NETSUITE INC SAN MATEO, Calif., Oct. 21, 2016 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud financials / ERP and omnichannel commerce software suites, today announced results for its third quarter ended September 30, 2016.
Total revenue for the third quarter of 2016 was $243.9 million, representing a 26% increase over the same period in the prior year.
Recurring revenue from subscription and support was $190.0 million, a 23% increase over the third quarter of last year. Non-recurring revenue from professional services and other was $53.9 million, a 41% increase over the same period in the prior year.
Cash flows from operations were $62.0 million in the third quarter of 2016, a 126% increase over the same period in the prior year.
On a GAAP basis, net loss for the third quarter of 2016 was $34.1 million, or $(0.42) per share, as compared to a net loss of $37.3 million, or $(0.47) per share, in the third quarter of 2015.
Non-GAAP net income for the third quarter of 2016 was $16.1 million, or $0.20 per share, as compared to a non-GAAP net income of $2.6 million or $0.03 per share, in the third quarter of 2015.
Outlook
As with Q2, following the announcement made on July 28, 2016 regarding NetSuite's entry into a definitive agreement to be acquired by Oracle, the Company will not provide outlook for its fourth quarter 2016 financial results. Furthermore, the Company does not expect to achieve its previously-issued full year revenue outlook range of $955 million to $975 million and is withdrawing all previously-issued financial outlook for the full year 2016.
Conference Call Details
Given the announcement made on July 28, 2016 regarding NetSuite's entry into a definitive agreement to be acquired by Oracle, NetSuite will not be hosting a conference call to discuss the third quarter 2016 financial results.
About NetSuite
In 1998, NetSuite pioneered the Cloud Computing revolution, establishing the world's first company dedicated to delivering business applications over the Internet. Today, NetSuite provides a suite of cloud financials/Enterprise Resource Planning (ERP) and omnichannel commerce software that runs the business of more than 30,000 companies, organizations, and subsidiaries in more than 100 countries.
For more information about NetSuite, please visit www.netsuite.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains 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 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 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, data privacy and ecommerce; changes to current accounting rules; changes in foreign exchange rates; and general political or destabilizing events, including war, conflict or acts of terrorism; and other risks and uncertainties.
Customers who purchase our services should make sure the decisions are based on features that are currently available. Please be advised that any unreleased services or features from NetSuite referenced in today's discussion or other public statements are not currently available and may not be delivered on time or at all.
For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the U.S. Securities and Exchange Commission ("SEC"), including but not limited to our Annual Report on Form 10-K filed on February 24, 2016 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, transaction costs for business combinations and costs associated with Oracle's pending purchase of NetSuite. Non-GAAP net income excludes expenses related to stock-based compensation expense, amortization of intangible assets, transaction costs for business combinations, costs associated with Oracle's pending purchase of NetSuite, non-cash interest expense on convertible debt and income tax benefit associated with business combination. Non-GAAP operating income and non-GAAP net income exclude these expenses as they are often excluded by other companies to help investors understand the operational performance of their business, and in the case of stock-based compensation, can be difficult to predict. We believe these adjustments provide useful comparative information to investors.
We consider these non-GAAP financial measures to be important because they provide useful measures of our operating performance and are used by our management for that purpose. In addition, investors often use measures such as these to evaluate the operating performance of a company. Non-GAAP results are presented for supplemental informational purposes only for understanding our operating results. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies.
A copy of this press release can be found on our Investor Relations website at www.netsuite.com/investors. The contents of the website are not incorporated by reference into this press release.
NOTE: NetSuite and the NetSuite logo are registered service marks of NetSuite Inc.
NetSuite Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
September 30, December 31,
2016 2015
---- ----
Assets
Current assets:
Cash and cash equivalents $379,206 $289,966
Short-term marketable securities 81,876 74,748
Accounts receivable, net of allowances of $2,374
and $1,988 as of September 30, 2016 and December
31, 2015, respectively 168,309 176,720
Deferred commissions 70,033 69,579
Other current assets 36,925 44,087
------ ------
Total current assets 736,349 655,100
Marketable securities, non-current 11,747 13,875
Property and equipment, net 99,801 89,643
Deferred commissions, non-current 17,533 15,287
Goodwill 305,333 291,956
Other intangible assets, net 50,489 60,980
Other assets 11,224 10,756
------ ------
Total assets $1,232,476 $1,137,597
========== ==========
Liabilities and total equity
Current liabilities:
Accounts payable $6,211 $3,545
Deferred revenue 455,667 404,986
Accrued compensation 62,158 55,586
Accrued expenses 39,446 37,901
Other current liabilities 18,303 17,032
------ ------
Total current liabilities 581,785 519,050
Long-term liabilities:
Convertible 0.25% senior notes, net 285,155 274,576
Deferred revenue, non-current 20,575 22,743
Other long-term liabilities 14,750 15,027
------ ------
Total long-term liabilities 320,480 312,346
------- -------
Total liabilities 902,265 831,396
------- -------
Total equity:
Common stock 815 798
Additional paid-in capital 1,120,737 992,362
Accumulated other comprehensive loss (15,759) (13,009)
Accumulated deficit (775,582) (673,950)
-------- --------
Total equity 330,211 306,201
------- -------
Total liabilities and total equity $1,232,476 $1,137,597
========== ==========
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,
2016 2016 2016 2015 2015
---- ---- ---- ---- ----
Revenue:
Subscription and support $189,989 $180,194 $173,334 $164,536 $154,661
Professional services and
other 53,926 50,577 43,244 41,693 38,162
------ ------ ------ ------ ------
Total revenue 243,915 230,771 216,578 206,229 192,823
Cost of revenue:
Subscription and support (1) 32,836 32,018 29,791 27,594 25,983
Professional services and
other (1) 55,656 52,087 42,061 40,236 40,113
------ ------ ------ ------ ------
Total cost of revenue 88,492 84,105 71,852 67,830 66,096
------ ------ ------ ------ ------
Gross profit 155,423 146,666 144,726 138,399 126,727
------- ------- ------- ------- -------
Operating expenses:
Product development (1) 40,058 39,597 37,852 37,176 36,112
Sales and marketing (1) 115,084 117,314 109,691 107,539 102,145
General and administrative (1) 29,126 23,219 22,294 21,202 21,824
------ ------ ------ ------ ------
Total operating expenses 184,268 180,130 169,837 165,917 160,081
------- ------- ------- ------- -------
Operating loss (28,845) (33,464) (25,111) (27,518) (33,354)
Other income /(expenses) and
income taxes, net (1) (5,299) (4,279) (4,634) (4,885) (3,986)
------ ------ ------ ------ ------
Net loss (34,144) (37,743) (29,745) (32,403) (37,340)
Net loss per share $(0.42) $(0.47) $(0.37) $(0.41) $(0.47)
====== ====== ====== ====== ======
Weighted average number of
shares used in computing net
loss per common share 81,143 80,641 80,086 79,615 79,186
====== ====== ====== ====== ======
(1) Includes stock-based compensation
expense, amortization of
intangible assets, transaction
costs for business combinations,
costs associated with Oracle's
pending purchase of NetSuite,
non-cash interest expense on
convertible debt and income tax
benefit associated with business
combination as follows:
September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015 2015
---- ---- ---- ---- ----
Cost of revenue:
Subscription and support $3,940 $3,973 $3,772 $3,603 $3,438
Professional services and
other 4,669 4,802 2,647 2,750 4,296
Operating expenses:
Product development 9,805 9,852 9,485 8,488 8,094
Sales and marketing 13,323 13,754 11,495 12,307 12,940
General and administrative 14,934 8,500 7,885 6,142 8,270
Other income /(expenses)
and income taxes, net (3,615) (3,509) (3,455) (3,452) (2,932)
------ ------ ------ ------ ------
Total $50,286 $44,390 $38,739 $36,742 $39,970
======= ======= ======= ======= =======
NetSuite Inc.
Reconciliation of GAAP Results to Non-GAAP Results
(dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended
------------------
September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015 2015
---- ---- ---- ---- ----
Reconciliation between GAAP operating loss and
non-GAAP operating income:
Operating loss $(28,845) $(33,464) $(25,111) $(27,518) $(33,354)
Reversal of non-GAAP expenses:
Stock-based compensation and
amortization of capitalized
stock-based compensation (a) 34,289 35,051 29,655 27,724 28,686
Amortization of intangible
assets and business
combination costs (b) 4,547 5,830 5,629 5,566 8,352
Costs associated with Oracle's
pending purchase of NetSuite
(c) 7,835 - - - -
----- --- --- --- ---
Non-GAAP operating income $17,826 $7,417 $10,173 $5,772 $3,684
======= ====== ======= ====== ======
Numerator:
Reconciliation between GAAP net loss and non-
GAAP net income:
Net loss $(34,144) $(37,743) $(29,745) $(32,403) $(37,340)
Stock-based compensation and
amortization of capitalized
stock-based compensation (a) 34,289 35,051 29,655 27,724 28,686
Amortization of intangible
assets and business
combination costs (b) 4,547 5,830 5,629 5,566 8,352
Costs associated with Oracle's
pending purchase of NetSuite
(c) 7,835 - - - -
Non-cash interest expense on
convertible debt (d) 3,615 3,509 3,455 3,452 3,447
Income tax benefit associated
with business combination (e) - - - - (515)
--- --- --- --- ----
Non-GAAP net income $16,142 $6,647 $8,994 $4,339 $2,630
======= ====== ====== ====== ======
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 81,143 80,641 80,086 79,615 79,186
Effect of dilutive securities
(stock options, restricted
stock awards and ESPP) (f) 1,511 973 737 1,042 1,188
----- --- --- ----- -----
Non-GAAP weighted average
shares used in computing non-
GAAP net income per common
share 82,654 81,614 80,823 80,657 80,374
====== ====== ====== ====== ======
GAAP net loss per share $(0.42) $(0.47) $(0.37) $(0.41) $(0.47)
====== ====== ====== ====== ======
Non-GAAP net income per share $0.20 $0.08 $0.11 $0.05 $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, 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, costs associated with Oracle's pending purchase of NetSuite, 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) On July 28, 2016, NetSuite entered into a
definitive agreement to be acquired by
Oracle Corporation ("Oracle"). The
transaction is valued at $109.00 per share
in cash, or approximately $9.3 billion. The
Board of Directors has unanimously approved
the transaction. The consummation of the
transaction is pending the tender of
shareholder equity. In connection with
this transaction, we incurred banking,
legal, accounting and other operating costs
which would not otherwise have been
incurred by us in the normal course of our
business operations. We believe the
exclusion of Oracle related transaction
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.
(d) 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.
(e) In connection with our business acquisition
in the third quarter of 2015, we recorded
an income tax benefit that reduced our
income tax provision in this quarter. This
income tax benefit is a non-cash item that
would not otherwise have been incurred in
the normal course of our business
operations. We believe that the exclusion
of acquisition related items allows for
financial results that are more indicative
of our continuing operations and provide
for a useful comparison of our operating
results to prior periods and to our peer
companies.
(f) 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)
Nine Months Ended September 30,
-------------------------------
2016 2015
---- ----
Cash flows from operating activities:
Net loss $(101,632) $(92,340)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 30,103 21,637
Amortization of other intangible assets 14,098 12,449
Amortization of debt discount and transaction costs 10,579 10,088
Provision for accounts receivable allowances 1,591 942
Stock-based compensation 98,040 81,686
Amortization of deferred commissions 89,953 72,951
Excess tax benefit on stock-based compensation (247) (207)
Changes in operating assets and liabilities, net of acquired assets
and liabilities:
Accounts receivable 7,526 (13,993)
Deferred commissions (92,675) (79,616)
Other current assets 7,749 2,783
Other assets (84) 3,944
Accounts payable 2,794 8,097
Accrued compensation 6,427 1,919
Deferred revenue 47,804 58,645
Other current liabilities 5,872 1,879
Other long-term liabilities 2,091 (11,511)
----- -------
Net cash provided by operating activities 129,989 79,353
------- ------
Cash flows from investing activities:
Purchases of property and equipment (37,960) (32,831)
Capitalized internal use software (2,782) (2,262)
Cash paid in business combinations, net of amounts
received (18,489) (130,560)
Purchases of marketable securities (113,108) (93,795)
Maturities of marketable securities 85,720 92,463
Sales of marketable securities 22,206 1,504
------ -----
Net cash used in investing activities (64,413) (165,481)
------- --------
Cash flows from financing activities:
Payments under capital leases (31) (166)
Payments under capital leases and long-term debt -
related party (2,164) (2,069)
Payments related to business combinations (266) (1,335)
RSUs acquired to settle employee withholding
liability (184) (7,028)
Excess tax benefit on stock-based compensation 247 207
Proceeds from issuance of common stock 29,271 11,969
------ ------
Net cash provided by financing activities 26,873 1,578
------ -----
Effect of exchange rate changes on cash and cash
equivalents (3,209) (1,664)
------ ------
Net change in cash and cash equivalents 89,240 (86,214)
Cash and cash equivalents at beginning of period 289,966 367,769
------- -------
Cash and cash equivalents at end of period $379,206 $281,555
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SOURCE NetSuite Inc.
