ShoreTel Reports Financial Results For Third Quarter Fiscal Year 2013

Company Delivers 28 Percent Year-Over-Year Growth in Cloud, Solid Performance in Premise and Returns to Non-GAAP Operating Profit

Apr 30, 2013, 16:03 ET from ShoreTel

SUNNYVALE, Calif., April 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 third quarter of fiscal year 2013, which ended March 31, 2013.

Revenue of $78.3 million for the third quarter of fiscal year 2013 was up 39 percent from the third quarter of fiscal year 2012. The non-GAAP net loss for the third quarter was $0.3 million, or a loss of $0.01 per share, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments. This compares with a non-GAAP net loss of $1.5 million, or a loss of $0.03 per share, in the third quarter of fiscal 2012.

"Rapid expansion in the cloud market this quarter was complemented by steady growth in our premise business. With both of our business lines thriving, we delivered non-GAAP operating profitability for the company," said Peter Blackmore, CEO of ShoreTel. "ShoreTel Sky generated a 28 percent year-over-year increase in revenue, signed a record number of new customers, and continues to have a best-in-class customer retention rate."

Blackmore continued, "Our premise business generated nine percent year-over-year revenue growth, delivered strong improvement in gross margins and added nearly 1,100 new customers in the quarter. As the result of the actions we took in early January to streamline our sales team, our sales productivity increased to its highest level in over two years. These changes, as well as other actions to reduce costs in the premise business, contributed to our non-GAAP operating profit. Looking forward, we remain committed to delivering a profitable fourth quarter and fiscal 2014."

Third Quarter of Fiscal 2013 Financial Highlights

GAAP gross margin for the third quarter of fiscal year 2013 was 60.6 percent, compared with 66.2 percent in the third quarter of fiscal year 2012. This year-over-year decline was primarily due to the addition of the ShoreTel Sky® line of business, which was only included for eight days of operating results in the prior year.

Non-GAAP gross margin for the third quarter of fiscal year 2013, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, was 62.1 percent, compared with 67.2 percent in the third quarter of fiscal year 2012. GAAP net loss was $5.0 million, or $0.09 per share, in the third quarter of fiscal year 2013, compared with a GAAP net loss of $8.5 million, or $0.17 per share, in the third quarter of fiscal 2012.

As of March 31, 2013, the company had $48.4 million in cash, cash equivalents and short-term investments.

Line of Business Results

ShoreTel Sky

ShoreTel Sky revenues of $18.2 million were up seven percent sequentially over the second quarter of fiscal 2013. The total number of installed customer seats increased 45 percent over the third quarter of fiscal 2012. Additionally, a number of previously cloud-only partners added the ShoreTel premise solution to their portfolio during the quarter, giving their end customers additional choice in UC systems.

Premise

Revenues from the premise business were $60.1 million for the third quarter of fiscal 2013, up nine percent from the prior year. Premise business non-GAAP gross margin improved 100 basis points sequentially to 68.3 percent. The premise business rebounded well with a number of all-time highs, including highest-ever support and service margins, record revenues from service providers and its best sales productivity in more than two years.  

 

Select Operational Metrics

Quarter Ended

Quarter Ended

Quarter Ended

Quarter Ended

03/31/13

12/31/12

09/30/12

06/30/12

Annual recurring revenue run rate (in millions)

$     108.3

$     104.9

$      99.0

$      93.6

Cloud Monthly Average Revenue Per User (ARPU) (1)

$          57

$           60

$         61

$         62

Cloud Monthly Average Revenue Per User (ARPU) (2)

50

53

55

57

Cloud Average # of Seats per Customer (1)

38

36

35

34

Cloud Average # of Seats per Customer (2)

43

41

39

37

Cloud Monthly Revenue Churn Rate

0.3%

0.3%

0.3%

0.3%

Total Company Headcount

957

965

942

933

Non-GAAP Gross Margin-Premise

68.3%

67.3%

67.2%

67.1%

Non-GAAP Gross Margin-Cloud

41.7%

43.3%

46.7%

42.2%

(1) Represents prior periods methodology of calculating number of cloud seats deployed.  Included for this quarter only so users can see both the previous and new methodologies in comparison.

(2)The number of cloud seats has been increased by approximately 10,000 seats to include voicemail-only users, analog lines, and other extensions.  This change resulted in an increase in seats under management and correspondingly decreased ARPU and increased the average number of seats per subscriber per above.

 

Business Highlights

Introduced Newest Version of Contact Center with Enterprise Contact Center 8

The company introduced ShoreTel Enterprise Contact Center 8 with enhancements to the email and chat channels within the contact center. This enhanced release makes it easier for enterprises to meet the needs of today's multi-device, multi-channel consumer by removing barriers and offering more avenues for communication. Agents can now more effectively handle emails, chats and calls, both inbound and outbound. Customers can also schedule callbacks so they can be contacted at a time that is convenient.

Launched ShoreTel Mobility 6 and Newest ShoreTel Conferencing Products

With the introduction of ShoreTel Mobility 6 and the latest release of ShoreTel Conferencing, customers can make the Apple iPad into a business communications tool. ShoreTel Mobility 6 enables iPad users to place and receive calls with their business persona, exchange instant messages, listen to voicemail messages and create multi-party calls. ShoreTel Conferencing for iOS further extends the communications experience with application collaboration capabilities, allowing users to share presentations controlled by their iPad or iPhone with remote participants as well as view shared desktops of their colleagues' PCs and Macs.

ShoreTel Sky Awarded Telephony Product of the Year by TMC

TMC, a global, integrated media company, awarded ShoreTel Sky Mobility with its 2012 INTERNET TELEPHONY Product of the Year. TMC noted that the award was based on the product's innovation and quality, as well as its ability to provide solutions to real business communications challenges.

Business Outlook

ShoreTel is providing the following outlook for the quarter ending June 30, 2013:

  • Revenue is expected to be in the range of $80 million to $86 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 61.5 percent to 62.5 percent.
  • GAAP operating expenses are expected to be in the range of $52 million to $53 million, including approximately $3.0 million in stock-based compensation charges, amortization of acquisition-related intangibles and other charges. 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 2:30 p.m. Pacific Daylight 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 10027198. 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 4:30 p.m. Pacific Daylight Time today until approximately 6:00 a.m. Pacific Daylight Time on May 7, 2013, by dialing +1-877-344-7529 or +1-412-317-0088 for callers outside the U.S. and providing the conference identification number of 10027198.

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 financial results 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, our ability to grow our ShoreTel Sky business, our ability to maintain our premise business in a profitable manner, 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, our 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 December 31, 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.

(TABLES TO FOLLOW)

Investor Contact:

Tonya Chin

408-962-2573

tchin@shoretel.com

 

 

SHORETEL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

As of

As of

As of 

March 31,

December 31,

June 30,

2013

2012

2012

ASSETS

Current assets:

Cash and cash equivalents

$    36,773

$     43,839

$    37,120

Short-term investments

11,598

8,217

18,375

Accounts receivable - net 

32,085

31,834

34,198

Inventories

21,991

20,383

20,212

Indemnification asset

5,674

7,012

6,570

Prepaid expenses and other current assets

5,531

5,478

5,275

Total current assets

113,652

116,763

121,750

Property and equipment - net 

16,390

14,502

10,495

Goodwill

122,750

122,665

122,665

Intangible assets

40,125

42,128

45,304

Other assets

3,467

2,769

2,939

Total assets

$  296,384

$    298,827

$  303,153

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$    15,098

$     12,316

$      9,697

Accrued liabilities and other

16,622

15,178

16,134

Accrued employee compensation

11,185

13,088

12,151

Accrued taxes and surcharges

10,138

11,026

7,852

Purchase consideration

3,525

9,881

9,398

Deferred revenue

35,452

37,503

35,829

Total current liabilities

92,020

98,992

91,061

Line of credit - net

29,974

19,960

19,946

Long-term deferred revenue

14,628

14,373

13,683

Long-term purchase consideration

-

3,475

3,305

Other long-term liabilities

3,700

3,064

4,926

Total liabilities

140,322

139,864

132,921

Stockholders' equity:

Common stock

319,880

317,770

310,648

Accumulated deficit

(163,818)

(158,807)

(140,416)

Total stockholders' equity

156,062

158,963

170,232

Total liabilities and stockholders' equity 

$  296,384

$    298,827

$  303,153

 

 

SHORETEL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

March 31,

March 31,

2013

2012

2013

2012

Revenue:

Product

$ 45,511

$ 42,440

$ 135,114

$ 130,901

Hosted and related services

18,239

1,294

50,988

1,294

Support and services

14,570

12,570

41,838

35,979

Total revenues

78,320

56,304

227,940

168,174

Cost of revenue:

Product

15,392

14,160

46,248

44,718

Hosted and related services

11,418

780

31,960

780

Support and services 

4,070

4,104

12,538

11,988

Total cost of revenue

30,880

19,044

90,746

57,486

Gross profit

47,440

37,260

137,194

110,688

Gross profit %

60.6%

66.2%

60.2%

65.8%

Operating expenses:

Research and development 

13,065

13,137

39,213

37,190

Sales and marketing 

29,497

22,566

91,992

65,384

General and administrative 

9,270

6,541

27,157

19,519

Acquisition-related costs

-

4,488

-

4,488

Total operating expenses

51,832

46,732

158,362

126,581

Loss from operations

(4,392)

(9,472)

(21,168)

(15,893)

Other income (expense) - net 

(558)

(4)

(1,886)

(599)

Loss before provision for (benefit from) income tax

(4,950)

(9,476)

(23,054)

(16,492)

Provision for (benefit from) income tax

61

(964)

348

(800)

Net loss

$ (5,011)

$ (8,512)

$ (23,402)

$ (15,692)

Net loss per share:

Basic and diluted

$   (0.09)

$   (0.17)

$     (0.41)

$     (0.33)

Shares used in computing net loss per share:

Basic and diluted

58,755

49,126

58,500

48,196

 

 

SHORETEL, INC.

GAAP TO NON-GAAP RECONCILIATION

(Amounts in thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2013

2012

2013

2012

GAAP Gross Profit

$ 47,440

$ 37,260

$ 137,194

$ 110,688

Share-based compensation expense

207

 (a) 

242

 (a) 

815

 (a) 

724

Amortization of acquisition-related intangibles

1,014

 (b)  

324

 (b)  

3,033

 (b)  

694

Severance

-

 (c) 

-

 (c) 

10

 (c) 

-

Prior quarter charge for change in estimate of sales, use and telecommunications tax

-

 (e) 

-

 (e) 

927

 (e) 

-

Non-GAAP Gross Profit

$ 48,661

$ 37,826

$ 141,979

$ 112,106

Non-GAAP Gross Margin

62.1%

67.2%

62.3%

66.7%

GAAP Income (Loss) from Operations

$ (4,392)

$ (9,472)

$ (21,168)

$ (15,893)

Share-based compensation expense

2,049

 (a) 

3,160

 (a) 

8,901

 (a) 

9,682

Amortization of acquisition-related intangibles

1,904

 (b)  

428

 (b)  

5,700

 (b)  

858

Severance

584

 (c) 

-

 (c) 

966

 (c) 

-

Prior quarter charge for change in estimate of sales, use and telecommunications tax

-

 (e) 

-

 (e) 

1,875

 (e) 

-

Litigation settlement

-

 (f) 

-

 (f) 

-

 (f) 

500

Acquisition-related costs

-

 (g) 

4,488

 (g) 

-

 (g) 

4,488

Non-GAAP Income (Loss) from Operations

$      145

$ (1,396)

$   (3,726)

$      (365)

GAAP Net Loss

$ (5,011)

$ (8,512)

$ (23,402)

$ (15,692)

Share-based compensation expense

2,049

 (a) 

3,160

 (a) 

8,901

 (a) 

9,682

Amortization of acquisition-related intangibles

1,904

 (b)  

428

 (b)  

5,700

 (b)  

858

Severance

584

 (c) 

-

 (c) 

966

 (c) 

-

Interest charge from change in fair value of purchase consideration

169

 (d) 

-

 (d) 

822

 (d) 

-

Prior quarter charge for change in estimate of sales, use and telecommunications tax

-

 (e) 

-

 (e) 

1,875

 (e) 

-

Litigation settlement

-

 (f) 

-

 (f) 

-

 (f) 

500

Acquisition-related costs

-

 (g) 

4,488

 (g) 

-

 (g) 

4,488

Deferred tax benefit (provision) arising from tax impact of above items

(31)

 (h) 

(1,040)

 (h) 

113

 (h) 

(1,052)

Non-GAAP Net Loss

$    (336)

$ (1,476)

$   (5,025)

$   (1,216)

Non-GAAP Net Loss per share:

Basic and diluted (i)

$   (0.01)

$   (0.03)

$     (0.09)

$     (0.03)

Shares used in computing net loss per share: 

Basic and diluted (i)

58,755

49,126

58,500

48,196

 

SHORETEL, INC.

GAAP TO NON-GAAP RECONCILIATION FOOTNOTES

(Amounts in thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2013

2012

2013

2012

(a)

Excludes stock-based compensation included in:

Cost of product revenue

$      14

$      32

$        98

$      106

Cost of hosted and related services revenue

39

-

117

-

Cost of support and services revenue

154

210

600

618

Research and development

500

901

2,478

2,824

Sales and marketing

530

1,039

2,465

3,106

General and administrative

812

978

3,143

3,028

$ 2,049

$ 3,160

$   8,901

$   9,682

(b) 

Excludes amortization of acquisition-related intangibles included in:

Cost of product revenue

$    266

$    260

$      786

$      630

Cost of hosted and related services

748

64

2,247

64

Sales and marketing

851

101

2,553

161

General and administrative

39

3

114

3

$ 1,904

$    428

$   5,700

$      858

(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

584

-

819

-

General and administrative

-

-

38

-

$    584

$       -

$      966

$         -

(d)

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

Other expense

$    169

$       -

$      822

$         -

(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

$         -

General and administrative

-

-

948

-

$       -

$       -

$   1,875

$         -

(f)

Excludes litigation settlement included in:

General and administrative

$       -

$       -

$         -

$      500

(g)

Excludes direct acquisition costs included in:

Acquisition-related costs

$       -

$ 4,488

$         -

$   4,488

(h)

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

(i)

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 anti-dilutive.

 

SHORETEL, INC.

RECONCILIATION OF GAAP TO NON-GAAP FOR Q4 PROJECTIONS

(Amounts in thousands)

(Unaudited)

Three Months Ending

June 30, 2013

GAAP gross profit %

High

Low

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

61.0%

60.0%

Non-GAAP gross profit %

1.5%

1.5%

62.5%

61.5%

Total GAAP operating expenses

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

$  53,000

$  52,000

Total non-GAAP operating expenses

$  (3,000)

$  (3,000)

$  50,000

$  49,000

SOURCE ShoreTel



RELATED LINKS

http://www.shoretel.com