Delaware | 001-33870 | 94-3310471 | ||
(State or other jurisdiction of incorporation or organization) | (Commission file number) | (I.R.S. Employer Identification No.) |
2955 Campus Drive, Suite 100 San Mateo, California | 94403-2511 | |
(Address of principal executive offices) | (Zip Code) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.02 | Results of Operations and Financial Condition. |
ITEM 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Description of Exhibits | |
99.1 | Press release dated July 24, 2014, titled “NetSuite Announces Second Quarter 2014 Financial Results.” |
NETSUITE INC. | ||
By: | /s/ Ronald Gill | |
Ronald Gill | ||
Chief Financial Officer |
Exhibit No. | Description of Exhibits | |
99.1 | Press release dated July 24, 2014, titled “NetSuite Announces Second Quarter 2014 Financial Results.” |
Investor Relations Contact: | Media Contact: | |
Jennifer Gianola | Mei Li | |
NetSuite Inc. | NetSuite Inc. | |
650.627.1131 | 650.627.1063 | |
jgianola@netsuite.com | meili@netsuite.com |
• | Q2 Revenue of $131.8 Million, a 30% Year-over-Year Increase |
• | Q2 Operating Cash Flows of $18.6 Million, a 19% Year-over-Year Increase |
June 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 479,191 | $ | 451,577 | |||
Accounts receivable, net of allowances of $1,498 and $833 as of June 30, 2014 and December 31, 2013, respectively | 89,961 | 86,818 | |||||
Deferred commissions | 39,549 | 38,187 | |||||
Other current assets | 21,492 | 22,622 | |||||
Total current assets | 630,193 | 599,204 | |||||
Property and equipment, net | 51,786 | 48,183 | |||||
Deferred commissions, non-current | 10,404 | 8,405 | |||||
Goodwill | 84,042 | 84,478 | |||||
Other intangible assets, net | 16,408 | 20,460 | |||||
Other assets | 12,763 | 11,669 | |||||
Total assets | $ | 805,596 | $ | 772,399 | |||
Liabilities and total equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,124 | $ | 4,838 | |||
Deferred revenue | 237,929 | 211,694 | |||||
Accrued compensation | 27,335 | 24,535 | |||||
Accrued expenses | 20,731 | 21,721 | |||||
Other current liabilities | 13,530 | 16,776 | |||||
Total current liabilities | 302,649 | 279,564 | |||||
Long-term liabilities: | |||||||
Convertible 0.25% senior notes, net | 259,758 | 254,038 | |||||
Deferred revenue, non-current | 14,257 | 12,913 | |||||
Other long-term liabilities | 14,733 | 15,832 | |||||
Total long-term liabilities | 288,748 | 282,783 | |||||
Total liabilities | 591,397 | 562,347 | |||||
Total equity: | |||||||
Common stock | 761 | 751 | |||||
Additional paid-in capital | 708,178 | 658,717 | |||||
Accumulated other comprehensive loss | (173 | ) | (246 | ) | |||
Accumulated deficit | (494,567 | ) | (449,170 | ) | |||
Total equity | 214,199 | 210,052 | |||||
Total liabilities and total equity | $ | 805,596 | $ | 772,399 |
Three months ended | |||||||||||||||||||
June 30, 2014 | March 31, 2014 | December 31, 2013 | September 30, 2013 | June 30, 2013 | |||||||||||||||
Revenue: | |||||||||||||||||||
Subscription and support | $ | 105,851 | $ | 99,395 | $ | 93,562 | $ | 85,795 | $ | 80,239 | |||||||||
Professional services and other | 25,943 | 23,566 | 21,446 | 21,080 | 20,757 | ||||||||||||||
Total revenue | 131,794 | 122,961 | 115,008 | 106,875 | 100,996 | ||||||||||||||
Cost of revenue: | |||||||||||||||||||
Subscription and support (1) | 17,084 | 16,360 | 15,167 | 14,276 | 13,511 | ||||||||||||||
Professional services and other (1) | 24,513 | 22,317 | 21,784 | 20,916 | 19,895 | ||||||||||||||
Total cost of revenue | 41,597 | 38,677 | 36,951 | 35,192 | 33,406 | ||||||||||||||
Gross profit | 90,197 | 84,284 | 78,057 | 71,683 | 67,590 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Product development (1) | 25,376 | 24,172 | 22,886 | 19,979 | 18,796 | ||||||||||||||
Sales and marketing (1) | 69,726 | 63,680 | 57,053 | 52,315 | 53,960 | ||||||||||||||
General and administrative (1) | 14,106 | 14,033 | 14,287 | 12,233 | 13,429 | ||||||||||||||
Total operating expenses | 109,208 | 101,885 | 94,226 | 84,527 | 86,185 | ||||||||||||||
Operating loss | (19,011 | ) | (17,601 | ) | (16,169 | ) | (12,844 | ) | (18,595 | ) | |||||||||
Other income / (expenses) and income taxes, net (1) | (4,153 | ) | (4,632 | ) | (4,042 | ) | (3,928 | ) | (1,795 | ) | |||||||||
Net loss | (23,164 | ) | (22,233 | ) | (20,211 | ) | (16,772 | ) | (20,390 | ) | |||||||||
Net loss per share | $ | (0.31 | ) | $ | (0.29 | ) | $ | (0.27 | ) | $ | (0.23 | ) | $ | (0.28 | ) | ||||
Weighted average number of shares used in computing net loss per common share | 75,919 | 75,433 | 74,851 | 74,379 | 73,946 |
(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: |
June 30, 2014 | March 31, 2014 | December 31, 2013 | September 30, 2013 | June 30, 2013 | |||||||||||||||
Cost of revenue: | |||||||||||||||||||
Subscription and support | $ | 1,851 | $ | 1,986 | $ | 1,733 | $ | 1,687 | $ | 1,588 | |||||||||
Professional services and other | 2,317 | 2,482 | 2,345 | 2,191 | 2,452 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Product development | 6,884 | 6,576 | 6,427 | 5,926 | 6,342 | ||||||||||||||
Sales and marketing | 9,087 | 7,709 | 7,369 | 6,825 | 7,379 | ||||||||||||||
General and administrative | 4,683 | 4,739 | 5,675 | 3,889 | 5,613 | ||||||||||||||
Other income / (expenses) and income taxes, net | 3,191 | 3,141 | 2,875 | 3,123 | 1,056 | ||||||||||||||
Total | $ | 28,013 | $ | 26,633 | $ | 26,424 | $ | 23,641 | $ | 24,430 |
Three months ended | |||||||||||||||||||
June 30, 2014 | March 31, 2014 | December 31, 2013 | September 30, 2013 | June 30, 2013 | |||||||||||||||
Reconciliation between GAAP operating loss and non-GAAP operating income: | |||||||||||||||||||
Operating loss | $ | (19,011 | ) | $ | (17,601 | ) | $ | (16,169 | ) | $ | (12,844 | ) | $ | (18,595 | ) | ||||
Reversal of non-GAAP expenses: | |||||||||||||||||||
Stock-based compensation and amortization of capitalized stock-based compensation (a) | 22,798 | 21,465 | 20,235 | 18,470 | 20,264 | ||||||||||||||
Amortization of intangible assets and business combination costs (b) | 2,024 | 2,026 | 3,314 | 2,048 | 3,110 | ||||||||||||||
Non-GAAP operating income | $ | 5,811 | $ | 5,890 | $ | 7,380 | $ | 7,674 | $ | 4,779 | |||||||||
Numerator: | |||||||||||||||||||
Reconciliation between GAAP net loss and non-GAAP net income: | |||||||||||||||||||
Net loss | $ | (23,164 | ) | $ | (22,233 | ) | $ | (20,211 | ) | $ | (16,772 | ) | $ | (20,390 | ) | ||||
Stock-based compensation and amortization of capitalized stock-based compensation (a) | 22,798 | 21,465 | 20,235 | 18,470 | 20,264 | ||||||||||||||
Amortization of intangible assets and business combination costs (b) | 2,024 | 2,026 | 3,314 | 2,048 | 3,110 | ||||||||||||||
Non-cash interest expense on convertible debt (c) | 3,191 | 3,141 | 3,138 | 3,123 | 1,056 | ||||||||||||||
Income tax benefits associated with business combination (d) | — | — | (263 | ) | — | — | |||||||||||||
Non-GAAP net income | $ | 4,849 | $ | 4,399 | $ | 6,213 | $ | 6,869 | $ | 4,040 | |||||||||
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 | 75,919 | 75,433 | 74,851 | 74,379 | 73,946 | ||||||||||||||
Effect of dilutive securities (stock options and restricted stock awards) (e) | 1,239 | 1,717 | 1,859 | 2,047 | 2,144 | ||||||||||||||
Non-GAAP weighted average shares used in computing non-GAAP net income per common share | 77,158 | 77,150 | 76,710 | 76,426 | 76,090 | ||||||||||||||
GAAP net loss per share | $ | (0.31 | ) | $ | (0.29 | ) | $ | (0.27 | ) | $ | (0.23 | ) | $ | (0.28 | ) | ||||
Non-GAAP net income per share | $ | 0.06 | $ | 0.06 | $ | 0.08 | $ | 0.09 | $ | 0.05 |
(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 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 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. |
Six Months Ended June 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (45,397 | ) | $ | (33,427 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 9,269 | 7,208 | |||||
Amortization of other intangible assets | 4,050 | 2,887 | |||||
Amortization of debt discount and transaction costs | 6,332 | 1,056 | |||||
Provision for accounts receivable allowances | 663 | 358 | |||||
Stock-based compensation | 43,873 | 35,266 | |||||
Amortization of deferred commissions | 34,699 | 25,839 | |||||
Excess tax benefit on stock-based compensation | (369 | ) | (195 | ) | |||
Changes in operating assets and liabilities, net of acquired assets and liabilities: | |||||||
Accounts receivable | (3,760 | ) | 2,849 | ||||
Deferred commissions | (38,060 | ) | (27,098 | ) | |||
Other current assets | 1,224 | (7,511 | ) | ||||
Other assets | (1,720 | ) | (484 | ) | |||
Accounts payable | (1,678 | ) | 3,227 | ||||
Accrued compensation | 2,681 | (590 | ) | ||||
Deferred revenue | 27,475 | 19,595 | |||||
Other current liabilities | (1,176 | ) | 691 | ||||
Other long-term liabilities | (390 | ) | 590 | ||||
Net cash provided by operating activities | 37,716 | 30,261 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (10,326 | ) | (7,131 | ) | |||
Capitalized internal use software | (1,049 | ) | (1,276 | ) | |||
Cash paid in business combinations, net of amounts received, and equity investment | — | (33,003 | ) | ||||
Net cash used in investing activities | (11,375 | ) | (41,410 | ) | |||
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 | — | (7,750 | ) | ||||
Payments under capital leases | (155 | ) | (370 | ) | |||
Payments under capital leases and long-term debt - related party | (1,713 | ) | (1,366 | ) | |||
Payments to repurchase common stock | — | (30,000 | ) | ||||
Payments related to business combinations | (2,293 | ) | — | ||||
RSU acquired to settle employee withholding liability | (53 | ) | (123 | ) | |||
Excess tax benefit on stock-based compensation | 369 | 195 | |||||
Proceeds from issuance of common stock, net of issuance costs | 4,668 | 10,725 | |||||
Net cash provided by financing activities | 823 | 281,311 | |||||
Effect of exchange rate changes on cash and cash equivalents | 450 | (1,126 | ) | ||||
Net change in cash and cash equivalents | 27,614 | 269,036 | |||||
Cash and cash equivalents at beginning of period | 451,577 | 185,859 | |||||
Cash and cash equivalents at end of period | $ | 479,191 | $ | 454,895 |