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ShoreTel, Inc (SHOR)

Barclays Capital Global Technology, Media and Telecommunications Conference Call

May 23, 2012 11:45 am ET


Peter Blackmore - CEO

Mike Healy - SVP & CFO



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Good morning everyone. Thank you for joining us. We are delighted to have ShoreTel here with us this morning. ShoreTel is a leader in the unified com space and very recently also entered into the hosted VoIP space. Today we have Peter Blackmore, CEO; Mike Healy, CFO and also Tonya Chin here as well. We will go through like I said a brief slide presentation and then maybe a question or two at the end and with that I will pass it off.

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Peter Blackmore

So a very good morning to all of you. It’s my pleasure to be here. I’ll move through the slides fairly quickly and then hopefully we'll get some good questions from you. The Safe Harbor statement, which I am sure, you understand we have to pay attention to. Let me start with the presentation and those of you who have followed the company, there is a number of changes in this because recently we closed on our M5 acquisition. We've also updated it with our mobility references. So, as you see on the left hand side, we’re now a much richer company from our application viewpoint and even better positioned to accelerate in the market place because as well as a very strong on-premise offering, we have a excellent cloud offering and a strong mobility offering.

With that, operations are now on the East Coast as well as the West Coast. ShoreTel started in California. So we have premises in Sunnyvale and then we extended out to Austin. With M5, we have premises in Manhattan, in Rochester, New York and Chicago and that will help our growth going forward because one of the challenges we've had about growing in the East Coast in New York is not having a physical premise here, we now have that.

Our customers, we target the market from 50 to 5,000 seats and that’s really important because that is the SMB market. It is not the enterprise market. We’re still seeing very good growth in the SMB market. Our pipeline is very strong and this focus in this area, I think is important. Our target markets are IP telephony, but all of the applications around that, when we sell to a customer, it is a unified communication sale and that’s a very rich sale in terms of productivity tools, conferencing, call center, video, obviously voice. And that differentiates us because of the way we integrate the platform and make it much easier to use and we are public listed company with SHOR as its ticker.

The market has continued to grow and when you look at the market I'd ask you to look at the total of all the bar elements because although telephony is the largest part, the blue bar, the unified communications and contact center enable the complete market. So when we talk to customers, we’re embracing all of that. So it’s a large market in financial year 2013, 17 billion still growing at a single digit pace. We’ve been growing much faster than the market.

We’re also now in the cloud market or hosted market, at the moment a smaller market but accelerating at a compound annual growth rate of 32%, so in financial year 2013 above a billion dollars and moving very quickly to $2 billion within a couple of years time after financial year 2013. Huge opportunity which is why we made the move into cloud and I'll address more of that later. And this is our record of how we’ve outpaced the market and this is purely on-premise statistics because obviously cloud has just been added to the portfolio.

And you can see that the IP market has been variable, declined during the recession in the 2009 period, accelerated again and is now growing in single digits. We’ve typically grown 20% faster than the market and we’re still doing that this year. This financial year we grew at 22% in our first quarter, 22% in our second quarter, down slightly in our third quarter and then we’re looking at higher growth in the current fourth quarter.

Our ability to do that is driven by some very clear winning factors which I will describe. We are a software company, we have 220 developers in our premises company and 30 plus developers in our cloud company. We only have 10 hardware engineers out of that total of 250 people, they design the phones. We built the systems on a distributed architecture for premise which gives very high up time, very high reliability and it is the highest reliability in the industry. We've built a rich portfolio of applications around that and I have mentioned a number of them in the messaging, contact centre, desktop video web conferencing are all part of that.

These are the elements, if you look at the competition they would have a similar portfolio on their unified communication system. The differentiation is ease of use. How ease -- good it is for a customer to take full advantage of all these applications, do it without a lot of complex training and hand holding and make their employees very productive. That’s where we differentiate, we have by far the easiest system to use. That is not because the competition deliberately make it complicated. It's due to the history of how unified communications was built. We are the only company to start from a clean sheet of paper, everybody else build their portfolio by acquisition and they have to decide how do you do that integration? Do you just simply put the parts together in the best way you can which will have an underlying complexity or do you rewrite code to make it very simple. And they chose the shortcut which is to put the applications together, but they are inherently more complex to manage use both for your system administrator as well as the user and that gives us a huge differentiation in the market.

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