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NetSuite Announces Fourth Quarter And Fiscal 2014 Financial Results

Fiscal Year 2014 Marks a Record Fifth Straight Year of Accelerating Recurring Revenue Growth

-- Record Q4 Revenue of $157.9 Million, a 37% Year-over-Year Increase

-- Record 2014 Revenue of $556.3 Million, 34% Growth over Prior Year

-- Record Q4 2014 Operating Cash Flow of $20.9 Million, 21% Growth over Prior Year

NetSuite. Where Business is Going.

News provided by

NetSuite Inc.

Jan 29, 2015, 04:14 ET

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SAN MATEO, Calif., Jan. 29, 2015 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP and omnichannel commerce software suites, today announced operating results for its fourth quarter and fiscal year ended December 31, 2014.

Total revenue for the fourth quarter of 2014 was $157.9 million, representing a 37% increase over the prior year.  Total revenue for the year was $556.3 million, a year-over-year increase of 34%.

Cash flow from operations was $20.9 million in the fourth quarter of 2014, an increase of $3.6 million, or 21%, over the same period last year.  Cash flow from operations was $74.9 million for the year, an increase of $12.7 million, or 20%, over the prior year.

On a GAAP basis, net loss for the fourth quarter of 2014 was $25.3 million, or $(0.33) per share, as compared to a net loss of $20.2 million, or $(0.27) per share, in the fourth quarter of 2013.  GAAP net loss for the year ended December 31, 2014 was $100.0 million, or $(1.31) per share, as compared to a GAAP net loss of $70.4 million, or $(0.95) per share, in 2013.

Non-GAAP net income for the fourth quarter of 2014 was $7.5 million, or $0.10 per share, as compared to non-GAAP net income of $6.2 million, or $0.08 per share, in the fourth quarter of 2013.  Non-GAAP net income for the year ended December 31, 2014 was $25.0 million, or $0.32 per share, as compared to non-GAAP net income of $19.9 million, or $0.26 per share, in 2013.

"Our record results for the quarter and fiscal year 2014 contrast with the results announced by legacy on-premise software companies as the cloud and NetSuite disrupt the business software landscape," said NetSuite CEO Zach Nelson.  "The fourth quarter of 2014 was our seventh consecutive quarter of more than 30% year-over-year recurring revenue growth.  In addition, fiscal year 2014 represents a fifth consecutive year of accelerating recurring revenue growth, which, based on public disclosures, we believe is a record unmatched by any publicly-traded on-premise or cloud software company during the last five years."

Conference Call
In conjunction with this announcement, NetSuite will host a conference call at 2:00 p.m. PT (5:00 p.m. ET) today to discuss the company's fourth quarter and fiscal 2014 financial results, and our outlook for the first quarter and fiscal 2015.  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 855-416-1337 (U.S.) or 779-232-4661 (outside the U.S.) and referencing passcode: 63204335. A replay of the call can also be accessed by dialing 855-859-2056 (U.S.) or 404-537-3406 (outside the U.S.), and referencing passcode: 63204335.

About NetSuite
NetSuite Inc. is the industry's leading provider of cloud-based financials / Enterprise Resource Planning (ERP) and omnichannel commerce software suites. In addition to financials/ERP and omnichannel commerce software suites, NetSuite offers a broad suite of applications, including financial management, Customer Relationship Management (CRM), ecommerce and retail management, Professional Services Automation (PSA) and Human Capital Management (HCM) that enable companies to manage most of their core business operations in one single unified 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; 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 March 3, 2014, Quarterly Report on Form 10-Q filed on November 7, 2014 and any subsequently filed reports on Forms 10-K, 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, non-cash interest expense on convertible debt and income tax benefits associated with 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 registered service marks of NetSuite Inc.


 

NetSuite Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)


 

 

December 31,


 

2014


 

 

2013


 

Assets


 

 

 

 

 

Current assets:


 

 

 

 

 

Cash and cash equivalents

$

367,769


 

 

$

451,577


 

Short-term marketable securities

82,622


 

 

—


 

Accounts receivable, net of allowances of $1,886 and $833 as of December 31, 2014 and December 31, 2013, respectively

139,221


 

 

86,818


 

Deferred commissions

53,377


 

 

38,187


 

Other current assets

30,012


 

 

22,622


 

Total current assets

673,001


 

 

599,204


 

Marketable securities, non-current

9,143


 

 

—


 

Property and equipment, net

58,539


 

 

48,183


 

Deferred commissions, non-current

13,499


 

 

8,405


 

Goodwill

123,049


 

 

84,478


 

Other intangible assets, net

32,404


 

 

20,460


 

Other assets

12,604


 

 

11,669


 

Total assets

$

922,239


 

 

$

772,399


 

Liabilities and total equity


 

 

 

 

 

Current liabilities:


 

 

 

 

 

Accounts payable

$

5,082


 

 

$

4,838


 

Deferred revenue

300,884


 

 

211,694


 

Accrued compensation

41,081


 

 

24,535


 

Accrued expenses

30,975


 

 

21,721


 

Other current liabilities

14,751


 

 

16,776


 

Total current liabilities

392,773


 

 

279,564


 

Long-term liabilities:


 

 

 

 

 

Convertible 0.25% senior notes, net

265,710


 

 

254,038


 

Deferred revenue, non-current

13,622


 

 

12,913


 

Other long-term liabilities

15,900


 

 

15,832


 

Total long-term liabilities

295,232


 

 

282,783


 

Total liabilities

688,005


 

 

562,347


 

Total equity:


 

 

 

 

 

Common stock

770


 

 

751


 

Additional paid-in capital

788,583


 

 

658,717


 

Accumulated other comprehensive income

(5,912)


 

 

(246)


 

Accumulated deficit

(549,207)


 

 

(449,170)


 

Total equity

234,234


 

 

210,052


 

Total liabilities and total equity

$

922,239


 

 

$

772,399


 


 

NetSuite Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)


 

 

 

Three months ended

December 31,


 

Twelve months ended

December 31,


 

2014


 

 

2013


 

 

2014


 

 

2013


 

Revenue:


 

 

 

 

 

 

 

 

 

 

 

Subscription and support

126,705


 

 

$

93,562


 

 

$

447,782


 

 

$

333,556


 

Professional services and other

31,164


 

 

21,446


 

 

108,502


 

 

80,952


 

Total revenue

157,869


 

 

115,008


 

 

556,284


 

 

414,508


 

Cost of revenue:


 

 

 

 

 

 

 

 

 

 

 

Subscription and support (1)

20,041


 

 

15,167


 

 

72,007


 

 

55,269


 

Professional services and other (1)

30,496


 

 

21,784


 

 

104,803


 

 

79,925


 

Total cost of revenue

50,537


 

 

36,951


 

 

176,810


 

 

135,194


 

Gross profit

107,332


 

 

78,057


 

 

379,474


 

 

279,314


 

Operating expenses:


 

 

 

 

 

 

 

 

 

 

 

Product development (1)

28,548


 

 

22,886


 

 

106,706


 

 

78,312


 

Sales and marketing (1)

82,856


 

 

57,053


 

 

290,961


 

 

210,079


 

General and administrative (1)

16,902


 

 

14,287


 

 

65,138


 

 

51,693


 

Total operating expenses

128,306


 

 

94,226


 

 

462,805


 

 

340,084


 

Operating loss

(20,974)


 

 

(16,169)


 

 

(83,331)


 

 

(60,770)


 

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

(4,371)


 

 

(4,042)


 

 

(16,706)


 

 

(9,639)


 

Net loss

(25,345)


 

 

(20,211)


 

 

(100,037)


 

 

(70,409)


 

Net loss per share

$

(0.33)


 

 

$

(0.27)


 

 

$

(1.31)


 

 

$

(0.95)


 

Weighted average number of shares used in computing

net loss per common share

76,850


 

 

74,851


 

 

76,174


 

 

74,085


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations, non-cash interest expense on convertible debt and income tax benefits associated with business combinations as follows:


 

 

 

 

 

Three months ended

December 31,


 

Twelve months ended

December 31,


 

 

 

2014


 

 

2013


 

 

2014


 

 

2013


 

Cost of revenue:


 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription and support


 

 

$

2,332


 

 

$

1,733


 

 

$

8,342


 

 

$

6,135


 

Professional services and other


 

 

2,845


 

 

2,345


 

 

10,328


 

 

8,834


 

Operating expenses:


 

 

 

 

 

 

 

 

 

 

 

 

 

Product development


 

 

7,396


 

 

6,427


 

 

28,587


 

 

23,543


 

Sales and marketing


 

 

10,945


 

 

7,369


 

 

38,897


 

 

26,749


 

General and administrative


 

 

6,012


 

 

5,675


 

 

25,988


 

 

19,123


 

Other income / (expenses) and income taxes, net


 

 

3,291


 

 

2,875


 

 

12,910


 

 

5,935


 

Total


 

 

$

32,821


 

 

$

26,424


 

 

$

125,052


 

 

$

90,319


 

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
December 31,


 

Twelve months ended

December 31,


 

2014


 

 

2013


 

 

2014


 

 

2013


 

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


 

 

 

 

 

 

 

 

 

 

 

Operating loss

$

(20,974)


 

 

$

(16,169)


 

 

$

(83,331)


 

 

$

(60,770)


 

Reversal of non-GAAP expenses:


 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation and amortization of capitalized stock-based compensation (a)

26,475


 

 

20,235


 

 

97,340


 

 

74,165


 

Amortization of intangible assets and business combination costs (b)

3,055


 

 

3,314


 

 

14,802


 

 

10,219


 

Non-GAAP operating income

$

8,556


 

 

$

7,380


 

 

$

28,811


 

 

$

23,614


 

Numerator:


 

 

 

 

 

 

 

 

 

 

 

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


 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(25,345)


 

 

$

(20,211)


 

 

$

(100,037)


 

 

$

(70,409)


 

Stock-based compensation and amortization of capitalized stock-based compensation (a)

26,475


 

 

20,235


 

 

97,340


 

 

74,165


 

Amortization of intangible assets and business combination costs (b)

3,055


 

 

3,314


 

 

14,802


 

 

10,219


 

Non-cash interest expense on convertible debt (c)

3,291


 

 

3,138


 

 

12,910


 

 

7,317


 

Income tax benefit associated with business combinations (d)

—


 

 

(263)


 

 

—


 

 

(1,382)


 

Non-GAAP net income

$

7,476


 

 

$

6,213


 

 

$

25,015


 

 

$

19,910


 

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

76,850


 

 

74,851


 

 

76,174


 

 

74,085


 

Effect of dilutive securities (stock options and restricted stock awards) (e)

1,522


 

 

1,859


 

 

1,557


 

 

2,206


 

Non-GAAP weighted average shares used in computing non-GAAP net income per common share

78,372


 

 

76,710


 

 

77,731


 

 

76,291


 

GAAP net loss per share

$

(0.33)


 

 

$

(0.27)


 

 

$

(1.31)


 

 

$

(0.95)


 

Non-GAAP net income per share

$

0.10


 

 

$

0.08


 

 

$

0.32


 

 

$

0.26


 

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, non-cash interest expense on convertible debt and income tax benefits associated with 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 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 the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods and to our peer companies.  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 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) 

During the second quarter of 2013, we issued $310.0 million in senior convertible debt with a coupon interest rate of 0.25%.  Interest is paid semiannually on June 1 and December 1 over the five year term of the debt.  In connection with this convertible debt, we are required to recognize non-cash interest expense, including debt transaction costs, in accordance with the authoritative accounting guidance for convertible debt that may be settled in cash.  We exclude this incremental non-cash interest expense, including debt transaction costs, for purposes of calculating non-GAAP net income and non-GAAP net income per share.  We believe that excluding these expenses from our non-GAAP measures is useful to investors because the incremental interest expense does not represent a cash outflow for the company and the debt transactions cost do not represent a cash outflow for the company except in the period the debt was issued and therefore both are not indicative of our continuing operations or meaningful in evaluating current versus past business results.  Finally, we believe that non-GAAP measures of profitability that exclude non-cash interest expense and debt transaction costs are widely used by analysts and investors.


 

 

(d) 

In connection with our business acquisitions in the first and fourth quarters of 2013, we recorded an income tax benefit that reduced our income tax provision in each of the respective quarters.  These income tax benefits are non-cash items 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.


 

 

(e) 

These securities are anti-dilutive on a GAAP basis as a result of the Company's net loss, but are considered dilutive on a non-GAAP basis in periods where the Company has reported positive non-GAAP earnings.

NetSuite Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)


 

 

Twelve Months Ended December 31,


 

2014


 

 

2013


 

Cash flows from operating activities:


 

 

 

 

 

Net loss

$

(100,037)


 

 

$

(70,409)


 

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


 

 

 

 

 

Depreciation and amortization

20,115


 

 

15,668


 

Amortization of other intangible assets

9,993


 

 

6,749


 

Amortization of debt discount and transaction costs

12,910


 

 

7,316


 

Provision for accounts receivable allowances

1,446


 

 

1,041


 

Stock-based compensation

96,480


 

 

73,660


 

Amortization of deferred commissions

75,249


 

 

55,531


 

Excess tax benefit on stock-based compensation

(313)


 

 

(410)


 

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


 

 

 

 

 

Accounts receivable

(50,811)


 

 

(22,305)


 

Deferred commissions

(95,532)


 

 

(70,380)


 

Other current assets

(4,932)


 

 

(12,486)


 

Other assets

(2,165)


 

 

(2,329)


 

Accounts payable

(2,321)


 

 

1,691


 

Accrued compensation

15,403


 

 

6,173


 

Deferred revenue

89,668


 

 

63,510


 

Other current liabilities

11,624


 

 

8,771


 

Other long-term liabilities

(1,857)


 

 

444


 

Net cash provided by operating activities

74,920


 

 

62,235


 

Cash flows from investing activities:


 

 

 

 

 

Purchases of property and equipment

(23,732)


 

 

(20,337)


 

Capitalized internal use software

(2,578)


 

 

(2,056)


 

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

(39,209)


 

 

(58,630)


 

Purchases of marketable securities

(105,576)


 

 

—


 

Maturities of marketable securities

10,000


 

 

—


 

Sales of marketable securities

3,799


 

 

—


 

Net cash used in investing activities

(157,296)


 

 

(81,023)


 

Cash flows from financing activities:


 

 

 

 

 

Proceeds from issuance of convertible 0.25% senior notes

—


 

 

310,000


 

Payments of issuance costs on convertible 0.25% senior notes

—


 

 

(8,260)


 

Payments under capital leases

(364)


 

 

(744)


 

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

(3,054)


 

 

(2,612)


 

Payments to repurchase common stock

—


 

 

(30,000)


 

Payments related to business combinations

(5,945)


 

 

—


 

RSU acquired to settle employee withholding liability

(137)


 

 

(162)


 

Excess tax benefit on stock-based compensation

313


 

 

410


 

Proceeds from issuance of common stock, net of issuance costs

9,029


 

 

16,944


 

Net cash (used in) / provided by financing activities

(158)


 

 

285,576


 

Effect of exchange rate changes on cash and cash equivalents

(1,274)


 

 

(1,070)


 

Net change in cash and cash equivalents

(83,808)


 

 

265,718


 

Cash and cash equivalents at beginning of period

451,577


 

 

185,859


 

Cash and cash equivalents at end of period

$

367,769


 

 

$

451,577


 

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SOURCE NetSuite Inc.

Related Links

http://www.netsuite.com

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