Aastra acquired comdasys Aug ‘05 Aastra acquired DeTeWe acquisition Sep ‘03 Aastra acquired Ascom Aastra Mitel
  • 25. ($32.0) ($24.0) ($3.0) Synergies Realization 25 Synergies Cost to Execute Synergies 2014 2015 2016 • Full run-rate synergies of $49.6 recognized by 2016 • Conservative synergy estimates • Potential upside to plan • Dis-Synergies likely conservative • Majority of synergies realized early in 2015 • One time, initial costs drive significant, realizable long-term synergies • $25.0M set aside to fund implementation ($ millions) $12.5 $41.1 $49.6 2014 2015 2016
  • 26. 26 Pro Forma Company – Strong History of Cash Flow Generation Note: Assumes an exchange rate of 0.97 USD/CAD. (1) FCF defined as CFO less CapEx and purchase of intangibles. (2) CY 2013 YTD defined as 9/30/13 for Aastra and 10/31/13 for Mitel. ($ millions) Cumulative Free Cash Flow Generation Over The Past 2.5 Years (1)Key Points • Margin expansion has been driven by: • Product cost reductions • Operational efficiencies • Shift to higher margin product mix • Improved service gross margins • Headcount reductions • Increased contribution from growth initiatives • History of successful elimination of costs during periods of top line weakness (2) CY 2011 CY 2012 CY 2013 YTD $91.1 $155.8 $237.5
  • 27. Target Model (preliminary) 1. Target model assumes integration and synergies complete 2. Excludes stock -based compensation, amortization of acquired intangibles, F/X (gain)/loss and special charges and restructuring costs Target Model1 Gross Margin 54-55% R&D 9-10% SG&A2 30-32% Total Operating Expense2 39-42% Adjusted EBITDA2 16-18% Effective Tax Rate 18-20%
  • 28. Key Transaction Takeaways 28 Creates Global Leader In SMB And Enterprise Communications And Collaboration Comprehensive And Focused Solution Portfolio Strong Combined Balance Sheet With Conservative Leverage Strong Management Team With Track Record Of M&A Integration Enhanced Scale And Attractive Synergy Potential Strong Cash Generation One Of The Largest Cloud Businesses in the U.S. Market leader – #1 Player In Western Europe Expanded Geographic Footprint And Market Leadership
  • 29. Q&A Thank You for Your Time