ShoreTel, Inc. (SHOR)

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ShoreTel,Inc. (SHOR)

F2Q13 Earnings Call

January 30, 2013, 5:00 p.m. ET


Tonya Chin - Director, Investor Relations

Peter Blackmore – CEO

Mike Healy – CFO

Kevin Gavin - Chief Marketing Officer


Sanjiv Wadhwani - Stifel Nicolaus

Barry McCarver – Stevens, Inc.

Greg Burns - Sidoti and Company

Mike Latimore - Northland Capital

Dimitry Netis – William Blair



Good afternoon. And welcome to the ShoreTel Second Quarter Earnings Conference Call. All participants will be in listen only mode. If you need assistance, please signal a conference specialist, by pressing the star key followed by zero.

After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded.

I would like to turn the conference over to Tonya Chin. Please go ahead.

Tonya Chin 

Thanks for joining us today as we report our second quarter fiscal 2013 financial results. Joining me on the call today are ShoreTel’s CEO, Peter Blackmore; and Chief Financial Officer, Mike Healy. Additionally, Kevin Gavin, Chief Marketing Officer is joining us for participation in our question-and-answer session.

Before we begin, I will 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 margin, 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, 2012, the company’s quarterly report on Form-10Q for the quarter ended September 30, 2012, and the current report on Form 8-K furnished today.

The information in this conference call related to the projections or other forward-looking statements is based on management’s current expectation. 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’s done in a public forum.

We will be discussing both GAAP and non-GAAP results throughout this call, and I ask that you refer to our press release issued today for the reconciliation between these amounts.

Our non-GAAP numbers exclude stock-based compensation charges, amortization of acquisition related intangibles, and other adjustments, which we do not feel are core to evaluating our operating results.

Finally, ShoreTel management is planning on attending several conferences this quarter, including the Stifel Nicolaus Technology Conference in San Francisco on February 7, the Wedbush Technology Conference in New York City on March 6, the Northland Security’s Tech Conference in New York City on March 13, and finally, the [inaudible] conference on March 19, also in New York City.

Now, I’ll turn the call over to Peter.

Peter Blackmore

Thank you, everyone for taking the time to review our second quarter results with us today. In the second quarter, revenues of 74.6 million were up 29% from the second quarter of fiscal 2012. We managed our operating expenses down slightly from last quarter, while continuing to invest more resources in the Cloud business, increasing our work force in that division by 12% quarter-over-quarter.

Now let me give you a few more specifics, starting with the highlights of our Cloud business. ShoreTel Sky had a strong second quarter with revenues of 17.1 million, up 9% sequentially and up 14% from the second quarter of 2012, driven by continued strong bookings, steady installations of our backlog, and our continued low turn rate.

A monthly revenue turn continues to be one of the best in the industry at 0.3% for our monthly revenues. Additionally, the month of December was the strongest bookings month in our Cloud business history. We continued to have very solid growth with bookings up 22% annually.

Our ShoreTel Sky business also added the most new customers in its history with 178 additions. Our average number of seats per customer, once again increased to 36, up from 35 last quarter. Many of our new ShoreTel Sky customers have come to us after being dissatisfied with competitive Cloud solutions.

One notable new Cloud customer is Web Direct Brands, an online retailer of specialty products. Web Direct Brands selected ShoreTel Sky for a highly customizable solution. Web Direct Brands participated in the beta program for ShoreTel Sky new graphical Call Flow Editor, and has been a strong advocate for this new feature.

We held a very well attended meter event in Boston, in November, which took place at the TD Garden during a NBA game, featuring the Boston Celtics and the Brooklyn Nets. This was an exciting event for us, as the Boston Celtics are a great new ShoreTel premise customer, and the Brooklyn Mets are a great ShoreTel Sky customer.

We use their [inaudible] matchup as an opportunity to highlight our capability to provide customers a choice UC solutions, by the Cloud or premise, all delivered with a world-class customer experience.

ShoreTel Sky continues to be recognized as a leader in the unified communications as a service market. Gartner recently published it’s Magic Quadrant ratings for unified communications as a service. We were very pleased to have been positioned by Gartner in the leaders quadrant. And while we’ve been recognized as a visionary by Gartner before, we view our positioning in the leaders quadrant, further demonstrates our strong reputation with a fast growing Cloud telephony market.

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