ShoreTel - Doing Just Fine

Sometimes, it's really hard to blog about timely items, and the past week or so has been one of them. There have been some pretty good quarterly reports lately from companies I follow, but I just haven't been able to get to them. However, the stars have lined up to get to one of them, albeit a week or so late. No matter - I haven't posted about ShoreTel in a while, so they're due.

By nature, public companies have to share a lot of information, and for the line-by-line items, I'll steer you to the press release for their Q3 reporting from last week.

ShoreTel's fiscal Q3 lines up with the calendar Q1, so the results are pretty current. It's a good news story all around, and I just want to share my takeaways.

- It's always nice to hear about growth, but even better to the numbers on a chart! Revenues keep growing steadily - up 8% from their Q2, and an impressive 39% from Q3 2010.

- ShoreTel cracked the $50 million level in Q3 - $51.6, and are on track for hitting $200 million in annual sales. That's pretty decent.

- The other metrics are all trending stongly - gross margins, licenses, customer adds, etc. There's long been a knock on ShoreTel for not being profitable, but even there, they posted net income of $602,000. If they can stay in the black, the company will truly be firing on all cylinders.

- Not to be overlooked is $103 million in the bank with no long term debt, so really, how concerned should you be about the company, now that they're break-even or better?

- I think the market has already answered that question. Their stock is at a 52 week high, hovering around $11, with a spike of $1.52 after the earnings came out. Back in March, it was under $7, so there's a nice trend happening here.

- Business-wise, ShoreTel is showing results across all sizes of businesses. They've always had a strong SMB presence, but now, 31% of their 1.7 million end-user licenses are in 500+ employee businesses.

- International growth is looking good - another indicator of a company getting to the next level. Markets outside the U.S. account for 12% of revenues, including a 100% jump from last year up here in Canada.

- Market share is another important metric. Based on Synergy Research's data, ShoreTel has 6% of the U.S. enterprise telephony market. This may seem small, but 75% of the market is with either Cisco or Avaya/Nortel. So for the rest of us, Synergy's data indicates that ShoreTel hase the biggest slice of the pie. Actually, what's more interesting about this data is the trend for the big two. As of Q2 2009, they were pretty even - about 35% each. Since then, Cisco has trended up, and Avaya/Nortel down - Cisco is up on them 11 points now, at 43.4%. That's a big shift.

- Otherwise, there's lots of good news about new customers and product launches/developments. Of particular note are working relationships with Polycom and HP. Both will help them be more effective against the big guys, especially Cisco - plus, the added video pieces will strengthen their UC and collaboration stories.