ShoreTel, the most successful IP telephony system supplier among those that began as a late 1990s start up venture, yesterday held its quarterly financial conference call for analysts. Some of the highlights of the call from John Combs, Chairman & CEO:
Revenues of $32.4 million in the fourth quarter were within our guided range of $29 million to $34 million. We were pleased to have the fourth quarter revenues increase by 4% sequentially over third quarter performance.
Fiscal 2009 revenues were $135 million, up 5% over last year's revenues of $129.0 million.
Non-GAAP gross margins continued to be strong at 64% and we returned to non-GAAP profitability with a net income of $1.4 million, significantly better than any quarter during the fiscal year. Non-GAAP gross margins for the fiscal year were 64.2%, up from 63.6% for fiscal 2008.
We have added two new U.S. telecommunications carriers, Quest and Verizon, to our distribution network.
Verizon and Quest join AT&T, Black Box, CDW, and Telstra as organizations with national reach who are experts in our industry and have decided to move forward with ShoreTel.
We also had a significant development in our relationship with AT&T during the quarter. We were awarded their highest level of supplier status, that of a Tier-1 vendor.
In July we announced an agreement with IBM to integrate ShoreTel's Unified Communications System with the new Lotus Foundations Reach product offering. The result will be an out-of-the box solution that combines a full range of IT, email, office productivity, and collaboration applications, such as Lotus Sametime, with ShoreTel's brilliantly simple Unified Communications Solution.
During the June quarter our customer satisfaction level was the highest in company history. We are particularly pleased with this achievement as we also reached the highest gross margins in our history in our services business during the quarter.
For Nortel customers who have made a significant investment in a new system, the outlook is uncertain at best. While no one can say for sure, I'm fairly confident that the ultimate acquirer will not enhance the Nortel's systems and technology, but instead work to sell existing Nortel customers on a new platform. Frankly, this isn't surprising. After working in this industry for decades, I understand that it's difficult if not impossible to afford to invest in the engineering resources required to maintain two separate product lines to serve the same market. As a result, I believe a large number of current Nortel customers will be converting to new communications systems over the next few years. The winning bidder will inherit the existing customer relationships, however, I believe that many customers will resist being forced to change, which will provide an opportunity for ShoreTel and others to compete for this business.
On our branding campaign we mentioned in last quarter's call: Our biggest competitor continues to be not being invited to compete. Why are we not considered? Our win rate is over 50%. To improve our consideration rate we launched a branding initiative, which we expect to help increase our awareness and ultimately drive additional revenue.
During a time when many of our competitors were shrinking, we grew our annual revenues 5%, reaching a record high of $135 million in fiscal 2009. We made significant progress in building our partner base, adding over 250 new partners worldwide during the year, bringing our total number of partners to 880. We added 2,900 new customers, bringing the total to almost 11,000 and added our one-millionth end user being served by ShoreTel.
Fiscal 2009 revenues were $135 million, up 5% over last year's revenues of $129.0 million.
Non-GAAP gross margins continued to be strong at 64% and we returned to non-GAAP profitability with a net income of $1.4 million, significantly better than any quarter during the fiscal year. Non-GAAP gross margins for the fiscal year were 64.2%, up from 63.6% for fiscal 2008.
We have added two new U.S. telecommunications carriers, Quest and Verizon, to our distribution network.
Verizon and Quest join AT&T, Black Box, CDW, and Telstra as organizations with national reach who are experts in our industry and have decided to move forward with ShoreTel.
We also had a significant development in our relationship with AT&T during the quarter. We were awarded their highest level of supplier status, that of a Tier-1 vendor.
In July we announced an agreement with IBM to integrate ShoreTel's Unified Communications System with the new Lotus Foundations Reach product offering. The result will be an out-of-the box solution that combines a full range of IT, email, office productivity, and collaboration applications, such as Lotus Sametime, with ShoreTel's brilliantly simple Unified Communications Solution.
During the June quarter our customer satisfaction level was the highest in company history. We are particularly pleased with this achievement as we also reached the highest gross margins in our history in our services business during the quarter.
For Nortel customers who have made a significant investment in a new system, the outlook is uncertain at best. While no one can say for sure, I'm fairly confident that the ultimate acquirer will not enhance the Nortel's systems and technology, but instead work to sell existing Nortel customers on a new platform. Frankly, this isn't surprising. After working in this industry for decades, I understand that it's difficult if not impossible to afford to invest in the engineering resources required to maintain two separate product lines to serve the same market. As a result, I believe a large number of current Nortel customers will be converting to new communications systems over the next few years. The winning bidder will inherit the existing customer relationships, however, I believe that many customers will resist being forced to change, which will provide an opportunity for ShoreTel and others to compete for this business.
On our branding campaign we mentioned in last quarter's call: Our biggest competitor continues to be not being invited to compete. Why are we not considered? Our win rate is over 50%. To improve our consideration rate we launched a branding initiative, which we expect to help increase our awareness and ultimately drive additional revenue.
During a time when many of our competitors were shrinking, we grew our annual revenues 5%, reaching a record high of $135 million in fiscal 2009. We made significant progress in building our partner base, adding over 250 new partners worldwide during the year, bringing our total number of partners to 880. We added 2,900 new customers, bringing the total to almost 11,000 and added our one-millionth end user being served by ShoreTel.
I have personally known John for almost a quarter century. When the ShoreTel board of directors and investors brought him on board a few years ago it was the best move they could have made at the time. John's predecessors lacked his telephony industry experience that has enabled him to guide ShoreTel during tough competitive and economic times to the position they are in today as one of the leading suppliers of IP communications solutions in North America, according to the data.
When I first encountered the company, then known as Shoreline Communications, they had were in the process of shipping their first few systems At the time they didn't even have a telephone instrument included in their product portfolio: Their system utilized analog telephones working in conjunction with a PC soft phone client. Almost no one I interfaced with had telephony work experience. Things have changed for the better during the past decade, and especially since John re-entered the market by accepting his current position.
ShoreTel's product portfolio is not as robust as Avaya's nor is their financial position as strong as Cisco Systems, but they somehow manage to effectively compete when they are at the bidder's table: John claimed during the call that they win more than half the time (although this may be a slight exaggeration) when part of the selection process. They have managed to sign up more than a few very well known distribution partners (something a few larger and better funded competitors have not been able to do during the same time period) and continue to develop their core product and peripheral applications. It may not be easy to continue its growth in a market that Microsoft is now targeting, but ShoreTel has beaten the odds before and may again. No Jitter will certainly be keeping up with their progress.
NOTE: The above comments have nothing to do with the fact that John is the only Chairman/CEO of the companies I regularly interface with who has sent me a birthday greeting. Although it is not necessary for John's fellow executives to follow suit, it wouldn't hurt (because it's the thought that counts).
