TechWeb

NetSuite Announces Fourth Quarter and Fiscal 2010 Financial Results

Feb 03, 2011 (03:02 PM EST)
URL: http://www.techweb.com/show-press-release/X828322/netsuite-announces-fourth-quarter-and-fiscal-2010-financial-results.html

- Record Q4 Revenue of $52.1 Million, a 21% Year-over-Year increase

- Record 2010 Revenue of $193.1 Million, 16% Growth over Prior Year

- 2010 Recurring Revenue Grows 18% Year-over-Year to $164.0 Million

- Record Q4 Non-GAAP Operating Margin of 6.8%

- Record 2010 Non-GAAP Net Income Grows 151% Year-over-Year

- Record 2010 Operating Cash Flow

SAN MATEO, Calif., Feb. 3, 2011 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP software suites, today announced operating results for its fourth quarter and fiscal year ended December 31, 2010.

Total revenue for the fourth quarter of 2010 was $52.1 million, representing a 21% increase over the prior year. Subscription and support revenue for the fourth quarter was $44.2 million, representing 21% growth over the same period in the prior year. Total revenue for the year was $193.1 million, a year-over-year increase of 16%.

GAAP operating loss for the fourth quarter of 2010 was $5.7 million, as compared to a GAAP operating loss of $6.6 million in the fourth quarter of 2009. GAAP operating loss for the year ended December 31, 2010 was $25.6 million, as compared to a GAAP operating loss of $23.5 million in 2009.

On a GAAP basis, net loss for the fourth quarter of 2010 was $6.4 million, or $(0.10) per share, as compared to a net loss of $6.5 million, or $(0.10) per share in the fourth quarter of 2009.  Net loss for the year ended December 31, 2010 was $27.5 million, or $(0.43) per share, as compared to a GAAP net loss of $23.3 million, or $(0.38) per share in 2009.  

Non-GAAP operating income for the fourth quarter of 2010 improved 177% year-over-year, growing to $3.5 million, as compared to non-GAAP operating income of $1.3 million in the fourth quarter of 2009. Non-GAAP operating income for the year ended December 31, 2010 improved 228% year-over-year, growing to $10.4 million, as compared to non-GAAP operating income of $3.2 million for the year ended December 31, 2009.

Non-GAAP net income for the fourth quarter of 2010 was $2.8 million, or $0.04 per share, as compared to non-GAAP net income of $1.3 million, or $0.02 per share, for the fourth quarter of 2009.  Non-GAAP net income for the year ended December 31, 2010 improved 151% to $8.5 million, or $0.13 per share, as compared to non-GAAP net income of $3.4 million, or $0.05 per share in 2009.  

"2010 was a great year for NetSuite. We are seeing an acceleration of enterprises large and small moving to cloud computing, and our ten year head start in delivering cloud business applications bodes well for us in 2011 as companies continue to move their core business applications from outdated and costly client-server offerings from Microsoft, SAP and others to NetSuite solutions that have cloud computing at their core,” said Zach Nelson, CEO of NetSuite.

Conference Call

In conjunction with this announcement, NetSuite will host a conference call at 2:00 p.m. PST (5:00 p.m. EST) today to discuss the company's fourth quarter and fiscal year 2010 financial results and financial outlook for the first quarter and fiscal year 2011. 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 800-263-8506 (U.S.) or 719-325-2327 (outside the U.S.) and referencing passcode: 864-0226. 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: 864-0226.

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 enable 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 the Company's data center may occur; a security breach may impact operations; risks associated with material defects or errors in the Company's 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; 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; 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 November 5, 2010, and any subsequently filed reports on Forms 10-Q, 10-K 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 intangible assets and transaction costs for business combinations. 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.

Click here to download the press release, financial tables and non-GAAP reconciliation.

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,





2010


2009

Assets





Current assets:





Cash and cash equivalents

$        104,298


$          96,355


Accounts receivable, net of allowances of $456 and $921 as of






December 31, 2010 and 2009, respectively

27,235


25,776


Deferred commissions

15,401


11,726


Other current assets

7,190


4,922



Total current assets

154,124


138,779

Property and equipment, net

19,847


14,731

Deferred commissions, non-current

1,389


1,040

Goodwill


27,340


28,095

Other intangible assets, net

12,507


17,073

Other assets

2,086


2,506




Total assets

$        217,293


$        202,224

Liabilities and equity




Current liabilities:





Accounts payable

$            1,489


$            1,147


Deferred revenue

75,827


66,360


Accrued compensation

12,048


10,562


Accrued expenses

5,144


5,154


Other current liabilities

5,599


5,716




Total current liabilities

100,107


88,939

Long-term liabilities:





Deferred revenue, non-current

5,312


6,361


Other long-term liabilities

5,590


2,217



Total long-term liabilities

10,902


8,578




Total liabilities

111,009


97,517

Equity:







NetSuite Inc. stockholders' equity:






Common stock

649


629



Additional paid-in capital

416,582


387,507



Accumulated other comprehensive income

578


756



Accumulated deficit

(311,525)


(284,059)




Total NetSuite Inc. stockholders' equity

106,284


104,833


Noncontrolling interest

-


(126)




Total equity

106,284


104,707




Total liabilities and equity

$        217,293


$        202,224



NetSuite Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)
















Three months ended


Twelve months ended





December 31,


December 31,





2010


2009


2010


2009





With

adoption

of ASU

2009-13




With

adoption

of ASU

2009-13



Revenue:










Subscription and support

$   44,229


$   36,660


$ 163,964


$ 139,121


Professional services and other

7,838


6,304


29,185


27,419



Total revenue

52,067


42,964


193,149


166,540

Cost of revenue:









Subscription and support (1)

6,870


6,587


26,908


24,570


Professional services and other (1)

8,651


8,434


34,741


31,535



Total cost of revenue

15,521


15,021


61,649


56,105

Gross profit

36,546


27,943


131,500


110,435

Operating expenses:









Product development (1)

8,568


7,650


35,019


28,577


Sales and marketing (1)

26,191


19,626


92,814


76,165


General and administrative (1)

7,459


7,265


29,232


29,215



Total operating expenses

42,218


34,541


157,065


133,957

Operating loss

(5,672)


(6,598)


(25,565)


(23,522)

Other income / (expenses) and income taxes, net

(773)


(120)


(1,915)


(590)

Net loss


(6,445)


(6,718)


(27,480)


(24,112)


Less: Net loss attributable to the










noncontrolling interest

-


178


14


808

Net loss attributable to NetSuite Inc. common









stockholders

$    (6,445)


$    (6,540)


$  (27,466)


$  (23,304)

Net loss per share attributable to NetSuite Inc. common









stockholders

$      (0.10)


$      (0.10)


$      (0.43)


$      (0.38)

Weighted average number of shares used in









computing net loss per common share

64,539


62,545


63,772


61,941























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


combinations as follows:












Three months ended


Twelve months ended





December 31,


December 31,





2010


2009


2010


2009


Cost of revenue:










Subscription and support

$        916


$        862


$     3,598


$     2,792



Professional services and other

1,017


772


3,802


2,497


Operating expenses:










Product development

2,395


2,139


9,723


6,641



Sales and marketing

2,900


2,170


10,249


7,078



General and administrative

1,990


1,934


8,565


7,677



Total stock-based compensation expense,











amortization of intangible assets and











transaction costs for business combinations

$     9,218


$     7,877


$   35,937


$   26,685



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


Twelve months ended





December 31,


December 31,





2010


2009


2010


2009

Reconciliation between GAAP and non-GAAP









operating income / (loss):









Operating loss

$    (5,672)


$    (6,598)


$  (25,565)


$  (23,522)


Reversal of stock-based compensation expense,










amortization of intangible assets and transaction










costs for business combinations (a)

9,218


7,877


35,937


26,685




Non-GAAP operating income

$     3,546


$     1,279


$   10,372


$     3,163

Numerator:








Reconciliation between GAAP and non-GAAP









net income / (loss):









Net loss attributable to NetSuite Inc. common










stockholders

$    (6,445)


$    (6,540)


$  (27,466)


$  (23,304)


Reversal of stock-based compensation expense,










amortization of intangible assets and transaction










costs for business combinations (a)

9,218


7,877


35,937


26,685




Non-GAAP net income attributable to











   NetSuite Inc. common stockholders

$     2,773


$     1,337


$     8,471


$     3,381

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

64,539


62,545


63,772


61,941


Effect of dilutive securities (stock options,









  restricted stock awards and warrants) (b)

3,979


2,914


3,439


2,646



Non-GAAP weighted average shares used in










  computing non-GAAP net income per










  common share

68,518


65,459


67,211


64,587

GAAP net loss per share attributable to NetSuite Inc.









common stockholders

$      (0.10)


$      (0.10)


$      (0.43)


$      (0.38)

Non-GAAP net income per share attributable to









NetSuite Inc. common stockholders

$       0.04


$       0.02


$       0.13


$       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 / (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 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.



(a)

Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC

Topic 718. Amortization of intangible assets and transaction costs related to business combinations

resulted principally from mergers and acquisitions. 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.

(b)

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,





2010


2009

Cash flows from operating activities:





Net loss attributable to NetSuite Inc.

$        (27,466)


$        (23,304)


Adjustments to reconcile net loss to net cash provided by / (used in)





  operating activities:






Depreciation and amortization

7,755


7,107



Amortization of other intangible assets

4,621


3,627



Provision for accounts receivable allowances

558


1,692



Stock-based compensation

31,293


20,718



Amortization of deferred commissions

23,547


19,946



Noncontrolling interests

(14)


(808)



Changes in operating assets and liabilities, net of






  acquired assets and liabilities:







Accounts receivable

(2,194)


353




Deferred commissions

(27,621)


(19,663)




Other current assets

(2,568)


(2,367)




Other assets

386


224




Accounts payable

52


(1,249)




Accrued compensation

1,474


(578)




Deferred revenue

8,690


(2,241)




Other current liabilities

364


1,743




Other long-term liabilities

(645)


(454)

Net cash provided by operating activities

18,232


4,746

Cash flows from investing activities:





Purchases of property and equipment

(6,367)


(6,092)


Capitalized internal use software

(96)


(254)


Advances on line of credit

-


(157)


Acquisitions, net of cash received

-


(22,212)

Net cash used in investing activities

(6,463)


(28,715)

Cash flows from financing activities:





Payments under capital leases and long-term debt

(1,730)


(1,638)


Repurchase of noncontrolling interest

(1,370)


(3,000)


RSU acquired to settle employee withholding liability

(5,642)


(2,934)


Proceeds from issuance of common stock, net of issuance costs

4,854


4,349

Net cash used in financing activities

(3,888)


(3,223)

Effect of exchange rate changes on cash and cash equivalents

62


(91)

Net change in cash and cash equivalents

7,943


(27,283)

Cash and cash equivalents at beginning of period

96,355


123,638

Cash and cash equivalents at end of period

$       104,298


$         96,355



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SOURCE NetSuite Inc.