Published:
NetSuite Announces Record Second Quarter 2008 Results
SAN MATEO, Calif., Aug. 5 /PRNewswire-FirstCall/ -- 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
SOURCE NetSuite Inc.
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