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[January 30, 2013]
ShoreTel Reports Financial Results for Second Quarter of Fiscal Year 2013
SUNNYVALE, Calif., Jan. 30, 2013 /PRNewswire via COMTEX/ -- ShoreTel® (NASDAQ; SHOR), the leading provider of brilliantly simple unified communications platforms, including business phone systems, applications and mobile UC solutions, today announced financial results for the second quarter of fiscal year 2013, which ended December 31, 2012.
Revenue of $74.6 million for the second quarter of fiscal year 2013 was up 29 percent from the second quarter of fiscal year 2012. The non-GAAP net loss for the second quarter was $(2.6) million, or $(0.04) per share, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments. This compares with non-GAAP net income of $1.4 million, or $0.03 per share, in the second quarter of fiscal 2012.
"Our ShoreTel Sky business continues to be very strong with December marking our best month of cloud bookings in our history," said Peter Blackmore, president and CEO of ShoreTel. "We were also pleased to sign a record number of new cloud customers, which together with a strong backlog and low churn, drove 9 percent sequential cloud revenue growth in the quarter and has driven our recurring revenue base up to 35 percent of our total revenue." Blackmore added, "In early January, we took meaningful action to reorganize our global sales organization to drive improved sales productivity. I am confident these changes will yield improved results over the long term and put ShoreTel on a solid path to profitability." Second Quarter of Fiscal 2013 Financial Highlights GAAP gross margin for the second quarter of fiscal year 2013 was 58.8 percent, compared with 65.4 percent in the second quarter of fiscal year 2012. The decline in gross margin percentage from last year is the result of the addition of the ShoreTel cloud division including the amortization of acquisition related intangibles, which were not included in the prior year's results.
Non-GAAP gross margin for the second quarter of fiscal year 2013, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other charges and related tax adjustments, was 61.8 percent, compared with 66.1 percent in the year-ago quarter. GAAP net loss was $(10.4) million, or $(0.18) per share, in the second quarter of fiscal year 2013, compared with a GAAP net loss of $(2.5) million, or $(0.05) per share, in the second quarter of fiscal 2012. The GAAP net loss in the second quarter of fiscal year 2013 includes a $1.9 million charge for a change in estimates for sales, telecom taxes and regulatory fees related to prior periods.
As of December 31, 2012, the company had $52.1 million in cash, cash equivalents and short-term investments, and generated $1.1 million in cash flow from operations in the quarter.
Line of Business Results Cloud The cloud division continued to deliver strong revenue growth of 9 percent sequentially over the first fiscal quarter, with revenues of $17.1 million. Monthly recurring revenue grew by 25 percent from the second fiscal quarter of 2012, and the total number of installed customer seats increased 38 percent over the same period. Partnerships with previously premise-only channel partners continued to develop and there is a strong pipeline of new partners waiting to become certified cloud business partners.
Premise The company's premise-business revenues were $57.5 million for the second quarter of fiscal 2013, down 1 percent from the prior year. Revenue from the company's international locations was up 8 percent over the year-ago quarter and represented 13 percent of its premise revenue in the quarter. The company's typical second quarter seasonal growth was muted due to an increase in deals being delayed beyond the end of the quarter.
Select Operational Metrics Quarter Ended Quarter Ended Quarter Ended 12/31/12 09/30/12 06/30/12 Cloud Monthly Average Revenue Per User (ARPU) $ 60 $ 61 $ 62 Cloud Average # of Seats per Subscriber 36 35 34 Cloud Monthly Revenue Churn Rate 0.3% 0.3% 0.3% Total Company Headcount 965 942 933 Non-GAAP Gross Margins-Premise 67.3% 67.2% 67.1% Non-GAAP Gross Margins-Cloud 43.3% 46.7% 42.2% Business Highlights ShoreTel's Cloud Division Earns Frost & Sullivan's Award for Hosted IP Telephony and UC Services In November, the company announced that Frost & Sullivan had given its 2012 North American Customer Value Enhancement Award in the Hosted IP Telephony and UC Services market to ShoreTel's Cloud Division. The Frost & Sullivan Award for Customer Value Enhancement is presented each year to the company that has demonstrated excellence in implementing strategies that proactively create value for its customers with a focus on improving the return on the investment that customers make in its services or products.
ShoreTel Positioned in the Leaders Quadrant of the Magic Quadrant for Unified Communications as a Service The company was positioned by Gartner, Inc. in the Leaders quadrant of the Magic Quadrant for Unified Communications as a Service, North America1 based on ShoreTel's cloud division with its ShoreTel Sky family of products.
Business Outlook ShoreTel is providing the following outlook for the quarter ending Mar. 31, 2013: -- Revenue is expected to be in the range of $73 million to $79 million.
-- GAAP gross margin is expected to be in the range of 60 percent to 61 percent, including approximately $1.2 million in stock-based compensation charges and amortization of acquisition-related intangibles. Non-GAAP gross margin, which excludes stock-based compensation and other charges, is expected to be in the range of 62 percent to 63 percent.
-- GAAP operating expenses are expected to be in the range of $53 million to $54 million, including approximately $3.3 million in stock-based compensation charges and amortization of acquisition-related intangibles and $0.7 million in severance costs related to sales reorganization actions in January 2013. Non-GAAP operating expenses, which exclude stock-based compensation and other charges listed above, are expected to be in the range of $49 million to $50 million.
Conference Call Information The company will host a corresponding conference call and live webcast today at 2:00 p.m. Pacific Standard Time. To access the conference call, dial +1-877-317-6789 for callers in the U.S. and +1-412-317-6789 for international callers and provide the operator with the conference identification number of 10023317. A live webcast will be available in the Investor Relations section of the company's corporate website at
and an archived recording will be available 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 telephonic replay of the conference call will also be available beginning at approximately 4:00 p.m. Pacific Standard Time today until approximately 6:00 a.m. Pacific Standard Time on Feb. 7, 2013, by dialing +1-877-344-7529 or +1-412-317-0088 for callers outside the U.S. and Canada and providing the conference identification number of 10023317.
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, 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 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 Peter Blackmore, statements regarding future products 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, 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, risks related to our 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, 2012, and in its Form 10-Q for the quarter ended September 30, 2012.
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-- #ShoreTel, #UC About ShoreTel ShoreTel, Inc. (NASDAQ: SHOR) is a provider of business communication solutions whose brilliantly simple unified communications platforms, applications and mobile UC solutions promise a new rhythm of workforce engagement and collaboration. With costly complexity eliminated by design from its award-winning, all-in-one IP phone system, UC and contact center solution, and its industry-leading hosted phone system, workers enjoy a freedom and self-reliance that other providers can't match. Users have full control to engage and collaborate, no matter the time, place or device, for the lowest cost and demand on IT resources in the industry. ShoreTel is headquartered in Sunnyvale, Calif., and has regional offices and partners worldwide. For more information, visit shoretel.com or shoretelsky.com.
M5, ShoreTel, ShoreTel Sky, and the ShoreTel logo are trademarks or registered trademarks of ShoreTel, Inc. in the United States and/or other countries.
1 Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) As of As of As of December 31, September 30, June 30, 2012 2012 2012 ASSETS Current assets: Cash and cash equivalents $ 43,839 $ 41,215 $ 37,120 Short-term investments 8,217 13,933 18,375 Accounts receivable - net 31,834 30,302 34,198 Inventories 20,383 19,053 20,212 Indemnification asset 7,012 6,570 6,570 Prepaid expenses and other current assets 5,478 6,016 5,275 Total current assets 116,763 117,089 121,750 Property and equipment - net 14,502 11,693 10,495 Goodwill 122,665 122,665 122,665 Intangible assets 42,128 43,692 45,304 Other assets 2,769 2,578 2,939 Total assets $ 298,827 $ 297,717 $ 303,153 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,316 $ 9,225 $ 9,697 Accrued liabilities and other 15,178 17,019 16,134 Accrued employee compensation 13,088 11,652 12,151 Accrued taxes and surcharges 11,026 8,170 7,852 Purchase consideration 9,881 9,537 9,398 Deferred revenue 37,503 35,960 35,829 Total current liabilities 98,992 91,563 91,061 Line of credit - net 19,960 19,966 19,946 Long-term deferred revenue 14,373 14,246 13,683 Long-term purchase consideration 3,475 3,354 3,305 Other long-term liabilities 3,064 3,624 4,926 Total liabilities 139,864 132,753 132,921 Stockholders' equity: Common stock 317,770 313,417 310,648 Accumulated deficit (158,807) (148,453) (140,416) Total stockholders' equity 158,963 164,964 170,232 Total liabilities and stockholders' equity $ 298,827 $ 297,717 $ 303,153 SHORETEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, 2012 2011 2012 2011 Revenue: Product $ 43,769 $ 46,277 $ 89,603 $ 88,461 Hosted and related services 17,087 - 32,749 - Support and services 13,780 11,735 27,268 23,409 Total revenues 74,636 58,012 149,620 111,870 Cost of revenue: Product 15,069 16,103 30,856 30,558 Hosted and related services 11,400 - 20,542 - Support and services 4,279 3,969 8,468 7,884 Total cost of revenue 30,748 20,072 59,866 38,442 Gross profit 43,888 37,940 89,754 73,428 Gross profit % 58.8% 65.4% 60.0% 65.6% Operating expenses: Research and development 12,195 12,240 26,148 24,053 Sales and marketing 31,739 21,596 62,495 42,818 General and administrative 9,292 6,349 17,887 12,978 Total operating expenses 53,226 40,185 106,530 79,849 Loss from operations (9,338) (2,245) (16,776) (6,421) Other income (expense) - net (926) (196) (1,328) (595) Loss before provision for income tax (10,264) (2,441) (18,104) (7,016) Provision for income tax 90 97 287 164 Net loss $ (10,354) $ (2,538) $ (18,391) $ (7,180) Net loss per share: Basic and diluted $ (0.18) $ (0.05) $ (0.32) $ (0.15) Shares used in computing net loss per share: Basic and diluted 58,566 47,946 58,376 47,666 SHORETEL, INC.
GAAP to Non-GAAP Reconciliation (Amounts in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended December 31, 2012 December 31, 2012 GAAP Excludes Non-GAAP GAAP Excludes Non-GAAP Revenue: Product $ 43,769 $ - $ 43,769 $ 89,603 $ - $ 89,603 Hosted and related services 17,087 - 17,087 32,749 - 32,749 Support and services 13,780 - 13,780 27,268 - 27,268 Total revenues 74,636 - 74,636 149,620 - 149,620 Cost of revenue: Product 15,069 (294) (a),(b) 14,775 30,856 (604) (a),(b) 30,252 Hosted and related services 11,400 (1,716) (a),(b),(e) 9,684 20,542 (2,511) (a),(b),(c),(e) 18,031 Support and services 4,279 (239) (a) 4,040 8,468 (448) (a),(c) 8,020 Total cost of revenue 30,748 (2,249) 28,499 59,866 (3,563) 56,303 Gross profit 43,888 2,249 46,137 89,754 3,563 93,317 Gross profit % 58.8% 61.8% 60.0% 62.4% Operating expenses: Research and development 12,195 (919) (a) 11,276 26,148 (2,077) (a),(c) 24,071 Sales and marketing 31,739 (1,924) (a),(b) 29,815 62,495 (3,872) (a),(b),(c) 58,623 General and administrative 9,292 (2,180) (a),(b),(e) 7,112 17,887 (3,393) (a),(b),(c),(e) 14,494 Total operating expenses 53,226 (5,023) 48,203 106,530 (9,342) 97,188 Loss from operations (9,338) 7,272 (2,066) (16,776) 12,905 (3,871) Other income (expense) - net (926) 465 (d) (461) (1,328) 653 (d) (675) Loss before provision for income tax (10,264) 7,737 (2,527) (18,104) 13,558 (4,546) Provision for income tax 90 (2) (f) 88 287 (145) (f) 142 Net loss $ (10,354) $ 7,739 $ (2,615) $ (18,391) $ 13,703 $ (4,688) Net loss per share: Basic and diluted (g) $ (0.18) $ 0.14 $ (0.04) $ (0.32) $ 0.24 $ (0.08) Shares used in computing net loss per share: Basic and diluted (g) 58,566 58,566 58,376 58,376 (a) Excludes stock-based compensation included in: Cost of product revenue $ 34 $ 84 Cost of hosted and related services revenue 40 78 Cost of support and services revenue 239 446 Research and development 919 1,978 Sales and marketing 1,073 1,935 General and administrative 1,194 2,331 $ 3,499 $ 6,852 (b) Excludes amortization of acquisition-related intangibles included in: Cost of product revenue $ 260 $ 520 Cost of hosted and related services 749 1,498 Sales and marketing 851 1,702 General and administrative 38 76 $ 1,898 $ 3,796 (c) Excludes severance included in: Cost of hosted and related services $ - $ 8 Cost of support and services revenue - 2 Research and development - 99 Sales and marketing - 235 General and administrative - 38 $ - $ 382 (d) Excludes interest charge from change in fair value of contingent consideration included in: Other expense $ 465 $ 653 (e) Excludes prior quarter charge for change in estimate of sales, use and telecommunications tax recognized in the current quarter: Cost of hosted and related services $ 927 $ 927 General and administrative 948 948 $ 1,875 $ 1,875 (f) Excludes the deferred tax benefit arising from acquisition and tax impact of the items which are excluded in (a) to (e) above.
(g) 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 dilutive.
GAAP to Non-GAAP Reconciliation (Amounts in thousands, except per share amounts) Three Months Ended Six Months Ended December 31, 2011 December 31, 2011 GAAP Excludes Non-GAAP GAAP Excludes Non-GAAP Revenue: Product $ 46,277 $ - $ 46,277 $ 88,461 $ - $ 88,461 Support and services 11,735 - 11,735 23,409 - 23,409 Total revenues 58,012 - 58,012 111,870 - 111,870 Cost of revenue Product 16,103 (218) (a),(b) 15,885 30,558 (444) (a),(b) 30,114 Support and services 3,969 (209) (a) 3,760 7,884 (408) (a) 7,476 Total cost of revenue 20,072 (427) 19,645 38,442 (852) 37,590 Gross profit 37,940 427 38,367 73,428 852 74,280 Gross profit % 65.4% 66.1% 65.6% 66.4% Operating expenses: Research and development 12,240 (911) (a) 11,329 24,053 (1,923) (a) 22,130 Sales and marketing 21,596 (1,083) (a),(b) 20,513 42,818 (2,127) (a),(b) 40,691 General and administrative 6,349 (1,566) (a),(c) 4,783 12,978 (2,550) (a),(c) 10,428 Total operating expenses 40,185 (3,560) 36,625 79,849 (6,600) 73,249 Income (Loss) from operations (2,245) 3,987 1,742 (6,421) 7,452 1,031 Other income (expense), net (196) - (196) (595) - (595) Income (Loss) before provision for income tax (2,441) 3,987 1,546 (7,016) 7,452 436 Provision for income tax 97 12 (d) 109 164 12 (d) 176 Net income (loss) $ (2,538) $ 3,975 $ 1,437 $ (7,180) $ 7,440 $ 260 Net income (loss) per share: Basic and diluted (e) $ (0.05) $ 0.08 $ 0.03 $ (0.15) $ 0.16 $ 0.01 Shares used in computing net loss per share: Basic and diluted (e) 47,946 47,946 47,666 47,666 (a) Excludes stock-based compensation as follows: Cost of product revenue $ 33 $ 74 Cost of support and services revenue 209 408 Research and development 911 1,923 Sales and marketing 1,053 2,067 General and administrative 1,066 2,050 $ 3,272 $ 6,522 (b) Excludes amortization of acquisition-related intangibles: Cost of product revenue $ 185 $ 370 Sales and marketing 30 60 $ 215 $ 430 (c) Excludes litigation settlement included in: General and administrative $ 500 $ 500 (d) Excludes the tax impact of the items which are excluded in (a) to (c) above.
(e) 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 dilutive.
RECONCILIATION OF GAAP TO NON-GAAP FOR Q3 PROJECTIONS (Amounts in thousands) (Unaudited) Three Months Ending March 31, 2013 High Low GAAP gross profit % 61.0% 60.0% Adjustments for stock-based compensation and acquisition-related intangible asset amortization 2.0% 2.0% Non-GAAP gross profit % 63.0% 62.0% Total GAAP operating expenses $ 54,000 $ 53,000 Adjustments for stock-based compensation and acquisition-related intangible asset amortization $ (4,000) $ (4,000) Total non-GAAP operating expenses $ 50,000 $ 49,000 Investor Contact:Tonya Chin408email@example.com SOURCE ShoreTel
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