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ShoreTel Reports Financial Results for Third Fiscal Quarter 2008

Company Delivers Sequential Revenue Growth
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SUNNYVALE, CA, April 29, 2008 - ShoreTel, Inc., (NASDAQ: SHOR), a leading provider of Pure IP unified communications solutions, today announced financial results for the third quarter of fiscal year 2008 ended March 31, 2008.

For the third fiscal quarter of 2008, revenue was $31.5 million, an increase of 21 percent over the third quarter of 2007 and a three percent increase over the prior quarter. GAAP net loss was $1.7 million, or $(0.04) per share, compared to net income of $2.0 million, or $0.06 per diluted share, reported in the third quarter of 2007. GAAP net loss in the third quarter of 2008 included $2.2 million in stock-based compensation expense, compared to $0.6 million reported in the third quarter of fiscal year 2007.

Excluding these stock-based compensation charges and related tax adjustments, non-GAAP net income for the third quarter of 2008 was $0.3 million, or $0.01 per diluted share compared to non-GAAP net income of $2.6 million, or $0.07 per diluted share, reported in the third quarter of 2007.

GAAP gross margins for the third quarters of 2008 and 2007 were 62 percent. GAAP gross margin in the third quarter of 2008 included $183,000 in stock-based compensation expenses, compared to $29,000 in the third quarter of fiscal year 2007. Non-GAAP gross margins, which exclude stock-based compensation charges, were 63 percent in the third quarter of 2008, compared to 62 percent in the year-ago quarter.

As of March 31, 2008, the Company had $103 million in cash, cash equivalents and short-term investments.

"Growth in our revenue in the face of an increasingly challenging market is a tribute to our outstanding team, distribution partners and the strength of the ShoreTel unified communications (UC) system," said John W. Combs, chairman and CEO. "In recent months, prospective customers have shifted their focus when evaluating UC systems, and are placing more weight on the economic return that their new UC system will have on their organization. This growing focus on reducing total cost of ownership and improving return on investment plays to a key ShoreTel strength versus competitive offerings."

Operational Highlights for Third Fiscal Quarter of 2008:

PRODUCTS / CUSTOMERS

  • The Company continued to invest in the development of its products and services during the quarter. The ShorePhone™ IP 565 with color display, embedded Bluetooth, and gigabit Ethernet capability began shipping globally with positive customer response. The Company completed both alpha and beta testing on its most current system software release that will be introduced later this quarter. Additionally it introduced its ShoreWare® Contact Center v.4.66, a suite of applications that dramatically improve customer service while reducing the cost of deploying and maintaining a high-performance inbound or outbound multimedia call center.
  • During the quarter, the Company detailed how Hitachi Consulting, a long-time ShoreTel customer, has continued to benefit from its ShoreTel unified communications (UC) system. Hitachi Consulting has deployed ShoreTel's UC solution at all of its offices in the U.S. and Europe, creating a single, integrated phone system complete with five-digit dialing, centralized management, and toll bypass. According to Hitachi Consulting, ShoreTel's UC system has made the company a more collaborative and productive organization, while saving it more than $10,000 every month.
  • During the quarter, the Company highlighted its increased adoption of its unified communications solutions among educational institutions globally. ShoreTel's unique ability to enable educational institutions to lower costs, allow teachers to spend more time teaching, increase staff productivity, and handle emergency situations and disaster recovery makes it an ideal fit in the education market.

PARTNERSHIPS

  • The Company announced it is working with IBM to integrate ShoreTel's distributed unified communications solutions with IBM's unified communications and collaboration platform, IBM Lotus Sametime. The resulting plug-in is intended to allow joint customers to access ShoreTel's powerful distributed IP telephony features from within their IBM Lotus Sametime application.
  • The Company's developer community, a group comprised of ShoreTel customers, reseller partners and third party integrators that are authorized to develop ShoreTel applications for internal use or resale, grew to over 100 during the quarter. This is in addition to the ShoreTel Technology Partner program which allows companies to fully test and certify that their products and services are compatible with ShoreTel's unified communications system.

ACCOMPLISHMENTS/AWARDS

  • The Company won the 2008 "Best in VoiceCon" Award for the second year in a row, which recognizes new and exceptional enterprise IP unified communications solutions. ShoreTel received the award for its ShoreTel 7.5 unified communications system which it demonstrated at the VoiceCon show in Orlando, Florida.
  • The San Jose Mercury News included ShoreTel in the 2007 Silicon Valley 150, with $117.5 million in reported revenue for CY 2007.

Business Outlook

The Company is providing the following outlook for the quarter ending June 30, 2008:

  • Revenue is expected to be in the range of $28 to $33 million.
  • GAAP gross margins are expected to be in the range of 61 percent to 62 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 63 percent.
  • GAAP operating expenses are expected to be in the range of $23 to $24 million, including approximately $2.5 million in stock-based compensation expenses. Non-GAAP operating expenses are expected to be in the range of $20.5 to $21.5 million.

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 April 29, 2008

ShoreTel will host a corresponding conference call and live Webcast at 2:30 p.m. Pacific Daylight Time on April 29, 2008. To access the conference call, dial 877-584-6502 for the U.S. or Canada and 706-679-0430 for international callers and provide the operator with the conference identification number of 39986149. The Webcast will be available live on the Investor Relations section of the Company's corporate Web site 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 Daylight Time on April 29, 2008 until 11:59 p.m. Pacific Daylight Time on May 6, 2008, by dialing 800-642-1687 or 706-645-9291 for callers outside the U.S. and Canada and entering the conference identification number of 39986149.

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 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 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 December 31, 2007.

About ShoreTel, Inc.

ShoreTel, Inc., (NASDAQ: SHOR) is a leading provider of Pure IP Unified Communications solutions. ShoreTel enables companies of any size to seamlessly integrate all communications-voice, video, messaging and data -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 www.shoretel.com or call 1-877-80SHORE.