NETSUITE INC SAN MATEO, Calif., Oct. 23, 2014 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP and omnichannel commerce software suites, today announced results for its third quarter ended September 30, 2014.
Total revenue for the third quarter of 2014 was $143.7 million, representing a 34% increase over the same period in the prior year.
Cash flows from operations were $16.3 million in the third quarter of 2014, up from $14.6 million in the same period in the prior year.
On a GAAP basis, net loss for the third quarter of 2014 was $29.3 million, or $(0.38) per share, as compared to a net loss of $16.8 million, or $(0.23) per share, in the third quarter of 2013.
Non-GAAP net income for the third quarter of 2014 was $8.3 million, or $0.11 per share, as compared to non-GAAP net income of $6.9 million, or $0.09 per share, in the third quarter of 2013.
"The Cloud giveth, and the Cloud taketh away. While NetSuite reported our ninth consecutive quarter of more than 30% year-over-year revenue growth and Q3 profitability well ahead of our outlook, SAP experienced a sixth straight quarter of declining license sales and announced negatively impacted margins based on the move of customers to the cloud," said Zach Nelson, CEO of NetSuite. "The shift from antiquated software such as SAP and Microsoft to NetSuite's modern cloud-native solution is transforming the capabilities of small, medium and large organizations around the globe."
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 2014 financial results and our outlook for future periods. 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 855-812-1881 (U.S.) or 817-385-7868 (outside the U.S.) and referencing passcode: 16836910. 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: 16836910.
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 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; 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, our Quarterly Report on Form 10-Q filed on May 6, 2014, our Quarterly Report on Form 10-Q filed on August 6, 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 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 registered service marks of NetSuite Inc.
NetSuite Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
September 30,
2014 December 31, 2013
-------------- -----------------
Assets
Current assets:
Cash and cash equivalents $387,422 $451,577
Short-term marketable securities 43,824 -
Accounts receivable, net of allowances of $3,566
and $833 as of September 30, 2014 and December
31, 2013, respectively 106,995 86,818
Deferred commissions 42,627 38,187
Other current assets 29,016 22,622
------ ------
Total current assets 609,884 599,204
Marketable securities, non-current 15,189 -
Property and equipment, net 54,140 48,183
Deferred commissions, non-current 12,379 8,405
Goodwill 120,607 84,478
Other intangible assets, net 39,345 20,460
Other assets 12,394 11,669
------ ------
Total assets $863,938 $772,399
======== ========
Liabilities and total equity
Current liabilities:
Accounts payable $6,625 $4,838
Deferred revenue 256,933 211,694
Accrued compensation 34,876 24,535
Accrued expenses 24,175 21,721
Other current liabilities 14,265 16,776
------ ------
Total current liabilities 336,874 279,564
Long-term liabilities:
Convertible 0.25% senior notes, net 262,734 254,038
Deferred revenue, non-current 14,454 12,913
Other long-term liabilities 18,372 15,832
------ ------
Total long-term liabilities 295,560 282,783
------- -------
Total liabilities 632,434 562,347
------- -------
Total equity:
Common stock 767 751
Additional paid-in capital 758,393 658,717
Accumulated other comprehensive loss (3,794) (246)
Accumulated deficit (523,862) (449,170)
-------- --------
Total equity 231,504 210,052
------- -------
Total liabilities and total equity $863,938 $772,399
======== ========
NetSuite Inc.
Condensed Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended
------------------
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
---- ---- ---- ---- ----
Revenue:
Subscription and support $115,831 $105,851 $99,395 $93,562 $85,795
Professional services and
other 27,829 25,943 23,566 21,446 21,080
------ ------ ------ ------ ------
Total revenue 143,660 131,794 122,961 115,008 106,875
Cost of revenue:
Subscription and support (1) 18,522 17,084 16,360 15,167 14,276
Professional services and
other (1) 27,477 24,513 22,317 21,784 20,916
------ ------ ------ ------ ------
Total cost of revenue 45,999 41,597 38,677 36,951 35,192
------ ------ ------ ------ ------
Gross profit 97,661 90,197 84,284 78,057 71,683
------ ------ ------ ------ ------
Operating expenses:
Product development (1) 28,610 25,376 24,172 22,886 19,979
Sales and marketing (1) 74,699 69,726 63,680 57,053 52,315
General and administrative (1) 20,097 14,106 14,033 14,287 12,233
------ ------ ------ ------ ------
Total operating expenses 123,406 109,208 101,885 94,226 84,527
------- ------- ------- ------ ------
Operating loss (25,745) (19,011) (17,601) (16,169) (12,844)
Other income /(expenses) and
income taxes, net (1) (3,550) (4,153) (4,632) (4,042) (3,928)
------ ------ ------ ------ ------
Net loss (29,295) (23,164) (22,233) (20,211) (16,772)
Net loss per share $(0.38) $(0.31) $(0.29) $(0.27) $(0.23)
====== ====== ====== ====== ======
Weighted average number of
shares used in computing net
loss per common share 76,477 75,919 75,433 74,851 74,379
====== ====== ====== ====== ======
(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
combination as follows:
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
---- ---- ---- ---- ----
Cost of revenue:
Subscription and support $2,173 $1,851 $1,986 $1,733 $1,687
Professional services and
other 2,684 2,317 2,482 2,345 2,191
Operating expenses:
Product development 7,733 6,884 6,576 6,427 5,926
Sales and marketing 11,156 9,087 7,709 7,369 6,825
General and administrative 10,552 4,683 4,739 5,675 3,889
Other income /(expenses)
and income taxes, net 3,287 3,191 3,141 2,875 3,123
----- ----- ----- ----- -----
Total $37,585 $28,013 $26,633 $26,424 $23,641
======= ======= ======= ======= =======
NetSuite Inc.
GAAP Results Reconciled to Non-GAAP Financial Measures
(dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended
------------------
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
---- ---- ---- ---- ----
Reconciliation between GAAP operating loss
and non-GAAP operating income:
Operating loss $(25,745) $(19,011) $(17,601) $(16,169) $(12,844)
Reversal of non-GAAP expenses:
Stock-based compensation and
amortization of capitalized
stock-based compensation (a) 26,601 22,798 21,465 20,235 18,470
Amortization of intangible
assets and business
combination costs (b) 7,697 2,024 2,026 3,314 2,048
Non-GAAP operating income $8,553 $5,811 $5,890 $7,380 $7,674
====== ====== ====== ====== ======
Numerator:
Reconciliation between GAAP net loss and
non-GAAP net income:
Net loss $(29,295) $(23,164) $(22,233) $(20,211) $(16,772)
Stock-based compensation and
amortization of capitalized
stock-based compensation (a) 26,601 22,798 21,465 20,235 18,470
Amortization of intangible
assets and business
combination costs (b) 7,697 2,024 2,026 3,314 2,048
Non-cash interest expense on
convertible debt (c) 3,287 3,191 3,141 3,138 3,123
Income tax benefits associated
with business combination (d) - - - (263) -
--- --- --- ---- ---
Non-GAAP net income $8,290 $4,849 $4,399 $6,213 $6,869
====== ====== ====== ====== ======
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 76,477 75,919 75,433 74,851 74,379
Effect of dilutive securities
(stock options and restricted
stock awards) (e) 1,303 1,239 1,717 1,859 2,047
----- ----- ----- ----- -----
Non-GAAP weighted average
shares used in computing non-
GAAP net income per common
share 77,780 77,158 77,150 76,710 76,426
====== ====== ====== ====== ======
GAAP net loss per share $(0.38) $(0.31) $(0.29) $(0.27) $(0.23)
====== ====== ====== ====== ======
Non-GAAP net income per share $0.11 $0.06 $0.06 $0.08 $0.09
===== ===== ===== ===== =====
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, income tax benefits 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, which
include employee severance and
facility closing 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 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) 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 transaction costs 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
acquisition in the fourth quarter
of 2013, we recorded an income tax
benefit that reduced our income
tax provision. The 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.
(e) 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,
-------------------------------
2014 2013
---- ----
Cash flows from operating activities:
Net loss $(74,692) $(50,199)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 14,468 11,272
Amortization of other intangible assets 6,904 4,761
Amortization of debt discount and transaction costs 9,619 4,179
Provision for accounts receivable allowances 846 625
Stock-based compensation 70,256 53,597
Amortization of deferred commissions 53,478 39,971
Excess tax benefit on stock-based compensation (519) (330)
Changes in operating assets and liabilities, net of acquired
assets and liabilities:
Accounts receivable (17,650) (153)
Deferred commissions (61,892) (45,627)
Other current assets (1,745) (8,118)
Other assets (1,631) (520)
Accounts payable (1,395) 2,111
Accrued compensation 8,920 1,784
Deferred revenue 46,500 28,307
Other current liabilities 2,465 2,426
Other long-term liabilities 40 811
--- ---
Net cash provided by operating activities 53,972 44,897
------ ------
Cash flows from investing activities:
Purchases of property and equipment (15,469) (11,581)
Capitalized internal use software (1,125) (1,569)
Cash paid in business combinations, net of amounts
received, and equity investment (39,209) (33,907)
Purchases of marketable securities (59,815) -
Sales of marketable securities 799 -
--- ---
Net cash used in investing activities (114,819) (47,057)
-------- -------
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 (300) (556)
Payments under capital leases and long-term debt -
related party (2,379) (1,987)
Payments to repurchase common stock - (30,000)
Payments related to business combinations (5,890) -
RSUs acquired to settle employee withholding
liability (96) (147)
Excess tax benefit on stock-based compensation 519 330
Proceeds from issuance of common stock, net of
issuance costs 5,573 14,868
----- ------
Net cash (used in) /provided by financing
activities (2,573) 284,248
------ -------
Effect of exchange rate changes on cash and cash
equivalents (735) (817)
---- ----
Net change in cash and cash equivalents (64,155) 281,271
Cash and cash equivalents at beginning of period 451,577 185,859
------- -------
Cash and cash equivalents at end of period $387,422 $467,130
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SOURCE NetSuite Inc.
