SHORETEL INC SUNNYVALE, Calif., Jan. 28, 2016 /PRNewswire/ -- ShoreTel® (NASDAQ: SHOR), the leading provider of brilliantly simple hosted phone systems and unified communications (UC) solutions, today announced financial results for the second quarter of its fiscal year 2016, which ended December 31, 2015.
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For the second quarter of fiscal 2016, total revenue was $90.4 million, compared to $90.6 million in the second quarter of fiscal 2015. Non-GAAP net income, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, other adjustments and related tax changes, for the second quarter of fiscal year 2016, was $6.7 million, or $0.10 per diluted share. This compares with a non-GAAP net income of $5.4 million, or $0.08 per diluted share, in the second quarter of fiscal 2015. GAAP net income was $2.5 million, or $0.04 per diluted share, in the second quarter of fiscal 2016, compared with a GAAP net loss of $6.9 million, or $0.11 per diluted share, in the second quarter of fiscal 2015.
"During our fiscal second quarter we made significant progress towards the strategic priorities and catalysts for growth we outlined during our Analyst Day in November," said Don Joos, president and CEO of ShoreTel. "With the ShoreTel Connect platform launched, we gained momentum with customers as our pipeline of cloud opportunities expanded, our channel partners contributed a historically high portion of our cloud bookings and we announced two acquisitions to accelerate our cloud business. While executing these strategic objectives, we generated solid profitability."
Second Quarter of Fiscal 2016 Financial Highlights
Recurring revenues, which consist of all hosted and related services revenue plus support revenues, represented 52 percent of total revenue in the second quarter of fiscal 2016 and reached an annualized value of $189 million; an increase of 15 percent compared to the second quarter of fiscal 2015.
Non-GAAP total gross margin, which excludes stock-based compensation charges, amortization of acquisition-related intangibles and other adjustments, for the second quarter of fiscal year 2016, was 65.4 percent compared with 63.0 percent in the second quarter of fiscal 2015. GAAP gross margin for the second quarter of fiscal year 2016 was 64.0 percent compared with 61.0 percent in the second quarter of fiscal year 2015.
Hosted revenues of $30.5 million were up 20 percent year-over-year and 4 percent sequentially. Non-GAAP hosted gross margin increased to 57.3 percent in the second quarter of fiscal 2016, representing a significant improvement over the 45.8 percent in the second quarter of fiscal 2015. GAAP hosted gross margin for the second quarter of fiscal year 2016 was 53.7 percent, compared with 39.5 percent in the second quarter of fiscal year 2015. The total number of installed customer seats increased 23 percent over the second quarter of fiscal 2015 to approximately 205,600. Hosted revenue churn was approximately 6.4 percent annualized in the second quarter of fiscal 2016.
Product revenues of $41.0 million were down 13 percent year-over-year and down 1 percent sequentially. Non-GAAP product gross margin was 66.7 percent in the second quarter of fiscal 2016, compared with 67.0 percent in the second quarter of fiscal 2015. GAAP product gross margin for the second quarter of fiscal year 2016 was 66.6 percent, compared with 66.7 percent in the second quarter of fiscal year 2015.
Support and services revenues of $18.9 million were up 4 percent year-over-year and down 1 percent sequentially. Non-GAAP support and service gross margin was 75.7 percent in the second quarter of fiscal 2016, compared with 77.0 percent in the second quarter of fiscal 2015. GAAP support and service gross margin for the second quarter of fiscal year 2016 was 74.9 percent, compared with 76.4 percent in the second quarter of fiscal year 2015.
As of December 31, 2015, the company had $106.9 million in cash, cash equivalents and short-term investments and no outstanding debt. The company generated $3.6 million in cash flow from operations in the quarter ended December 31, 2015.
Selected Operational Metrics
Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended
12/30/15 09/30/15 06/30/15 03/31/15 12/31/14
-------- -------- -------- -------- --------
Recurring Revenue as a
Percent of Total Revenue 52% 51% 47% 51% 45%
Annual Recurring Revenue Run
Rate (in millions) $188.9 $183.8 $178.6 $171.8 $164.9
Cloud Average Monthly
Recurring Revenue Per
Customer $2,244 $2,349 $2,368 $2,347 $2,333
Cloud Monthly Average Revenue
Per User (ARPU) $52 $53 $54 $53 $52
Cloud Average # of Seats per
Customer 44 44 44 44 45
Cloud Revenue Churn Rate
Annualized 6.4% 5.3% 4.4% 7.9% 4.5%
Non-GAAP Gross Margin-Product 66.7% 67.6% 65.9% 65.2% 67.0%
Non-GAAP Gross Margin-
Hosted and related services 57.3% 57.1% 51.9% 49.8% 45.8%
Non-GAAP Gross Margin-
Support and Services 75.7% 76.5% 77.3% 75.8% 77.0%
Total Company Headcount 1,086 1,070 1,063 1,068 1,010
Change for Installation Revenue and Costs Related to Hosted Services
The company changed its accounting for installation revenues and related costs for hosting services. These changes are not material to the financial statements. The related financial results and prior period metrics have been revised to reflect the changes.
Second Quarter of Fiscal 2016 Business Highlights
ShoreTel Acquires Cloud Provider Corvisa to Add Complementary Technologies and New Revenue Sources
On January 6, 2016, ShoreTel completed its acquisition of Corvisa, a provider of cloud-based communications solutions. This acquisition is expected to accelerate ShoreTel's fiscal 2017 hosted revenue growth by enhancing ShoreTel's solutions and architecture in four key areas:
-- Corvisa's open, standards-based application programming interfaces
(APIs) and software development kits (SDKs) to accelerate third-party
application integration within the ShoreTel ecosystem.
-- The addition of Corvisa's session initiation protocol (SIP) trunking to
the ShoreTel solution portfolio will position ShoreTel as a SIP trunking
provider, enabling it to unlock new revenue streams for ShoreTel and its
channel partners while delivering simpler transactions for customers.
-- Corvisa's standalone cloud contact center expands ShoreTel's presence in
the rapidly growing contact center market, allowing for integration with
non-ShoreTel communication solutions.
-- ShoreTel hired 94 employees, most of whom are in technical and
customer-facing roles. These highly desired technical engineers will be
instrumental in the acceleration of ShoreTel's innovative architecture
and product roadmap.
In addition, ShoreTel continues to expand its cloud services in Europe as a result of acquiring Corvisa's Amsterdam and UK data centers.
ShoreTel paid $8.4 million in cash to acquire Corvisa. The transaction closed on January 6, 2016 and is therefore incorporated into the company's business outlook for the quarter ending March 31, 2016.
ShoreTel Expands Cloud Presence in Australia with Acquisition of M5 Australia
As part of the company's acceleration phase of growth, ShoreTel is expanding its cloud solutions geographically. In November, ShoreTel acquired M5 Networks Australia for $6.1 million in cash, to bring a ShoreTel hosted voice solution to the Australian region. The purchase of M5 Australia enables the company to accelerate its cloud roll-out in the country, leveraging its existing employees, established partner base and customers. The transaction closed November 16, 2015, and therefore approximately 1.5 months of activity are included in the results and related metrics for the quarter ended December 31, 2015.
Major Win in Australia to Deploy ShoreTel Connect, Contact Center and Mobility Offerings
ShoreTel announced that Brimbank City Council in Victoria, Australia, has selected ShoreTel Connect(TM) to replace its current telephony and contact centre infrastructure. Brimbank will deploy ShoreTel Connect ONSITE, ShoreTel Contact Center and ShoreTel Mobility across 29 locations for more than 700 council staff. The new ShoreTel UC solution will form the basis of a comprehensive revamp of systems to enhance Brimbank's delivery of services to its community of almost 200,000 residents.
Brimbank underwent a rigorous tender process for its new UC solution, and selected ShoreTel for the ease of use and simplicity of the platform. The council saw ShoreTel Connect in beta version, and chose to deploy the new platform based on its user experience and functionality.
ShoreTel Earns Multiple Industry Awards
During the fiscal second quarter, ShoreTel received several industry awards. ShoreTel was recognized by Ingram Micro® as the "Unified Communications and Collaboration Vendor of the Year." This was the first year Ingram Micro has recognized a vendor in this technology category. The two companies have been working together for more than four years, most recently with Ingram Micro adding ShoreTel cloud solutions to its portfolio.
ShoreTel was named Telecommunications Vendor of the Year in New Zealand at the Inaugural Reseller News ICT Industry Awards 2015. For the second year in a row, ShoreTel was voted the best in Unified Communications & Collaboration by Network World Asia Reader's Choice Product Excellence Awards 2015.
The ShoreTel website was recognized by the Interactive Media Council, Inc. as "Best In Class" in both the telecommunications and B2B categories of the 2015 Interactive Media Awards(TM). The awards recognize individuals and organizations for excellence in website design and development. The Best In Class award is the highest honor awarded by the IMA and represents the best in planning, execution and overall professionalism.
Business Outlook
ShoreTel is providing the following outlook for its fiscal third quarter of 2016 ending March 31, 2016:
-- Total revenue is expected to be in the range of $86 million to $91
million.
-- Non-GAAP gross margin, which excludes approximately one and one-half
percentage points in stock-based compensation charges, amortization of
acquisition-related intangibles and other adjustments, is expected to be
in the range of 62 percent to 63 percent. GAAP total gross margin is
expected to be in the range of 60.5 percent to 61.5 percent.
-- Non-GAAP operating expenses, which exclude approximately $3.0 million in
stock-based compensation expenses, amortization of acquisition-related
intangibles, M&A fees and other adjustments, are expected to be in the
range of $57 million to $58 million. GAAP total operating expenses are
expected to be in the range of $60 million to $61 million.
Conference Call Information
The company will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Time on Thursday, January 28, 2016. To access the conference call, dial + 1-866-652-5200 for callers in the U.S. or + 1-412-317-6060 for international callers and ask to join the ShoreTel call.
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 February 4, 2016 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 10078944.
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 changes, 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 changes, 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 regarding benefits of acquisitions, partners, product and technology introductions and their timing for release, and statements in the "Business Outlook" section regarding ShoreTel's anticipated future revenues, gross margins and operating expenses (on a GAAP and non-GAAP basis) 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 continue to grow our cloud-based solutions, our ability to grow or maintain our premise products, supply and manufacturing risks, the impact of service disruptions or security breaches, uncertainties related to global operations, our ability to control costs as we expand our business, unforeseen difficulties in integrating acquired employees, products and technologies, inability to retain acquired customers, difficulties in managing more dispersed business operations, our ability to attract, retain and ramp new personnel, potentially longer sales cycles, uncertainties inherent in the product development cycle, our ability to identify and execute on strategic opportunities, 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 foreign exchange rates, including impact on customers' purchasing decisions, and other risk factors set forth in ShoreTel's Form 10-K for the year ended June 30, 2015.
About ShoreTel
ShoreTel, Inc. (NASDAQ: SHOR) is a leading provider of brilliantly simple IP phone systems and unified communications solutions powering today's always-on workforce. Its flexible communications solutions for on-premises, cloud and hybrid environments eliminate complexity, reduce costs and improve productivity. Recognized for its industry-leading customer experience and support, ShoreTel's innovative business phones, application integration, collaboration tools, mobility, and contact center applications enable users to communicate and collaborate no matter the time, place or device, with 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 Connect and the ShoreTel logo are trademarks or registered trademarks of ShoreTel, Inc. in the United States and/or other countries. Ingram Micro is a registered trademark of Ingram Industries Inc. in the United States and/or other countries. All other trademarks, trade names and service marks herein are the property of their respective owners.
Investor Contact:
Barry Hutton
Director, Investor Relations
408-962-2573
bhutton@shoretel.com
(Tables follow)
SHORETEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
As of As of
December 31, June 30,
2015 2015
---- ----
ASSETS
Current assets:
Cash and cash
equivalents $96,905 $82,162
Short-term investments 10,020 8,025
Accounts receivable -
net 28,793 36,494
Inventories 14,387 15,053
Prepaid expenses and
other current assets 13,198 14,315
------ ------
Total current assets 163,303 156,049
Property and equipment -
net 19,049 20,419
Goodwill 127,960 122,750
Intangible assets 19,573 22,217
Other assets 5,238 5,021
Total assets $335,123 $326,456
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,346 $16,452
Accrued liabilities and
other 17,553 19,374
Accrued employee
compensation 17,041 15,311
Accrued taxes and
surcharges 4,294 9,902
Deferred revenue 52,461 50,616
------ ------
Total current liabilities 104,695 111,655
Long-term deferred
revenue 20,865 20,659
Other long-term
liabilities 4,600 4,014
Total liabilities 130,160 136,328
------- -------
Stockholders' equity:
Common stock 371,871 361,695
Accumulated deficit (166,908) (171,567)
Total stockholders' equity 204,963 190,128
------- -------
Total liabilities and
stockholders' equity $335,123 $326,456
======== ========
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,
------------
2015 2014 2015 2014
---- ---- ---- ----
Revenue:
Product $41,048 $46,913 $82,581 $94,620
Hosted and
related
services 30,484 25,503 59,886 50,115
Support and
services 18,899 18,191 37,989 36,024
Total revenue 90,431 90,607 180,456 180,759
Cost of revenue:
Product 13,692 15,613 27,173 32,392
Hosted and
related
services 14,119 15,423 27,946 30,751
Support and
services 4,735 4,301 9,440 8,582
Total cost of revenue 32,546 35,337 64,559 71,725
------ ------ ------ ------
Gross profit 57,885 55,270 115,897 109,034
Gross profit % 64.0% 61.0% 64.2% 60.3%
Operating expenses:
Research and
development 13,793 13,272 27,630 26,933
Sales and
marketing 30,272 29,301 61,115 58,317
General and
administrative 9,703 10,562 19,818 20,553
Settlements and
defense fees - 8,422 - 8,422
Acquisition-
related costs 534 - 534 -
Total operating expenses 54,302 61,557 109,097 114,225
------ ------ ------- -------
Income (loss) from
operations 3,583 (6,287) 6,800 (5,191)
Other income
(expense), net (675) (450) (1,375) (816)
---- ---- ------ ----
Income (loss)
before provision
for income tax 2,908 (6,737) 5,425 (6,007)
Provision for
income tax 363 125 766 503
Net income (loss) $2,545 $(6,862) $4,659 $(6,510)
====== ======= ====== =======
Net income (loss)
per share:
Basic $0.04 $(0.11) $0.07 $(0.10)
===== ====== ===== ======
Diluted $0.04 $(0.11) $0.07 $(0.10)
===== ====== ===== ======
Shares used in
computing net
income (loss) per
share:
Basic 66,184 63,728 65,725 63,348
====== ====== ====== ======
Diluted 68,074 63,728 67,471 63,348
====== ====== ====== ======
SHORETEL, INC.
GAAP TO NON-GAAP RECONCILIATION
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2015 2014 2015 2014
---- ---- ---- ----
GAAP Product gross profit $27,356 $31,300 $55,408 $62,228
Stock-based
compensation
charges 12 (a) 13 (a) 41 (a) 49 (a)
Amortization
of
acquisition-
related
intangibles 9 (b) 117 (b) 17 (b) 379 (b)
Non-GAAP Product gross profit $27,377 $31,430 $55,466 $62,656
======= ======= ======= =======
Non-GAAP Product gross margin 66.7% 67.0% 67.2% 66.2%
GAAP Hosted and related
services gross profit $16,365 $10,080 $31,940 $19,364
Stock-based
compensation
charges 283 (a) 293 (a) 667 (a) 636 (a)
Amortization
of
acquisition-
related
intangibles 825 (b) 834 (b) 1,651 (b) 1,667 (b)
Litigation,
settlements
and defense
fees - (c) 482 (c) - (c) 482 (c)
Non-GAAP Hosted and related
services gross profit $17,473 $11,689 $34,258 $22,149
======= ======= ======= =======
Non-GAAP Hosted and related
services gross margin 57.3% 45.8% 57.2% 44.2%
GAAP Support and services
gross profit $14,164 $13,890 $28,549 $27,442
Stock-based
compensation
charges 135 (a) 118 (a) 347 (a) 298 (a)
Non-GAAP Support and
services gross profit $14,299 $14,008 $28,896 $27,740
======= ======= ======= =======
Non-GAAP Support and
services gross margin 75.7% 77.0% 76.1% 77.0%
GAAP total gross profit $57,885 $55,270 $115,897 $109,034
Stock-based
compensation
charges 430 (a) 424 (a) 1,055 (a) 983 (a)
Amortization
of
acquisition-
related
intangibles 834 (b) 951 (b) 1,668 (b) 2,046 (b)
Litigation,
settlements
and defense
fees - (c) 482 (c) - (c) 482 (c)
Non-GAAP total gross profit $59,149 $57,127 $118,620 $112,545
======= ======= ======== ========
Non-GAAP total gross margin 65.4% 63.0% 65.7% 62.3%
GAAP income (loss) from
operations $3,583 $(6,287) $6,800 $(5,191)
Stock-based
compensation
charges 2,160 (a) 2,046 (a) 4,932 (a) 4,585 (a)
Amortization
of
acquisition-
related
intangibles 1,683 (b) 1,773 (b) 3,339 (b) 3,689 (b)
Litigation,
settlements
and defense
fees - (c) 8,904 (c) - (c) 8,904 (c)
Acquisition-
related
costs 534 (d) - (d) 534 (d) - (d)
Non-GAAP income from
operations $7,960 $6,436 $15,605 $11,987
====== ====== ======= =======
GAAP net income (loss) $2,545 $(6,862) $4,659 $(6,510)
Stock-based
compensation
charges 2,160 (a) 2,046 (a) 4,932 (a) 4,585 (a)
Amortization
of
acquisition-
related
intangibles 1,683 (b) 1,773 (b) 3,339 (b) 3,689 (b)
Litigation,
settlements
and defense
fees - (c) 8,904 (c) - (c) 8,904 (c)
Acquisition-
related
costs 534 (d) - (d) 534 (d) - (d)
Deferred tax
provision
arising from
tax impact
of above
items (269) (e) (436) (e) (625) (e) (562) (e)
Non-GAAP net income $6,653 $5,425 $12,839 $10,106
====== ====== ======= =======
Non-GAAP net income per share:
Basic $0.10 $0.09 $0.20 $0.16
=====
Diluted $0.10 $0.08 $0.19 $0.16
=======
Shares used in computing net income per share:
Basic 66,184 63,728 65,725 63,348
=====
Diluted 68,074 65,396 67,471 64,991
=======
SHORETEL, INC.
GAAP TO NON-GAAP RECONCILIATION FOOTNOTES
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2015 2014 2015 2014
---- ---- ---- ----
(a) Stock-based
compensation
included in:
Cost of product revenue $12 $13 $41 $49
Cost of hosted and related
services revenue 283 293 667 636
Cost of support and services
revenue 135 118 347 298
Research and development 433 461 920 1,119
Sales and marketing 569 585 1,431 1,296
General and administrative 728 576 1,526 1,187
$2,160 $2,046 $4,932 $4,585
====== ====== ====== ======
(b) Amortization of
acquisition-
related
intangibles
included in:
Cost of product revenue $9 $117 $17 $379
Cost of hosted and related
services 825 834 1,651 1,667
Sales and marketing 849 822 1,671 1,643
$1,683 $1,773 $3,339 $3,689
====== ====== ====== ======
(c) Litigation,
settlements and
defense fees
included in:
Cost of hosted and related
services $ - $482 $ - $482
General and administrative - 8,422 - 8,422
$ - $8,904 $ - $8,904
================= ====== ================= ======
(d) Direct
acquisition
costs included
in:
Acquisition-related costs $534 $ - $534 $ -
$534 $ - $534 $ -
==== ================= ==== =================
(e) The deferred tax benefit (provision) arising from acquisition and tax impact of the items
which are excluded in (a) to (d) above.
SHORETEL, INC.
RECONCILIATION OF GAAP TO NON-GAAP FOR Q3 2016 PROJECTIONS
(Amounts in thousands)
(Unaudited)
Three Months Ending
March 31, 2016
--------------
High Low
---- ---
GAAP gross profit % 61.5% 60.5%
Adjustments for
stock-based
compensation and
acquisition-
related intangible
asset amortization 1.5% 1.5%
-------------
Non-GAAP gross profit % 63.0% 62.0%
Total GAAP operating expenses $60.0 $61.0
Adjustments for
stock-based
compensation and
acquisition-
related intangible
asset amortization $3.0 $3.0
-------------------
Total non-GAAP operating
expenses $57.0 $58.0
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