Market Overview

NetSuite Announces Third Quarter 2012 Financial Results

Share:

- Record Q3 Revenue of $79.8 Million, a 31% Year-over-Year Increase

- Non-GAAP Net Income Grows 49% Year-over-Year

- Operating Cash Flows of $15.2 Million, a 61% Increase Year-over-Year

SAN MATEO, Calif., Oct. 25, 2012 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP software suites, today announced operating results for its third quarter ended September 30, 2012.

Total revenue for the third quarter of 2012 was $79.8 million, representing a 31% increase over the same period in the prior year.

Cash flows from operations were $15.2 million in the third quarter of 2012, an increase of $5.7 million, or 61%, over the same period last year.

On a GAAP basis, net loss for the third quarter of 2012 was $8.0 million, or $(0.11) per share, as compared to a net loss of $6.9 million, or $(0.10) per share, in the third quarter of 2011.

Non-GAAP net income for the third quarter of 2012 was $5.7 million, or $0.08 per share, as compared to non-GAAP net income of $3.9 million, or $0.05 per share, in the third quarter of 2011.

"As some traditional enterprise software companies struggled, NetSuite again exceeded our stated outlook and delivered record revenue and non-GAAP EPS," said Zach Nelson, CEO of NetSuite. "Our suite approach transforms how mid-size companies operate and gives them a business platform more powerful than those used by the world's largest companies. In addition, this year's investments in our product, sales and services approach to bring the benefits of NetSuite to the world's largest companies has been one of the most successful initiatives in our history. Finally, our new SuiteCommerce product is changing the playing field by enabling companies to transform their commerce capabilities, further differentiating NetSuite from the on-premise ERP systems that are difficult to access and actually designed to prevent the sorts of on-line commerce interactions customers expect from a modern mission critical business system."

Conference Call

In conjunction with this announcement, NetSuite will host a conference call at 2:00 p.m. PDT (5:00 p.m. EDT) today to discuss our third quarter 2012 financial results and our outlook for the fourth quarter of 2012 and full year 2012. A live audio webcast and replay of the call, together with detailed financial information, will be available in the Investor Relations section of NetSuite's website at www.netsuite.com/investors. The live call can be accessed by dialing 888-791-4319 (U.S.) or 913-312-0714 (outside the U.S.) and referencing passcode: 465-6216. A replay of the call can also be accessed by dialing 888-203-1112 (U.S.) or 719-457-0820 (outside the U.S.), and referencing passcode: 465-6216.

About NetSuite

NetSuite Inc. is the industry's leading provider of cloud-based financials / Enterprise Resource Planning (ERP) software suites. In addition to financials/ERP software suites, NetSuite offers a broad suite of applications, including accounting, Customer Relationship Management (CRM), Professional Services Automation (PSA) and Ecommerce that enables companies to manage most of their core business operations in its single integrated suite. NetSuite's "real-time dashboard" technology provides an easy-to-use view into up-to-date, role-specific business information. For more information about NetSuite, please visit www.netsuite.com.

Cautionary Note Regarding Forward-Looking Statements

This press release and NetSuite's scheduled conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, among other things, expectations, plans, prospects and financial results for NetSuite, including, but not limited to, our expectations regarding our products, market demand, future earnings, revenue and market share growth. These forward-looking statements are based upon the current expectations and beliefs of NetSuite's management as of the date of this press release and conference call, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. All forward-looking statements made in this press release and during the conference call are based on information available to us as of the date thereof, and NetSuite disclaims any obligation to update these forward-looking statements.

In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the market for on-demand services may develop more slowly than expected or than it has in the past; continued adverse and unpredictable macro-economic conditions or reduced investments in on-demand applications and information technology spending; quarterly operating results may fluctuate more than expected; unexpected disruptions of service at one or more of our data centers may occur; a security breach may impact operations; risks associated with material defects or errors in our software or the effect of undetected computer viruses could impact operations; the risk of technological developments and innovations by others; our ability to successfully identify other businesses and technologies for acquisition that will complement our business and the ability to successfully acquire and integrate those businesses and technologies; the risk of loss of power or disruption in Internet service; failure to manage growth and effectively scale the organization; failure to protect and enforce our intellectual property rights; assertions by third parties that we infringe their intellectual property rights; the ability to manage operations when faced with competitive pricing and marketing strategies by competitors or changing macro-economic conditions; the risk of losing key employees; evolving government regulation of the Internet and Ecommerce; changes to current accounting rules; changes in foreign exchange rates; and general political or destabilizing events, including war, conflict or acts of terrorism; and other risks and uncertainties.

Customers who purchase our services should make sure the decisions are based on features that are currently available. Please be advised that any unreleased services or features from NetSuite referenced in today's discussion or other public statements are not currently available and may not be delivered on time or at all.

For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the U.S. Securities and Exchange Commission ("SEC"), including but not limited to our Annual Report on Form 10-K filed on February 28, 2012, and any subsequently filed reports on Forms 10-Q and 8-K. All documents are available through the SEC's Electronic Data Gathering Analysis and Retrieval system ("EDGAR") at www.sec.gov or NetSuite's website at www.netsuite.com.

Non-GAAP Financial Measures

Our stated results include certain non-GAAP financial measures, including non-GAAP operating income, net income, weighted average shares outstanding, and net income per share. Non-GAAP operating income and non-GAAP net income exclude expenses related to stock-based compensation expense, amortization of intangible assets and transaction costs for business combinations. Non-GAAP operating income and non-GAAP net income exclude these expenses as they are often excluded by other companies to help investors understand the operational performance of their business, and in the case of stock-based compensation, can be difficult to predict. We believe these adjustments provide useful comparative information to investors.

We consider these non-GAAP financial measures to be important because they provide useful measures of our operating performance and are used by our management for that purpose. In addition, investors often use measures such as these to evaluate the operating performance of a company. Non-GAAP results are presented for supplemental informational purposes only for understanding our operating results. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies.

A copy of this press release can be found on our Investor Relations website at www.netsuite.com/investors. The contents of the website are not incorporated by reference into this press release.

NOTE: NetSuite and the NetSuite logo are service marks of NetSuite Inc.

NetSuite Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)











September 30, 2012



December 31, 2011

Assets







Current assets:







Cash and cash equivalents

$

178,452





$

141,448



Accounts receivable, net of allowances of $520 and

$396 as of September 30, 2012 and December 31,

2011, respectively

48,171





39,105



Deferred commissions

22,033





22,968



Other current assets

8,714





8,693



Total current assets

257,370





212,214



Property and equipment, net

24,220





21,823



Deferred commissions, non-current

4,125





3,585



Goodwill

31,809





27,564



Other intangible assets, net

10,421





12,162



Other assets

3,002





3,832



Total assets

$

330,947





$

281,180



Liabilities and total equity







Current liabilities:







Accounts payable

$

6,005





$

1,905



Deferred revenue

129,575





105,800



Accrued compensation

16,441





17,748



Accrued expenses

9,215





8,285



Other current liabilities

8,470





7,829



Total current liabilities

169,706





141,567



Long-term liabilities:







Deferred revenue, non-current

5,960





5,898



Other long-term liabilities

5,661





5,705



Total long-term liabilities

11,621





11,603



Total liabilities

181,327





153,170



Total equity:







Common stock

716





688



Additional paid-in capital

517,588





470,485



Accumulated other comprehensive income

455





369



Accumulated deficit

(369,139)





(343,532)



Total equity

149,620





128,010



Total liabilities and total equity

$

330,947





$

281,180









NetSuite Inc.

Condensed Consolidated Statements of Operations

(dollars and shares in thousands, except per share amounts)

(unaudited)







Three months ended



September 30,

2012



June 30,

2012



March 31,

2012



December 31,

2011



September 30,

2011

Revenue:



















Subscription and support

$

65,329





$

61,049





$

57,990





$

54,191





$

51,334



Professional services and other

14,462





13,660





11,329





9,902





9,625



Total revenue

79,791





74,709





69,319





64,093





60,959



Cost of revenue:



















Subscription and support (1)

10,880





10,631





9,211





8,741





8,627



Professional services and other (1)

14,211





12,423





11,584





10,327





9,658



Total cost of revenue

25,091





23,054





20,795





19,068





18,285



Gross profit

54,700





51,655





48,524





45,025





42,674



Operating expenses:



















Product development (1)

13,943





13,277





11,090





11,916





11,257



Sales and marketing (1)

38,591





37,561





35,579





31,963





30,279



General and administrative (1)

9,458





9,897





8,979





8,112





7,622



Total operating expenses

61,992





60,735





55,648





51,991





49,158



Operating loss

(7,292)





(9,080)





(7,124)





(6,966)





(6,484)



Other income / (expenses) and income

taxes, net

(692)





(833)





(586)





(649)





(445)



Net loss

(7,984)





(9,913)





(7,710)





(7,615)





(6,929)



Net loss per share

$

(0.11)





$

(0.14)





$

(0.11)





$

(0.11)





$

(0.10)



Weighted average number of shares used in computing net loss per common share

71,161





70,370





69,324





68,285





67,477























(1) Includes stock-based compensation expense, amortization of intangible assets and transaction costs for business combinations as follows:























September 30,
2012



June 30,
2012



March 31,
2012



December 31,
2011



September 30,
2011

Cost of revenue:



















Subscription and support

$

1,169





$

1,484





$

904





$

870





$

807



Professional services and other

1,688





1,504





1,173





1,083





1,067



Operating expenses:



















Product development

4,035





4,060





3,207





3,316





3,422



Sales and marketing

4,142





4,204





3,958





3,528





3,402



General and administrative

2,686





3,415





2,554





2,253





2,089



Total

$

13,720





$

14,667





$

11,796





$

11,050





$

10,787



NetSuite Inc.

Reconciliation of Net Loss Per Share to Non-GAAP Net Income Per Share

(dollars and shares in thousands, except per share amounts)

(unaudited)







Three months ended



September 30,
2012



June 30,
2012



March 31,
2012



December 31,
2011



September 30,
2011

Reconciliation between GAAP

operating loss and non-GAAP

operating income:



















Operating loss

$

(7,292)





$

(9,080)





$

(7,124)





$

(6,966)





$

(6,484)



Reversal of non-GAAP expenses:



















Stock-based compensation (a)

12,584





12,566





10,883





10,149





9,938



Amortization of intangible

assets and business

combination costs (b)

1,136





2,101





913





901





849



Non-GAAP operating income

$

6,428





$

5,587





$

4,672





$

4,084





$

4,303



Numerator:



















Reconciliation between GAAP net

loss and non-GAAP net income:



















Net loss

$

(7,984)





$

(9,913)





$

(7,710)





$

(7,615)





$

(6,929)



Stock-based compensation (a)

12,584





12,566





10,883





10,149





9,938



Amortization of intangible

assets and business

combination costs (b)

1,136





2,101





913





901





849



Non-GAAP net income

$

5,736





$

4,754





$

4,086





$

3,435





$

3,858



Denominator:



















Reconciliation between GAAP and

non-GAAP weighted average shares

used in computing basic and diluted

net income / (loss) per common share:



















Weighted average number of

shares used in computing net

loss per common share

71,161





70,370





69,324





68,285





67,477



Effect of dilutive securities

(stock options and restricted stock awards) (c)

3,051





3,152





3,604





3,863





3,525



Non-GAAP weighted

average shares used in

computing non-GAAP net

income per common share

74,212





73,522





72,928





72,148





71,002



GAAP net loss per share

$

(0.11)





$

(0.14)





$

(0.11)





$

(0.11)





$

(0.10)



Non-GAAP net income per share

$

0.08





$

0.06





$

0.06





$

0.05





$

0.05



Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements presented on a GAAP basis, NetSuite uses non-GAAP measures of operating income, net income, weighted average shares outstanding and net income per share, which are adjusted to exclude stock-based compensation expense, amortization of acquisition-related intangible assets and transaction costs for business combinations and includes dilutive shares where applicable. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NetSuite's underlying operating results and trends and our marketplace performance.

 

The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these non-GAAP results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating loss, net loss or basic and diluted net loss per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.

 

While a large component of our expense in certain periods, we believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

 

(a) Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense allows for financial results that are more indicative of our operational performance and provide for a useful comparison of our operating results to prior periods and to our peer companies because stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price. Additionally, we capitalize equity based compensation costs in connection with our capitalization of internally developed software costs. These equity based compensation costs are included in stock-based compensation when the internally developed software costs are amortized.

(b) Amortization of intangible assets and transaction costs related to business combinations resulted principally from mergers and acquisitions. Expense for the amortization of intangible assets is a non-cash item, and we believe that the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods and to our peer companies. In Q2 2012, certain customers acquired in a previous business combination transitioned from their legacy service offering to a NetSuite service offering or terminated their service completely. As a result, we recorded a $401,000 impairment charge related to the legacy product's developed technology intangible asset. This impairment charge is included in amortization of intangible assets. Business combinations result in non-continuing operating expenses which would not otherwise have been incurred by us in the normal course of our business operations. We believe that the exclusion of acquisition related expense items allows for financial results that are more indicative of our continuing operations and provide for a useful comparison of our operating results to prior periods and to our peer companies.

(c) These securities are anti-dilutive on a GAAP basis as a result of our net loss, but are considered dilutive on a non-GAAP basis in periods where we reported positive non-GAAP earnings.





NetSuite Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)







Nine Months Ended September 30,



2012



2011

Cash flows from operating activities:







Net loss

$

(25,607)





$

(24,392)



Adjustments to reconcile net loss to net cash provided by operating activities:







Depreciation and amortization

8,048





6,745



Amortization of other intangible assets

3,393





2,884



Provision for accounts receivable allowances

505





243



Stock-based compensation

35,939





28,166



Amortization of deferred commissions

33,269





24,954



Excess tax benefit on stock-based compensation

(259)







Changes in operating assets and liabilities, net of acquired assets and liabilities:







Accounts receivable

(9,476)





(3,003)



Deferred commissions

(32,876)





(29,300)



Other current assets

(137)





146



Other assets

797





247



Accounts payable

3,241





911



Accrued compensation

(1,398)





1,821



Deferred revenue

23,842





15,864



Other current liabilities

1,790





(18)



Other long-term liabilities

(181)





(691)



Net cash provided by operating activities

40,890





24,577



Cash flows from investing activities:







Purchases of property and equipment

(7,730)





(7,156)



Capitalized internal use software

(1,172)





(406)



Cash paid in business combinations, net of amounts received

(4,227)





(1,775)



Net cash used in investing activities

(13,129)





(9,337)



Cash flows from financing activities:







Payments under capital leases

(542)





(734)



Payments under capital leases and long-term debt - related party

(1,160)





(346)



Excess tax benefit on stock-based compensation

259







RSU acquired to settle employee withholding liability

(191)





(205)



Proceeds from issuance of common stock, net of issuance costs

10,523





8,662



Net cash provided by financing activities

8,889





7,377



Effect of exchange rate changes on cash and cash equivalents

354





(138)



Net change in cash and cash equivalents

37,004





22,479



Cash and cash equivalents at beginning of period

141,448





104,298



Cash and cash equivalents at end of period

$

178,452





$

126,777



(Logo: http://photos.prnewswire.com/prnh/20090924/SF81218LOGO-b)

 

SOURCE NetSuite Inc.

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