Cloud purchase pays off for ShoreTel, but net profit still elusive

ShoreTel's 1 February acquisition of cloud communications vendor M5 Networks looks to be paying off, the firm has revealed.

ShoreTel's 1 February acquisition of cloud communications vendor M5 Networks looks to be paying off, the firm has revealed.

Following the closure of the acquisition on 23 March, CEO Peter Blackmore revealed that ShoreTel's new cloud division made sales of $1.3m (£800,614) during the last eight days of the quarter, with overall net bookings much higher than expected.

"Our R&D organisations have been working together to add ShoreTel firms to the cloud service offering, and we are currently expecting to have this work completed at the first quarter of fiscal 2013," an enthusiastic Blackmore told analysts.

"We have [also] started the process of introducing our cloud service to our existing base of channel partners.... It was encouraging to see that our cloud division had already signed 10 of ShoreTel's existing partners by quarter end, including some of our largest and most well established partners.

"We have seen a very high level of interest for our cloud-based offering from our existing partner base, and will be accelerating the roll-out to our channel," said Blackmore.

The CEO also remarked on the stickiness within key customers that M5 was bringing to ShoreTel. He referred to HR consultancy Randstad, an M5 customer that acquired a 1,000-strong Cisco Communication Manager end-user during the quarter, and wanted to migrate those seats over to ShoreTel.

For the third quarter of its fiscal 2012, ShoreTel made sales of $56.3m, up 9% year-on-year and down slightly on a seasonal basis. GAAP gross margins of 66.2% were down from 68% in Q3 2011. At the end of March, ShoreTel had $61.3m in cash.

However, the positive news around its cloud development did not mask yet another GAAP net loss for ShoreTel, which dropped into the red to the tune of $8.5m for the three months to 31 March, compared to $2.4m this time last year.

Acquisition-related transaction fees of $4.5m, and stock-based compensation expenses of $3.2m all weighed heavily on the numbers, said ShoreTel.

Conference call transcript courtesy: SeekingAlpha

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