SHORETEL INC 
By SUNNYVALE, Calif., Jan. 23, 2014 /PRNewswire/ -- ShoreTel(®) (NASDAQ: SHOR), the leading provider of brilliantly simple phone systems and unified communications solutions, today announced financial results for the second quarter of its fiscal year 2014, which ended December 31, 2013.
(Logo: http://photos.prnewswire.com/prnh/20131118/MM19469LOGO)
For the second quarter of fiscal 2014, total revenue was $84.5 million, an increase of 13 percent compared to the second quarter of fiscal 2013. Non-GAAP net income, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, for the second quarter of fiscal year 2014, was $3.2 million, or $0.05 per share. This compares with a non-GAAP net loss of $2.6 million, or $0.04 per share, in the second quarter of fiscal 2013. GAAP net loss was $0.9 million, or $0.02 per share, in the second quarter of fiscal 2014, compared with a GAAP net loss of $10.4 million, or $0.18 per share, in the second quarter of fiscal 2013.
"The positive second quarter results validate the ongoing value of our business model which led to our revenue growth, non-GAAP profitability and significant cash flow from operations," said Don Joos, president and CEO of ShoreTel. "We have strategically positioned the company for the growth opportunities in our industry and we remain focused on executing key initiatives including our enhanced channel partner program, sales team integration and product launches."
Second Quarter of Fiscal 2014 Financial Highlights
Recurring revenue, which consists of cloud monthly recurring revenue and premise support revenues, reached an annualized value of $126 million; an increase of 20 percent compared to the second quarter of fiscal 2013, and represented 37 percent of total revenues in the second quarter of fiscal 2014.
Non-GAAP gross margin, which excludes stock-based compensation charges, amortization of acquisition-related intangibles and other charges, for the second quarter of fiscal year 2014, was 60.7 percent, compared with 61.8 percent in the year-ago period. GAAP gross margin for the second quarter of fiscal year 2014 was 59.0 percent, compared with 58.8 percent in the second quarter of fiscal year 2013.
In the second quarter of fiscal 2014 the company generated free cash flow of $7.3 million consisting of $13.5 million in cash flow from operations less $6.2 million of capital expenditures. The company reduced its debt obligations down to $9 million and had $57.3 million in cash, cash equivalents and short-term investments as of December 31, 2013.
Line of Business Results
ShoreTel Sky
ShoreTel Sky hosted revenues of $21.7 million were up 27 percent year-over-year and 5 percent sequentially. Non-GAAP gross margins on hosted revenue were 39.8 percent in the second quarter of fiscal 2014, compared with 43.3 percent in the second quarter of fiscal 2013. The total number of installed customer seats increased 40 percent over the second quarter of fiscal 2013 to approximately 136,000. Annualized revenue churn remained slightly below 4 percent.
Premise Business
Premise revenues of $62.8 million were up 9 percent year-over-year and down 1 percent sequentially. Product revenues growth accelerated to 6 percent year-over-year and Support and Services revenues grew 18 percent year-over-year. Non-GAAP gross margins in the premise business were 67.9 percent in the second quarter of fiscal 2014, compared with 67.3 percent in the second quarter of fiscal 2013.
Selected Operational Metrics
Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended
12/31/13 09/30/13 06/30/13 03/31/13 12/31/12
-------- -------- -------- -------- --------
Annual
recurring
revenue
run
rate
(in
millions) $125.6 $121.1 $114.7 $108.3 $104.9
Cloud
Monthly
Average
Revenue
Per
User
(ARPU) $45 $47 $49 $50 $53
Cloud
Average
#
of
Seats
per
Customer 44 43 44 43 41
Cloud
Average
Monthly
Recurring
Revenue
Per
Customer $1,982 $2,040 $2,123 $2,131 $2,162
Cloud
Monthly
Revenue
Churn
Rate 0.3% 0.3% 0.3% 0.3% 0.3%
Total
Company
Headcount 925 932 965 957 965
Non-
GAAP
Gross
Margin-
Premise 67.9% 68.5% 67.8% 68.3% 67.3%
Non-
GAAP
Gross
Margin-
Hosted 39.8% 43.4% 39.1% 41.7% 43.3%
Business Highlights
ShoreTel Launches Enhancements to its Channel Partner Program
In January ShoreTel launched its enhancements to its channel partner program. Under the program many of ShoreTel's existing channel partners and new cloud partners complete product education and sales training related to ShoreTel's Sky products to prepare them to identify opportunities and sell ShoreTel's cloud solutions. Many partners also make commitments to achieve certain sales targets under agreed upon compensation plans.
The program is leveraging ShoreTel's experience with its mature channel partner network to attract customers that are larger and have more complex unified communications needs.
ShoreTel Integrates its Cloud and Premise Sales Teams
In January ShoreTel integrated its cloud and premise sales teams. In addition, certain members of the sales team now carry a cloud sales quota which is incremental to their premise quota. The increased coordination of the sales team and ShoreTel's channel partners further improves ShoreTel's ability to solve the unified communications needs of the company's total addressable market.
ShoreTel Appoints Mark Roberts as Chief Marketing Officer
In December, ShoreTel appointed Mark Roberts to be its new chief marketing officer. Roberts has more than 20 years of technology marketing experience and brings strong technology, channel and unified communications expertise to ShoreTel. As such, Roberts' background is complementary to ShoreTel's strategic direction and growth initiatives, and he will play an instrumental role in executing the company's plans. As ShoreTel's CMO, Roberts will lead the overall marketing strategy, product marketing, demand generation, branding and external communications.
ShoreTel Continues to Demonstrate its Industry Leadership and World Class Customer Service
ShoreTel's focus on its customers' primary needs was recognized by Frost & Sullivan, which named ShoreTel as North America's "Company of the Year for Unified Communications and Collaboration". The report cites ShoreTel's ability to help its customers improve productivity and accelerate business processes as catalysts for long-term and sustainable growth.
ShoreTel's analytic research indicates that our customers who have received the best customer experience spend at twice the level as other customers. For the six months ending December 31, 2013, ShoreTel once again earned a Net Promoter Score above the world class threshold.
Business Outlook
ShoreTel is providing the following outlook for its fiscal third quarter of 2014 ending March 31, 2014:
-- Revenue is expected to be in the range of $80 million to $85 million.
-- GAAP gross margin is expected to be in the range of 59 percent to 60
percent. Non-GAAP gross margin, which excludes approximately $1.4
million in stock-based compensation charges, amortization of
acquisition-related intangibles and other charges, is expected to be in
the range of 61 percent to 62 percent.
-- GAAP operating expenses are expected to be in the range of $50.5 million
to $51.5 million. Non-GAAP operating expenses, which excludes
approximately $2.5 million in stock-based compensation charges,
amortization of acquisition-related intangibles and other charges are
expected to be in the range of $48 million to $49 million.
Conference Call Information
The Company will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Time on Thursday, January 23, 2014. To access the conference call, dial +1-877-317-6789 for callers in the U.S. or + 1-412-317-6789 for international callers and provide the operator with the conference identification number of 10039017.
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 January 31, 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 10039017.
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 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 continue to grow our ShoreTel Sky business, market acceptance of cloud-based products, 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, our ability to attract, retain and ramp new sales personnel, potentially longer sales cycles, uncertainties inherent in the product development cycle, 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, 2013, and in its Form 10-Q for the quarter ended September 30, 2013.
Related Links & Conversation
-- Subscribe to ShoreTel's blog.
-- Follow ShoreTel on Twitter and Facebook.
-- Read ShoreTel Customer Success Stories.
-- Bookmark this Unified Communications Glossary.
-- #ShoreTel, #UC.
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. All other trademarks, trade names and service marks herein are the property of their respective owners.
(Tables follow)
SHORETEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
As of As of
December 31, June 30,
2013 2013
---- ----
ASSETS
Current assets:
Cash
and
cash
equivalents $52,226 $43,775
Short-
term
investments 5,080 7,501
Accounts
receivable
-
net 30,838 37,118
Inventories 19,282 18,891
Indemnification
asset 6,151 6,277
Prepaid
expenses
and
other
current
assets 5,897 6,417
----- -----
Total
current
assets 119,474 119,979
Property and equipment - net 19,333 15,625
Goodwill 122,750 122,750
Intangible assets 33,069 38,138
Other assets 3,088 3,295
Total
assets $297,714 $299,787
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts
payable $14,337 $9,790
Accrued
liabilities
and
other 15,161 17,766
Accrued
employee
compensation 15,321 13,159
Accrued
taxes
and
surcharges 11,100 11,312
Purchase
consideration 3,684 3,577
Deferred
revenue 43,889 39,692
------ ------
Total
current
liabilities 103,492 95,296
Line
of
credit
-
net 9,048 29,004
Long-
term
deferred
revenue 16,790 15,294
Other
long-
term
liabilities 3,693 4,053
Total
liabilities 133,023 143,647
------- -------
Stockholders' equity:
Common
stock 332,784 322,258
Accumulated
deficit (168,093) (166,118)
Total
stockholders'
equity 164,691 156,140
------- -------
Total
liabilities
and
stockholders'
equity $297,714 $299,787
======== ========
SHORETEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except per share
amounts)
(Unaudited)
Three Months Six Months
Ended Ended
December 31, December 31,
2013 2012 2013 2012
---- ---- ---- ----
Revenue:
Product $46,557 $43,769 $94,239 $89,603
Hosted and
related
services 21,719 17,087 42,458 32,749
Support and
services 16,209 13,780 32,075 27,268
Total revenue 84,485 74,636 168,772 149,620
Cost of revenue:
Product 16,341 15,069 32,637 30,856
Hosted and
related
services 14,078 11,400 26,611 20,542
Support and
services 4,207 4,279 8,489 8,468
Total cost of revenue 34,626 30,748 67,737 59,866
------ ------ ------ ------
Gross profit 49,859 43,888 101,035 89,754
Gross
profit % 59.0% 58.8% 59.9% 60.0%
Operating expenses:
Research
and
development 12,281 12,195 25,561 26,148
Sales and
marketing 27,355 31,739 55,021 62,495
General and
administrative 10,398 9,292 21,027 17,887
Total operating expenses 50,034 53,226 101,609 106,530
------ ------ ------- -------
Loss from operations (175) (9,338) (574) (16,776)
Other income (expense), net (539) (926) (966) (1,328)
---- ---- ---- ------
Loss before provision for
income tax (714) (10,264) (1,540) (18,104)
Provision for income tax 226 90 435 287
Net loss $(940) $(10,354) $(1,975) $(18,391)
===== ======== ====== ========
Net loss per share:
Basic and
diluted $(0.02) $(0.18) $(0.03) $(0.32)
====== ====== ====== ======
Shares used in computing
net loss per share:
Basic and
diluted 60,809 58,566 60,177 58,376
====== ====== ====== ======
SHORETEL, INC.
GAAP TO NON-GAAP RECONCILIATION
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
GAAP Premise gross profit $42,218 $38,201 $85,188 $77,547
Share-based
compensation
expense 142 (a) 273 (a) 418 (a) 530 (a)
Amortization of
acquisition-
related
intangibles 268 (b) 260 (b) 537 (b) 520 (b)
Severance and
other - (c) - (c) - (c) 2 (c)
Non-GAAP Premise gross profit $42,628 $38,734 $86,143 $78,599
======= ======= ======= =======
Non-GAAP Premise gross margin 67.9% 67.3% 68.2% 67.3%
GAAP Hosted gross profit $7,641 $5,687 $15,847 $12,207
Share-based
compensation
expense 183 (a) 40 (a) 232 (a) 78 (a)
Amortization of
acquisition-
related
intangibles 817 (b) 749 (b) 1,566 (b) 1,498 (b)
Severance and
other - (c) - (c) - (c) 8 (c)
Prior quarter
charge for
change in
estimate of
sales, use and
telecommunications
tax - (g) 927 (g) - (g) 927 (g)
Non-GAAP Hosted gross profit $8,641 $7,403 $17,645 $14,718
====== ====== ======= =======
Non-GAAP Hosted gross margin 39.8% 43.3% 41.6% 44.9%
GAAP total gross profit $49,859 $43,888 $101,035 $89,754
Share-based
compensation
expense 325 (a) 313 (a) 650 (a) 608 (a)
Amortization of
acquisition-
related
intangibles 1,085 (b) 1,009 (b) 2,103 (b) 2,018 (b)
Severance and
other - (c) - (c) - (c) 10 (c)
Prior quarter
charge for
change in
estimate of
sales, use and
telecommunications
tax - (g) 927 (g) - (g) 927 (g)
Non-GAAP total gross profit $51,269 $46,137 $103,788 $93,317
======= ======= ======== =======
Non-GAAP total gross margin 60.7% 61.8% 61.5% 62.4%
GAAP loss from operations $(175) $(9,338) $(574) $(16,776)
Share-based
compensation
expense 2,083 (a) 3,499 (a) 4,197 (a) 6,852 (a)
Amortization of
acquisition-
related
intangibles 1,974 (b) 1,898 (b) 3,881 (b) 3,796 (b)
Severance and
Other - (c) - (c) 1,019 (c) 382 (c)
Prior quarter
charge for
change in
estimate of
sales, use and
telecommunications
tax - (g) 1,875 (g) - (g) 1,875 (g)
Non-GAAP income (loss) from operations $3,882 $(2,066) $8,523 $(3,871)
====== ======= ====== =======
GAAP net loss $(940) $(10,354) $(1,975) $(18,391)
Share-based
compensation
expense 2,083 (a) 3,499 (a) 4,197 (a) 6,852 (a)
Amortization of
acquisition-
related
intangibles 1,974 (b) 1,898 (b) 3,881 (b) 3,796 (b)
Severance and
Other - (c) - (c) 1,019 (c) 382 (c)
Interest charge
from change in
fair value of
purchase
consideration 54 (d) 465 (d) 107 (d) 653 (d)
Deferred tax
benefit
(provision)
arising from
tax impact of
above items 55 (e) 2 (e) 16 (e) 145 (e)
Prior quarter
charge for
change in
estimate of
sales, use and
telecommunications
tax - (g) 1,875 (g) - (g) 1,875 (g)
Non-GAAP net income (loss) $3,226 $(2,615) $7,245 $(4,688)
====== ======= ====== =======
Non-GAAP net income (loss) per share:
Basic $0.05 $(0.04) $0.12 $(0.08)
=====
Diluted (f) $0.05 $(0.04) $0.12 $(0.08)
==========
Shares used in computing net income (loss) per share:
Basic 60,809 58,566 60,177 58,376
=====
Diluted (f) 62,999 58,566 61,651 58,376
=======
SHORETEL, INC.
GAAP TO NON-GAAP RECONCILIATION FOOTNOTES
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
(a) Stock-
based
compensation
included
in:
Cost of product revenue $16 $34 $45 $84
Cost of hosted and related
services revenue 183 40 232 78
Cost of support and
services revenue 126 239 373 446
Research and development 402 919 966 1,978
Sales and marketing 510 1,073 1,054 1,935
General and administrative 846 1,194 1,527 2,331
$2,083 $3,499 $4,197 $6,852
====== ====== ====== ======
(b) Amortization
of
acquisition-
related
intangibles
included
in:
Cost of product revenue $268 $260 $537 $520
Cost of hosted and related
services 817 749 1,566 1,498
Sales and marketing 851 851 1,703 1,702
General and administrative 38 38 75 76
$1,974 $1,898 $3,881 $3,796
====== ====== ====== ======
(c) Severance
and other
expense
included
in:
Cost of hosted and related
services $ - $ - $ - $8
Cost of support and
services revenue - - - 2
Research and development - - 674 99
Sales and marketing - - 172 235
General and administrative - - 173 38
=== === === ===
$ - $ - $1,019 $382
================= ================= ====== ====
(d) Interest
charge
from
change in
fair value
of
purchase
consideration
included
in Other
Expense $54 $465 $107 $653
==============
(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.
(g) 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
================= ====== ================= ======
SHORETEL, INC.
RECONCILIATION OF GAAP TO NON-GAAP FOR Q3 PROJECTIONS
(Amounts in thousands)
(Unaudited)
Three Months
Ending
March 31, 2014
--------------
High Low
---- ---
60.0% 59.0%
GAAP gross profit %
2.0% 2.0%
Adjustments for stock-
based compensation and
acquisition-related
intangible asset
amortization
62.0% 61.0%
Non-GAAP gross profit %
$51,500 $50,500
Total GAAP operating
expenses
(2,500) (2,500)
Adjustments for stock-
based compensation and
acquisition-related
intangible asset
amortization
$49,000 $48,000
Total non-GAAP operating
expenses
Investor Contact:
Barry Hutton
Director, Investor Relations
408-962-2573
bhutton@shoretel.com
SOURCE ShoreTel
