NetSuite Announces First Quarter 2013 Financial Results

- Record Q1 Revenue of $91.6 Million, a 32% Year-over-Year Increase

- Operating Cash Flows of $14.7 Million, a 39% Increase Year-over-Year

Apr 25, 2013, 16:05 ET from NetSuite Inc.

SAN MATEO, Calif., April 25, 2013 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP software suites, today announced operating results for its first quarter ended March 31, 2013.      

Total revenue for the first quarter of 2013 was $91.6 million, representing a 32% increase over the same period in the prior year.

Cash flows from operations were $14.7 million in the first quarter of 2013, an increase of $4.1 million, or 39%, over the same period in the prior year.

On a GAAP basis, net loss for the first quarter of 2013 was $13.0 million, or $(0.18) per share, as compared to a net loss of $7.7 million, or $(0.11) per share, in the first quarter of 2012.

Non-GAAP net income for the first quarter of 2013 was $2.8 million, or $0.04 per share, as compared to non-GAAP net income of $4.1 million, or $0.06 per share, in the first quarter of 2012.

"While traditional software companies continued to struggle, NetSuite delivered arguably the finest Q1 in our history," said Zach Nelson, CEO of NetSuite. "NetSuite's success is driven by the fact that businesses around the world realize that in order to achieve their business vision, they need to move their core operational systems from pre-cloud software like Microsoft Dynamics GP/Great Plains and SAP to NetSuite's modern cloud-based suite of applications."

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 first quarter 2013 financial results and our outlook for the second quarter of 2013 and full year 2013.  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 888-244-2460 (U.S.) or 913-312-1507 (outside the U.S.) and referencing passcode: 102-9627.  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: 102-9627.

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 software allows businesses to automate operations, streamline processes and access real-time business information anytime, anywhere. 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, 2013, 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 excludes expenses related to stock-based compensation expense, amortization of intangible assets, and transaction costs for business combinations.  Non-GAAP net income excludes expenses related to stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations and income tax benefit associated with business combination.  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)

March 31, 2013

December 31, 2012

Assets

Current assets:

Cash and cash equivalents

$

190,653

$

185,859

Accounts receivable, net of allowances of $629 and $701 as of March 31, 2013 and December 31, 2012,

respectively

62,803

64,861

Deferred commissions

27,757

26,959

Other current assets

13,867

9,049

Total current assets

295,080

286,728

Property and equipment, net

40,663

27,210

Deferred commissions, non-current

4,794

4,784

Goodwill

45,434

35,661

Other intangible assets, net

14,658

12,420

Other assets

4,044

2,972

Total assets

$

404,673

$

369,775

Liabilities and total equity

Current liabilities:

Accounts payable

$

4,267

$

3,476

Deferred revenue

164,511

154,051

Accrued compensation

17,991

18,806

Accrued expenses

13,722

11,974

Other current liabilities

12,265

9,948

Total current liabilities

212,756

198,255

Long-term liabilities:

Deferred revenue, non-current

7,768

7,365

Other long-term liabilities

18,097

5,386

Total long-term liabilities

25,865

12,751

Total liabilities

238,621

211,006

Total equity:

Common stock

737

727

Additional paid-in capital

556,232

535,853

Accumulated other comprehensive income

881

950

Accumulated deficit

(391,798)

(378,761)

Total equity

166,052

158,769

Total liabilities and total equity

$

404,673

$

369,775

NetSuite Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)

Three months ended

March 31,

2013

December 31,

2012

September 30,

2012

June 30,

2012

March 31,

2012

Revenue:

Subscription and support

$

73,960

$

68,534

$

65,329

$

61,049

$

57,990

Professional services and other

17,669

16,472

14,462

13,660

11,329

Total revenue

91,629

85,006

79,791

74,709

69,319

Cost of revenue:

Subscription and support (1)

12,315

11,135

10,880

10,631

9,211

Professional services and other (1)

17,330

15,488

14,211

12,423

11,584

Total cost of revenue

29,645

26,623

25,091

23,054

20,795

Gross profit

61,984

58,383

54,700

51,655

48,524

Operating expenses:

Product development (1)

16,650

14,429

13,943

13,277

11,090

Sales and marketing (1)

46,752

42,563

38,591

37,561

35,579

General and administrative (1)

11,745

10,134

9,458

9,897

8,979

Total operating expenses

75,147

67,126

61,992

60,735

55,648

Operating loss

(13,163)

(8,743)

(7,292)

(9,080)

(7,124)

Other income / (expenses) and income taxes, net (1)

126

(878)

(692)

(833)

(586)

Net loss

(13,037)

(9,621)

(7,984)

(9,913)

(7,710)

Net loss per share

$

(0.18)

$

(0.13)

$

(0.11)

$

(0.14)

$

(0.11)

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

73,144

71,977

71,161

70,370

69,324

(1) Includes stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations and income tax benefit associated with business combination as follows:

March 31, 2013

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

Cost of revenue:

Subscription and support

$

1,127

$

1,135

$

1,169

$

1,484

$

904

Professional services and other

1,846

1,612

1,688

1,504

1,173

Operating expenses:

Product development

4,848

3,999

4,035

4,060

3,207

Sales and marketing

5,175

4,283

4,142

4,204

3,958

General and administrative

3,946

3,148

2,686

3,415

2,554

Other income / (expenses) and income taxes, net

(1,119)

Total

$

15,823

$

14,177

$

13,720

$

14,667

$

11,796

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

March 31, 2013

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

Reconciliation between GAAP operating loss and non-GAAP operating income:

Operating loss

$

(13,163)

$

(8,743)

$

(7,292)

$

(9,080)

$

(7,124)

Reversal of non-GAAP expenses:

Stock-based compensation and 

amortization of capitalized stock-based

compensation (a)

15,196

12,503

12,584

12,566

10,883

Amortization of intangible assets and

business combination costs (b)

1,746

1,674

1,136

2,101

913

Non-GAAP operating income

$

3,779

$

5,434

$

6,428

$

5,587

$

4,672

Numerator:

Reconciliation between GAAP net loss and non-GAAP net income:

Net loss

$

(13,037)

$

(9,621)

$

(7,984)

$

(9,913)

$

(7,710)

Stock-based compensation and

amortization of capitalized stock-based

compensation (a)

15,196

12,503

12,584

12,566

10,883

Amortization of intangible assets and

business combination costs (b)

1,746

1,674

1,136

2,101

913

Income tax benefit associated with

business combination (c)

(1,119)

Non-GAAP net income

$

2,786

$

4,556

$

5,736

$

4,754

$

4,086

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

73,144

71,977

71,161

70,370

69,324

Effect of dilutive securities (stock options

and restricted stock awards) (d)

2,371

2,999

3,051

3,152

3,604

Non-GAAP weighted average shares

used in computing non-GAAP net income per

common share

75,515

74,976

74,212

73,522

72,928

GAAP net loss per share

$

(0.18)

$

(0.13)

$

(0.11)

$

(0.14)

$

(0.11)

Non-GAAP net income per share

$

0.04

$

0.06

$

0.08

$

0.06

$

0.06

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, transaction costs for business combinations and income tax benefit associated with business combination 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 cost of revenue when the internally developed software costs are amortized.  As such, we included these costs in the stock-based compensation line item to determine both non-GAAP operating income and non-GAAP net income.

(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 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)   

In connection with a small acquisition during the first quarter of 2013, we recorded an income tax benefit that reduced our income tax provision for the first quarter of 2013.  This income tax benefit is a non-cash item that would not otherwise have been incurred in the normal course of our business operations.  We believe that the exclusion of acquisition related 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.

(d)   

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)

Three Months Ended March 31,

2013

2012

Cash flows from operating activities:

Net loss

$

(13,037)

$

(7,710)

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

Depreciation and amortization

3,380

2,519

Amortization of other intangible assets

1,186

901

Provision for accounts receivable allowances

171

177

Stock-based compensation

15,120

10,883

Amortization of deferred commissions

12,599

11,042

Excess tax benefit on stock-based compensation

(70)

(100)

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

Accounts receivable

1,878

(1,513)

Deferred commissions

(13,407)

(9,987)

Other current assets

(4,862)

(810)

Other assets

(589)

(226)

Accounts payable

658

616

Accrued compensation

(737)

(4,183)

Deferred revenue

10,990

8,626

Other current liabilities

2,287

528

Other long-term liabilities

(867)

(207)

Net cash provided by operating activities

14,700

10,556

Cash flows from investing activities:

Purchases of property and equipment

(3,162)

(2,392)

Capitalized internal use software

(472)

(228)

Cash paid in business combinations, net of amounts received, and equity investment

(10,429)

Net cash used in investing activities

(14,063)

(2,620)

Cash flows from financing activities:

Payments under capital leases

(184)

(180)

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

(393)

(385)

Excess tax benefit on stock-based compensation

70

100

RSU acquired to settle employee withholding liability

(96)

(47)

Proceeds from issuance of common stock, net of issuance costs

4,984

5,109

Net cash provided by financing activities

4,381

4,597

Effect of exchange rate changes on cash and cash equivalents

(224)

179

Net change in cash and cash equivalents

4,794

12,712

Cash and cash equivalents at beginning of period

185,859

141,448

Cash and cash equivalents at end of period

$

190,653

$

154,160

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

SOURCE NetSuite Inc.



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