ShoreTel Reports Financial Results for Second Quarter of Fiscal Year 2013

Cloud Division Growth Drives 29 Percent Year Over Year Revenue Improvement

Jan 30, 2013, 16:02 ET from ShoreTel

SUNNYVALE, Calif., Jan. 30, 2013 /PRNewswire/ -- ShoreTel® (NASDAQ; SHOR), the leading provider of brilliantly simple unified communications platforms, including business phone systems, applications and mobile UC solutions, today announced financial results for the second quarter of fiscal year 2013, which ended December 31, 2012.

Revenue of $74.6 million for the second quarter of fiscal year 2013 was up 29 percent from the second quarter of fiscal year 2012. The non-GAAP net loss for the second quarter was $(2.6) million, or $(0.04) per share, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments. This compares with non-GAAP net income of $1.4 million, or $0.03 per share, in the second quarter of fiscal 2012.

"Our ShoreTel Sky business continues to be very strong with December marking our best month of cloud bookings in our history," said Peter Blackmore, president and CEO of ShoreTel.  "We were also pleased to sign a record number of new cloud customers, which together with a strong backlog and low churn, drove 9 percent sequential cloud revenue growth in the quarter and has driven our recurring revenue base up to 35 percent of our total revenue."

Blackmore added, "In early January, we took meaningful action to reorganize our global sales organization to drive improved sales productivity. I am confident these changes will yield improved results over the long term and put ShoreTel on a solid path to profitability."

Second Quarter of Fiscal 2013 Financial Highlights

GAAP gross margin for the second quarter of fiscal year 2013 was 58.8 percent, compared with 65.4 percent in the second quarter of fiscal year 2012. The decline in gross margin percentage from last year is the result of the addition of the ShoreTel cloud division including the amortization of acquisition related intangibles, which were not included in the prior year's results.

Non-GAAP gross margin for the second quarter of fiscal year 2013, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, was 61.8 percent, compared with 66.1 percent in the year-ago quarter. GAAP net loss was $(10.4) million, or $(0.18) per share, in the second quarter of fiscal year 2013, compared with a GAAP net loss of $(2.5) million, or $(0.05) per share, in the second quarter of fiscal 2012. The GAAP net loss in the second quarter of fiscal year 2013 includes a $1.9 million charge for a change in estimates for sales, telecom taxes and regulatory fees related to prior periods.

As of December 31, 2012, the company had $52.1 million in cash, cash equivalents and short-term investments, and generated $1.1 million in cash flow from operations in the quarter.

Line of Business Results

Cloud

The cloud division continued to deliver strong revenue growth of 9 percent sequentially over the first fiscal quarter, with revenues of $17.1 million. Monthly recurring revenue grew by 25 percent from the second fiscal quarter of 2012, and the total number of installed customer seats increased 38 percent over the same period. Partnerships with previously premise-only channel partners continued to develop and there is a strong pipeline of new partners waiting to become certified cloud business partners.

Premise

The company's premise-business revenues were $57.5 million for the second quarter of fiscal 2013, down 1 percent from the prior year. Revenue from the company's international locations was up 8 percent over the year-ago quarter and represented 13 percent of its premise revenue in the quarter. The company's typical second quarter seasonal growth was muted due to an increase in deals being delayed beyond the end of the quarter.



Select Operational Metrics






Quarter Ended


Quarter Ended


Quarter Ended






12/31/12


09/30/12


06/30/12











Cloud Monthly Average Revenue Per User (ARPU)

$               60


$             61


$             62











Cloud Average # of Seats per Subscriber

36


35


34











Cloud Monthly Revenue Churn Rate

0.3%


0.3%


0.3%











Total Company Headcount

965


942


933











Non-GAAP Gross Margins-Premise

67.3%


67.2%


67.1%

Non-GAAP Gross Margins-Cloud

43.3%


46.7%


42.2%













Business Highlights

ShoreTel's Cloud Division Earns Frost & Sullivan's Award for Hosted IP Telephony and UC Services

In November, the company announced that Frost & Sullivan had given its 2012 North American Customer Value Enhancement Award in the Hosted IP Telephony and UC Services market to ShoreTel's Cloud Division. The Frost & Sullivan Award for Customer Value Enhancement is presented each year to the company that has demonstrated excellence in implementing strategies that proactively create value for its customers with a focus on improving the return on the investment that customers make in its services or products. 

ShoreTel Positioned in the Leaders Quadrant of the Magic Quadrant for Unified Communications as a Service

The company was positioned by Gartner, Inc. in the Leaders quadrant of the Magic Quadrant for Unified Communications as a Service, North America1 based on ShoreTel's cloud division with its ShoreTel Sky family of products.

Business Outlook

ShoreTel is providing the following outlook for the quarter ending Mar. 31, 2013:

  • Revenue is expected to be in the range of $73 million to $79 million.
  • GAAP gross margin is expected to be in the range of 60 percent to 61 percent, including approximately $1.2 million in stock-based compensation charges and amortization of acquisition-related intangibles. Non-GAAP gross margin, which excludes stock-based compensation and other charges, is expected to be in the range of 62 percent to 63 percent.
  • GAAP operating expenses are expected to be in the range of $53 million to $54 million, including approximately $3.3 million in stock-based compensation charges and amortization of acquisition-related intangibles and $0.7 million in severance costs related to sales reorganization actions in January 2013. Non-GAAP operating expenses, which exclude stock-based compensation and other charges listed above, are expected to be in the range of $49 million to $50 million.

Conference Call Information

The company will host a corresponding conference call and live webcast today at 2:00 p.m. Pacific Standard Time. To access the conference call, dial +1-877-317-6789 for callers in the U.S. and +1-412-317-6789 for international callers and provide the operator with the conference identification number of 10023317. A live webcast will be available in the Investor Relations section of the company's corporate website at http://ir.shoretel.com/ and an archived recording will be available beginning approximately two hours after the completion of the call until the company's announcement of its financial results for the next quarter. An audio telephonic replay of the conference call will also be available beginning at approximately 4:00 p.m. Pacific Standard Time today until approximately 6:00 a.m. Pacific Standard Time on Feb. 7, 2013, by dialing +1-877-344-7529 or +1-412-317-0088 for callers outside the U.S. and Canada and providing the conference identification number of 10023317.

Use of Non-GAAP Financial Measures

ShoreTel reports all required financial information in accordance with generally accepted accounting principles in the United States ("GAAP"), but it believes that evaluating its ongoing operating results may be difficult to understand if limited to reviewing only GAAP financial measures. Many investors have requested that ShoreTel disclose this non-GAAP information because it is useful in understanding the company's performance as it excludes non-cash charges, other non-recurring adjustments and related tax adjustments, that many investors feel may obscure the company's true operating performance. Likewise, management uses these non-GAAP measures to manage and assess the profitability of its business and does not consider stock-based compensation charges and amortization charges related to acquisition-related intangible assets, which are non-cash charges, or other non-recurring items in managing its core operations. ShoreTel has provided a reconciliation of non-GAAP financial measures following the text of this press release. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Legal Notice Regarding Forward-Looking Statements

ShoreTel assumes no obligation to update the forward-looking statements included in this release. This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the federal securities laws, including, without limitation, statements by Peter Blackmore, statements regarding future products and statements in the "Business Outlook" section regarding ShoreTel's anticipated future revenues, gross margins, operating expenses and other financial information. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include the intense competition in our industry, our reliance on third parties to sell and support our products, supply and manufacturing risks, our ability to control costs as we expand our business, increased risk of intellectual property litigation by entering into new markets, our ability to attract, retain and ramp new sales personnel, uncertainties inherent in the product development cycle, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, risks related to our acquisition of M5 Networks, including technology and product integration risks, ability to retain key personnel and customers and the risk of assuming unknown liabilities, and other risk factors set forth in ShoreTel's Form 10-K for the year ended June 30, 2012, and in its Form 10-Q for the quarter ended September 30, 2012.

Related Links & Conversation

About ShoreTel

ShoreTel, Inc. (NASDAQ: SHOR) is a provider of business communication solutions whose brilliantly simple unified communications platforms, applications and mobile UC solutions promise a new rhythm of workforce engagement and collaboration. With costly complexity eliminated by design from its award-winning, all-in-one IP phone system, UC and contact center solution, and its industry-leading hosted phone system, workers enjoy a freedom and self-reliance that other providers can't match. Users have full control to engage and collaborate, no matter the time, place or device, for the lowest cost and demand on IT resources in the industry. ShoreTel is headquartered in Sunnyvale, Calif., and has regional offices and partners worldwide. For more information, visit shoretel.com or shoretelsky.com.

M5, ShoreTel, ShoreTel Sky, and the ShoreTel logo are trademarks or registered trademarks of ShoreTel, Inc. in the United States and/or other countries.

1 Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

SHORETEL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

As of

As of

As of 

December 31,

September 30, 

June 30,

2012

2012

2012

ASSETS

Current assets:

Cash and cash equivalents

$               43,839

$               41,215

$               37,120

Short-term investments

8,217

13,933

18,375

Accounts receivable - net 

31,834

30,302

34,198

Inventories

20,383

19,053

20,212

Indemnification asset

7,012

6,570

6,570

Prepaid expenses and other current assets

5,478

6,016

5,275

Total current assets

116,763

117,089

121,750

Property and equipment - net 

14,502

11,693

10,495

Goodwill

122,665

122,665

122,665

Intangible assets

42,128

43,692

45,304

Other assets

2,769

2,578

2,939

Total assets

$             298,827

$             297,717

$             303,153

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$               12,316

$                 9,225

$                 9,697

Accrued liabilities and other

15,178

17,019

16,134

Accrued employee compensation

13,088

11,652

12,151

Accrued taxes and surcharges

11,026

8,170

7,852

Purchase consideration

9,881

9,537

9,398

Deferred revenue

37,503

35,960

35,829

Total current liabilities

98,992

91,563

91,061

Line of credit - net

19,960

19,966

19,946

Long-term deferred revenue

14,373

14,246

13,683

Long-term purchase consideration

3,475

3,354

3,305

Other long-term liabilities

3,064

3,624

4,926

Total liabilities

139,864

132,753

132,921

Stockholders' equity:

Common stock

317,770

313,417

310,648

Accumulated deficit

(158,807)

(148,453)

(140,416)

Total stockholders' equity

158,963

164,964

170,232

Total liabilities and stockholders' equity 

$             298,827

$             297,717

$             303,153

SHORETEL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

December 31,

December 31,

2012

2011

2012

2011

Revenue:

Product

$          43,769

$           46,277

$      89,603

$           88,461

Hosted and related services

17,087

-

32,749

-

Support and services

13,780

11,735

27,268

23,409

Total revenues

74,636

58,012

149,620

111,870

Cost of revenue:

Product

15,069

16,103

30,856

30,558

Hosted and related services

11,400

-

20,542

-

Support and services 

4,279

3,969

8,468

7,884

Total cost of revenue

30,748

20,072

59,866

38,442

Gross profit

43,888

37,940

89,754

73,428

Gross profit %

58.8%

65.4%

60.0%

65.6%

Operating expenses:

Research and development 

12,195

12,240

26,148

24,053

Sales and marketing 

31,739

21,596

62,495

42,818

General and administrative 

9,292

6,349

17,887

12,978

Total operating expenses

53,226

40,185

106,530

79,849

Loss from operations

(9,338)

(2,245)

(16,776)

(6,421)

Other income (expense) - net 

(926)

(196)

(1,328)

(595)

Loss before provision for income tax

(10,264)

(2,441)

(18,104)

(7,016)

Provision for income tax

90

97

287

164

Net loss

$        (10,354)

$           (2,538)

$        (18,391)

$           (7,180)

Net loss per share:

Basic and diluted

$            (0.18)

$             (0.05)

$            (0.32)

$             (0.15)

Shares used in computing net loss per share:

Basic and diluted

58,566

47,946

58,376

47,666

SHORETEL, INC.

GAAP to Non-GAAP Reconciliation

(Amounts in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

December 31, 2012

December 31, 2012

GAAP

Excludes 

Non-GAAP

GAAP

Excludes 

Non-GAAP

Revenue:

Product

$      43,769

$              -

$      43,769

$      89,603

$              -

$      89,603

Hosted and related services

17,087

-

17,087

32,749

-

32,749

Support and services

13,780

-

13,780

27,268

-

27,268

Total revenues

74,636

-

74,636

149,620

-

149,620

Cost of revenue:

Product

15,069

(294)

 (a),(b)  

14,775

30,856

(604)

 (a),(b)  

30,252

Hosted and related services

11,400

(1,716)

 (a),(b),(e) 

9,684

20,542

(2,511)

 (a),(b),(c),(e) 

18,031

Support and services

4,279

(239)

 (a) 

4,040

8,468

(448)

 (a),(c) 

8,020

Total cost of revenue

30,748

(2,249)

28,499

59,866

(3,563)

56,303

Gross profit

43,888

2,249

46,137

89,754

3,563

93,317

Gross profit %

58.8%

61.8%

60.0%

62.4%

Operating expenses:

Research and development

12,195

(919)

 (a) 

11,276

26,148

(2,077)

 (a),(c) 

24,071

Sales and marketing 

31,739

(1,924)

 (a),(b)  

29,815

62,495

(3,872)

 (a),(b),(c) 

58,623

General and administrative 

9,292

(2,180)

 (a),(b),(e) 

7,112

17,887

(3,393)

 (a),(b),(c),(e) 

14,494

Total operating expenses

53,226

(5,023)

48,203

106,530

(9,342)

97,188

Loss from operations

(9,338)

7,272

(2,066)

(16,776)

12,905

(3,871)

Other income (expense) - net

(926)

465

 (d) 

(461)

(1,328)

653

 (d) 

(675)

Loss before provision for income tax

(10,264)

7,737

(2,527)

(18,104)

13,558

(4,546)

Provision for income tax

90

(2)

 (f) 

88

287

(145)

 (f) 

142

Net loss

$    (10,354)

$        7,739

$      (2,615)

$    (18,391)

$      13,703

$      (4,688)

Net loss per share:

Basic and diluted (g)

$        (0.18)

$          0.14

$        (0.04)

$        (0.32)

$          0.24

$        (0.08)

Shares used in computing net loss per share: 

Basic and diluted (g)

58,566

58,566

58,376

58,376

(a)

Excludes stock-based compensation included in:

Cost of product revenue

$             34

$             84

Cost of hosted and related services revenue

40

78

Cost of support and services revenue

239

446

Research and development

919

1,978

Sales and marketing

1,073

1,935

General and administrative

1,194

2,331

$        3,499

$        6,852

(b) 

Excludes amortization of acquisition-related intangibles included in:

Cost of product revenue

$           260

$           520

Cost of hosted and related services

749

1,498

Sales and marketing

851

1,702

General and administrative

38

76

$        1,898

$        3,796

(c)

Excludes severance included in: 

Cost of hosted and related services

$              -

$               8

Cost of support and services revenue

-

2

Research and development

-

99

Sales and marketing

-

235

General and administrative

-

38

$              -

$           382

(d)

Excludes interest charge from change in fair value of contingent consideration included in:

Other expense

$           465

$           653

(e)

Excludes prior quarter charge for change in estimate of sales, use and telecommunications tax recognized in the current quarter:

Cost of hosted and related services

$           927

$           927

General and administrative

948

948

$        1,875

$        1,875

(f)

Excludes the deferred tax benefit arising from acquisition and tax impact of the items which are excluded in (a) to (e) above. 

(g)

Potentially dilutive securities were not included in the calculation of diluted net loss per share for the periods which had a net loss because to do so would have been dilutive.

 

SHORETEL, INC.

GAAP to Non-GAAP Reconciliation

(Amounts in thousands, except per share amounts)

Three Months Ended

Six Months Ended

December 31, 2011

December 31, 2011

GAAP

Excludes 

Non-GAAP

GAAP

Excludes 

Non-GAAP

Revenue:

Product

$       46,277

$              -

$       46,277

$       88,461

$              -

$       88,461

Support and services

11,735

-

11,735

23,409

-

23,409

Total revenues

58,012

-

58,012

111,870

-

111,870

Cost of revenue

Product

16,103

(218)

 (a),(b)  

15,885

30,558

(444)

 (a),(b)  

30,114

Support and services

3,969

(209)

 (a) 

3,760

7,884

(408)

 (a) 

7,476

Total cost of revenue

20,072

(427)

19,645

38,442

(852)

37,590

Gross profit

37,940

427

38,367

73,428

852

74,280

Gross profit %

65.4%

66.1%

65.6%

66.4%

Operating expenses:

Research and development

12,240

(911)

 (a) 

11,329

24,053

(1,923)

 (a) 

22,130

Sales and marketing 

21,596

(1,083)

 (a),(b)  

20,513

42,818

(2,127)

 (a),(b)  

40,691

General and administrative 

6,349

(1,566)

 (a),(c) 

4,783

12,978

(2,550)

 (a),(c) 

10,428

Total operating expenses

40,185

(3,560)

36,625

79,849

(6,600)

73,249

Income (Loss) from operations

(2,245)

3,987

1,742

(6,421)

7,452

1,031

Other income (expense), net 

(196)

-

(196)

(595)

-

(595)

Income (Loss) before provision for income tax

(2,441)

3,987

1,546

(7,016)

7,452

436

Provision for income tax

97

12

 (d) 

109

164

12

 (d) 

176

Net income (loss)

$       (2,538)

$         3,975

$         1,437

$       (7,180)

$         7,440

$            260

Net income (loss) per share:

Basic and diluted (e)

$         (0.05)

$           0.08

$           0.03

$         (0.15)

$           0.16

$           0.01

Shares used in computing net loss per share: 

Basic and diluted (e)

47,946

47,946

47,666

47,666

(a)

Excludes stock-based compensation as follows:

Cost of product revenue

$              33

$              74

Cost of support and services revenue

209

408

Research and development

911

1,923

Sales and marketing

1,053

2,067

General and administrative

1,066

2,050

$         3,272

$         6,522

(b) 

Excludes amortization of acquisition-related intangibles:

Cost of product revenue

$            185

$            370

Sales and marketing

30

60

$            215

$            430

(c)

Excludes litigation settlement included in: 

General and administrative

$            500

$            500

(d)

Excludes the tax impact of the items which are excluded in (a) to (c) above. 

(e)

Potentially dilutive securities were not included in the calculation of diluted net loss per share for the periods which had a net loss because to do so would have been dilutive.

SHORETEL, INC.

RECONCILIATION OF GAAP TO NON-GAAP FOR Q3 PROJECTIONS

(Amounts in thousands)

(Unaudited)

Three Months Ending

March 31, 2013

High

Low

GAAP gross profit %

61.0%

60.0%

Adjustments for stock-based compensation and acquisition-related intangible asset amortization

2.0%

2.0%

Non-GAAP gross profit %

63.0%

62.0%

Total GAAP operating expenses

$     54,000

$     53,000

Adjustments for stock-based compensation and acquisition-related intangible asset amortization

$      (4,000)

$      (4,000)

Total non-GAAP operating expenses

$     50,000

$     49,000

Investor Contact: Tonya Chin 408-962-2573 tchin@shoretel.com

SOURCE ShoreTel



RELATED LINKS

http://www.shoretel.com