ShoreTel (SHOR) 8-K ShoreTel Reports Financial Results for Third Quarter Fiscal Year 2012

Exhibit 99.1

ShoreTel Reports Financial Results for Third Quarter Fiscal Year 2012

Completes M5 Cloud IP Telephony Acquisition

SUNNYVALE, Calif.--(BUSINESS WIRE)--April 30, 2012--ShoreTel® (NASDAQ: SHOR), the leading provider of brilliantly simple premise and cloud-based business phone system and communication solutions with fully integrated unified communications (UC), today announced financial results for the third quarter of fiscal year 2012, which ended March 31, 2012.

ShoreTel’s consolidated results include eight days of operating results from ShoreTel’s cloud division, formerly known as M5 Networks, as the acquisition closed on March 23, 2012. For the third quarter of fiscal year 2012, consolidated revenue was $56.3 million, up 9 percent from the third quarter of fiscal year 2011. The GAAP net loss for the quarter was $(8.5) million, or $(0.17) per share and included a tax benefit of $1.0 million, compared with a GAAP net loss of $(2.4) million, or $(0.05) per share, in the third quarter of fiscal year 2011. Excluding acquisition-related transaction fees of $4.5 million, a tax benefit of $1.0 million, stock-based compensation expenses of $3.2 million, amortization of intangible assets of $0.4 million, and related tax adjustments, the non-GAAP net loss for the third quarter of fiscal year 2012 was $(1.5) million or $(0.03) per share. This compares with non-GAAP net income of $0.6 million, or $0.01 per share, in the third quarter of fiscal year 2011.

GAAP gross margin for the third quarter of fiscal year 2012 was 66.2 percent, compared with 68.0 percent in the third quarter of fiscal 2011. Non-GAAP gross margin, which excludes stock-based compensation expenses and amortization of intangible assets, was 67.2 percent in the third quarter of fiscal year 2012, compared with 68.6 percent in the third quarter of last year. Excluding the effects of the M5 acquisition, non-GAAP gross margins would have been 67.7 percent in the third quarter of fiscal 2012.

As of March 31, 2012, the company had $61.3 million in cash, cash equivalents and short-term investments after using $80.6 million in cash to fund a portion of the M5 acquisition.

“During the third quarter ShoreTel delivered steady growth year-over-year as well as strong gross margin expansion in our core premise business,” said Peter Blackmore, president and CEO of ShoreTel. “We remain very optimistic about the continued strength of our unified communications offerings and emerging opportunities within both the mobility and cloud markets.

“We are pleased to have completed the acquisition of M5 Networks during the quarter and are now focused on driving growth in our premise-based businesses and maximizing the potential of our cloud offering. We are also very pleased to see that the pipeline in our premise-based business is growing nicely – indicating that we can expect solid growth in our fourth fiscal quarter,” Blackmore added.

Operational Highlights for the Third Quarter of Fiscal Year 2012

Completed the Acquisition of M5

On March 23, 2012, the company completed its acquisition of M5 Networks. The addition of M5’s hosted VoIP solution uniquely positions ShoreTel to offer both on-premise and hosted VoIP and UC solutions to its customers. The combination significantly accelerates ShoreTel’s entrance into the cloud market. Under the terms of the agreement, M5 shareholders received approximately $80.6 million in cash and 9.5 million shares of ShoreTel stock, which equates to a total of $134.3 million in initial consideration. Additionally, M5 shareholders may receive additional contingent consideration of up to $13.7 million. The contingent payments are payable over the two years after closing and are based upon the achievement of certain revenue performance milestones for the year ended Dec. 31, 2012. M5’s CEO, Dan Hoffman, is now heading ShoreTel’s Cloud Division as its president and general manager. Approximately 200 of M5’s employees joined ShoreTel as of March 23, 2012.

Signed Partnership Agreement for Telstra Business Systems Program

In February, ShoreTel and Telstra entered into a partnership agreement whereby Telstra will market and support ShoreTel’s IP telephony, unified communications (UC), contact center and mobility solutions in Australia. With over 20 Telstra Business Partners accredited to install ShoreTel’s solutions in the Australian market already, the company expects this number to grow as a result of the new partnership agreement.

Lowest Total Cost of Ownership Validated by External Third Party

In January, the company announced that the results of an Aberdeen Group study of 236 different businesses showed that ShoreTel had the lowest total cost of ownership (TCO) of unified communications solutions. Total cost of ownership is a key metric for assessing costs, benefits and risks of a UC solution, enabling organizations to properly evaluate competing solutions. Ultimately, ShoreTel’s brilliant simplicity is what enables ShoreTel to provide the lowest total cost of ownership in the industry.

Business Outlook

The company is providing the following outlook for the quarter-ending June 30, 2012, which includes the operating results from ShoreTel’s Cloud Division (formerly M5 Networks):

• Revenue is expected to be in the range of $72 million to $77 million.
• GAAP gross margin is expected to be in the range of 60 to 61 percent, including approximately $1.3 million in amortization of intangibles and stock-based compensation expenses. Non-GAAP gross margin is expected to be in the range of 62 to 63 percent.
• GAAP operating expenses are expected to be in the range of $51.0 million to $52.5 million, which includes approximately $4.0 million in stock-based compensation expenses and amortization of intangibles. Non-GAAP operating expenses are expected to be in the range of $47.0 million to $48.5 million.

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 financial measures to manage and assess the profitability of its business and does not consider stock-based compensation expenses, amortization of acquisition-related intangibles, acquisition-related costs and other special charges and related tax adjustments in managing its core operations. ShoreTel has provided a reconciliation of non-GAAP financial measures in the tables of this press release. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures with their most directly comparable GAAP financial measure.

Conference Call Details for April 30, 2012

ShoreTel will host a corresponding conference call and live webcast at 2:00 p.m. Pacific Daylight Time on April 30, 2012. To access the conference call, dial +1-888-452-4030 for the U.S. and Canada or +1-719-325-2422 for international callers, and provide the operator with the conference identification number 5457128. The webcast will be available live in the Investor Relations section of the company’s corporate Web site at www.shoretel.com, and via replay beginning approximately two hours after the completion of the call and available 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 Apr. 30, 2012, until 4:00 p.m. Pacific Daylight Time on May 7, 2012, by dialing +1-888-203-1112, or +1-719-457-0820 for callers outside the U.S. and Canada, and entering the conference identification number 5457128.

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 relating to ShoreTel’s revenue growth, profitability, and opportunities within the mobility and cloud markets, 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 information technology spending, particularly in the U.S., our reliance on third parties to sell and support our products, increased risk of intellectual property litigation by entering into new markets, uncertainty as to ShoreTel’s ability to retain and motivate key personnel from the acquired company, increased competition by entering into new markets, the success of our expanded channel strategy, the intense competition in our industry, our dependence on key suppliers and other supply and manufacturing risks, our ability to control costs, our ability to attract, retain and ramp new sales personnel, uncertainties inherent in the product development cycle, including unforeseen delays and unknown defects, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, risks related to our recently-completed 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, 2011, as updated in our Quarterly Reports on Form 10-Q on a quarterly basis.

About ShoreTel, Inc.

ShoreTel, Inc. (NASDAQ: SHOR) brings unmatched flexibility, choice and value to brilliantly simple business phone systems and unified communications (UC). With its award-winning premise-based IP phone system with integrated unified communications, contact center capabilities, and its proven hosted VoIP services, organizations of all sizes can select the best option for their needs. ShoreTel’s ongoing mission is to eliminate costly complexity and give customers the 24/7 freedom to leverage rich voice, video, data and mobile unified communications capabilities they need. ShoreTel is based in Sunnyvale, California, and has regional offices in Austin, Texas; New York, New York; Maidenhead, United Kingdom; Sydney, Australia; and Singapore. For more information, visit www.shoretel.com.

SHORETEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
				As of			As of			As of
				March 31,			December 31,			June 30,
					2012			2011			2011
ASSETS
Current assets:
	Cash and cash equivalents			$	40,328		$	94,491		$	89,695
	Short-term investments				20,994			21,359			16,057
	Accounts receivable - net				32,746			30,948			33,812
	Inventories				23,176			22,602			19,062
	Prepaid expenses and other current assets				5,807			4,598			3,540
			Total current assets		123,051			173,998			162,166
Property and equipment - net					12,578			7,659			8,236
Goodwill					119,273			7,415			7,415
Intangible assets					47,651			7,828			8,570
Other assets					1,240			864			714
			Total assets	$	303,793		$	197,764		$	187,101
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	11,289		$	7,882		$	6,394
	Accrued liabilities and other				19,976			10,122			8,533
	Accrued employee compensation				9,379			9,486			11,022
	Contingent consideration				9,132			-			-
	Deferred revenue				36,509			32,965			26,362
			Total current liabilities		86,285			60,455			52,311
	Long-term line of credit, net				24,947			-			-
	Long-term deferred revenue				12,962			12,241			11,321
	Long-term contingent consideration				3,368			-			-
	Other long-term liabilities				4,998			2,298			2,045
			Total liabilities		132,560			74,994			65,677
Stockholders' equity:
	Common stock				306,604			249,629			241,103
	Accumulated deficit				(135,371	)		(126,859	)		(119,679	)
		Total stockholders' equity			171,233			122,770			121,424
			Total liabilities and stockholders' equity	$	303,793		$	197,764		$	187,101

SHORETEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
			Three Months Ended						Nine Months Ended
			March 31,						March 31,
				2012			2011			2012			2011
Revenue:
	Product		$	42,440		$	41,248		$	130,901		$	114,387
	Hosted and related services			1,294			-			1,294			-
	Support and services			12,570			10,329			35,979			29,198
		Total revenues		56,304			51,577			168,174			143,585
Cost of revenue
	Product			14,160			12,979			44,718			37,593
	Hosted and related services			780			-			780
	Support and services			4,104			3,515			11,988			9,616
		Total cost of revenue		19,044			16,494			57,486			47,209
Gross profit				37,260			35,083			110,688			96,376
	Gross profit %			66.2	%		68.0	%		65.8	%		67.1	%
Operating expenses:
	Research and development			13,137			12,562			37,190			33,396
	Sales and marketing			22,566			18,920			65,384			54,437
	General and administrative			6,541			6,377			19,519			19,118
	Acquisition-related costs			4,488			-			4,488			-
		Total operating expenses		46,732			37,859			126,581			106,951
Loss from operations				(9,472	)		(2,776	)		(15,893	)		(10,575	)
Other income (expense), net				(4	)		166			(599	)		780
Loss before provision for income tax				(9,476	)		(2,610	)		(16,492	)		(9,795	)
Provision for (benefit from) income tax				(964	)		(228	)		(800	)		(77	)
Net loss			$	(8,512	)	$	(2,382	)	$	(15,692	)	$	(9,718	)
Net loss per share:
	Basic		$	(0.17	)	$	(0.05	)	$	(0.33	)	$	(0.21	)
	Diluted		$	(0.17	)	$	(0.05	)	$	(0.33	)	$	(0.21	)
Shares used in computing net loss per share:
	Basic			49,126			46,249			48,196			45,862
	Diluted			49,126			46,249			48,196			45,862

SHORETEL, INC.
GAAP to Non-GAAP Reconciliation
(Amounts in thousands, except per share amounts)
(Unaudited)
			Three Months Ended										Nine Months Ended
			March 31, 2012										March 31, 2012
			GAAP			Excludes				Non-GAAP			GAAP			Excludes				Non-GAAP
Revenue:
	Product		$	42,440		$	-			$	42,440		$	130,901		$	-			$	130,901
	Hosted and related services			1,294			-				1,294			1,294			-				1,294
	Support and services			12,570			-				12,570			35,979			-				35,979
		Total revenues		56,304			-				56,304			168,174			-				168,174
Cost of revenue
	Product			14,160			(292	)	(a),(b)		13,868			44,718			(736	)	(a),(b)		43,982
	Hosted and related services			780			(64	)	(b)		716			780			(64	)	(b)		716
	Support and services			4,104			(210	)	(a)		3,894			11,988			(618	)	(a)		11,370
		Total cost of revenue		19,044			(566	)			18,478			57,486			(1,418	)			56,068
Gross profit				37,260			566				37,826			110,688			1,418				112,106
	Gross profit %			66.2	%						67.2	%		65.8	%						66.7	%
Operating expenses:
	Research and development			13,137			(901	)	(a)		12,236			37,190			(2,824	)	(a)		34,366
	Sales and marketing			22,566			(1,140	)	(a),(b)		21,426			65,384			(3,267	)	(a),(b)		62,117
	General and administrative			6,541			(981	)	(a),(b) ,(c)		5,560			19,519			(3,531	)	(a),(b) ,(c)		15,988
	Acquisition-related costs			4,488			(4,488	)	(d)		-			4,488			(4,488	)	(d)		-
		Total operating expenses		46,732			(7,510	)			39,222			126,581			(14,110	)			112,471
Income (loss) from operations				(9,472	)		8,076				(1,396	)		(15,893	)		15,528				(365	)
Other income (expense), net				(4	)		-				(4	)		(599	)		-				(599	)
Income (loss) before provision for income tax				(9,476	)		8,076				(1,400	)		(16,492	)		15,528				(964	)
Provision for (benefit from) income tax				(964	)		1,040		(e)		76			(800	)		1,052		(e)		252
Net income (loss)			$	(8,512	)	$	7,036			$	(1,476	)	$	(15,692	)	$	14,476			$	(1,216	)
Net income (loss) per share:
	Basic		$	(0.17	)	$	0.14			$	(0.03	)	$	(0.33	)	$	0.30			$	(0.03	)
	Diluted (f)		$	(0.17	)	$	0.14			$	(0.03	)	$	(0.33	)	$	0.30			$	(0.03	)
Shares used in computing net loss per share:
	Basic			49,126							49,126			48,196							48,196
	Diluted (f)			49,126							49,126			48,196							48,196
(a)	Excludes stock-based compensation as follows:
		Cost of product revenue				$	32									$	106
		Cost of support and services revenue					210										618
		Research and development					901										2,824
		Sales and marketing					1,039										3,106
		General and administrative					978										3,028
						$	3,160									$	9,682
(b)	Excludes amortization of acquisition-related intangibles:
		Cost of product revenue				$	260									$	630
		Cost of hosted and related services					64										64
		Sales and marketing					101										161
		General and administrative					3										3
						$	428									$	858
(c)	Excludes litigation settlement included in:
		General and administrative				$	-									$	500
(d)	Excludes direct acquisition costs included in:
		Acquisition-related costs				$	4,488									$	4,488
(e)	Excludes the deferred tax benefit arising from acquisition and tax impact of the items which are excluded in (a) to (d) above.
(f)	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 anti-dilutive.

SHORETEL, INC.
GAAP to Non-GAAP Reconciliation
(Amounts in thousands, except per share amounts)
(Unaudited)
			Three Months Ended										Nine Months Ended
			March 31, 2011										March 31, 2011
			GAAP			Excludes				Non-GAAP			GAAP			Excludes				Non-GAAP
Revenue:
	Product		$	41,248		$	-			$	41,248		$	114,387		$	-			$	114,387
	Support and services			10,329			-				10,329			29,198			-				29,198
		Total revenues		51,577			-				51,577			143,585			-				143,585
Cost of revenue
	Product			12,979			(207	)	(a), (c)		12,772			37,593			(410	)	(a), (c)		37,183
	Support and services			3,515			(111	)	(a)		3,404			9,616			(472	)	(a)		9,144
		Total cost of revenue		16,494			(318	)			16,176			47,209			(882	)			46,327
Gross profit				35,083			318				35,401			96,376			882				97,258
	Gross profit %			68.0	%						68.6	%		67.1	%						67.7	%
Operating expenses:
	Research and development			12,562			(1,086	)	(a)		11,476			33,396			(2,688	)	(a)		30,708
	Sales and marketing			18,920			(469	)	(a), (c)		18,451			54,437			(2,231	)	(a), (c)		52,206
	General and administrative			6,377			(1,112	)	(a)		5,265			19,118			(3,311	)	(a), (b)		15,807
		Total operating expenses		37,859			(2,667	)			35,192			106,951			(8,230	)			98,721
Income (loss) from operations				(2,776	)		2,985				209			(10,575	)		9,112				(1,463	)
Other income, net				166			-				166			780			-				780
Income (loss) before provision for income tax				(2,610	)		2,985				375			(9,795	)		9,112				(683	)
Provision for (benefit from) income tax				(228	)		1		(d)		(227	)		(77	)		1		(d)		(76	)
Net income (loss)			$	(2,382	)	$	2,984			$	602		$	(9,718	)	$	9,111			$	(607	)
Net income (loss) per share:
	Basic		$	(0.05	)	$	0.06			$	0.01		$	(0.21	)	$	0.20			$	(0.01	)
	Diluted (e)		$	(0.05	)	$	0.06			$	0.01		$	(0.21	)	$	0.20			$	(0.01	)
Shares used in computing net loss per share:
	Basic			46,249							46,249			45,862							45,862
	Diluted (e)			46,249							48,209			45,862							45,862
(a)	Excludes stock-based compensation as follows:
		Cost of product revenue				$	32									$	94
		Cost of support and services revenue					111										472
		Research and development					1,086										2,688
		Sales and marketing					459										2,212
		General and administrative					1,112										2,786
						$	2,800									$	8,252
(b)	Excludes severance for former Chief Executive Officer:
		General and administration				$	-									$	525
(c)	Excludes amortization of acquisition-related intangibles:
		Cost of product revenue				$	175									$	316
		Sales and marketing					10										19
						$	185									$	335
(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 anti-dilutive.

SHORETEL, INC.
RECONCILIATION OF GAAP TO NON-GAAP Q4 PROJECTIONS
(Amounts in thousands)
(Unaudited)
		Three Months Ending
		June 30, 2012
		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	$ 52,500	$ 51,000
	Adjustments for stock-based compensation and acquisition-related intangible asset amortization	(4,000)	(4,000)
	Total non-GAAP operating expenses	$ 48,500	$ 47,000

CONTACT:
ShoreTel
Tonya Chin, 408-962-2573 (Investors)
tchin@shoretel.com