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Results From Our First Quarter Fiscal Year 2012

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Yesterday we reported ShoreTel’s financial results for our first quarter fiscal year 2012 and I wanted to give you an update.

ShoreTel generated revenue of $53.9 million, an increase of 22% over the first quarter of fiscal 2011, and in line with our overall revenue guidance of at least 20% for the year. On a sequential basis, we saw a revenue decrease of 5% as compared to our seasonally strong fourth quarter of fiscal 2011. Non-GAAP gross margins were solid at 66.7%, which was up slightly from last quarter.

On a non-GAAP basis, our net loss was $(1.2) million or a loss of two cents per share. This included approximately $440,000 in foreign exchange losses, which negatively impacted EPS by one cent.

We ended the quarter with 678 employees, up by 44 from Q4 with the majority of the hiring coming in the sales and engineering areas, particularly mobility.

The modest sequential decline in ShoreTel’s revenues this quarter was primarily related to three key areas.

  1. We saw a clear lengthening of the sales cycle which we believe was driven by the uncertain macroeconomic environment.
  2. We saw sales from several of our regional partners decline after setting a record quarter in the previous quarter.
  3. Q1 bookings were slightly seasonally down as expected.
  4. On the positive we had great growth from the super-regional partners and good growth from service providers.
  5. We also had good growth from International.

We believe our win rate remained strong during Q1, and we are encouraged by the very positive reception our solution continues to get from customers.

We remain confident in ShoreTel’s strategic positioning within the marketplace and we continue to believe ShoreTel will grow faster than the overall market and capture market share based on our brilliantly simple value proposition that is resonating incredibly well with our customers.

Our expectations for market growth in our FY 2012 were originally in the 8-10% range. Given the changes in the overall IP telephony market and the macro-economic conditions in the U.S. and abroad, we have lowered our expectations for market growth in fiscal year 2012. However, we still believe that revenue growth of at least 20% year over year is likely and as a reference point we achieved 22% in Q1. At these levels of growth we still expect to be able to deliver a profit for fiscal 2012.

I am pleased to let you know that we successfully completed the change to two-tier distribution on time. We had a total of 434 partners move to ScanSource and these partners were positive in their reaction to the transition. We have 142 of our gold and silver level partners that are still purchasing directly through ShoreTel, representing a majority of our revenues. Between ScanSource and Westcon, approximately 20% of our total revenue was generated through our U.S. value-added distributors.

In addition, our partner recruitment continues to be very successful. During the first quarter we signed a total of 73 new partners around the world, 41 of which came through our relationship with ScanSource.

Next let me provide you with a customer update. We added over 1,000 new customers in our first quarter, with revenues from new customers representing 45 percent of our business.

  • We made strong progress in the social media space, winning Yelp, a popular online site to help people find respected local businesses. With this win, Yelp joins an impressive list of social media customers including LinkedIn, My Space, Yammer and Groupon.
  • Our largest win in Q1 was with Pima County, which is the second largest county in the State of Arizona. The initial award to CenturyLink was close to $1 million dollars and included 2,000 ShoreTel users. Over the next few years, Pima County plans to roll out an additional 8,000 users. Pima County chose ShoreTel over our competitors because of ShoreTel’s simplicity and low Total Cost of Ownership.
  • We also recently signed PIMCO, a global investment adviser with more than 1,400 dedicated professionals in 10 countries. Our initial installation with PIMCO included over 200 users with full integration to an existing Nortel PBX.  Furthermore, we were able to customize a streaming solution that captures live T.V. audio broadcast and delivers it directly to the trader’s ShoreTel desktop phones.
  • And finally, we had a great win with ShoreTel Mobility at the Winnipeg Convention Center in Canada. ShoreTel Mobility will turn their employees smartphones into a mobile extension of the PBX, allowing users to make and receive calls wherever they might be, just as if they were at their desks. One of the key factors for choosing us was that ShoreTel Mobility has heterogeneous platform support, enabling them to run ShoreTel Mobility on their existing Mitel PBX.

We expect mobility will be a key area of leadership for ShoreTel going forward. To support this initiative we will continue our investments in mobility product development, a dedicated sales team to support this business and an effective advertising campaign. Our partners are enthusiastic about this offering and we are training and launching partners as quickly as we can.

In fact, I am very pleased to report that Dimension Data, one of our key mobility partners, has recently purchased ShoreTel Mobility for their own internal use. In addition, a few weeks ago at the CTIA show in San Diego, AT&T announced the global launch of a solution that they are calling Dual Mode Mobile Voice, or DMMV, which is their solution based on the ShoreTel Mobility offering. We are pleased that AT&T chose ShoreTel to be the engine behind DMMV and we’re happy to see AT&T put such a strong effort into introducing it to the market.

To further support customer demands, we recently announced support for both Android and the most recent line of BlackBerry phones. We continue to support Apple iOS devices, including the iPhone, iPod touch, and iPad. We are very pleased with our product advances, and we look forward to capitalizing on the opportunities for Mobility. We are also extremely pleased with the quality of customers who are interested in our ShoreTel Mobility solution. We are engaged in active discussions and pilots with over a dozen of the Fortune 100 companies.

We are clearly focused on building on our position as one of the top three vendors in the U.S. Enterprise IP market. We continue to have a very high win rate and world-class customer satisfaction. We believe we have demonstrated the effectiveness of our well-developed go to market plans over the past several quarters.