ShoreTel breaks $200M mark, but can't shake expenses as earnings lag

IP phone system provider ShoreTel (Nasdaq: SHOR) reported fourth quarter revenues of $56.5 million, up 34 percent from a year ago and ahead of guidance. The company still came up short in the earnings department, reporting a GAAP net loss of $1.7 million, 4 cents per share, albeit a smaller net loss than the fourth quarter of 2010--a net loss of $3.7 million, or 8 cent per share.

For the year, the company reported sales of $200.1 million, the first time it surpassed the $200 million mark, and an increase of 35 percent over the 2010 fiscal year revenue of $148.5 million. GAAP net revenue showed a loss for the year of $11.5 million, or 25 cents a share, a slight improvement from a year ago when the company lost $12.8 million, or 29 cents per share. The company is continuing to struggle to contain expenses, and it reported the loss included $11.2 million of stock-based compensation expense, $0.5 million of amortization expenses related to purchased intangible assets and $0.5 million of other expenses down from $10.7 million in stock-based compensation expenses in fiscal year 2010.

Nevertheless, ShoreTel CEO Peter Blackmore said the company was moving toward its goals.

"The investments we have made in our sales channel, product development and branding over the past several quarters have helped us to close fiscal 2011 strongly," Blackmore said in an earnings call. "The implementation of a two-tier distribution channel in the U.S. gives us the infrastructure to maintain rapid growth while preserving our ability to deliver world-class customer service. We also increased our sales force by over 40 percent, providing significantly more reach to further expand our market share."

The company is hoping to build momentum among companies with 50 to 5,000 users in the unified communications segment, and it has grown its market share both worldwide and in the U.S. during the 2011 fiscal year.

Synergy Research said ShoreTel increased its worldwide market share in the pure IP telephony market from 3.5 percent to 4.5 percent in the quarter ended March 2011, and it saw its share of the U.S. pure IP telephony market increase from 8.4 percent to 9.1 percent sequentially.

Blackmore said revenue from ShoreTel's major accounts group was up 20 percent, with revenues from transactions over $100,000 increasing 43 percent from the fourth quarter of last year. He said the company added 1,100 new customers and recorded its largest ever revenue from deals over $100,000.

ShoreTel will begin to look at expanding to more international markets in 2012, with a focus on accelerating growth in APAC.

A major push for growth in the mobility market will continue, Blackmore said, after somewhat sluggish growth in the fourth quarter.

"We remain convinced that Mobility will be a key element of our growth going forward and we are very pleased with our technology position in this market in large part due to the Agito acquisition last October," he said. "ShoreTel Mobility is particularly unique and that it is PBX agnostic. We will support this effort with a new dedicated sales team that will target large opportunities Mobility and work with our Mobility partners to successfully fulfill and install these systems."

For more:
- see this Seeking Alpha earnings call transcript
- see this release

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