ShoreTel Inc. Reports Operating Results (10-Q)

ShoreTel Inc. (SHOR, Financial) filed Quarterly Report for the period ended 2011-09-30.

Shoretel Inc. has a market cap of $299.3 million; its shares were traded at around $6.29 with and P/S ratio of 1.5.

Highlight of Business Operations:

Net revenue increased by $9.6 million or 22% in the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The increase was due to increases in both product and support and services revenues. Product revenues in the three months ended September 30, 2011 were $42.2 million, representing an increase of $7.0 million or 20%. The increase in product revenue is attributable to the higher volumes from both domestic and international channel partners. We have invested heavily in our sales and marketing efforts in the past several quarters which has led to greater brand recognition, market penetration and which has driven our revenue growth. Support and services revenue in the three months ended September 30, 2011 was $11.7 million, an increase of $2.6 million or 29%. Increases in support and services revenue is primarily due to the increase in support renewals and demand for training, installation and professional services from a larger customer base.

Cost of revenue. Gross margins decreased to 66% in the three months ended September 30, 2011 as compared to 67% in the three months ended September 30, 2010. Both product margins and service margins contributed to the decrease. Product margins and service margins were 66% of their respective revenues in the three months ended September 30, 2011 as compared to 67% of their respective revenues in three months ended September 30, 2010.

Sales and marketing. Sales and marketing expenses increased by $4.0 million or 23% in the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The increase in sales and marketing expenses is mainly due to employee compensation, bonuses and related fringe benefits of $2.2 million, sales commissions of $0.8 million, travel expenses of $0.4 million, overall increase in office and facilities expenses of $0.2 million and share-based compensation of $0.1 million, due to an increase in headcount by 64 employees as compared to September 30, 2010.

Cash provided by operating activities during the three months ended September 30, 2011 also reflects net changes in operating assets and liabilities, which provided $3.7 million of cash consisting primarily of a decrease in accounts receivable of $4.3 million due to a decrease in the days sales outstanding, increase in deferred revenue of $2.0 million due to higher support contracts and a decrease in accrued liabilities and other of $1.4 million. These were offset by increases in inventory of $1.2 million, increase in prepaid expenses and other current assets of $1.0 million, decrease in accrued employee compensation of $1.5 million and decrease in accounts payable of $0.5 million.

Cash provided by operating activities during the three months ended September 30, 2010 also reflects net changes in operating assets and liabilities, which provided $3.0 million consisting primarily of a decrease in prepaid and other current assets of $3.7 million, an increase in deferred revenue of $1.9 million due to higher maintenance support contracts, a decrease in other assets of $0.2 million, an increase in accrued employee compensation of $0.2 million, and partially offset by, an increase in accounts receivables of $0.9 million due to a increase in days sales outstanding, a decrease of $1.0 million in accrued liabilities, an increase in inventories of $0.6 million and a decrease in accounts payables of $0.6 million.

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