NETSUITE INC 
By SAN MATEO, Calif., Jan. 30, 2014 /PRNewswire/ -- NetSuite Inc. (NYSE: N), the industry's leading provider of cloud-based financials / ERP and omnichannel commerce software suites, today announced operating results for its fourth quarter and fiscal year ended December 31, 2013.
Total revenue for the fourth quarter of 2013 was $115.0 million, representing a 35% increase over the prior year. Total revenue for the year was $414.5 million, a year-over-year increase of 34%.
Cash flow from operations was $17.3 million in the fourth quarter of 2013, an increase of $3.9 million, or 29%, over the same period last year. Cash flow from operations was $62.2 million for the year, an increase of $7.9 million, or 15%, over the prior year.
On a GAAP basis, net loss for the fourth quarter of 2013 was $20.2 million, or $(0.27) per share, as compared to a net loss of $9.6 million, or $(0.13) per share, in the fourth quarter of 2012. GAAP net loss for the year ended December 31, 2013 was $70.4 million, or $(0.95) per share, as compared to a GAAP net loss of $35.2 million, or $(0.50) per share, in 2012.
Non-GAAP net income for the fourth quarter of 2013 was $6.2 million, or $0.08 per share, as compared to non-GAAP net income of $4.6 million, or $0.06 per share, in the fourth quarter of 2012. Non-GAAP net income for the year ended December 31, 2013 was $19.9 million, or $0.26 per share, as compared to non-GAAP net income of $19.1 million, or $0.26 per share, in 2012.
"2013 was a record year for NetSuite, and the fourth year in a row that NetSuite delivered accelerating revenue growth. Our continued execution and growth bear witness to the fact, that as companies move their core business applications to the cloud they are moving to NetSuite and leaving the pre-cloud solutions of Microsoft, Sage and SAP behind," 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 2013 financial results, and our outlook for the first quarter and fiscal 2014. 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: 35613814. 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: 35613814.
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 software suites, NetSuite offers a broad suite of applications, including accounting, Customer Relationship Management (CRM), Professional Services Automation (PSA) and ecommerce that enables 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 revenue, earnings 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; 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 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 February 28, 2013, Quarterly Report on Form 10-Q filed on October 30, 2013 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 combinations. 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 service marks of NetSuite Inc.
NetSuite Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
December 31,
2013 2012
---- ----
Assets
Current assets:
Cash and cash equivalents $451,577 $185,859
Accounts receivable, net of
allowances of $833 and $701
as of December 31, 2013 and
December 31, 2012,
respectively 86,818 64,861
Deferred commissions 38,187 26,959
Other current assets 22,622 9,049
------ -----
Total current assets 599,204 286,728
Property and equipment, net 48,183 27,210
Deferred commissions, non-
current 8,405 4,784
Goodwill 84,478 35,661
Other intangible assets, net 20,460 12,420
Other assets 11,669 2,972
------ -----
Total assets $772,399 $369,775
======== ========
Liabilities and total equity
Current liabilities:
Accounts payable $4,838 $3,476
Deferred revenue 211,694 154,051
Accrued compensation 24,535 18,806
Accrued expenses 21,721 11,974
Other current liabilities 16,776 9,948
------ -----
Total current liabilities 279,564 198,255
Long-term liabilities:
Convertible 0.25% senior
notes, net 254,038 -
Deferred revenue, non-current 12,913 7,365
Other long-term liabilities 15,832 5,386
------ -----
Total long-term liabilities 282,783 12,751
------- ------
Total liabilities 562,347 211,006
------- -------
Total equity:
Common stock 751 727
Additional paid-in capital 658,717 535,853
Accumulated other
comprehensive income (246) 950
Accumulated deficit (449,170) (378,761)
-------- --------
Total equity 210,052 158,769
------- -------
Total liabilities and total
equity $772,399 $369,775
======== ========
NetSuite Inc.
Condensed Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts)
(unaudited)
Three months Twelve months
ended ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
Revenue:
Subscription
and support 93,562 $68,534 $333,556 $252,903
Professional
services and
other 21,446 16,472 80,952 55,922
------ ------ ------ ------
Total
revenue 115,008 85,006 414,508 308,825
Cost of revenue:
Subscription
and support
(1) 15,167 11,135 55,269 41,857
Professional
services and
other (1) 21,784 15,488 79,925 53,706
------ ------ ------ ------
Total cost
of revenue 36,951 26,623 135,194 95,563
------ ------ ------- ------
Gross profit 78,057 58,383 279,314 213,262
------ ------ ------- -------
Operating expenses:
Product
development
(1) 22,886 14,429 78,312 52,739
Sales and
marketing
(1) 57,053 42,563 210,079 154,294
General and
administrative
(1) 14,287 10,134 51,693 38,469
------ ------ ------ ------
Total
operating
expenses 94,226 67,126 340,084 245,502
------ ------ ------- -------
Operating
loss (16,169) (8,743) (60,770) (32,240)
Other income
/
(expenses)
and income
taxes, net
(1) (4,042) (878) (9,639) (2,989)
------ ---- ------
Net loss (20,211) (9,621) (70,409) (35,229)
======= ======= =======
Net loss per
share $(0.27) $(0.13) $(0.95) $(0.50)
====== ===== ====== ======
Weighted
average
number of
shares used
in
computing
net loss
per common
share 74,851 71,977 74,085 70,713
====== ====== ====== ======
(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 combinations as
follows:
Three months Twelve months
ended ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
Cost of revenue:
Subscription
and support $1,733 $1,135 $6,135 $4,691
Professional
services and
other 2,345 1,612 8,834 5,978
Operating expenses:
Product
development 6,427 3,999 23,543 15,301
Sales and
marketing 7,369 4,283 26,749 16,588
General and
administrative 5,675 3,148 19,123 11,803
Other income
/
(expenses)
and income
taxes, net 2,875 - 5,935 -
----- --- ----- ---
Total $26,424 $14,177 $90,319 $54,361
======= ===== ======= =======
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 Twelve months
ended ended
December 31,
December 31,
------------
2013 2012 2013 2012
---- ---- ---- ----
Reconciliation between
GAAP operating loss and
non-GAAP operating
income:
Operating loss $(16,169) $(8,743) $(60,770) $(32,240)
Reversal of non-GAAP
expenses:
Stock-based
compensation and
amortization of
capitalized
stock-based
compensation (a) 20,235 12,503 74,165 48,442
Amortization of
intangible
assets and
business
combination
costs (b) 3,314 1,674 10,219 5,919
-----
Non-GAAP
operating income $7,380 $5,434 $23,614 $22,121
====== ====== ======= =======
Numerator:
Reconciliation between
GAAP net loss and non-
GAAP net income:
Net loss $(20,211) $(9,621) $(70,409) $(35,229)
Stock-based
compensation and
amortization of
capitalized
stock-based
compensation (a) 20,235 12,503 74,165 48,442
Amortization of
intangible
assets and
business
combination
costs (b) 3,314 1,674 10,219 5,919
Non-cash
interest expense
on convertible
debt (c) 3,138 - 7,317 -
Income tax
benefit
associated with
business
combinations (d) (263) - (1,382) -
---- --- ------ ---
Non-GAAP net
income $6,213 $4,556 $19,910 $19,132
====== ====== ======= =======
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 74,851 71,977 74,085 70,713
Effect of
dilutive
securities
(stock options
and restricted
stock awards)
(e) 1,859 2,999 2,206 3,461
----- ----- ----- -----
Non-GAAP
weighted average
shares used in
computing non-
GAAP net income
per common share 76,710 74,976 76,291 74,174
====== ====== ====== ======
GAAP net loss per
share $(0.27) $(0.13) $(0.95) $(0.50)
====== ====== ====== ======
Non-GAAP net
income per share $0.08 $0.06 $0.26 $0.26
===== ===== ===== =====
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 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.
In Q2 2012, certain
customers acquired in a
previous business
combination transitioned
from their legacy service
offering to a NetSuite
service offering or
terminated their service
completely. As a result,
we recorded a $401,000
impairment charge related
to the legacy product's
developed technology
intangible asset. This
impairment charge is
included in amortization of
intangible assets.
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) 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.
(d) In connection with our
business acquisitions in
the first and fourth
quarters of 2013, we
recorded an income tax
benefit that reduced our
income tax provision in
each of the respective
quarters. These income tax
benefits are non-cash
items 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 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,
--------------
2013 2012
---- ----
Cash flows from operating
activities:
Net loss $(70,409) $(35,229)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and
amortization 15,668 11,006
Amortization of other
intangible assets 6,749 4,580
Amortization of debt
discount and transaction
costs 7,316 -
Provision for accounts
receivable allowances 1,041 616
Stock-based compensation 73,660 48,442
Amortization of deferred
commissions 55,531 45,312
Excess tax benefit on
stock-based compensation (410) (297)
Changes in operating assets and
liabilities, net of acquired
assets and liabilities:
Accounts receivable (22,305) (25,913)
Deferred commissions (70,380) (50,504)
Other current assets (12,486) (443)
Other assets (2,329) 818
Accounts payable 1,691 1,030
Accrued compensation 6,173 940
Deferred revenue 63,510 49,524
Other current liabilities 8,771 5,453
Other long-term liabilities 444 (1,037)
--- ------
Net cash provided by
operating activities 62,235 54,298
------ ------
Cash flows from investing
activities:
Purchases of property and
equipment (20,337) (11,843)
Capitalized internal use
software (2,056) (3,041)
Cash paid in business
combinations, net of
amounts received, and
equity investments (58,630) (9,221)
------- ------
Net cash used in investing
activities (81,023) (24,105)
------- -------
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 (744) (726)
Payments under capital
leases and long-term debt
- related party (2,612) (1,550)
Payments to repurchase
common stock (30,000) -
RSU acquired to settle
employee withholding
liability (162) (257)
Excess tax benefit on
stock-based compensation 410 297
Proceeds from issuance of
common stock, net of
issuance costs 16,944 15,968
------ ------
Net cash provided by
financing activities 285,576 13,732
------- ------
Effect of exchange rate
changes on cash and cash
equivalents (1,070) 486
------ ---
Net change in cash and cash
equivalents 265,718 44,411
Cash and cash equivalents
at beginning of period 185,859 141,448
------- -------
Cash and cash equivalents
at end of period $451,577 $185,859
======== ========
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SOURCE NetSuite Inc.
