ShoreTel Reports Financial Results for Fourth Quarter and Fiscal Year 2007
Company Delivers 59% Revenue Growth for Fiscal Year 2007
SUNNYVALE, Calif., Aug. 14 -- ShoreTel, Inc., (NASDAQ:SHOR)
, a leading provider of enterprise IP telephony solutions, today announced financial results for the fourth quarter and fiscal year ended June 30, 2007.
For the fourth quarter of 2007, revenue was $28.9 million, an increase of 52% over the fourth quarter of 2006. GAAP net income was $1.9 million, or $0.05 per diluted share(1) compared to $1.7 million, or $0.05 per diluted share(1), in the fourth quarter of 2006. GAAP net income in the fourth quarter of 2007 includes $632,000 in stock-based compensation expense, compared to $36,000 in the fourth quarter of 2006.
Excluding stock compensation charges, non-GAAP net income for the fourth quarter of 2007 was $2.5 million, or $0.07 per diluted share(1). This is an increase of 48% compared to a non-GAAP net income of $1.7 million, or $0.05 per diluted share(1), reported in the fourth quarter of 2006.
Gross margin for the fourth quarter of 2007 improved to 64% from 60% in the fourth quarter of 2006.
For fiscal year 2007 revenue was $97.8 million, an increase of 59% compared to fiscal year 2006 revenues of $61.6 million. GAAP net income for the fiscal year was $6.0 million, or $0.17 per diluted share(1), compared to GAAP net income of $4.0 million, or $0.12 per diluted share(1) in the fiscal year 2006. GAAP net income in fiscal year 2007 includes $2.7 million in stock-based compensation expense, compared to $82,000 in fiscal year 2006.
Excluding the above-mentioned charges, non-GAAP net income for fiscal year 2007 was $8.7 million, or $0.24 per diluted share(1). This is an increase of 116% compared to non-GAAP net income of $4.0 million, or $0.12 per diluted share(1) in fiscal year 2006.
Gross margin for fiscal year 2007 improved to 63% from 56% in fiscal year 2006.
As of June 30, 2007, the company had $17.3 million in cash and cash equivalents. After the close of the fourth quarter, ShoreTel completed a successful initial public offering of common stock and raised proceeds of approximately $80 million dollars, prior to the payment of fees for professional services rendered in connection with the IPO.
"We are pleased with our fourth quarter and fiscal year financial results," commented John W. Combs, chairman, president and CEO of ShoreTel. "We achieved close to $100 million in revenue in fiscal 2007 which represents a major milestone in our business. Our growth resulted from increasing market acceptance of the ShoreTel IP telephony system, the productivity of our high- quality channel partners, and our leadership position in overall customer satisfaction. We believe our advanced distributed architecture provides customers with a communications systems that is the easiest to install, manage and use, while also providing the industry's highest reliability and a low overall total cost of ownership.
"The completion of our IPO is expected to build additional brand awareness that will enable us to compete in more sales opportunities. We plan to broaden our channel programs to reach larger customers both domestically and internationally. Our unique architecture is a major competitive differentiator and a key factor in driving our compelling win rate.
"We believe that our progress to date is a positive indicator of the opportunity ahead. We are optimistic about our outlook for 2008 and are planning for revenue growth of 40-45% over the prior year. ShoreTel is well- positioned to rapidly grow our top line revenue, expand our customer base and bring new and exciting products and services to the fast growing market for unified communications," concluded Combs.
(1) Diluted per share amounts reflect the weighted average number of
common shares used in the basic net income per share calculation plus
the effects of all dilutive securities, including the assumed
conversion of redeemable convertible preferred stock.
Operational Highlights
Highlights of fiscal year 2007 included:
AWARDS
-- ShoreTel was again ranked number one in IP telephony satisfaction by
Nemertes Research for the fourth consecutive year.
-- ShoreTel was awarded the 2007 Best in VoiceCon Award, recognizing new
and exceptional enterprise IP communications solutions.
PRODUCT INTRODUCTIONS
-- ShoreTel 7, the seventh major software release based on a unique
combination of a distributed software architecture and a switch-based
hardware platform to provide a single point of management. ShoreTel 7
feature set includes new, low cost ShoreGear switches, system
management tools and enhanced end user product features.
-- ShoreTel Contact Center product introduced a universal queue, auto
answer for inbound calls, release with reason codes and several other
productivity enhancing features.
-- IP 8000 conference room phone.
-- ShoreWare System Monitor, a network monitoring tool.
-- Integration packages with several third party applications to allow
users to leverage their ShoreTel communications system with business
process applications, including Salesforce.com, NetSuite(R), Equitrac
and Copitrak.
PROGRAMS AND CERTIFICATIONS
-- Introduced the ShoreTel Technology Partner Program to enable third
parties to integrate business applications into the ShoreTel
communications system.
-- ShoreTel's integration with Microsoft's Exchange 2007 product has
recently been certified by Microsoft.
-- Introduced the ShoreTel Managed Service Program to allow customers to
purchase IP telephony systems through convenient monthly payments for
up to ten years.
DISTRIBUTION
-- Added key distributors internationally: Horizon Solutions in the UK,
Uptime in Belgium and Westan in Australia.
Business Outlook
Based on current expectations, management is providing the following outlook for the quarter ending September 30, 2007:
-- Revenue is expected to be in the range of $29 to $31 million.
-- GAAP gross margins are expected to be in the range of 62% to 64%.
-- GAAP operating expenses are expected to be in the range of $17.5 to
$18.5 million, including approximately $1 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 expense, which are non-cash charges, in managing its core operations. ShoreTel has provided a reconciliation of non-GAAP financial measure, which reconciliation follows 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 August 14, 2007
ShoreTel will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Daylight Time on August 14, 2007. To access the conference call, dial 800-218-0530 for the U.S. or Canada and 303-262-2139 for international callers. The webcast will be available live on the Investor Relations section of the Company's corporate website at http://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 4:00 p.m. Pacific Daylight Time on August 14, 2007 until 11:59 p.m. Pacific Daylight Time on August 17, 2007, by dialing 800-405-2236 or 303-590-3000 for callers outside the U.S. and Canada and entering passcode 11093320.
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 Combs 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 the timing and volume of shipments of our products, 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, costs and outcome of our litigation with Mitel Networks Corp. and other risk factors set forth in ShoreTel's Registration Statement on Form S-1 and its free writing prospectus dated June 29, 2007.
About ShoreTel, Inc.
ShoreTel is a leading provider of enterprise IP telephony solutions. ShoreTel voice systems provide customers with a number of key benefits, including ease of use, manageability and lower total cost of ownership than alternative solutions. ShoreTel's distributed software architecture and switched-based hardware platform extend enterprise-class voice services to every office and outpost, keeping employees fully connected wherever they go. Founded in 1996, ShoreTel has achieved broad industry recognition for its technology and high customer satisfaction. For the last four years, IT executives surveyed by Nemertes Research, an independent research firm, have rated ShoreTel highest in customer satisfaction among leading enterprise telecommunications systems providers. A select, worldwide group of channel partners provide service and support. 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 877-80SHORE.
(TABLES TO FOLLOW)
SHORETEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
As of As of As of
June 30, March 31, June 30,
2007 2007 2006
ASSETS
Current assets:
Cash and cash equivalents $17,326 $16,811 $12,333
Accounts receivable, net of
allowance for doubtful
accounts of $320,
$256, and $378 as of June 30, 2007,
March 31, 2007 and June 30, 2006,
respectively 19,411 18,790 11,479
Inventories 7,057 6,783 4,656
Prepaid expenses and other current
assets 3,372 2,179 852
Total current assets 47,166 44,563 29,320
Property and equipment, net 2,933 2,330 1,556
Other assets 2,935 1,219 9
Total assets $53,034 $48,112 $30,885
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $7,433 $8,087 $3,958
Accrued liabilities and other 2,807 2,513 2,273
Accrued employee compensation 3,782 3,000 2,918
Deferred revenue 10,126 8,520 3,963
Total current liabilities 24,148 22,120 13,112
Long-term liabilties
Preferred stock warrant liability 549 666 -
Long-term deferred revenue 3,825 3,450 2,609
Total long-term liabilities 4,374 4,116 2,609
Total liabilities 28,522 26,236 15,721
Redeemable convertible preferred stock 56,341 56,329 56,332
Stockholders' equity (deficit):
Common stock 53,206 52,522 50,277
Deferred stock compensation (237) (284) (335)
Notes receivable from shareholders - - (231)
Accumulated deficit (84,798) (86,691) (90,879)
Total stockholders' equity
(deficit) (31,829) (34,453) (41,168)
Total liabilities and
stockholders' equity (deficit) $53,034 $48,112 $30,885
SHORETEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
For the Three
Months Ended For the Year Ended
June 30, June 30,
2007 2006 2007 2006
Revenue:
Product $25,622 $17,328 $87,095 $55,300
Support and services 3,301 1,756 10,732 6,308
Total revenues 28,923 19,084 97,827 61,608
Cost of revenue
Product (1) 8,480 6,132 29,751 21,855
Support and services (2) 1,983 1,483 6,837 5,425
Total cost of revenue 10,463 7,615 36,588 27,280
Gross margin 18,460 11,469 61,239 34,328
Gross margin % 63.8% 60.1% 62.6% 55.7%
Operating expenses:
Research and development (3) 5,775 3,200 17,224 9,720
Sales and marketing (4) 7,685 4,843 26,126 15,699
General and administrative (5) 3,290 1,828 11,673 4,936
Total operating expenses 16,750 9,871 55,023 30,355
Income from operations 1,710 1,598 6,216 3,973
Other income 280 151 273 248
Income before provision for income
taxes 1,990 1,749 6,489 4,221
Income tax provision (97) (79) (408) (219)
Net income 1,893 1,670 6,081 4,002
Accretion of preferred stock (13) (13) (51) (51)
Net income available to shareholders $1,880 $1,657 $6,030 $3,951
Net income per share:
Basic (6) $0.19 $0.22 $0.70 $0.60
Diluted (7) $0.05 $0.05 $0.17 $0.12
Shares used in computing net income
per share
Basic (6) 9,809 7,522 8,565 6,609
Diluted (7) 36,424 34,546 35,581 33,431
Includes stock-based compensation as
follows:
(1) Cost of product revenue $5 - $12 -
(2) Cost of support and services revenue 44 2 99 16
(3) Research and development 194 8 384 14
(4) Sales and marketing 202 5 533 7
(5) General and administrative 187 21 1,658 45
$632 $36 $2,686 $82
(6) Basic net income per share and share count have been computed using
the weighted average number of common shares outstanding and do not
include the dilutive effect of redeemable convertible preferred
stock.
(7) Diluted income per share and share count reflect the weighted average
number of common shares used in the basic net income per share
calculation plus the effects of all potentially dilutive securities,
including the assumed conversion of redeemable convertible preferred
stock.
SHORETEL, INC.
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP NET INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
For the Three
Months Ended For the Year Ended
June 30, June 30,
2007 2006 2007 2006
GAAP gross margin $18,460 $11,469 $61,239 $34,328
Stock-based compensation in product
cost of revenue (a) 5 - 12 -
Stock-based compensation in support
and services cost of revenue (a) 44 2 99 16
Non-GAAP gross margin $18,509 $11,471 $61,350 $34,344
GAAP gross margin % 63.8% 60.1% 62.6% 55.7%
Stock based compensation (a) 0.2% 0.0% 0.1% 0.0%
Non-GAAP gross margin % 64.0% 60.1% 62.7% 55.7%
Total GAAP operating expenses $16,750 $9,871 $55,023 $30,355
Stock based compensation included
in research and development (a) 194 8 384 14
Stock based compensation included
in sales and marketing (a) 202 5 533 7
Stock based compensation included
in general and administrative (a) 187 21 1,658 45
Total non-GAAP operating expenses $16,167 $9,837 $52,448 $30,289
GAAP net income available to
shareholders: $1,880 $1,657 $6,030 $3,951
Adjustments for stock-based
compensation (a) 632 36 2,686 82
Non-GAAP net income available to
shareholders $2,512 $1,693 $8,716 $4,033
GAAP diluted net income per share (b): $0.05 $0.05 $0.17 $0.12
Adjustments for stock-based
compensation (a) $0.02 $0.00 $0.07 $0.00
Non-GAAP diluted net income per
share (b): $0.07 $0.05 $0.24 $0.12
(a) Due to the nature of the variables that impact the Company's
valuation of stock-based compensation, some of which are outside the
control of management, and the non-cash nature of stock-based
compensation charges, these expenses are excluded by management when
evaluating the Company's core operating results.
(b) Diluted income per share reflect the weighted average number of
common shares used in the basic net income per share calculation
plus the effects of all potentially dilutive securities, including
the assumed conversion of redeemable convertible preferred stock.
Investor Contact: Erica Abrams
408-331-3615
ir at shoretel.com
