ShoreTel, Inc. (SHOR)

Barclays Capital Global Technology Conference

December 07, 2011 12:30 p.m. ET


Peter Blackmore - President and CEO

Mike Healy - SVP Finance and CFO

Tonya Chin - IR


Jeff Kvaal - Barclays Capital


Jeff Kvaal - Barclays Capital

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Okay, everyone. Welcome to the ShoreTel session. I am Jeff Kvaal. I am part of the common equivalent franchise at Barclays. We are delighted to hear from the team at ShoreTel today. For those of you that don’t know ShoreTel, you feel like you should, either because of the stock itself, or because of the product, I certainly don’t have advantage of ShoreTel voice UC system, unified communications system in our offices. Moving is kind of a pain in the neck I would say.

So what we’d like to do is spend some time with management from ShoreTel. And I’m delighted to have Peter Blackmore here. He is the CEO. Mike Healy, the CFO is here. And also, Tonya Chin is with us as well. So what I will do is I’ll just pass it to Peter.

Peter Blackmore

Thank you. A very good morning to you all. Great pleasure to be with you and thank you for your interest in the company.

I’d just like to draw your attention to the normal safe harbor statement before I start. I’ll move through the slides pretty quickly because I think hopefully most of you know a little bit about the company. And that will give more time for Q&A.

The company was conceived, so it was – had an application which was absolutely designed for internet telephony and unified communications. That gives u a lot of inherent advantages which I’ll go into.

We’re based in Sunnyvale, just down the road. Another major facility is in Austin, Texas. And other than that, we don’t have any major facilities, just regional sales offices. 19,000 customers, we grow customers, new customers every quarter. Typically 45% of our business every quarter is from new customers.

Our target market is a small medium business market, 20 to 20,000 employees. We also quote on saying 50 to 5000 seats. But we can now scale up to 20,000 seats. So that takes you up into the enterprise. And obviously we’re listed on NASDAQ.

We’re a software company. We’ve got about 220 R&D development people, and less than 10 are hardware designers. So they typically design the telephone systems. So we really are a software company.

It was built as a very easy-to-use platform, single image. That means that everybody in the company that’s on the system can access and see everybody else. When you add an employee, immediately that person’s details are available throughout the system.

We believe we have the highest degree of reliability in the industry. And there are reasons for that. We’re switch software as well as an application software. We have N+1 redundancy built into the architecture, and we’ve got a very, very rich set of applications to make it a complete unified communications system.

The hardware, the switch is a very interesting device. The only moving part is a fan. So it’s inherently reliable, above five 9’s reliability. And we have a complete set of secure appliances, such as concentrated SIP technology and mobility routers.

Our phone systems, and this is about a 30 plus percent of our revenues. They’re a complete range of phones for individuals for conference – conferencing. A lot of design goes into this, and they’re very, very popular with our customers. And we have not seen any reduction in phone attach rates despite the fact we have a very strong mobility offering. So it’s important for you to understand that we see a lot of longevity in this part of the application.

Our mobility, it’s been with us for twelve months, and we bought a company, if you remember in October of the previous calendar year called Agito. We’ve had to do a lot of work to get this ready for market, because what we bought was outstanding intellectual property but there really wasn’t a revenue stream. There was no big sales and marketing effort.

We have ramped that up. We’ve invested in sales, put a lot of branding and marketing in there. If you look at a number of magazines, such as CIO magazine or Businessweek, you’ll see we have an ability of branding and advertising right as we speak. And we have an ability to be PBX agnostic. And we’re only aware of one other company in the industry. It’s a small company that does that.

Other people have mobile phone systems but it tends to be designed for their PBX so that, that limits their ability to go to a Fortune 100 type of company, which typically has multiple PBXs, either through acquisition, or deliberately as a buying decision by their CIO so they’re not dependent on one platform. We’re, therefore, very attractive to large corporations for this mobile offering.

Go-to-market proposition is we’re easier to use than other platforms, and we have the lowest cost of ownership in the industry. And there is a slide later on that.

This compelling advantage is unlike to change, because this was built into our architecture. The system was designed over 10 years ago. And the comparison with our competitors is all of their systems were built by M&A. In other words, they bought companies to complete their portfolio suite. They integrated them as best they can, but they are inherently more complicated to use and inherently more costly to run from a day-to-day running operation.

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