2008-08-05 15:10:00
NetSuite Announces Record Second Quarter 2008 Results
Revenue of $36.6 Million Up 43% Over Q2 2007
Short-Term Deferred Revenue Growth Rate More than Doubles
Quarter-Over-Quarter
Reiterates Fiscal Year 2008 Outlook
SAN MATEO, Calif., Aug. 5 /EMWNews/ -- NetSuite Inc.
(NYSE: N), a leading vendor of on-demand, integrated business management
software suites for mid-market enterprises and divisions of large
companies, today announced operating results for its second quarter, which
ended June 30, 2008.
Total revenue for the second quarter was $36.6 million, a 43% increase
over the second quarter of 2007, and a 7% increase over the first quarter
of 2008. The second quarter of 2008 marked the 35th consecutive quarter of
increased revenue for NetSuite.
On a GAAP basis, net loss for the second quarter of 2008 was $(3.1
million), or $(0.05) per share, compared to $(9.6 million), or $(1.22) per
share in the second quarter of 2007, an improvement of 67%.
Net loss on a non-GAAP basis for the second quarter of 2008 was $(0.9
million), or $(0.01) per share, compared with $(1.4 million), or $(0.02)
per share in the second quarter of 2007, an improvement of 34%.
Net loss on a non-GAAP basis excludes expenses related to stock-based
compensation and the amortization of acquisition-related intangible assets.
A reconciliation of net loss and net loss per share on a non-GAAP basis to
their comparable measures on a GAAP basis is provided below in a table
immediately following the Condensed Consolidated Statements of Operations.
Revenue from the Americas for the second quarter of 2008 was $29.2
million, while revenue from international regions outside of the Americas
was $7.4 million, and now comprises 20% of total revenue. The Company added
more than 400 new customers in the second quarter.
Short-term deferred revenue grew by 5% to $63.9 million over the first
quarter of 2008. This is compared to a growth rate of 2% in the first
quarter of 2008 over the fourth quarter of 2007, a 127% improvement in the
rate of growth. These comparisons exclude the accounting impact of the
Company's 2006 partnership agreements related to its Japanese subsidiary.
"While traditional mid-market application vendors struggle, our growth
and record Q2 results validate our belief that mid-sized companies are
hungry for an integrated suite of applications delivered on demand," said
Zach Nelson, CEO of NetSuite. "Our continued success indicates that adding
industry- specific functionality to support the needs of larger
organizations, and investing in the services and support that make
customers successful with NetSuite, are the right strategies and will
continue to expand our market."
Outlook
Based on information as of August 5, 2008, NetSuite is providing the
following outlook for its third quarter of 2008 and its full fiscal year
2008:
Q3 FY08: For the third quarter of 2008, NetSuite expects total revenue
in the range of $40.0 million to $40.7 million. Non-GAAP net loss, which
excludes the impact of stock-based compensation expense and the
amortization of acquisition-related intangible assets, is expected to be
in the range of $(1.5 million) to $(0.9 million). Non-GAAP net loss per
share is expected to be in the range of approximately $(0.02) to $(0.01).
Weighted average shares for the quarter are estimated to be approximately
62.3 million shares.
Full Year FY08: For the full year 2008, NetSuite expects total revenue
in the range of $156 million to $159 million. Non-GAAP net loss, which
excludes the impact of stock-based compensation expense and the
amortization of acquisition-related intangible assets, is expected to be
in the range of $(3.5 million) to $(2.5 million). Non-GAAP net loss per
share is expected to be in the range of approximately $(0.06) to $(0.04).
Weighted average shares for the year are estimated to be approximately
61.3 million shares.
Conference Call
NetSuite will host a conference call to discuss its second quarter 2008
results at 2:00 p.m. Pacific Daylight Time (PDT) today. A live audio
webcast of the conference call, together with detailed financial
information, can be accessed through the company's Investor Relations Web
site at http://www.netsuite.com/investors. In addition, an archive of the
webcast can be accessed through the same link for at least 30 days.
Participants may also call into the conference call by calling 888-726-2470
domestically and 913-312-0733 internationally. A replay of the call will be
available at 888-203-1112 or 719-457-0820, passcode 5391436, until 12:00
midnight PDT on August 7, 2008.
About NetSuite
NetSuite Inc. is a leading vendor of on-demand, integrated business
management software suites for mid-sized businesses and divisions of large
companies. NetSuite enables mid-market companies to manage core business
operations in a single system, which includes accounting / enterprise
resource planning (ERP), customer relationship management (CRM), and
ecommerce. NetSuite's patent-pending "real-time dashboard" technology
provides an easy-to-use view into up-to-date, role-specific business
information.
Cautionary Note Regarding Forward-Looking Statements
This press release and the scheduled conference call contain
forward-looking statements relating to expectations, plans, prospects, or
financial results for NetSuite, which include but are not limited to the
outlook stated above. These forward-looking statements are based upon
current expectations and beliefs of NetSuite's management as of August 5,
2008, 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 in this press
release are based on information available to the Company as of the date
hereof, 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; 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 integrate and manage OpenAir, Inc. ("OpenAir") after our
recently completed acquisition; our ability to identify and successfully
integrate other businesses and technologies; the risk of loss of power or
disruption in Internet service; failure to manage growth; the ability to
manage operations when faced with competitive pricing and marketing
strategies by competitors; 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; general political, economic and market
conditions and events, including war, conflict or acts of terrorism; and
other risks and uncertainties.
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 13, 2008, and any
subsequently filed reports on Forms 10-Q and 8-K. All documents are
available through the SEC's Electronic Data Gathering Analysis and
Retrieval system (EDGAR) at http://www.sec.gov or NetSuite's website at
http://www.netsuite.com.
Non-GAAP Financial Measures
The Company's stated results include certain non-GAAP financial
measures, including net loss, weighted average shares outstanding, and net
loss per share. Non-GAAP net loss also excludes expenses related to the
amortization of acquisition-related intangible assets. Non-GAAP net loss
excludes these expenses as they are non-cash items, can be difficult to
predict, and are often excluded by other companies. Additionally, non-GAAP
weighted average shares outstanding, the denominator for the non-GAAP net
loss per share calculation for the periods during 2007, assumes that the
conversion of preferred stock and the issuance of common stock as part of
the Company's Initial Public Offering had occurred at the beginning of the
applicable period. The Company considers these events to be non-routine,
and 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 operational 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
financial 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 Website at http://www.netsuite.com/investors.
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, June 30,
2007 2008
Assets
Current assets:
Cash and cash equivalents $169,408 $137,370
Accounts receivable, net of
allowances of $585 and $508 as of
December 31, 2007 and June 30,
2008, respectively 18,698 21,478
Deferred commissions 13,241 12,908
Other current assets 1,778 2,059
Total current assets 203,125 173,815
Property and equipment, net 12,068 12,936
Deferred commissions, non-current 2,275 2,014
Goodwill - 17,824
Other intangible assets, net - 9,958
Other assets 1,309 1,479
Total assets $218,777 $218,026
Liabilities, minority interest and
stockholders' equity
Current liabilities:
Accounts payable $2,788 $4,639
Deferred revenue 65,875 68,919
Accrued compensation 8,552 9,603
Other current liabilities 13,784 11,154
Total current liabilities 90,999 94,315
Long-term liabilities:
Deferred revenue, non-current 11,111 9,269
Other long-term liabilities 4,257 3,707
Total long-term liabilities 15,368 12,976
Total liabilities 106,367 107,291
Minority interest 1,330 806
Commitments and contingencies
Stockholders' equity 111,080 109,929
Total liabilities, minority
interest and stockholders' equity $218,777 $218,026
NetSuite Inc.
Condensed Consolidated Statements of Operations
(Dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended
June 30, Sept. 30, Dec. 31, March 31, June 30,
2007 2007 2007 2008 2008
Revenue $25,513 $28,065 $31,734 $34,118 $36,553
Cost of revenue (1) 8,842 8,440 9,583 10,115 11,665
Gross profit 16,671 19,625 22,151 24,003 24,888
Operating expenses:
Product development (1) 6,605 3,683 4,990 4,082 4,452
Sales and marketing (1) 15,295 14,083 16,026 17,805 19,401
General and
administrative (1) 4,045 3,622 4,423 5,467 5,145
Total operating
expenses 25,945 21,388 25,439 27,354 28,998
Operating loss (9,274) (1,763) (3,288) (3,351) (4,110)
Other income / (expenses),
net, including the effect
of minority interest and
income taxes (278) (32) 6 1,322 982
Net loss $(9,552) $(1,795) $(3,282) $(2,029) $(3,128)
Net loss per common share $(1.22) $(0.21) $(0.22) $(0.03) $(0.05)
Weighted average number of
shares used in
computing net loss per
common share 7,853 8,412 15,246 60,093 60,160
(1) Includes stock-based compensation expense and amortization of
acquisition-related intangible assets as follows:
Three months ended
June 30, Sept. 30, Dec. 31, March 31, June 30,
2007 2007 2007 2008 2008
Cost of revenue $1,300 $125 $183 $294 $525
Product development 3,338 256 1,478 483 548
Sales and marketing 2,226 46 225 334 568
General and
administrative 1,316 215 554 498 587
Total stock-based
compensation expense
and amortization of
acquisition related
intangible assets $8,180 $642 $2,440 $1,609 $2,228
NetSuite Inc.
Reconciliation of Net Loss Per Share to Non-GAAP Net Loss Per Share
(Dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended
June 30, Sept. 30, Dec. 31, March 31, June 30,
2007 2007 2007 2008 2008
Numerator:
Reconciliation between GAAP
and non-GAAP net loss:
Net loss $(9,552) $(1,795) $(3,282) $(2,029) $(3,128)
Reversal of stock-based
compensation expense
and amortization of
intangible assets (a) 8,180 642 2,440 1,609 2,228
Non-GAAP net loss: $(1,372) $(1,153) $(842) $(420) $(900)
Denominator:
Reconciliation between GAAP
and non-GAAP weighted
average shares used in
computing basic and
diluted net loss per
common share:
Weighted average number of
shares used in
computing net loss per
common share 7,853 8,412 15,246 60,093 60,160
Pro forma adjustments to
reflect assumed weighted
average effect of
issuing shares in
initial public
offering on January 1,
2007 (b) 6,765 6,765 5,883 - -
Pro forma adjustments to
reflect assumed weighted
average effect of
conversion of preferred
stock on January 1, 2007
based on conversion price
set at initial public
offering date (c) 44,677 44,677 38,849 - -
Non-GAAP weighted
average shares used
in computing non-GAAP
net loss per common
share 59,295 59,854 59,978 60,093 60,160
GAAP net loss per share $(1.22) $(0.21) $(0.22) $(0.03) $(0.05)
Non-GAAP net loss per
share $(0.02) $(0.02) $(0.01) $(0.01) $(0.01)
Use of Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements presented
on a GAAP basis, NetSuite uses non-GAAP measures of net loss, weighted
average shares outstanding and net loss per share, which are adjusted to
exclude stock-based compensation expense, amortization of acquisition-
related intangible assets and to include 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 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 Statement of Financial Accounting Standards
No. 123(R) for options granted after January 1, 2007, and Accounting
Principles Board Opinion No. 25 for options granted before
January 1, 2007. Amortization of intangible assets resulted from the
acquisition of OpenAir, Inc. While a large component of our expense
in certain periods, we believe investors may want to exclude the
effects of stock-based compensation expense and the amortization of
intangible assets in order to compare our financial performance with
that of other companies and between time periods.
(b) Represents common shares issued in the company's IPO as if the
shares were issued as of the beginning of the comparable periods. We
believe investors may want to give effect to the issuance for prior
periods in order to compare our financial performance with that of
other companies and between time periods.
(c) Represents common shares from the conversion of convertible
preferred shares as if the shares were converted as of the beginning
of the comparable periods. Convertible preferred shares were
converted into common shares as of December 20, 2007, the date of
our IPO. We believe investors may want to give effect to the
conversion for prior periods in order to compare our financial
performance with that of other companies and between time periods.
NetSuite Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Six months ended
June 30,
2007 2008
Cash flows from operating
activities:
Net loss $(18,829) $(5,157)
Adjustments to reconcile net loss
to net cash provided by / (used
in) operating activities:
Depreciation and amortization 1,514 2,664
Provision for accounts receivable
allowances 241 228
Stock-based compensation 15,142 3,657
Amortization of deferred commissions 9,434 11,269
Loss on disposal of property and equipment - 43
Minority interest (234) (650)
Accrued interest on notes receivable from
stockholders (56) -
Changes in operating assets and liabilities,
net of acquired assets and liabilities:
Accounts receivable (1,997) (3,031)
Deferred commissions (8,408) (10,663)
Other current assets (242) (217)
Other assets 375 (112)
Accounts payable 591 947
Accrued compensation 831 687
Deferred revenue 1,216 1,221
Other current liabilities 1,223 (1,464)
Other long-term liabilities (8) 288
Net cash provided by / (used in) operating
activities 793 (290)
Cash flows from investing activities:
Proceeds from disposal of property and
equipment - 18
Purchases of property and equipment (2,279) (2,713)
Capitalized internal use software (65) (159)
Acquisition of OpenAir, net of cash received - (28,210)
Net cash used in investing activities (2,344) (31,064)
Cash flows from financing activities:
Payment of offering costs (251) (560)
Proceeds from line of credit from related
party 1,350 -
Payments on line of credit from related
party (349) -
Proceeds from notes receivable from
stockholders 4,429 -
Payments under capital leases and long-term
debt (662) (783)
Proceeds from issuance of common stock 442 248
Net cash provided by / (used in) financing
activities 4,959 (1,095)
Effect of exchange rate changes on cash and
cash equivalents (344) 411
Net change in cash and cash equivalents 3,064 (32,038)
Cash and cash equivalents at beginning of
period 9,910 169,408
Cash and cash equivalents at end of period $12,974 $137,370
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