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NetSuite Announces Second Quarter 2011 Financial Results
Jul 28, 2011 (04:07 PM EDT)


- Delivers Record Revenue of $57.8 Million, a 23% Year-over-Year Increase

- Grows Calculated Billings 30% Year-over-Year

- Posts Record Quarterly Operating Cash Flow of $8.4 Million

- Reports Largest Number of New Customer Wins in Two Years

- Inks Largest Customer Deal in Company History

SAN MATEO, Calif., July 28, 2011 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP software suites, today announced operating results for its second quarter ended June 30, 2011.

Total revenue for the second quarter of 2011 was $57.8 million, representing a 23% increase over the second quarter of 2010. Subscription and support revenue for the second quarter was $48.2 million, representing 21% growth over the same period in the prior year.

Calculated billings were $62.6 million for the quarter, a 30% increase over the second quarter of 2010. Calculated billings are defined as revenue plus the change in deferred revenue.

Cash flow from operations was $8.4 million in the quarter, an increase of $4.0 million, or 88%, over the same period last year.

On a GAAP basis, net loss for the second quarter of 2011 was $9.8 million, or $(0.15) per share, as compared to a net loss of $7.2 million, or $(0.11) per share, in the second quarter of 2010.

Non-GAAP net income for the second quarter of 2011 was $1.6 million, or $0.02 per share, as compared to non-GAAP net income of $1.9 million, or $0.03 per share, for the second quarter of 2010.

"NetSuite's strong financial results and the quality and quantity of our customer wins tell the story of how NetSuite is transforming the business capabilities of small, medium and large companies around the globe," said Zach Nelson, CEO of NetSuite. "Q2 also showed our continued success in moving up market with the announcement of customer wins at billion-dollar revenue companies like Groupon and Qualcomm. NetSuite also marked a milestone during Q2 by signing our largest ever recurring revenue contract with a 45,000 employee global organization that plans to use NetSuite to automate its entire operation including ERP and industry specific functionality."  

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 the Company's second quarter 2011 financial results. 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 Web site at www.netsuite.com/investors. The live call can be accessed by dialing 888-500-6955 (U.S.) or 719-325-2491 (outside the U.S.) and referencing passcode: 712-3580. 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: 712-3580.

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 the Company 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 our data center 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; failure to protect and enforce our intellectual property rights; assertions by third parties that we infringe their intellectual property; 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; increased demands on employees and costs associated with operating as a public company; 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 the Company's Quarterly Report on Form 10-Q filed on May 5, 2011, 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 Web site at www.netsuite.com.

Non-GAAP Financial Measures

The Company's stated results include certain non-GAAP financial measures, including non-GAAP operating income/(loss), net income/(loss), weighted average shares outstanding, and net income/(loss) per share. Non-GAAP operating income/(loss) and non-GAAP net income/(loss) excludes expenses related to stock-based compensation expense, amortization of acquisition related intangible assets, transaction costs for business combinations, and costs associated with settlement of patent dispute. Non-GAAP operating income/(loss) and non-GAAP net income/(loss) excludes 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. The Company believes these adjustments provide useful comparative information to investors.

The Company considers these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the Company and are used by the Company's 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 the Company's 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 the Company's Investor Relations Web site at www.netsuite.com/investors. The contents of the Web site are not incorporated by reference into this press release.

NOTE: NetSuite and the NetSuite logo and where business is going are service marks of NetSuite Inc.

NetSuite Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)



June 30,

2011


December 31,

2010

Assets




Current assets:




Cash and cash equivalents

$

121,050



$

104,298


Accounts receivable, net of allowances of $422 and $456 as of June 30, 2011 and December 31, 2010, respectively

29,364



27,235


Deferred commissions

17,292



15,401


Other current assets

16,929



7,190


               Total current assets

184,635



154,124


Property and equipment, net

21,330



19,847


Deferred commissions, non-current

2,015



1,389


Goodwill

27,407



27,340


Other intangible assets, net

11,189



12,507


Other assets

2,067



2,086


                              Total assets

$

248,643



$

217,293


Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

2,262



$

1,489


Deferred revenue

89,361



75,827


Accrued compensation

11,929



12,048


Accrued expenses

5,402



5,144


Other current liabilities

16,020



5,599


               Total current liabilities

124,974



100,107


Long-term liabilities:




Deferred revenue, non-current

4,857



5,312


Other long-term liabilities

4,742



5,590


               Total long-term liabilities

9,599



10,902


                         Total liabilities

134,573



111,009


Stockholders' equity:




Common stock

671



649


Additional paid-in capital

441,592



416,582


Accumulated other comprehensive income

795



578


Accumulated deficit

(328,988)



(311,525)


                      Total equity

114,070



106,284


                                    Total liabilities and stockholders' equity

$

248,643



$

217,293





NetSuite Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)



Three months ended


June 30,

2011


March 31,

2011


December 31,

2010


September 30,

2010


June 30,

2010

Revenue:










Subscription and support

$

48,240



$

45,814



$

44,229



$

41,834



$

39,779


Professional services and other

9,593



7,627



7,838



7,909



7,310


               Total revenue

57,833



53,441



52,067



49,743



47,089


Cost of revenue:










Subscription and support (1)

8,084



7,631



6,870



6,848



6,556


Professional services and other (1)

9,390



8,402



8,651



8,546



8,907


               Total cost of revenue

17,474



16,033



15,521



15,394



15,463


Gross profit

40,359



37,408



36,546



34,349



31,626


Operating expenses:










Product development (1)

10,911



9,447



8,568



9,482



8,918


Sales and marketing (1)

30,469



27,461



26,191



24,363



21,881


General and administrative (1)

8,340



7,877



7,459



7,110



7,789


               Total operating expenses

49,720



44,785



42,218



40,955



38,588


Operating loss

(9,361)



(7,377)



(5,672)



(6,606)



(6,962)


Other income / (expenses) and income taxes, net

(430)



(295)



(773)



(352)



(278)


Net loss

(9,791)



(7,672)



(6,445)



(6,958)



(7,240)


Net loss per share

$

(0.15)



$

(0.12)



$

(0.10)



$

(0.11)



$

(0.11)


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

66,489



65,384



64,539



63,965



63,470





(1)

Includes stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations and costs associated with settlement of patent dispute as follows:





June 30,

2011


March 31,

2011


December 31,

2010


September 30,

2010


June 30,

2010

Cost of revenue:










Subscription and support

$

919



$

972



$

916



$

990



$

872


Professional services and other

1,024



964



1,017



1,042



942


Operating expenses:










Product development

3,097



2,180



2,395



2,724



2,420


Sales and marketing

3,422



3,085



2,900



2,753



2,400


General and administrative

2,956



2,363



1,990



2,028



2,479


Total stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations and costs associated with settlement of patent dispute

$

11,418



$

9,564



$

9,218



$

9,537



$

9,113





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


June 30,
2011


March 31,
2011


December 31,
2010


September 30,
2010


June 30,
2010

Reconciliation between GAAP and non-GAAP operating income / (loss):










Operating loss

$

(9,361)



$

(7,377)



$

(5,672)



$

(6,606)



$

(6,962)


Reversal of non-GAAP expenses:










Stock-based compensation (a)

9,735



8,493



8,256



8,450



7,825


Amortization of intangible assets and business combination costs (b)

963



1,071



962



1,087



1,288


Costs associated with settlement of patent dispute (c)

720










             Non-GAAP operating income

$

2,057



$

2,187



$

3,546



$

2,931



$

2,151


Numerator:










Reconciliation between GAAP and non-GAAP net income / (loss):










Net loss

$

(9,791)



$

(7,672)



$

(6,445)



$

(6,958)



$

(7,240)


Stock-based compensation (a)

9,735



8,493



8,256



8,450



7,825


Amortization of intangible assets and business combination costs (b)

963



1,071



962



1,087



1,288


Costs associated with settlement of patent dispute (c)

720










             Non-GAAP net income

$

1,627



$

1,892



$

2,773



$

2,579



$

1,873


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

66,489



65,384



64,539



63,965



63,470


Effect of dilutive securities (stock options, restricted stock awards and warrants) (d)

4,080



4,038



3,979



3,237



2,914


             Non-GAAP weighted

             average shares used in

             computing non-GAAP net

             income per common share

70,569



69,422



68,518



67,202



66,384


GAAP net loss per share                         

$

(0.15)



$

(0.12)



$

(0.10)



$

(0.11)



$

(0.11)


Non-GAAP net income per share

$

0.02



$

0.03



$

0.04



$

0.04



$

0.03





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 / (loss), net income / (loss), weighted average shares outstanding and net income / (loss) per share, which are adjusted to exclude stock-based compensation expense, amortization of acquisition-related intangible assets, transaction costs for business combinations and costs associated with the settlement of a patent dispute 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 continuing operations 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.


(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. 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)

Recently, we entered into a patent cross licensing agreement with a large technology company which, among other things, resolved a patent dispute over our alleged past usage of the other party's technology. This resolution resulted in a charge in the second quarter of 2011. We believe that the impact of this patent cross licensing agreement on our financial statements in the second quarter of 2011 is not indicative of our continuing operations and its exclusion allows for financial statements that 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 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)



Six months ended

June 30,


2011


2010

Cash flows from operating activities:




Net loss attributable to NetSuite Inc. common stockholders

$

(17,463)



$

(14,063)


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




              Depreciation and amortization

4,358



3,851


              Amortization of other intangible assets

2,035



2,461


              Provision for accounts receivable allowances

141



297


              Stock-based compensation

18,228



14,587


              Amortization of deferred commissions

15,778



10,626


              Noncontrolling interests



(14)


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




                           Accounts receivable

(2,265)



2,123


                           Deferred commissions

(18,294)



(10,631)


                           Other current assets

7



(1,512)


                           Other assets

5



431


                           Accounts payable

407



168


                           Accrued compensation

(199)



(1,742)


                           Deferred revenue

13,108



4,707


                           Other current liabilities

(167)



(1,872)


                           Other long-term liabilities

(537)



(242)


Net cash provided by operating activities

15,142



9,175


Cash flows from investing activities:




Purchases of property and equipment

(3,838)



(2,591)


Capitalized internal use software

(273)



(54)


Cash paid in business combination

(650)




Net cash used in investing activities

(4,761)



(2,645)


Cash flows from financing activities:




Payments under capital leases and long-term debt

(577)



(795)


Repurchase of noncontrolling interest



(1,370)


RSU acquired to settle employee withholding liability

(162)



(3,734)


Proceeds from issuance of common stock, net of issuance costs

6,820



1,181


Net cash provided by / (used in) financing activities

6,081



(4,718)


Effect of exchange rate changes on cash and cash equivalents

290



24


Net change in cash and cash equivalents

16,752



1,836


Cash and cash equivalents at beginning of period

104,298



96,355


Cash and cash equivalents at end of period

$

121,050



$

98,191





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

SOURCE NetSuite Inc.