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ShoreTel Reports Financial Results for Second Fiscal Quarter 2008

Company Grows Revenue 36 Percent Over Second Quarter of 2007
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SUNNYVALE, CA, January 29, 2008 - ShoreTel, Inc., (NASDAQ: SHOR), a leading provider of Pure IP Unified Communications solutions, today announced financial results for the second quarter of fiscal year 2008 ended December 31, 2007.

For the second fiscal quarter of 2008, revenue was $30.6 million, an increase of 36 percent over the second quarter of 2007. GAAP net income was $1.8 million, or $0.04 per diluted share, compared to $1.1 million, or $0.03 per diluted share, reported in the second quarter of 2007. GAAP net income in the second quarter of 2008 includes $1.7 million in stock-based compensation expense, compared to $0.6 million reported in the second quarter of fiscal year 2007.

Excluding these stock-based compensation charges, non-GAAP net income for the second quarter of 2008 was $3.8 million, or $0.08 per diluted share. This reflects an increase of 121 percent compared to non-GAAP net income of $1.7 million, or $0.05 per diluted share, reported in the second quarter of 2007. GAAP and non-GAAP net income for the quarter ended December 31, 2007 included a tax benefit due to a substantial reduction in the Company's fiscal year 2008 estimated effective tax rate.

GAAP gross margin for the second quarter of 2008 improved to 64 percent from 63 percent in the second quarter of 2007. GAAP gross margin in the second quarter of 2008 included $147,000 in stock-based compensation expenses, compared to $27,000 in the second quarter of fiscal year 2007. Non-GAAP gross margin, which excludes stock-based compensation charges, improved to 65 percent in the second quarter of 2008, compared to 63 percent in the year-ago quarter.

As of December 31, 2007, the Company had $105.4 million in cash, cash equivalents and short-term investments.

"ShoreTel remains focused on executing our successful business strategy of adding new customers to our base of loyal fans and aggressively delivering new products through our growing network of channel partners," said John W. Combs, chief executive officer of ShoreTel. "Our customer base continues to grow with the addition of over 700 new customers in the second quarter.

We believe our strategy is sound and our products and services are continuing to delight our enterprise customers. Looking forward, we remain focused on long term growth that outpaces our market, despite any uncertainty in the near-term economic environment."

Operational Highlights for Second Fiscal Quarter of 2008

Products

In November, the Company announced the latest release of its unified communications system, adding features for mobile workers, increased international capabilities and switches that provide twice the capacity in half the space. The Company also introduced two new telephones, the ShorePhoneTM IP 265, which features a high-resolution color display as well as the ShorePhone IP 115, an enhanced entry-level speakerphone.

Partnerships

The Company announced that Telindus, a European specialist in ICT solutions and services, will sell ShoreTel products as a managed service. Telindus has more than 2,700 employees worldwide, and will act as a partner for offering an economical managed service that provides customers with a lower barrier to entry for obtaining the benefits of voice over IP and unified communications.

In November, the Company announced that it had entered into a strategic distribution agreement with Syntellect, a leading provider of enterprise-class contact center solutions. Under the agreement, ShoreTel will offer Syntellect's contact center solution in conjunction with its Pure IP Unified Communications system to ShoreTel resellers globally.

Accomplishments/Awards

The Company was named to the Deloitte Technology Fast 500, a ranking of the fastest growing technology, media, telecommunications and life sciences companies in North America. The Company was ranked 216 out of 500 companies with an increase in revenue of 759 percent from 2002 to 2006.

Phone+ magazine selected ShoreTel as one of its Top 50 Channel Programs. ShoreTel was selected among hundreds of companies that submitted their channel program details for consideration. Voted on by indirect sales partners, the winners represent communications suppliers who provide their reseller partners with that extra something that makes them want to do business with them.

Business Outlook

Reflecting the current uncertainty in the U.S. economy, from which substantially all of the Company's revenue is derived, the Company is providing the following outlook for the quarter ending March 31, 2008:

  • Revenue is expected to be in the range of $28 to $32 million.
  • GAAP gross margins are expected to be in the range of 61 percent to 63 percent, including approximately $200,000 in stock-based compensation expense. Non-GAAP gross margins are expected to be in the range of 62 percent to 64 percent.
  • GAAP operating expenses are expected to be in the range of $21.5 to $22.5 million, including approximately $1.7 million in stock-based compensation expense.

Use of Non-GAAP Financial Measures

ShoreTel reports all financial information required in accordance with generally accepted accounting principles (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 and other special charges 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 expenses, which are non-cash charges, 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.

Conference Call Details for January 29, 2008

ShoreTel will host a corresponding conference call and live webcast at 2:30 p.m. Pacific Standard Time on January 29, 2008. To access the conference call, dial 877-584-6502 for the U.S. or Canada and 706-634-7958 for international callers. The webcast will be available live on the Investor Relations section of the Company's corporate website at www.shoretel.com, and via replay 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 replay of the call will also be available to investors beginning at approximately 4:30 p.m. Pacific Standard Time on January 29, 2008 until 11:59 p.m. Pacific Standard Time on February 5, 2008, by dialing 800-642-1687 or 706-645-9291 for callers outside the U.S. and Canada and entering passcode 31866882.

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 John W. Combs, statements regarding new products and partnerships and statements in the "Business Outlook" section regarding ShoreTel's anticipated future revenues, gross margins and 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 general economic conditions, particularly in the United States, and the impact thereof on information technology spending, 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, uncertainty as to market acceptance of new products and services, costs of, and customer reaction to, our pending litigation and other risk factors set forth in ShoreTel's Form 10-K for the year ended June 30, 2007 and in its Form 10-Q for the quarter ended September 30, 2007.

About ShoreTel, Inc.

ShoreTel, Inc., (NASDAQ: SHOR) is a leading provider of Pure IP unified communications systems. ShoreTel enables companies of any size to seamlessly integrate all communications-voice, data, messaging-with their business processes. Independent of device or location, ShoreTel's distributed software architecture eliminates the traditional costs, complexity and reliability issues typically associated with other solutions. ShoreTel continues to deliver the highest levels of customer satisfaction, ease of use and manageability while driving down the overall total cost of ownership. ShoreTel is headquartered in Sunnyvale, California, and has regional offices in the United Kingdom, Sydney, Australia and Munich, Germany. For more information, visit http://www.shoretel.com or call 1-877-80SHORE.