ShoreTel, Inc.
Oct 23, 2014

ShoreTel Reports Financial Results for First Quarter Fiscal Year 2015

Achieved Record Total Revenue

SUNNYVALE, Calif., Oct. 23, 2014 /PRNewswire/ -- ShoreTel® (NASDAQ: SHOR), the leading provider of brilliantly simple phone systems and unified communications solutions, today announced financial results for the first quarter of fiscal 2015, which ended September 30, 2014.

ShoreTel logo.

For the first quarter of fiscal 2015, total revenue was a record $90.4 million, an increase of 7 percent compared to the first quarter of fiscal 2014. Non-GAAP net income, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, for the first quarter of fiscal year 2015, was a $4.7 million, or $0.07 per diluted share. This compares with a non-GAAP net income of $4.0 million, or $0.07 per diluted share, in the first quarter of fiscal 2014. GAAP net income was $0.4 million, or $0.01 per diluted share, in the first quarter of fiscal 2015, compared with a GAAP net loss of $1.0 million, or $0.02 per share, in the first quarter of fiscal 2014.

"Our record first quarter results highlight the continued successful execution of our three strategic priorities which are to drive growth, to expand our technology and infrastructure capacity, and to continue to earn a world-class reputation for customer satisfaction," said Don Joos, president and CEO of ShoreTel.  "Importantly, our growth initiatives, enhanced by our strong sales execution, continue to evolve and we are on track to deliver our next generation common platform in April, faster than originally anticipated. We have also increased our financial flexibility with the signing of our new $100 million line of credit facility.  We are pleased with our team's strong execution and continued progress against our stated strategic goals."

First Quarter of Fiscal 2015 Financial Highlights

Recurring revenues, which consist of cloud monthly recurring revenues and support revenues, represented 39 percent of total revenue in the first quarter of fiscal 2015 and reached an annualized value of $142 million; an increase of 17 percent compared to the first quarter of fiscal 2014.

Non-GAAP total gross margin, which excludes stock-based compensation charges and amortization of acquisition-related intangibles, for the first quarter of fiscal year 2015, was 61.3 percent, compared with 62.3 percent in the year-ago period. GAAP gross margin for the first quarter of fiscal year 2015 was 59.5 percent, compared with 60.7 percent in the first quarter of fiscal year 2014.

Hosted revenues of $24.9 million were up 20 percent year-over-year and 3.5 percent sequentially.  Non-GAAP hosted gross margin was 42.1 percent in the first quarter of fiscal 2015, compared with 43.4 percent in the first quarter of fiscal 2014. GAAP hosted gross margin for the first quarter of fiscal year 2015 was 37.4 percent, compared with 39.6 percent in the first quarter of fiscal year 2014.  The total number of installed customer seats increased 27 percent over the first quarter of fiscal 2014 to approximately 160,500.  Revenue churn dropped to approximately 2 percent annualized in the first quarter of fiscal 2015.

Product revenues of $47.7 million were up slightly year-over-year, and up one percent sequentially.  Non-GAAP product gross margin was 65.5 percent in the first quarter of fiscal 2015, compared with 66.4 percent in the first quarter of fiscal 2014.  GAAP product gross margin for the first quarter of fiscal year 2015 was 64.8 percent, compared with 65.8 percent in the first quarter of fiscal year 2014.

Support and services revenues of $17.8 million were up 12 percent year-over-year and 3 percent sequentially. Non-GAAP support and service gross margin was 77.0 percent in the first quarter of fiscal 2015, compared with 74.6 percent in the first quarter of fiscal 2014. GAAP support and service gross margin for the first quarter of fiscal year 2015 was 76.0 percent, compared with 73.0 percent in the first quarter of fiscal year 2014.

As of September 30, 2014 the company had $62.7 million in cash, cash equivalents and short-term investments and no outstanding debt.

Selected Operational Metrics


Quarter Ended


Quarter Ended


Quarter Ended


Quarter Ended


Quarter Ended


09/30/14


06/30/14


03/31/14


12/31/13


09/30/13











Annual recurring revenue run rate (in millions)

$               142.3


$               136.2


$               130.3


$               125.6


$               121.1











Cloud Average Monthly Recurring Revenue Per Customer

$               1,963


$               1,974


$               1,978


$               1,982


$               2,040











Cloud Monthly Average Revenue Per User (ARPU)

$                     44


$                     44


$                     45


$                     45


$                     47











Cloud Average # of Seats per Customer 

45


45


44


44


43











Cloud Revenue Churn Rate Annualized

2.3%


4.9%


5.1%


3.6%


3.6%











Non-GAAP Gross Margin-Product

65.5%


64.6%


64.2%


65.5%


66.4%











Non-GAAP Gross Margin-Hosted and related services

42.1%


43.7%


41.1%


39.8%


43.4%











Non-GAAP Gross Margin-Support and Services

77.0%


75.9%


75.4%


74.8%


74.6%











Total Company Headcount

989


954


930


925


932











First Quarter of Fiscal 2015 Business Highlights

Nemertes Research Finds ShoreTel Has Lowest First-Year IP Telephony Costs

A recent study by Nemertes Research found that ShoreTel delivers the lowest first-year total cost of ownership ("TCO") across all size deployments against six competitors. The study included nearly 200 organizations and gathered real-world cost data for seven leading IP telephony and unified communications vendors. The responses were used to develop a first-year TCO analysis of on-premises, cloud and hybrid deployments.

The industry research shows ShoreTel ranks the lowest in first-year telephony costs (for both up-front and ongoing investments) for all-sized company deployments. Nemertes also considered the size and complexity of the roll-out in the report. For installations greater than 350 endpoints, ShoreTel's first-year overall costs are the lowest per endpoint. The report also found ShoreTel systems require lower staffing levels than other vendors.

ShoreTel Increases Line of Credit Availability to $100M

The Company entered into a new line of credit facility which increases its borrowing capacity from $50 million to $100 million and will be available until October 2019.  The line of credit provides the company increased flexibility to pursue growth initiatives, make internal investments and pursue strategic opportunities.

ShoreTel Delivers Mobile Video Collaboration with ShoreTel Mobility 8

In August, ShoreTel launched a major update to ShoreTel Mobility, version 8, for on-premises customers. ShoreTel Mobility 8 empowers everyone with simple, seamless mobile-enabled video conferencing to ensure employees can always stay connected with their colleagues wherever they may be working. ShoreTel Mobility 8 makes it easy to communicate via video between iOS and AndroidTM smartphones and tablets using the ShoreTel Mobility Client, with single touch video calling from the keypad. Users can participate in multi-party video sessions from mobile devices to room-based video communication systems.

Mobility 8 has seamless integration with ShoreTel Communicator, enabling employees to fully control their ShoreTel Mobility client using the same easy-to-use, intuitive ShoreTel Communicator interface they use to manage their desk phone.

ShoreTel Mobility 8 also introduced a virtualized ShoreTel Mobility Router so IT departments can easily mobile-enable the company workforce to encourage collaboration and productivity. This option lowers costs for hardware and IT staff and improves overall TCO for deployments.

ShoreTel Names Frederic Gillant as Managing Director for Asia Pacific           

ShoreTel appointed Frederic Gillant as vice president and managing director for Asia Pacific reporting directly to ShoreTel's senior vice president of worldwide sales, David Petts.  His appointment reflects ShoreTel's continued investment in the Asia Pacific region, which is a key part of the company's global growth strategy.

Gillant is based in Singapore and is responsible for leading ShoreTel's go-to-market strategy across the Asia Pacific region including oversight of the regional sales teams serving Australia, New Zealand, Asia and South Africa.

ShoreTel Opens Sales, Service and R & D Office in Bangalore, India

As part of ShoreTel's Asia Pacific expansion, ShoreTel India was recently opened to provide sales, global support services, and research and development expertise. The company is leveraging India's world-class technical talent in Bangalore to further the development and support of existing and next-generation ShoreTel products and solutions.

ShoreTel plans to continue to grow its Bangalore office over time. The engineering, sales and support teams will be working closely with their counterparts around the world, to enable ShoreTel to continue to provide innovative solutions that meet the needs of customers worldwide.

ShoreTel Named to Inaugural CRN Cloud Partner Program Guide

ShoreTel was pleased to be named to the inaugural CRN Cloud Partner Program Guide, a listing of the leading technology vendors with cloud-related partner programs. This guide offers solution providers a valuable resource for locating the IT industry's top cloud technologies and programs and a way to connect with the organizations making these cloud technologies and partner programs available specifically through the IT channel.

Earlier this year, ShoreTel expanded its innovative Champion Partner Program with a focus on cloud communications, and already more than 300 of its U.S. partners are selling cloud services. ShoreTel offers its channel partners a simple, customizable and lucrative program for growing and differentiating their cloud communications businesses, enabling partners to accommodate the growing demand by end-users for cloud services. The program has three tiers - Enabled, Approved and Referral - each relating to different levels of expertise, volume commitments and compensation options.

Business Outlook

ShoreTel is providing the following outlook for its fiscal second quarter of 2015 ending December 31, 2014:

  • Total revenue is expected to be in the range of $85.0 million to $91.0 million.
  • Non-GAAP gross margin, which excludes approximately two percent in stock-based compensation charges, amortization of acquisition-related intangibles and other charges, is expected to be in the range of 60.5 percent to 61.5 percent.  GAAP total gross margin is expected to be in the range of 58.5 percent to 59.5 percent. 
  • Non-GAAP operating expenses, which exclude approximately $2.5 million in stock-based compensation expenses, amortization of acquisition-related intangibles and other charges, are expected to be in the range of $49.5 million to $50.5 million.  GAAP total operating expenses are expected to be in the range of $52.0 million to $53.0 million.

Conference Call Information

The Company will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Time on Thursday, October 23, 2014. To access the conference call, dial + 1-866-652-5200 for callers in the U.S. or + 1-412-317-6060 for international callers and ask to join the ShoreTel call.

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. An audio telephonic replay of the conference call will also be available beginning approximately one hour after the completion of the call until November 4, 2014 by dialing + 1-877-344-7529 for callers in the U.S. or + 1-412-317-0088 for callers outside the U.S. and providing the conference identification number of 10054412.

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 and the related tax adjustments, 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 related GAAP financial measures and 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 Don Joos, statements regarding future growth, and statements regarding market demand, product and technology introductions and benefits and uses of the loan facility and statements in the "Business Outlook" section regarding ShoreTel's anticipated future revenues, gross margins, operating expenses (on a GAAP and non-GAAP basis) 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 continue to grow our cloud-based solutions, our ability to grow or maintain our premise products, supply and manufacturing risks, the impact of outages or security breaches, uncertainties related to international operations, our ability to control costs as we expand our business, our ability to attract, retain and ramp new personnel, potentially longer sales cycles, uncertainties inherent in the product development cycle, our ability to identify and execute on strategic opportunities, unknown impact of the announced proposal by Mitel on purchasing decisions and on operating costs; ability of third parties to successfully market and sell our products, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, the uncertain impact of global economic conditions, including impact on customers' purchasing decisions, and other risk factors set forth in ShoreTel's Form 10-K for the year ended June 30, 2014.

Related Links & Conversation

About ShoreTel

ShoreTel, Inc. (NASDAQ: SHOR) is a leading provider of brilliantly simple IP phone systems and unified communications solutions. Its award-winning on-premises IP-PBX solution and cloud-based hosted phone system eliminate complexity and improve productivity. Recognized for its industry-leading customer experience and support, ShoreTel's innovative business phones, application integration, collaboration tools, mobility, and contact center applications enable users to communicate and collaborate no matter the time, place or device, with minimal demand on IT resources. ShoreTel is headquartered in Sunnyvale, Calif., and has regional offices and partners worldwide. For more information, visit www.shoretel.com.

ShoreTel, ShoreTel Sky and the ShoreTel logo are trademarks or registered trademarks of ShoreTel, Inc. in the United States and/or other countries. Android is a trademark of Google Inc.  All other trademarks, trade names and service marks herein are the property of their respective owners.

Investor Contact:
Barry Hutton
Director, Investor Relations
408-962-2573
bhutton@shoretel.com

(Tables follow)

SHORETEL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)






As of


As of






September 30,


June 30,






2014


2014









ASSETS




Current assets:






Cash and cash equivalents

$                57,283


$                53,472


Short-term investments

5,399


2,673


Accounts receivable - net 

27,635


33,758


Inventories


24,212


26,501


Indemnification asset

5,659


5,606


Prepaid expenses and other current assets

10,779


7,991




Total current assets

130,967


130,001









Property and equipment - net 

19,074


19,601

Goodwill



122,750


122,750

Intangible assets


26,667


28,479

Other assets


3,127


3,119




Total assets

$              302,585


$              303,950

















LIABILITIES AND STOCKHOLDERS' EQUITY












Current liabilities:






Accounts payable 

$                12,788


$                16,975


Accrued liabilities and other

14,678


13,399


Accrued employee compensation

13,724


16,527


Accrued taxes and surcharges

11,400


12,186


Deferred revenue

49,627


46,937




Total current liabilities

102,217


106,024










Long-term deferred revenue

17,540


17,539


Other long-term liabilities

3,041


2,994




Total liabilities

122,798


126,557









Stockholders' equity:













Common stock

346,575


344,547


Accumulated deficit

(166,788)


(167,154)




Total stockholders' equity

179,787


177,393












Total liabilities and stockholders' equity 

$              302,585


$              303,950

 

SHORETEL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)










Three Months Ended




September 30,




2014


2013







Revenue:





Product  

$     47,707


$    47,682


Hosted and related services

24,891


20,739


Support and services  

17,833


15,866



Total revenue  

90,431


84,287

Cost of revenue:





Product

16,779


16,296


Hosted and related services

15,593


12,533


Support and services

4,281


4,282



Total cost of revenue  

36,653


33,111

Gross profit

53,778


51,176


Gross profit %

59.5%


60.7%







Operating expenses:





Research and development

13,661


13,280


Sales and marketing

29,016


27,666


General and administrative

9,991


10,629



Total operating expenses  

52,668


51,575

Income (loss) from operations

1,110


(399)

Other income (expense), net

(366)


(427)

Income (loss) before provision for income tax

744


(826)

Provision for income tax

378


209

Net income (loss)

$          366


$    (1,035)

Net income (loss) per share:





Basic

$         0.01


$      (0.02)


Diluted

$         0.01


$      (0.02)







Shares used in computing net income (loss) per share:





Basic

62,967


59,543


Diluted

64,571


59,543

 

SHORETEL, INC.

GAAP TO NON-GAAP RECONCILIATION

(Amounts in thousands, except per share amounts)

(Unaudited)














Three Months Ended




September 30




2014


2013

GAAP Product gross profit

$       30,928




$       31,386




Stock-based compensation charges

36


 (a) 


29


 (a) 


Amortization of acquisition-related intangibles

262


 (b)  


268


 (b)  

Non-GAAP Product gross profit

$       31,226




$       31,683



Non-GAAP Product gross margin

65.5%




66.4%













GAAP Hosted and related services gross profit

$         9,298




$         8,206




Stock-based compensation charges

343


 (a) 


49


 (a) 


Amortization of acquisition-related intangibles

833


 (b)  


749


 (b)  

Non-GAAP Hosted and related services gross profit

$       10,474




$         9,004



Non-GAAP Hosted and related services gross margin

42.1%




43.4%













GAAP Support and services gross profit

$       13,552




$       11,584




Stock-based compensation charges

180


 (a) 


247


 (a) 

Non-GAAP Support and services gross profit

$       13,732




$       11,831



Non-GAAP Support and services gross margin

77.0%




74.6%













GAAP total gross profit

$       53,778




$       51,176




Stock-based compensation charges

559


 (a) 


325


 (a) 


Amortization of acquisition-related intangibles

1,095


 (b)  


1,017


 (b)  

Non-GAAP total gross profit

$       55,432




$       52,518



Non-GAAP total gross margin

61.3%




62.3%













GAAP income (loss) from operations

$         1,110




$          (399)




Stock-based compensation charges

2,539


 (a) 


2,114


 (a) 


Amortization of acquisition-related intangibles

1,916


 (b)  


1,906


 (b)  


Severance and Other

-


 (c) 


1,019


 (c) 

Non-GAAP income from operations

$         5,565




$         4,640













GAAP net income (loss)

$            366




$       (1,035)




Stock-based compensation charges

2,539


 (a) 


2,114


 (a) 


Amortization of acquisition-related intangibles

1,916


 (b)  


1,906


 (b)  


Severance and Other

-


 (c) 


1,019


 (c) 


Interest charge from change in fair value of purchase consideration

-


 (d) 


53


 (d) 


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

(126)


 (e) 


(39)


 (e) 

Non-GAAP net income

$         4,695




$         4,018













Non-GAAP net income per share:









Basic

$           0.07




$           0.07




Diluted (f)

$           0.07




$           0.07













Shares used in computing net income per share: 









Basic

62,967




59,543




Diluted (f)

64,571




60,492



 

SHORETEL, INC.

GAAP TO NON-GAAP RECONCILIATION FOOTNOTES

(Amounts in thousands)

(Unaudited)
























Three Months Ended




September 30




2014


2013

(a)

Stock-based compensation included in:










Cost of product revenue

$              36




$              29





Cost of hosted and related services revenue

343




49





Cost of support and services revenue

180




247





Research and development

658




564





Sales and marketing

711




544





General and administrative

611




681






$         2,539




$         2,114













(b) 

Amortization of acquisition-related intangibles included in:










Cost of product revenue

$            262




$            268





Cost of hosted and related services

833




749





Sales and marketing

821




851





General and administrative

-




38






$         1,916




$         1,906













(c)

Severance and other expense included in: 










Research and development

$               -




$            674





Sales and marketing

-




172





General and administrative

-




173






$               -




$         1,019























(d)

Interest charge from change in fair value of purchase consideration included in Other Expense

$               -




$              53













(e)

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

(f)

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 Q2 2015 PROJECTIONS

(Amounts in thousands)

(Unaudited)












Three Months Ending





December 31, 2014












High


Low


GAAP gross profit %



59.5%


58.5%


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

2.0%


2.0%


Non-GAAP gross profit %



61.5%


60.5%









Total GAAP operating expenses



$     53,000


$     52,000


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

2,500


2,500


Total non-GAAP operating expenses



$     50,500


$     49,500

 

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SOURCE ShoreTel

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