ShoreTel Reports Financial Results For First Quarter Fiscal Year 2014
32 Percent Cloud Revenue Growth Year-Over-Year
SUNNYVALE, Calif., Oct. 30, 2013 /PRNewswire/ — ShoreTel(®) (NASDAQ: SHOR), the leading provider of brilliantly simple unified communications solutions, today announced financial results for the first quarter of its fiscal year 2014, which ended September 30, 2013.
For the first quarter of fiscal 2014, total revenue was $84.3 million, an increase of 12 percent compared to the first 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 first quarter of fiscal year 2014, was $4.0 million, or $0.07 per share. This compares with a non-GAAP net loss of $2.1 million, or $0.04 per share, in the first quarter of fiscal 2013. GAAP net loss was $1.0 million, or $0.02 per share, in the first quarter of fiscal 2014, compared with a GAAP net loss of $8.0 million, or $0.14 per share, in the first quarter of fiscal 2013.
“Our first quarter results continued to reflect our focused execution and the strength of our business model,” said Don Joos, president and CEO of ShoreTel. “In addition to the strong revenue growth and record non-GAAP profitability, I am also excited about the go-to-market and product roadmap initiatives on the horizon that we expect to be catalysts for growth going forward. Our progress in the first quarter and our ability to execute our operational plan has set the foundation for the rest of our fiscal 2014.”
First Quarter of Fiscal 2014 Financial Highlights
Recurring revenue, which consists of cloud monthly recurring revenue and premise support revenues, reached an annualized value of $121 million; an increase of 22 percent compared to the first quarter of fiscal 2013, and represented 36 percent of total revenues in the first quarter of fiscal 2014.
Non-GAAP gross margin, which excludes stock-based compensation charges, amortization of acquisition-related intangibles and other charges, for the first quarter of fiscal year 2014 was 62.3 percent, compared with 62.9 percent in the year-ago quarter. GAAP gross margin for the first quarter of fiscal year 2014 was 60.7 percent, compared with 61.2 percent in the first quarter of fiscal year 2013.
In the first quarter of fiscal 2014 the company generated $14.2 million in cash flow from operations, reduced its debt obligations by $11.0 million and had $56.0 million in cash, cash equivalents and short-term investments as of September 30, 2013.
Line of Business Results
ShoreTel Sky hosted revenues of $20.7 million were up 8 percent sequentially and 32 percent year-over year. Non-GAAP gross margins on hosted revenue were 43.4 percent in the first quarter of fiscal 2014, compared with 46.7 percent in the first quarter of fiscal 2013. The total number of installed customer seats increased 44 percent over the first quarter of fiscal 2013 to approximately 126,000. Annualized revenue churn remains low at approximately 4 percent.
Premise revenues of $63.5 million represents a 7 percent increase year-over-year and a 4 percent decrease sequentially. Product revenues grew 4 percent year-over-year and Support and Services revenues grew 18 percent year-over-year. Non-GAAP gross margins in the premise business were 68.5 percent in the first quarter of fiscal 2014, compared with 67.2 percent in the first quarter of fiscal 2013.
Select Operational Metrics
Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended 09/30/13 06/30/13 03/31/13 12/31/12 09/30/12 06/30/12 -------- -------- -------- -------- -------- -------- Annual recurring revenue run rate (in millions) $121.1 $114.7 $108.3 $104.9 $99.0 $93.6 Cloud Monthly Average Revenue Per User (ARPU) $47 $49 $50 $53 $55 $57 Cloud Average # of Seats per Customer 43 44 43 41 39 37 Cloud Monthly Revenue Churn Rate 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Total Company Headcount 932 965 957 965 942 933 Non-GAAP Gross Margin-Premise 68.5% 67.8% 68.3% 67.3% 67.2% 67.1% Non-GAAP Gross Margin-Hosted 43.4% 39.1% 41.7% 43.3% 46.7% 42.2%
In September ShoreTel began shipping its ShoreTel Dock, the industry’s first and only business-grade docking station that transforms iPhones® and iPads® into desk phones when paired with ShoreTel Mobility, fusing the convenience of mobile devices with the power of a business communications system for both ShoreTel premise and ShoreTel Sky customers.
At the Midsize Enterprise Summit (MES) West 2013 XCellenceAwards, which were sponsored by XChange Events, the ShoreTel Dock was recognized in the category of Most Innovative Technology Vendor and also for Best Boardroom Case Study Presentation which focused on the Dock and ShoreTel Mobility.
ShoreTel Receives “Strong Positive” Rating in Gartner’s Unified Communications for SMB Report
For the fourth year in a row ShoreTel has received a “Strong Positive,” the highest possible rating, in Gartner’s report titled “MarketScope for Unified Communications for the SMB Market, North America.” The MarketScope report focuses on the premises-based Unified Communications market for small-and-midsized-businesses (those having between 20 and 499 employees) and provides specific guidance for users who are deploying or have deployed products or services.
ShoreTel Sky Honored for Delivering Exceptional IP Communications Solutions
TMC, a global, integrated media company, honored ShoreTel and its ShoreTel Sky® cloud-based communications solution with the 2013 Internet Telephony Excellence Award presented by INTERNET TELEPHONY® magazine.
ShoreTel’s cloud solution, ShoreTel Sky, is relied upon by more than 2,900 companies. Whether clients need just the basics for a single location, or a sophisticated contact center solution with application integration, the ShoreTel Sky solution meets their needs. The pairing of innovative technology with expert professionals focused on delivering an outstanding customer experience is why ShoreTel Sky is one of the top-rated UCaaS solutions on the market today.
ShoreTel Announces Progress with Sales Partners in New Zealand and Australia; Expanded operations in Canada
In August 2013, ShoreTel announced the expansion of its partnership with Express Data into New Zealand as part of the company’s growth plans in the region. Following on a successful partnership in Australia, Value Added Distributor Express Data will now extend its reach into New Zealand, offering ShoreTel’s unified communications, mobility and contact center applications to its resellers that have strong capabilities in the voice and data networking spaces.
Also in August 2013, ShoreTel announced that its recently appointed channel reseller, Go Systems, won two Unified Communications roll-outs in Australia with Cunninghams Real Estate, one of Sydney’s largest independent property managers, and LockleyLand Titles, a leading Sydney surveying company.
In September 2013, ShoreTel announced its support of the growing customer base in Canada as it opened a new head office, executive briefing center and training center in Toronto.
ShoreTel is providing the following outlook for its fiscal second quarter of 2014 ending December 31, 2013:
-- Revenue is expected to be in the range of $80 million to $86 million. -- GAAP gross margin is expected to be in the range of 59.5 percent to 60.5 percent. Non-GAAP gross margin, which excludes approximately $1.3 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 expense, which excludes approximately $3.0 million in stock-based compensation charges, amortization of acquisition-related intangibles and other charges are expected to be in the range of $47.5 million to $48.5 million.
Conference Call Information
The Company will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Time on Wednesday, Oct. 30, 2013. 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 10035277.
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 Nov. 7, 2013 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 10035277.
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 grow our ShoreTel Sky business, 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, increased risk of intellectual property litigation by entering into new markets, our ability to attract, retain and ramp new sales personnel, 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 and the impact of the U.S. budget discussion, 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.
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.
ShoreTel, Inc. (NASDAQ: SHOR) is a leading provider of brilliantly simple business communications solutions. Costly complexity is eliminated by design from its award-winning, all-in-one premise and cloud-based unified communications offerings, including business phones, collaboration, mobility and contact center applications. Recognized for its industry-leading customer experience and support, ShoreTel enables users to communicate and collaborate no matter the time, place or device, for low cost and 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. iPad® and iPhone® are trademarks of Apple Inc. All other trademarks, trade names and service marks herein are the property of their respective owners.
Director, Investor Relations
SHORETEL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) As of As of September 30, June 30, 2013 2013 ---- ---- ASSETS Current assets: Cash and cash equivalents $49,855 $43,775 Short-term investments 6,118 7,501 Accounts receivable -net 31,003 37,118 Inventories 17,634 18,891 Indemnification asset 6,600 6,277 Prepaid expenses and other current assets 6,506 6,417 ----- ----- 117,716 119,979 Total current assets Property and equipment - net 15,623 15,625 Goodwill 122,750 122,750 Intangible assets 35,646 38,138 Other assets 3,313 3,295 $295,048 $299,787 Total assets ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $13,823 $9,790 Accrued liabilities and other 15,703 17,766 Accrued employee compensation 11,984 13,159 Accrued taxes and surcharges 10,623 11,312 Purchase consideration 3,630 3,577 Deferred revenue 40,835 39,692 ------ ------ 96,598 95,296 Total current liabilities Line of credit - net 18,026 29,004 Long-term deferred revenue 16,540 15,294 Other long-term liabilities 3,783 4,053 134,947 143,647 Total liabilities -------- Stockholders' equity: Common stock 327,254 322,258 Accumulated deficit (167,153) (166,118) 160,101 156,140 Total stockholders' equity -------- $295,048 $299,787 Total liabilities and stockholders' equity =============
SHORETEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, ---------- 2013 2012 ---- ---- Revenue: Product $47,682 $45,834 Hosted and related services 20,739 15,662 Support and services 15,866 13,488 Total revenues 84,287 74,984 Cost of revenue: Product 16,296 15,787 Hosted and related services 12,533 9,142 Support and services 4,282 4,189 Total cost of revenue 33,111 29,118 Gross profit 51,176 45,866 Gross profit % 60.7% 61.2% Operating expenses: Research and development 13,280 13,953 Sales and marketing 27,666 30,756 General and administrative 10,629 8,595 Total operating expenses 51,575 53,304 ------ ------ Loss from operations (399) (7,438) Other income (expense) - net (427) (402) Loss before provision for income tax (826) (7,840) Provision for income tax 209 197 --- --- Net loss $(1,035) $(8,037) Net loss per share: Basic and diluted $(0.02) $(0.14) ====== ====== Shares used in computing net loss per share: Basic and diluted 59,543 58,186 ====== ======
SHORETEL, INC. GAAP TO NON-GAAP RECONCILIATION (Amounts in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, ------------- 2013 2012 ---- ---- GAAP Premise gross profit $42,970 $39,346 Share- based compensation expense 276 (a) 257 (a) Amortization of acquisition- related intangibles 268 (b) 260 (b) Severance and other - (c) 2 (c) Non-GAAP Premise gross profit $43,514 $39,865 ======= ======= Non-GAAP Premise gross margin 68.5% 67.2% GAAP Hosted gross profit $8,206 $6,520 Share- based compensation expense 49 (a) 38 (a) Amortization of acquisition- related intangibles 749 (b) 749 (b) Severance and other - (c) 8 (c) Non-GAAP Hosted gross profit $9,004 $7,315 ====== ====== Non-GAAP Hosted gross margin 43.4% 46.7% GAAP total gross profit $51,176 $45,866 Share- based compensation expense 325 (a) 295 (a) Amortization of acquisition- related intangibles 1,017 (b) 1,009 (b) Severance and other - (c) 10 (c) Non-GAAP total gross profit $52,518 $47,180 ======= ======= Non-GAAP total gross margin 62.3% 62.9% GAAP loss from operations $(399) $(7,438) Share- based compensation expense 2,114 (a) 3,353 (a) Amortization of acquisition- related intangibles 1,906 (b) 1,898 (b) Severance and Other 1,019 (c) 382 (c) Non-GAAP income (loss) from operations $4,640 $(1,805) ====== ======= GAAP net loss $(1,035) $(8,037) Share- based compensation expense 2,114 (a) 3,353 (a) Amortization of acquisition- related intangibles 1,906 (b) 1,898 (b) Severance and Other 1,019 (c) 382 (c) Interest charge from change in fair value of purchase consideration 53 (d) 188 (d) Deferred tax benefit (provision) arising from tax impact of above items (39) (e) 143 (e) Non-GAAP net income (loss) $4,018 $(2,073) ====== ======= Non-GAAP net income (loss) per share: Basic $0.07 $(0.04) ===== ====== Diluted (f) $0.07 $(0.04) ===== ====== Shares used in computing net income (loss) per share: Basic 59,543 58,186 ====== ====== Diluted (f) 60,492 58,186 ====== ======
SHORETEL, INC. GAAP TO NON-GAAP RECONCILIATION FOOTNOTES (Amounts in thousands) (Unaudited) Three Months Ended September 30, ------------- 2013 2012 ---- ---- (a) Excludes stock- based compensation included in: Cost of product revenue $29 $50 Cost of hosted and related services revenue 49 38 Cost of support and services revenue 247 207 Research and development 564 1,059 Sales and marketing 544 862 General and administrative 681 1,137 $2,114 $3,353 ====== ====== (b) Excludes amortization of acquisition- related intangibles included in: Cost of product revenue $268 $260 Cost of hosted and related services 749 749 Sales and marketing 851 851 General and administrative 38 38 $1,906 $1,898 ====== ====== (c) Excludes 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) Excludes interest charge from change in fair value of contingent consideration included in Other Expense $53 $188 ============== (e) Excludes 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.
SHORETEL, INC. RECONCILIATION OF GAAP TO NON-GAAP FOR Q2 PROJECTIONS (Amounts in thousands) (Unaudited) Three Months Ending December 31, 2013 ------------- High Low ---- --- GAAP gross profit % 60.5% 59.5% Adjustments for stock- based compensation and acquisition- related intangible asset amortization 1.5% 1.5% --- --- Non-GAAP gross profit % 62.0% 61.0% ==== ==== Total GAAP operating expenses $51,500 $50,500 Adjustments for stock- based compensation and acquisition- related intangible asset amortization (3,000) (3,000) ------ ------ Total non-GAAP operating expenses $48,500 $47,500 ======= =======