SHOR

ShoreTel, Inc. (SHOR)

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ShoreTel, Inc. (SHOR)

F2Q12 Earnings Call

February 01, 2012 04:30 p.m. ET

Executives

Tonya Chin – Director of Investor Relations

Peter Blackmore – President, Chief Executive Officer and Director

Michael E. Healy – Chief Financial Officer and Senior Vice President

Kevin Gavin – Chief Marketing Officer

Analysts

Steve O’Brien – JPMorgan

Ryan Hutchinson – Lazard Capital Markets

Andrew Nowinski – Piper Jaffray

Sanjiv Wadhwani – Stifel Nicolaus & Company,Inc.

Greg Burns – Sidoti & Company

Rohit Chopra – Wedbush Securities Inc.

Lynn Um – Barclays Capital

Ryan MacDonald – Northland Capital Markets

Dmitry Netis – William Blair & Company

Presentation

Operator

Good day and welcome to the ShoreTel Q2 2012 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Tonya Chin. Please go ahead ma’am.

Tonya Chin

Thanks for joining us today as we report our second quarter 2012 financial results. We will also be discussing Shore Tel’s planned acquisition of M5 Networks, which was also announced today. We have posted slides regarding this acquisition on the landing page of the IR section on our website.

Joining me on the call today are, ShoreTel’s CEO, Peter Blackmore; and Chief Financial Officer, Mike Healy; Kevin Gavin our Chief Marketing Officer will join us in our question-and-answer session.

Before we begin, I’ll remind you that during today’s call, management will make forward-looking statements within the meaning of the Safe Harbor provision of Federal Securities Laws regarding the company’s anticipated future revenue, gross margins, operating expenses and other financial and business-related information. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Additional information concerning the risk factors that could cause actual results to differ materially from those in the forward-looking statements can be found in the company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and in today’s press release.

The information in this conference call related to projections or other forward-looking statements is based on management’s current expectations. The company does not intend to update its forward-looking statements should circumstances change. As a matter of policy, ShoreTel does not comment on financial guidance during the quarter unless it is done in a public forum.

We will be discussing both GAAP and non-GAAP results throughout this call, and I ask you to refer to our press release issued today for the reconciliation between these amounts. Our non-GAAP numbers exclude stock-based compensation charges, amortization of intangible assets, and the related tax impact.

One final housekeeping item, we are currently planning on presenting at the Pacific Crest and Stifel Nicolaus Conferences in February and the Sidoti and Wedbush Conferences in March. Also short term we will be holding an investor day at AT&T Park in San Francisco on March 14th from 1:00 p.m. to 5:00 p.m. I hope you will attend as we do a deeper dive into our business.

With that I’ll turn the call over to Peter.

Peter Blackmore

Thank you, Tonya, and thanks to all of you for joining us today. We are very excited both with our second quarter achievements as well as with our planned acquisition of M5 Networks which I shall provide more detail about later on the call.

First, I shall discuss the performance of our current premise based IP-PBX business during the quarter. In the second fiscal quarter of 2012 ShoreTel generated record revenues of $58 million, an increase of 22% of the second quarter of fiscal 2011 and an 8% increase from the previous quarter. Non-GAAP gross margins were 66.1% down slightly from last quarter. We posted non-GAAP net income of $1.4 million or $0.03 per share which represents a significant improvement of the last year’s loss of $0.02 per share.

We were pleased with our revenue achievements in what is typically a seasonally strong second quarter. We saw a solid improvement in demand from our U.S. regional partners this quarter in line with our expectations. Revenues from our U.S. service providers were also up in the quarter growing 20% sequentially.

We are continuing to deliver international growth with our international business growing 27% over the second quarter of last year, and up 6% sequentially. As it’s typical in our seasonally strong quarters, revenue from new customers grew as a percentage of our overall business to 52% up from 46% in the first quarter and at its highest level since fiscal 2008. Once again, we saw solid growth in our ShoreTel Mobility product line with a revenue increase of over 30% sequentially in the quarter.

We continue to be pleased with a customer and partner reaction to this growing area of our business. This quarter we also announced an agreement with Hewlett-Packard to make ShoreTel Mobility part of HP’s fixed mobile convergence solution portfolio. With the addition of HP as a reseller of ShoreTel Mobility we continue to extend the reach of our mobility solutions.

We are pleased that ShoreTel and HP will have their respective mobility solutions featured at the upcoming Enterprise Connect Conference in March which will be held in Orlando.

Now, let me provide some perspective on the market place. We were pleased to see the broader U.S. Enterprise IP Telephony market as well as the U.S. pure IP Telephony market return to growth in the September 2011 quarter after three quarters of modest declines. According to Synergy Research the U.S. Enterprise IP Telephony market grew approximately 9% in the September of 2011 quarter which is the most recent data available.

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