SHORETEL REPORTS FINANCIAL RESULTS FOR FOURTH QUARTER AND FISCAL YEAR 2017

SUNNYVALE, Calif. – August 2, 2017 – ShoreTel® (NASDAQ: SHOR), a leading provider of communication solutions that make interactions simple, today announced financial results for the fourth quarter and fiscal year 2017, which ended June 30, 2017.

As the Company’s strategic shift in revenue mix towards hosted revenue continues, fourth quarter of fiscal 2017 total revenue was $95.7 million, compared to $94.6 million in the fourth quarter of fiscal 2016 and $87.7 million in the prior quarter. GAAP net loss was $1.0 million, or $0.01 per share, in the fourth quarter of fiscal 2017, compared with a GAAP net loss of $0.7 million, or $0.01 per share, in the fourth quarter of fiscal 2016, and a GAAP net loss of $2.9 million, or $0.04 per share, in the prior quarter. Non-GAAP net income, which excludes stock-based compensation charges, amortization of acquisition-related intangibles, severance costs, acquisition-related cost, other adjustments and related tax charges, for the fourth quarter of fiscal year 2017, was $4.5 million, or $0.06 per diluted share. This compares with a non-GAAP net income of $3.5 million, or $0.05 per diluted share, in the fourth quarter of fiscal 2016 and a non-GAAP net income in the prior quarter of $0.6 million or $0.01 per diluted share.

“We ended our fiscal year with strong results in our June quarter. Our total revenue in the quarter was a record and our non-GAAP profitability reached its highest level in over a year,” said Don Joos, president and CEO of ShoreTel.  “While we continue to transform the business, our Hosted revenue growth was 19% for fiscal year 2017 and we had a significant sequential increase in premise customers migrating to our hosted solution.”

Fourth Quarter of Fiscal 2017 Financial Highlights

Hosted revenues of $39.7 million in the fourth quarter of fiscal 2017 were up 17 percent year-over-year and 4 percent sequentially. GAAP hosted gross margin for the fourth quarter of fiscal year 2017 was 54.0 percent, compared with 50.4 percent in the fourth quarter of fiscal year 2016.  Non-GAAP hosted gross margin increased to 55.0 percent in the fourth quarter of fiscal 2017, representing an improvement over the 54.3 percent in the fourth quarter of fiscal 2016. The total number of installed customer seats increased 23 percent over the fourth quarter of fiscal 2016 to approximately 283,800.  Hosted revenue churn was 5.3 percent annualized in the fourth quarter of fiscal 2017.

Product revenues of $36.5 million in the fourth quarter of fiscal 2017 were down 13 percent year-over-year but up 20 percent sequentially. GAAP product gross margin for the fourth quarter of fiscal year 2017 was 65.5 percent, compared with 67.5 percent in the fourth quarter of fiscal year 2016.  Non-GAAP product gross margin was 65.5 percent in the fourth quarter of fiscal 2017, compared with 67.6 percent in the fourth quarter of fiscal 2016.

Support and services revenues of $19.6 million in the fourth quarter of fiscal 2017 were up 4 percent year-over-year and up 3 percent sequentially. GAAP support and service gross margin for the fourth quarter of fiscal year 2017 was 77.9 percent, compared with 75.0 percent in the fourth quarter of fiscal year 2016.  Non-GAAP support and service gross margin was 80.0 percent in the fourth quarter of fiscal 2017, compared with 75.7 percent in the fourth quarter of fiscal 2016.

GAAP total gross margin for the fourth quarter of fiscal year 2017 was 63.3 percent compared with 62.9 percent in the fourth quarter of fiscal year 2016.  Non-GAAP total gross margin, for the fourth quarter of fiscal year 2017, was 64.1 percent compared with 64.4 percent in the fourth quarter of fiscal 2016.

As of June 30, 2017, the Company had $115.9 million in cash, cash equivalents and short-term investments and no outstanding debt.  The Company generated $11.7 million in cash flow from operations in the quarter ended June 30, 2017.

Fiscal Year 2017 Financial Highlights

Hosted revenues for fiscal 2017 were $150.2 million, up 19 percent compared to fiscal 2016.  GAAP hosted gross margin for fiscal 2017 was 53.1 percent, compared with 51.5 percent in fiscal 2016.  Non-GAAP hosted gross margin increased to 55.6 percent in fiscal 2017, compared with 55.4 percent in fiscal 2016.

Product revenues for fiscal 2017 were $131.2 million, down 17 percent compared to fiscal 2016.  GAAP product gross margin in fiscal 2017 was 66.8 percent compared to 67.2 percent in fiscal 2016. Non-GAAP product gross margin was 66.9 percent in fiscal 2017, compared with 67.3 percent in fiscal 2016.

Support and services revenues for fiscal 2017 were $76.3 million, up 1 percent compared to fiscal 2016. GAAP support and service gross margin for fiscal year 2017 was 77.5 percent, compared with 74.5 percent in fiscal 2016. Non-GAAP support and service gross margin was 78.6 percent in fiscal 2017 compared to 75.3 percent in fiscal 2016.

Total revenues for fiscal 2017 were $357.8 million, down 1 percent compared to fiscal 2016.  GAAP total gross margin for fiscal year 2017 was 63.3 percent compared with 63.2 percent in fiscal year 2016. Non-GAAP total gross margin, for the fiscal year 2017, was 64.6 percent compared with 64.8 percent in fiscal 2016.

GAAP net loss in fiscal 2017 was $12.4 million, or $0.18 per share, compared with a GAAP net loss of $4.8 million, or $0.07 per share in fiscal 2016.  Non-GAAP net income for the fiscal year 2017 was $7.6 million, or $0.11 per diluted share.  This compares with a non-GAAP net income of $12.4 million, or $0.18 per diluted share in fiscal 2016.

Selected Operational Metrics

Fourth Quarter of Fiscal 2017 Business Highlights

ShoreTel Connect CLOUD Launched in Australia

ShoreTel announced the introduction of ShoreTel Connect™ CLOUD and ShoreTel Connect CLOUD Contact Center solutions in Australia.

Australia marks the latest step in ShoreTel’s continued global expansion of its Connect CLOUD Unified Communications as-a-Service (UCaaS) solution. Connect CLOUD services are also available to customers in the United States, Canada and the United Kingdom.

Additionally, Connect CLOUD follows the successful introduction of ShoreTel’s first cloud based voice service in Australia, which has seen rapid partner uptake and strong customer demand since its launch last April.

Connect CLOUD services are sold through ShoreTel’s Australian cloud partners who can also offer customers a range of professional services. The solution will not only be available to new customers but also for current ShoreTel customers as an opportunity to upgrade their existing cloud solution or migrate from an onsite system.

ShoreTel to Offer SMS APIs Through Google Cloud Platform

ShoreTel announced it has become a Google Cloud PlatformTM Technology Partner. As part of this partnership, ShoreTel is offering an SMS API solution through the Google Cloud Launcher.

Google Cloud Launcher offers ready-to-go development stacks, solutions, and services to accelerate development. Developers are able to explore, deploy, and manage solutions with only a few clicks.

Through the Google Cloud Launcher, ShoreTel will offer developers the ability to integrate inbound and outbound SMS capabilities into new or existing applications using the SMS REST APIs of ShoreTel SummitTM. A Communications Platform as a Service (CPaaS) solution, Summit’s rich developer toolkits and API frameworks make it easy to embed SMS capabilities into system workflows or build custom apps for activities such as customer notifications, appointment reminders, marketing promotions, emergency alerts and more.

ShoreTel Introduces Global Numbers Service in Four Countries

ShoreTel announced it has expanded its ShoreTel Connect™ CLOUD unified communications solution with the addition of Global Numbers service.

Global Numbers allows multi-national organizations to create a local presence in the countries they serve by establishing unique Direct Inward Dial (DID) or International Toll-free Service (ITFS) numbers in each country. Global inbound calls can be routed to auto-attendants, IVRs or contact center queues and handled by teams at a central location, such as corporate headquarters. The service is available to Connect CLOUD customers in the U.S., Canada, U.K. and Australia.

ShoreTel’s Global Numbers footprint covers countries where there has been strong demand. The service offers simple pricing with flat monthly rates for local DIDs and affordable per minute charges for inbound toll-free service.

ShoreTel and Its Leadership Recognized for Six Industry Awards

ShoreTel was honored with six awards that recognize the Company’s senior leadership and commitment to innovation.

ShoreTel was awarded a Silver Stevie award for Most Innovative Tech Company – up to 2,500 employees, for its overall company growth, increased total revenue and elevated size of customer base.

At the Midsize Enterprise Summit TM ShoreTel chief marketing officer, Mark Roberts, was awarded the Best Vendor Spotlight which honors the event’s top performing technology solution providers based on IT decision makers’ perceptions during MES.  Additionally, ShoreTel Teamwork was awarded Best Midmarket Solution: Services. ShoreTel Teamwork is a real-time collaboration application that allows teams to increase productivity on the go with features such as pervasive chat, task management, file sharing and more.

Eugenia Corrales, SVP of Solutions Group at ShoreTel, has been recognized by the Silicon Valley Business Journal with a Women of Influence 2017 award at a ceremony held on May 18th in San Jose, CA. This award recognizes professional accomplishments combined with impactful community involvement.

CRN TM named Heather Tenuto, vice president channels, to both the Women of the Channel 2017 and the Power 100 for her leadership at ShoreTel, including supporting market demand and empowering channel adoption around cloud technologies.

Business Outlook

Given the announcement made on July 27, 2017 regarding the Company’s entry into a definitive agreement to be acquired by Mitel we will not be providing a business outlook.

Conference Call Information

Given the announcement made on July 27, 2017 regarding the Company’s entry into a definitive agreement to be acquired by Mitel there will be no conference call in conjunction with this release.

Use of Non-GAAP Financial Measures

ShoreTel reports all required financial information in accordance with generally accepted accounting principles in the United States (“GAAP”), but it believes that evaluating its ongoing operating results may be difficult to understand if limited to reviewing only GAAP financial measures. Many investors have requested that ShoreTel disclose this non-GAAP information because it is useful in understanding the Company’s performance as it excludes non-cash charges, other non-recurring adjustments and related tax changes, that many investors feel may obscure the Company’s true operating performance. Likewise, management uses these non-GAAP measures to manage and assess the profitability of its business. ShoreTel has provided a reconciliation of non-GAAP financial measures following the text of this press release. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Legal Notice Regarding Forward-Looking Statements

ShoreTel assumes no obligation to update the forward-looking statements included in this release. This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the federal securities laws, including, without limitation, statements by Don Joos, statements regarding future growth and market opportunities. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The risks and uncertainties include the intense competition in our industry, the impact of the announcement of the proposed acquisition by Mitel on ShoreTel’s business; the ability of ShoreTel and Mitel to complete the proposed transaction; our reliance on third parties to sell and support our products, our ability to continue to grow our cloud-based solutions, our ability to grow or maintain our premises products, supply and manufacturing risks, the impact of service disruptions or security breaches, uncertainties related to global operations, our ability to control costs as we expand our business and seek to maintain the minimum cash closing condition from the proposed merger with Mitel; difficulties in managing more dispersed business operations, our ability to attract, retain and ramp new personnel, potentially longer sales cycles, uncertainties inherent in the product development cycle, our ability to identify and execute on strategic opportunities, uncertainty as to market acceptance of new products and services, the potential for litigation in our industry, the impact of mergers and consolidations in our industry, the uncertain impact of global economic conditions and foreign exchange rates, including impact on customers’ purchasing decisions, and other risk factors set forth in ShoreTel’s Form 10-K for the year ended June 30, 2016 and most recent Quarterly Report on Form 10-Q.