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ShoreTel Reports Financial Results For Third Quarter Fiscal Year 2012

Completes M5 Cloud IP Telephony Acquisition
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SUNNYVALE, Calif., April 30, 2012 – ShoreTel® (NASDAQ; SHOR), the leading provider of brilliantly simple premise and cloud-based business phone system and communication solutions with fully integrated unified communications (UC), today announced financial results for the third quarter of fiscal year 2012, which ended March 31, 2012.

ShoreTel’s consolidated results include eight days of operating results from ShoreTel’s cloud division, formerly known as M5 Networks, as the acquisition closed on March 23, 2012. For the third quarter of fiscal year 2012, consolidated revenue was $56.3 million, up 9 percent from the third quarter of fiscal year 2011. The GAAP net loss for the quarter was $(8.5) million, or $(0.17) per share and included a tax benefit of $1.0 million, compared with a GAAP net loss of $(2.4) million, or $(0.05) per share, in the third quarter of fiscal year 2011. Excluding acquisition-related transaction fees of $4.5 million, a tax benefit of $1.0 million, stock-based compensation expenses of $3.2 million, amortization of intangible assets of $0.4 million, and related tax adjustments, the non-GAAP net loss for the third quarter of fiscal year 2012 was $(1.5) million or $(0.03) per share. This compares with non-GAAP net income of $0.6 million, or $0.01 per share, in the third quarter of fiscal year 2011. 

GAAP gross margin for the third quarter of fiscal year 2012 was 66.2 percent, compared with 68.0 percent in the third quarter of fiscal 2011. Non-GAAP gross margin, which excludes stock-based compensation expenses and amortization of intangible assets, was 67.2 percent in the third quarter of fiscal year 2012, compared with 68.6 percent in the third quarter of last year. Excluding the effects of the M5 acquisition, non- GAAP gross margins would have been 67.7 percent in the third quarter of fiscal 2012.

As of March 31, 2012, the company had $61.3 million in cash, cash equivalents and short-term investments after using $80.6 million in cash to fund a portion of the M5 acquisition.

“During the third quarter ShoreTel delivered steady growth year-over-year as well as strong gross margin expansion in our core premise business,” said Peter Blackmore, president and CEO of ShoreTel. “We remain very optimistic about the continued strength of our unified communications offerings and emerging opportunities within both the mobility and cloud markets.

“We are pleased to have completed the acquisition of M5 Networks during the quarter and are now focused on driving growth in our premise-based businesses and maximizing the potential of our cloud offering. We are also very pleased to see that the pipeline in our premise-based business is growing nicely – indicating that we can expect solid growth in our fourth fiscal quarter,” Blackmore added.

Operational Highlights for the Third Quarter of Fiscal Year 2012

Completed the Acquisition of M5

On March 23, 2012, the company completed its acquisition of M5 Networks. The addition of M5’s hosted VoIP solution uniquely positions ShoreTel to offer both on-premise and hosted VoIP and UC solutions to its customers. The combination significantly accelerates ShoreTel’s entrance into the cloud market. Under the terms of the agreement, M5 shareholders received approximately $80.6 million in cash and 9.5 million shares of ShoreTel stock, which equates to a total of $134.3 million in initial consideration. Additionally, M5 shareholders may receive additional contingent consideration of up to $13.7 million. The contingent payments are payable over the two years after closing and are based upon the achievement of certain revenue performance milestones for the year ended Dec. 31, 2012. M5’s CEO, Dan Hoffman, is now heading ShoreTel’s Cloud Division as its president and general manager. Approximately 200 of M5’s employees joined ShoreTel as of March 23, 2012.

Signed Partnership Agreement for Telstra Business Systems Program

In February, ShoreTel and Telstra entered into a partnership agreement whereby Telstra will market and support ShoreTel’s IP telephony, unified communications (UC), contact center and mobility solutions in Australia. With over 20 Telstra Business Partners accredited to install ShoreTel’s solutions in the Australian market already, the company expects this number to grow as a result of the new partnership agreement.

Lowest Total Cost of Ownership Validated by External Third Party

In January, the company announced that the results of an Aberdeen Group study of 236 different businesses showed that ShoreTel had the lowest total cost of ownership (TCO) of unified communications solutions. Total cost of ownership is a key metric for assessing costs, benefits and risks of a UC solution, enabling organizations to properly evaluate competing solutions. Ultimately, ShoreTel’s brilliant simplicity is what enables ShoreTel to provide the lowest total cost of ownership in the industry.

Business Outlook

The company is providing the following outlook for the quarter-ending June 30, 2012, which includes the operating results from ShoreTel’s Cloud Division (formerly M5 Networks):

  • Revenue is expected to be in the range of $72 million to $77 million.
  • GAAP gross margin is expected to be in the range of 60 to 61 percent, including approximately $1.3 million in amortization of intangibles and stock-based compensation expenses. Non-GAAP gross margin is expected to be in the range of 62 to 63 percent.
  • GAAP operating expenses are expected to be in the range of $51.0 million to $52.5 million, which includes approximately $4.0 million in stock-based compensation expenses and amortization of intangibles. Non-GAAP operating expenses are expected to be in the range of $47.0 million to $48.5 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 financial measures to manage and assess the profitability of its business and does not consider stock-based compensation expenses, amortization of acquisition-related intangibles, acquisition-related costs and other special charges and related tax adjustments in managing its core operations. ShoreTel has provided a reconciliation of non-GAAP financial measures in the tables of this press release. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures with their most directly comparable GAAP financial measure.

Conference Call Details for April 30, 2012

ShoreTel will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Daylight Time on April 30, 2012. To access the conference call, dial +1-888-452-4030 for the U.S. and Canada or +1-719-325-2422 for international callers, and provide the operator with the conference identification number 5457128. The webcast will be available live in 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 and available 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 4:00 p.m. Pacific Daylight Time on Apr. 30, 2012, until 4:00 p.m. Pacific Daylight Time on May 7, 2012, by dialing +1-888-203-1112, or +1-719-457-0820 for callers outside the U.S. and Canada, and entering the conference identification number 5457128.

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 Peter Blackmore relating to ShoreTel’s revenue growth, profitability, and opportunities within the mobility and cloud markets, 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 information technology spending, particularly in the U.S., our reliance on third parties to sell and support our products, increased risk of intellectual property litigation by entering into new markets, uncertainty as to ShoreTel’s ability to retain and motivate key personnel from the acquired company, increased competition by entering into new markets, the success of our expanded channel strategy, the intense competition in our industry, our dependence on key suppliers and other supply and manufacturing risks, our ability to control costs, our ability to attract, retain and ramp new sales personnel, uncertainties inherent in the product development cycle, including unforeseen delays and unknown defects, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, risks related to our recently-completed acquisition of M5 Networks, including technology and product integration risks, ability to retain key personnel and customers and the risk of assuming unknown liabilities, and other risk factors set forth in ShoreTel’s Form 10-K for the year ended June 30, 2011, as updated in our Quarterly Reports on Form 10-Q on a quarterly basis.

About ShoreTel

ShoreTel, Inc. (NASDAQ: SHOR) is the provider of brilliantly simple Unified Communication (UC) solutions based on its award-winning IP business phone system. We offer organizations of all sizes integrated, voice, video, data, and mobile communications on an open, distributed IP architecture that helps significantly reduce the complexity and costs typically associated with other solutions. The feature-rich ShoreTel UC system offers the lowest total cost of ownership (TCO) and the highest customer satisfaction in the industry, in part because it is easy to deploy, manage, scale and use. Increasingly, companies around the world are finding a competitive edge by replacing business-as-usual with new thinking, and choosing ShoreTel to handle their integrated business communication. ShoreTel is based in Sunnyvale, California, and has regional offices in Austin, Texas, United Kingdom, Sydney, Australia and Munich, Germany. For more information, visit www.shoretel.com.

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