(Mark one) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 94-3310471 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
2955 Campus Drive, Suite 100 | |
San Mateo, California | 94403-2511 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | x | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | (do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
June 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 317,510 | $ | 289,966 | |||
Short-term marketable securities | 90,185 | 74,748 | |||||
Accounts receivable, net of allowances of $3,216 and $1,988 as of June 30, 2016 and December 31, 2015, respectively | 177,088 | 176,720 | |||||
Deferred commissions | 68,974 | 69,579 | |||||
Other current assets | 47,325 | 44,087 | |||||
Total current assets | 701,082 | 655,100 | |||||
Marketable securities, non-current | 2,972 | 13,875 | |||||
Property and equipment, net | 95,563 | 89,643 | |||||
Deferred commissions, non-current | 17,553 | 15,287 | |||||
Goodwill | 305,705 | 291,956 | |||||
Other intangible assets, net | 55,158 | 60,980 | |||||
Other assets | 11,010 | 10,756 | |||||
Total assets | $ | 1,189,043 | $ | 1,137,597 | |||
Liabilities and total equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 9,976 | $ | 3,545 | |||
Deferred revenue | 436,677 | 404,986 | |||||
Accrued compensation | 54,868 | 55,586 | |||||
Accrued expenses | 34,106 | 37,901 | |||||
Other current liabilities (including note payable to related party of $2,967 and $2,901 as of June 30, 2016 and December 31, 2015, respectively) | 16,295 | 17,032 | |||||
Total current liabilities | 551,922 | 519,050 | |||||
Long-term liabilities: | |||||||
Convertible 0.25% senior notes, net | 281,540 | 274,576 | |||||
Deferred revenue, non-current | 26,813 | 22,743 | |||||
Other long-term liabilities (including note payable to related party of $1,527 and $3,027 as of June 30, 2016 and December 31, 2015, respectively) | 14,783 | 15,027 | |||||
Total long-term liabilities | 323,136 | 312,346 | |||||
Total liabilities | 875,058 | 831,396 | |||||
Commitments and contingencies (Note 4) | |||||||
Total equity: | |||||||
Common stock, par value $0.01, 500,000,000 shares authorized; 80,921,604 and 79,802,618 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 809 | 798 | |||||
Additional paid-in capital | 1,068,920 | 992,362 | |||||
Accumulated other comprehensive loss | (14,306 | ) | (13,009 | ) | |||
Accumulated deficit | (741,438 | ) | (673,950 | ) | |||
Total equity | 313,985 | 306,201 | |||||
Total liabilities and total equity | $ | 1,189,043 | $ | 1,137,597 |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||||
Subscription and support | $ | 353,528 | $ | 273,896 | $ | 180,194 | $ | 140,922 | |||||||||||||||||||
Professional services and other | 93,821 | 68,201 | 50,577 | 36,358 | |||||||||||||||||||||||
Total revenue | 447,349 | 342,097 | 230,771 | 177,280 | |||||||||||||||||||||||
Cost of revenue: | |||||||||||||||||||||||||||
Subscription and support | 61,809 | 43,444 | 32,018 | 22,454 | |||||||||||||||||||||||
Professional services and other | 94,148 | 68,058 | 52,087 | 36,687 | |||||||||||||||||||||||
Total cost of revenue | 155,957 | 111,502 | 84,105 | 59,141 | |||||||||||||||||||||||
Gross profit | 291,392 | 230,595 | 146,666 | 118,139 | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||
Product development | 77,449 | 62,256 | 39,597 | 32,537 | |||||||||||||||||||||||
Sales and marketing | 227,005 | 179,057 | 117,314 | 95,803 | |||||||||||||||||||||||
General and administrative | 45,513 | 44,075 | 23,219 | 25,642 | |||||||||||||||||||||||
Total operating expenses | 349,967 | 285,388 | 180,130 | 153,982 | |||||||||||||||||||||||
Operating loss | (58,575 | ) | (54,793 | ) | (33,464 | ) | (35,843 | ) | |||||||||||||||||||
Other income / (expense), net: | |||||||||||||||||||||||||||
Interest income | 354 | 216 | 203 | 113 | |||||||||||||||||||||||
Interest expense | (7,547 | ) | (7,153 | ) | (3,797 | ) | (3,520 | ) | |||||||||||||||||||
Other income, net | 465 | (264 | ) | 307 | (266 | ) | |||||||||||||||||||||
Total other income / (expense), net | (6,728 | ) | (7,201 | ) | (3,287 | ) | (3,673 | ) | |||||||||||||||||||
Loss before income taxes | (65,303 | ) | (61,994 | ) | (36,751 | ) | (39,516 | ) | |||||||||||||||||||
Provision for income taxes | 2,185 | (6,994 | ) | 992 | (7,229 | ) | |||||||||||||||||||||
Net loss | $ | (67,488 | ) | $ | (55,000 | ) | $ | (37,743 | ) | $ | (32,287 | ) | |||||||||||||||
Net loss per common share, basic and diluted | $ | (0.84 | ) | $ | (0.71 | ) | $ | (0.47 | ) | $ | (0.41 | ) | |||||||||||||||
Weighted average number of shares used in computing net loss per share | 80,364 | 77,627 | 80,641 | 77,975 | |||||||||||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||||
Foreign currency translation gain / (loss), net of taxes | (1,569 | ) | (1,411 | ) | (2,535 | ) | 2,587 | ||||||||||||||||||||
Unrealized gain on marketable securities | 134 | 16 | 44 | — | |||||||||||||||||||||||
Accumulated pension liability | 138 | 98 | 69 | 49 | |||||||||||||||||||||||
Comprehensive loss | $ | (68,785 | ) | $ | (56,297 | ) | $ | (40,165 | ) | $ | (29,651 | ) |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (67,488 | ) | $ | (55,000 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 19,224 | 13,420 | |||||
Amortization of other intangible assets | 9,658 | 6,817 | |||||
Amortization of debt discount and transaction costs | 6,964 | 6,641 | |||||
Provision for accounts receivable allowances | 1,347 | 496 | |||||
Stock-based compensation | 64,066 | 53,288 | |||||
Amortization of deferred commissions | 58,635 | 46,164 | |||||
Excess tax benefit on stock-based compensation | (79 | ) | (223 | ) | |||
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: | |||||||
Accounts receivable | (1,332 | ) | 4,557 | ||||
Deferred commissions | (60,314 | ) | (48,072 | ) | |||
Other current assets | (2,310 | ) | 1,488 | ||||
Other assets | (87 | ) | (8,216 | ) | |||
Accounts payable | 5,489 | 318 | |||||
Accrued compensation | (908 | ) | (3,682 | ) | |||
Deferred revenue | 35,165 | 29,435 | |||||
Other current liabilities | (1,384 | ) | 4,251 | ||||
Other long-term liabilities | 1,321 | 192 | |||||
Net cash provided by operating activities | 67,967 | 51,874 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (24,137 | ) | (23,239 | ) | |||
Capitalized internal use software | (1,834 | ) | (1,633 | ) | |||
Cash paid in business combination, net of amounts received | (18,247 | ) | (95,565 | ) | |||
Purchases of marketable securities | (79,527 | ) | (65,674 | ) | |||
Maturities of marketable securities | 62,235 | 70,263 | |||||
Sales of marketable securities | 12,693 | 104 | |||||
Net cash used in investing activities | (48,817 | ) | (115,744 | ) | |||
Cash flows from financing activities: | |||||||
Payments under capital leases | (28 | ) | (112 | ) | |||
Payments under capital leases and long-term debt - related party | (1,434 | ) | (1,371 | ) | |||
Payments related to business combinations | (44 | ) | (1,335 | ) | |||
RSUs acquired to settle employee withholding liability | (105 | ) | (6,926 | ) | |||
Excess tax benefit on stock-based compensation | 79 | 223 | |||||
Proceeds from issuance of common stock | 11,931 | 4,512 | |||||
Net cash provided by / (used in) financing activities | 10,399 | (5,009 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (2,005 | ) | (273 | ) | |||
Net change in cash and cash equivalents | 27,544 | (69,152 | ) | ||||
Cash and cash equivalents at beginning of period | 289,966 | 367,769 | |||||
Cash and cash equivalents at end of period | $ | 317,510 | $ | 298,617 | |||
Supplemental cash flow disclosure: | |||||||
Cash paid for interest to related parties | $ | 125 | $ | 188 | |||
Cash paid for interest to other parties | $ | 463 | $ | 464 | |||
Cash paid for income taxes, net of tax refunds | $ | 1,305 | $ | 1,099 | |||
Noncash financing and investing activities: | |||||||
Common stock issued in connection with business combination | $ | — | $ | 85,881 |
• | There is persuasive evidence of an arrangement; |
• | The service is being provided to the customer; |
• | The collection of the fees is reasonably assured; and |
• | The amount of fees to be paid by the customer is fixed or determinable. |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
United States | $ | 334,638 | $ | 254,639 | $ | 172,158 | $ | 133,269 | |||||||
International | 112,711 | 87,458 | 58,613 | 44,011 | |||||||||||
Total revenue | $ | 447,349 | $ | 342,097 | $ | 230,771 | $ | 177,280 | |||||||
Percentage of revenue generated outside of the United States | 25 | % | 26 | % | 25 | % | 25 | % |
2016 Acquisitions | |||||||
PFS | MSC | ||||||
April 1, 2016 | February 26, 2016 | ||||||
(dollars in thousands) | |||||||
Developed technology | $ | — | $ | 1,500 | |||
Customer relationships | 1,840 | 250 | |||||
Goodwill | 7,034 | 7,774 | |||||
Other assets / (liabilities), net | 1,033 | (212 | ) | ||||
Fair value of assets acquired and liabilities assumed | $ | 9,907 | $ | 9,312 |
PFS | MSC | |||||||||||
Fair Value | Useful Life | Fair Value | Useful Life | |||||||||
(dollars in thousands) | (in years) | (dollars in thousands) | (in years) | |||||||||
Developed technology | $ | — | — | $ | 1,500 | 5 | ||||||
Customer relationships | 1,840 | 3 | 250 | 4 |
(dollars in thousands) | ||||
Balance as of January 1, 2016 | $ | 291,956 | ||
Acquisition of MSC | 7,774 | |||
Acquisition of PFS | 7,034 | |||
Other adjustments to goodwill | (1,872 | ) | ||
Foreign exchange adjustment | 813 | |||
Balance as of June 30, 2016 | $ | 305,705 |
June 30, 2016 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Cash equivalents: | (in thousands) | ||||||||||||||
Money market funds | $ | 21,316 | $ | — | $ | — | $ | 21,316 | |||||||
Commercial paper | 1,700 | — | — | 1,700 | |||||||||||
Marketable securities: | |||||||||||||||
Commercial paper | 51,100 | 24 | — | 51,124 | |||||||||||
Corporate notes and obligations | 12,776 | 12 | — | 12,788 | |||||||||||
U.S. agency bonds | 5,406 | — | (1 | ) | 5,405 | ||||||||||
U.S. treasury securities | 23,827 | 13 | — | 23,840 | |||||||||||
Total | $ | 116,125 | $ | 49 | $ | (1 | ) | $ | 116,173 |
December 31, 2015 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Cash equivalents: | (in thousands) | ||||||||||||||
Money market funds | $ | 16,092 | $ | — | $ | — | $ | 16,092 | |||||||
Commercial paper | 10,998 | — | — | 10,998 | |||||||||||
Marketable securities: | |||||||||||||||
Commercial paper | 33,170 | — | — | 33,170 | |||||||||||
Corporate notes and obligations | 12,402 | — | (13 | ) | 12,389 | ||||||||||
U.S. agency bonds | 11,410 | — | (25 | ) | 11,385 | ||||||||||
U.S. treasury securities | 31,727 | — | (48 | ) | 31,679 | ||||||||||
Total | $ | 115,799 | $ | — | $ | (86 | ) | $ | 115,713 |
Fair Value | ||||
(in thousands) | ||||
Due within one year | $ | 113,201 | ||
Due within two years | 2,972 | |||
Total | $ | 116,173 |
• | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
• | Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. |
• | Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
June 30, 2016 | December 31, 2015 | ||||||||||||||||||||||||||||||
Fair value measurements at reporting date using | Fair value measurements at reporting date using | ||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Cash and cash equivalents | |||||||||||||||||||||||||||||||
Cash | $ | 294,494 | $ | — | $ | — | $ | 294,494 | $ | 262,876 | $ | — | $ | — | $ | 262,876 | |||||||||||||||
Money market funds | 21,316 | — | — | 21,316 | 16,092 | — | — | 16,092 | |||||||||||||||||||||||
Commercial paper | — | 1,700 | — | 1,700 | — | 10,998 | — | 10,998 | |||||||||||||||||||||||
Marketable securities | |||||||||||||||||||||||||||||||
Commercial paper | — | 51,124 | — | 51,124 | — | 33,170 | — | 33,170 | |||||||||||||||||||||||
Corporate notes and obligations | — | 12,788 | — | 12,788 | — | 12,389 | — | 12,389 | |||||||||||||||||||||||
U.S. agency bonds | — | 5,405 | — | 5,405 | — | 11,385 | — | 11,385 | |||||||||||||||||||||||
U.S. treasury securities | 23,840 | — | — | 23,840 | 31,679 | — | — | 31,679 | |||||||||||||||||||||||
Foreign exchange contracts | — | 879 | — | 879 | — | 384 | — | 384 | |||||||||||||||||||||||
Total | $ | 339,650 | $ | 71,896 | $ | — | $ | 411,546 | $ | 310,647 | $ | 68,326 | $ | — | $ | 378,973 | |||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Foreign exchange contracts | $ | — | $ | 322 | $ | — | $ | 322 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Total | $ | — | $ | 322 | $ | — | $ | 322 | $ | — | $ | — | $ | — | $ | — |
June 30, 2016 | December 31, 2015 | ||||||||||||||
Notional Value Sold | Notional Value Purchased | Notional Value Sold | Notional Value Purchased | ||||||||||||
(US dollars in thousands) | (US dollars in thousands) | ||||||||||||||
British pound | $ | 18,612 | $ | 11,443 | $ | 16,959 | $ | 9,183 | |||||||
Euro | 16,882 | 3,040 | 13,364 | 2,245 | |||||||||||
Australian dollar | 15,895 | 7,716 | 17,148 | 6,953 | |||||||||||
Philippines peso | 9,990 | 9,990 | 9,560 | 9,560 | |||||||||||
Czech crown | 8,150 | 8,370 | 6,621 | 6,320 | |||||||||||
Japan yen | 4,835 | — | 4,435 | — | |||||||||||
Canadian dollar | 4,054 | 3,047 | 5,488 | 4,034 | |||||||||||
New Zealand dollar | 556 | 263 | 505 | — | |||||||||||
Mexican peso | 135 | — | 387 | 252 | |||||||||||
Total | $ | 79,109 | $ | 43,869 | $ | 74,467 | $ | 38,547 |
Asset Derivatives | Liability Derivatives | ||||||||||||||||||
Balance Sheet Location | June 30, 2016 | December 31, 2015 | Balance Sheet Location | June 30, 2016 | December 31, 2015 | ||||||||||||||
Derivatives and forward contracts | Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||
Foreign exchange contracts | Other current assets | $ | 879 | $ | 384 | Other current liabilities | $ | 322 | $ | — | |||||||||
Total | $ | 879 | $ | 384 | $ | 322 | $ | — |
Location of net gain (loss) recognized in income on derivatives | Amount of net gain (loss) recognized in income on derivatives during the | |||||||||||||||||
Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||
Derivatives and forward contracts | 2016 | 2015 | 2016 | 2015 | ||||||||||||||
(in thousands) | ||||||||||||||||||
Foreign exchange contracts | Other income/ (expense), net | $ | 269 | $ | 717 | $ | 1,432 | $ | (509 | ) | ||||||||
Total | $ | 269 | $ | 717 | $ | 1,432 | $ | (509 | ) |
Operating leases | ||||
(dollars in thousands) | ||||
Years ending: | ||||
Remainder of 2016 | $ | 8,259 | ||
2017 | 25,063 | |||
2018 | 24,965 | |||
2019 | 23,200 | |||
2020 | 18,908 | |||
Thereafter | 37,191 | |||
Future minimum lease payments | $ | 137,586 |
● | during any calendar quarter commencing after the calendar quarter ended on September 30, 2013 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
● | during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or |
● | upon the occurrence of certain corporate transactions described in the indenture governing the Notes. |
June 30, 2016 | December 31, 2015 | |||||||
(in thousands) | ||||||||
Equity component (1) | $ | 60,931 | $ | 60,931 | ||||
Liability component: | ||||||||
Principal | $ | 310,000 | $ | 310,000 | ||||
Less: debt discount, net | (25,750 | ) | (32,045 | ) | ||||
Less: unamortized transaction costs | (2,710 | ) | (3,379 | ) | ||||
Net carrying amount | $ | 281,540 | $ | 274,576 | ||||
Fair value - level 2 | $ | 305,133 | $ | 307,024 |
Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in thousands) | ||||||||||||||||
Contractual interest expense | $ | 388 | $ | 388 | $ | 194 | $ | 194 | ||||||||
Amortization of debt issuance costs | 669 | 640 | 336 | 322 | ||||||||||||
Amortization of debt discount | 6,295 | 6,001 | 3,173 | 3,025 | ||||||||||||
Total | $ | 7,352 | $ | 7,029 | $ | 3,703 | $ | 3,541 | ||||||||
Effective interest rate | 5.4% |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars and shares in thousands, except per share amounts) | |||||||||||||||
Numerator: | |||||||||||||||
Net loss | $ | (67,488 | ) | $ | (55,000 | ) | $ | (37,743 | ) | $ | (32,287 | ) | |||
Denominator: | |||||||||||||||
Weighted-average number of shares of common stock outstanding used in computing basic and diluted net loss per share of common stock | 80,364 | 77,627 | 80,641 | 77,975 | |||||||||||
Net loss per share of common stock, basic and diluted | $ | (0.84 | ) | $ | (0.71 | ) | $ | (0.47 | ) | $ | (0.41 | ) |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
(Shares in thousands) | |||||||||||
Options to purchase shares of common stock | 1,861 | 2,237 | 1,932 | 2,306 | |||||||
Unvested RSUs, PSUs, PS and ESPP awards | 3,908 | 3,033 | 4,691 | 3,151 | |||||||
Total | 5,769 | 5,270 | 6,623 | 5,457 |
(dollars in thousands) | ||||
Years ending: | ||||
Remainder of 2016 | $ | 1,560 | ||
2017 | 3,119 | |||
Future debt payments | 4,679 | |||
Amount representing interest | 185 | |||
Present value of future debt payments | $ | 4,494 |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
License fee | $ | 1,434 | $ | 1,371 | $ | 721 | $ | 690 | |||||||
Support | 2,150 | 2,150 | 1,075 | 1,075 | |||||||||||
Interest | 125 | 188 | 58 | 90 | |||||||||||
Total paid | $ | 3,709 | $ | 3,709 | $ | 1,854 | $ | 1,855 |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Revenue earned from related party | $ | 1,664 | $ | 1,455 | $ | 923 | $ | 671 | |||||||
Fees NetSuite paid for services | $ | 614 | $ | 122 | $ | 408 | $ | 91 |
• | Growth of sales of OneWorld, our platform for ERP, CRM and Ecommerce capabilities in multi-currency environments across multiple subsidiaries and legal entities, which supports the needs of large, standalone companies, and divisions of very large enterprises; |
• | Continue to expand our SuiteCommerce platform to enable commerce on every device, anytime, anywhere; |
• | Strengthening our offerings for targeted industries such as wholesale/distribution, manufacturing, retail, high technology and professional services by adding deeper verticalized functionality; and |
• | Developing our SuiteCloud ecosystem to enable third parties to extend our offerings with their vertical expertise or horizontal solution. |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
United States | $ | 334,638 | $ | 254,639 | $ | 172,158 | $ | 133,269 | |||||||
International | 112,711 | 87,458 | 58,613 | 44,011 | |||||||||||
Total revenue | $ | 447,349 | $ | 342,097 | $ | 230,771 | $ | 177,280 | |||||||
Percentage of revenue generated outside of the United States | 25 | % | 26 | % | 25 | % | 25 | % |
• | Revenue recognition; |
• | Deferred commissions; |
• | Accounting for stock-based compensation; and |
• | Other intangible assets. |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Revenue: | |||||||||||||||
Subscription and support | $ | 353,528 | $ | 273,896 | $ | 180,194 | $ | 140,922 | |||||||
Professional services and other | 93,821 | 68,201 | 50,577 | 36,358 | |||||||||||
Total revenue | 447,349 | 342,097 | 230,771 | 177,280 | |||||||||||
Cost of revenue (1): | |||||||||||||||
Subscription and support | 61,809 | 43,444 | 32,018 | 22,454 | |||||||||||
Professional services and other | 94,148 | 68,058 | 52,087 | 36,687 | |||||||||||
Total cost of revenue | 155,957 | 111,502 | 84,105 | 59,141 | |||||||||||
Gross profit | $ | 291,392 | $ | 230,595 | $ | 146,666 | $ | 118,139 | |||||||
Gross margin | 65 | % | 67 | % | 64 | % | 67 | % | |||||||
(1) Includes stock-based compensation expense, amortization of intangible assets and transaction costs associated with business combinations of: | |||||||||||||||
Cost of revenue: | |||||||||||||||
Subscription and support | $ | 7,745 | $ | 5,159 | $ | 3,973 | $ | 2,646 | |||||||
Professional services and other | 7,449 | 5,622 | 4,802 | 2,826 | |||||||||||
$ | 15,194 | $ | 10,781 | $ | 8,775 | $ | 5,472 |
Six Months Ended June 30, | |||||||||||
2016 | 2015 | ||||||||||
Amount | % of revenue | Amount | % of revenue | ||||||||
(dollars in thousands) | |||||||||||
Operating expenses (1): | |||||||||||
Product development | $ | 77,449 | 17% | $ | 62,256 | 18% | |||||
Sales and marketing | 227,005 | 51% | 179,057 | 52% | |||||||
General and administrative | 45,513 | 10% | 44,075 | 13% | |||||||
Total operating expenses | $ | 349,967 | 78% | $ | 285,388 | 83% |
Three Months Ended June 30, | |||||||||||
2016 | 2015 | ||||||||||
Amount | % of revenue | Amount | % of revenue | ||||||||
(dollars in thousands) | |||||||||||
Operating expenses (1): | |||||||||||
Product development | $ | 39,597 | 17% | $ | 32,537 | 18% | |||||
Sales and marketing | 117,314 | 51% | 95,803 | 54% | |||||||
General and administrative | 23,219 | 10% | 25,642 | 14% | |||||||
Total operating expenses | $ | 180,130 | 78% | $ | 153,982 | 87% |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Product development | $ | 19,337 | $ | 16,205 | $ | 9,852 | $ | 8,421 | |||||||
Sales and marketing | 25,249 | 20,467 | 13,754 | 11,196 | |||||||||||
General and administrative | 16,385 | 19,598 | 8,500 | 13,524 | |||||||||||
Total | $ | 60,971 | $ | 56,270 | $ | 32,106 | $ | 33,141 |
Six Months Ended June 30, | |||||||||||
2016 | 2015 | ||||||||||
Amount | % of revenue | Amount | % of revenue | ||||||||
(dollars in thousands) | |||||||||||
Interest income | $ | 354 | —% | $ | 216 | —% | |||||
Interest expense | (7,547 | ) | (2)% | (7,153 | ) | (2)% | |||||
Other income, net | 465 | —% | (264 | ) | —% | ||||||
Provision/(Benefit) for income taxes | 2,185 | —% | (6,994 | ) | (2)% |
Three Months Ended June 30, | |||||||||||
2016 | 2015 | ||||||||||
Amount | % of revenue | Amount | % of revenue | ||||||||
(dollars in thousands) | |||||||||||
Interest income | $ | 203 | —% | $ | 113 | —% | |||||
Interest expense | (3,797 | ) | (2)% | (3,520 | ) | (2)% | |||||
Other income, net | 307 | —% | (266 | ) | —% | ||||||
Provision/(Benefit) for income taxes | 992 | —% | (7,229 | ) | (4)% |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(dollars in thousands) | |||||||
Net cash provided by operating activities | $ | 67,967 | $ | 51,874 | |||
Net cash used in investing activities | (48,817 | ) | (115,744 | ) | |||
Net cash provided by / (used in) financing activities | 10,399 | (5,009 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (2,005 | ) | (273 | ) | |||
Net change in cash and cash equivalents | $ | 27,544 | $ | (69,152 | ) |
• | the security capabilities, reliability and availability of cloud-based services; |
• | customer concerns with entrusting a third party to store and manage their data, especially confidential or sensitive data; |
• | our ability to minimize the time and resources required to implement our suite; |
• | our ability to maintain high levels of customer satisfaction; |
• | our ability to implement upgrades and other changes to our software without disrupting our service; |
• | the level of customization or configuration we offer; |
• | our ability to provide rapid response time during periods of intense activity on customer websites; and |
• | the price, performance and availability of competing products and services. |
• | localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements; |
• | lack of familiarity with and unexpected changes in foreign regulatory requirements; |
• | longer accounts receivable payment cycles and difficulties in collecting accounts receivable; |
• | difficulties in managing and staffing international operations; |
• | fluctuations in currency exchange rates; |
• | potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; |
• | dependence on certain third parties, including channel partners with whom we do not have extensive experience; |
• | the burdens of complying with a wide variety of foreign laws and legal standards; |
• | increased financial accounting and reporting burdens and complexities; |
• | political, social and economic instability abroad, terrorist attacks and security concerns in general; and |
• | reduced or varied protection for intellectual property rights in some countries. |
• | encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; and |
• | authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock; |
• | limiting the liability of, and providing indemnification to, our directors and officers; |
• | limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting; |
• | requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors; |
• | controlling the procedures for the conduct and scheduling of board and stockholder meetings; |
• | providing the Board of Directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings; |
• | limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our Board of Directors then in office; and |
• | providing that directors may be removed by stockholders only for cause. |
• | develop or enhance our application and services; |
• | continue to expand our product development, sales and marketing organizations; |
• | acquire complementary technologies, products or businesses; |
• | expand operations, in the United States or internationally; |
• | hire, train and retain employees; or |
• | respond to competitive pressures or unanticipated working capital requirements. |
Exhibit No | Description of Exhibits | ||
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. | ||
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. | ||
32.1 | Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. | ||
101.INS** | XBRL Instance Document | ||
101.SCH** | XBRL Taxonomy Extension Schema Document | ||
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
** | The information in these XBRL documents is unaudited. |
Date: | August 2, 2016 | NETSUITE INC. |
By: | /S/ RONALD GILL | |
Ronald Gill | ||
Chief Financial Officer |
Date: | August 2, 2016 | By: | /s/ Zachary Nelson |
Zachary Nelson | |||
Chief Executive Officer | |||
(Principal Executive Officer) |
Date: | August 2, 2016 | By: | /s/ Ronald Gill |
Ronald Gill | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
Date: | August 2, 2016 | By: | /s/ Zachary Nelson |
Zachary Nelson | |||
Chief Executive Officer | |||
(Principal Executive Officer) |
Date: | August 2, 2016 | By: | /s/ Ronald Gill |
Ronald Gill | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
DEI Information Document - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jul. 29, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | NetSuite Inc. | |
Entity Central Index Key | 0001117106 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | N | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 80,928,937 |
Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheet (Unaudited) Parentheticals - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Balance Sheet Parenthetical [Abstract] | ||
Allowance for Doubtful Accounts Receivable, Current | $ 3,216 | $ 1,988 |
Current liabilities: | ||
Notes Payable, Related Parties | 2,967 | 2,901 |
Notes Payable, Related Parties, Noncurrent | $ 1,527 | $ 3,027 |
Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 500,000,000 | 500,000,000 |
Common Stock, Shares, Issued | 80,921,604 | 79,802,618 |
Common Stock, Shares, Outstanding | 80,921,604 | 79,802,618 |
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Revenue: | ||||
Subscription and support | $ 180,194 | $ 140,922 | $ 353,528 | $ 273,896 |
Professional services and other | 50,577 | 36,358 | 93,821 | 68,201 |
Total revenue | 230,771 | 177,280 | 447,349 | 342,097 |
Cost of revenue: | ||||
Subscription and support | 32,018 | 22,454 | 61,809 | 43,444 |
Professional services and other | 52,087 | 36,687 | 94,148 | 68,058 |
Total cost of revenue | 84,105 | 59,141 | 155,957 | 111,502 |
Gross profit | 146,666 | 118,139 | 291,392 | 230,595 |
Operating expenses: | ||||
Product development | 39,597 | 32,537 | 77,449 | 62,256 |
Sales and marketing | 117,314 | 95,803 | 227,005 | 179,057 |
General and administrative | 23,219 | 25,642 | 45,513 | 44,075 |
Total operating expenses | 180,130 | 153,982 | 349,967 | 285,388 |
Operating loss | (33,464) | (35,843) | (58,575) | (54,793) |
Other income / (expense), net: | ||||
Interest income | 203 | 113 | 354 | 216 |
Interest expense | (3,797) | (3,520) | (7,547) | (7,153) |
Other income, net | 307 | (266) | 465 | (264) |
Total other income / (expense), net | (3,287) | (3,673) | (6,728) | (7,201) |
Loss before income taxes | (36,751) | (39,516) | (65,303) | (61,994) |
Provision for income taxes | 992 | (7,229) | 2,185 | (6,994) |
Net loss | $ (37,743) | $ (32,287) | $ (67,488) | $ (55,000) |
Net loss per common share, basic and diluted | $ (0.47) | $ (0.41) | $ (0.84) | $ (0.71) |
Weighted average number of shares used in computing net loss per share | 80,641 | 77,975 | 80,364 | 77,627 |
Comprehensive loss: | ||||
Foreign currency translation gain / (loss), net of taxes | $ (2,535) | $ 2,587 | $ (1,569) | $ (1,411) |
Unrealized gain on marketable securities | 44 | 0 | 134 | 16 |
Accumulated pension liability | 69 | 49 | 138 | 98 |
Comprehensive loss | $ (40,165) | $ (29,651) | $ (68,785) | $ (56,297) |
Organization |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Organization [Abstract] | |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | Organization NetSuite Inc. (the “Company”) provides cloud-based financials/Enterprise Resource Planning (“ERP”) and omnichannel commerce software suites. In addition, the Company offers a broad suite of applications, including financial management, Customer Relationship Management (“CRM”), ecommerce and retail management, commerce marketing automation, Professional Services Automation (“PSA”) and Human Capital Management ("HCM") that enable companies to manage most of their core business operations in its single integrated suite. The Company’s "real-time dashboard" technology provides an easy-to-use view into up-to-date, role-specific business information. The Company also offers customer support and professional services related to implementing and supporting its suite of applications. The Company delivers its suite over the Internet as a subscription service using the software-as-a-service ("SaaS") model. The Company’s headquarters are located in San Mateo, California. The Company conducts its business worldwide with international locations in Canada, Europe, Asia, Australia and Uruguay. |
Basis of Presentation |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation The Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2016 included in this Quarterly Report on Form 10-Q have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed consolidated balance sheet data as of December 31, 2015 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on February 24, 2016. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this Quarterly Report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements are meant to be, and should be, read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on February 24, 2016. The unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q reflect all adjustments (which include only normal, recurring adjustments and those items discussed in these Notes) that are, in the opinion of management, necessary to state fairly the financial position and results for the dates and periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. Recent Accounting Pronouncements In March 2016, the Financial Accounting Standards Board ("FASB") issued new accounting guidance: Compensation-Stock Compensation: Improvements to Employee Share-Based Payment. The guidance simplifies the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities on the balance sheet, and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. The new standard is effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company has elected not to early adopt. The Company is evaluating the impact of adopting this new accounting standard on its financial statements. In February 2016, the FASB issued new accounting guidance: Leases. The guidance requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company has elected not to early adopt and is evaluating the potential impact on the Company's condensed consolidated financial statements. In May 2014, the FASB issued new accounting guidance related to revenue recognition, Revenue from Contracts with Customers. This new standard will replace most existing U.S. GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, this guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted beginning January 1, 2017. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and has not selected a transition method. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company generates revenue from two sources: (1) subscription and support; and (2) professional services and other. Subscription and support revenue includes subscription fees from customers accessing its on-demand application suite and support fees from customers purchasing support. Arrangements with customers do not provide the customer with the right to take possession of the software supporting the on-demand application service at any time. Professional services and other revenue includes fees generated from training and consulting services such as business process mapping, configuration, data migration and integration. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. For the most part, subscription and support agreements are entered into for 12 to 36 months. In aggregate, 85% of the professional services component of the arrangements with customers is performed within 300 days of entering into a contract with the customer. The subscription agreements generally provide service level commitments of 99.5% uptime per period, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers up to the value of an entire month of their subscription and support fees. In light of the Company’s historical experience with meeting its service level commitments, the Company's accrued liability related to such obligations in the accompanying consolidated financial statements is negligible. The Company commences revenue recognition when all of the following conditions are met:
In most instances, revenue from new customer acquisition is generated under sales agreements with multiple elements, comprised of subscription and support fees from customers accessing the Company's on-demand application suite and professional services associated with consultation services. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control. Subscription and support have standalone value because they are routinely sold separately by the Company. Professional services have standalone value because the Company has sold professional services separately and there are several third-party vendors that routinely provide similar professional services to its customers on a standalone basis. The Company allocates revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. As the Company has been unable to establish VSOE or TPE for the elements of its arrangements, the Company establishes the ESP for each element primarily by considering the weighted average of actual sales prices of professional services sold on a standalone basis and subscription and support including various add-on modules when sold together without professional services, and other factors such as gross margin objectives, pricing practices and growth strategy. The consideration allocated to subscription and support is recognized as revenue over the contract period commencing when the subscription service is made available to the customer. The consideration allocated to professional services is recognized as revenue using the proportional performance method. The total arrangement fee for a multiple element arrangement is allocated based on the relative ESP of each element. However, since the professional services are generally completed prior to completion of delivery of subscription and support services, the revenue recognized for professional services in a given reporting period does not include fees subject to delivery of subscription and support services. This results in the recognition of revenue for professional services that is generally no greater than the contractual fees for those professional services. For single element sales agreements, subscription and support revenue is recognized ratably over the contract term beginning on the provisioning date of the contract. The Company recognizes professional services revenue using the proportional performance method for single element arrangements. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenues. Concentration of Credit Risk and Significant Customers Financial instruments potentially exposing the Company to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities, restricted cash and trade accounts receivable. The Company maintains an allowance for doubtful accounts receivable balances. The allowance is based upon historical loss patterns and an evaluation of the potential risk of loss associated with problem accounts. The Company generally charges off the receivable balances of uncollectible accounts when accounts are 120 days past-due based on the account’s contractual terms. Credit risk arising from accounts receivable is mitigated due to the large number of customers comprising the Company’s customer base and their dispersion across various industries. As of June 30, 2016 and December 31, 2015, there were no customers that represented more than 10% of the net accounts receivable balance. There were no customers that individually exceeded 10% of the Company’s revenue in any of the periods presented. As of June 30, 2016 and December 31, 2015, long-lived assets located outside the United States totaled $27.7 million and $21.4 million, respectively. Revenue by geographic region, based on the billing address of the customer, was as follows for the periods presented:
No single country outside the United States represented more than 10% of revenue during the six months ended June 30, 2016 or 2015. The Company maintains cash balances at several banks. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $250,000. Certain operating cash accounts may exceed the FDIC limits. Intellectual Property Rights Indemnification The Company’s arrangements include provisions indemnifying customers against liabilities if the Company's products infringe a third-party’s intellectual property rights. The Company has not incurred any costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements. Business Combinations During six months ended June 30, 2016, the Company purchased all the outstanding equity of a professional services firm ("PFS") and acquired certain assets and assumed certain obligations from an on-demand manufacturing software company ("MSC"), a private company that provides its customers with resource planning, production scheduling and quality management services. In connection with these acquisitions, the Company incurred transaction costs totaling $1.8 million, and are reflected as general and administrative expense in the Company's statement of operations. The following table summarizes the preliminary allocation of the consideration to the fair value of assets acquired and liabilities assumed as of the acquisition dates:
Under the acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair value at the date of acquisition. To determine the value of the intangible assets, the Company made various estimates and assumptions. For PFS, the methodologies used in valuing the intangible assets include, but are not limited to, multiple period excess earnings method for customer relationships. For MSC, the methodologies used in valuing the intangible assets include, but are not limited to, the multiple period excess earnings approach for developed technology and the with-and-without approach for customer relationships. In both acquisitions, the excess of the purchase price over the total net identifiable assets has been recorded as goodwill which includes synergies expected from the expanded service capabilities and the value of the assembled workforce in accordance with generally accepted accounting principles. $7.0 million of the acquired PFS goodwill is expected to be deductible for tax purposes, and $7.8 million of the acquired MSC goodwill is expected to be deductible for tax purposes. The Company did not record any in-process research and development intangible assets in connection with the acquisitions. The Company will amortize certain intangible assets on a straight-line basis over the following periods:
PFS On April 1, 2016, the Company acquired PFS to increase its professional services resources. Beginning in the second quarter of 2016, PFS assets, liabilities and operating results are reflected in the Company’s condensed consolidated financial statements from the date of acquisition. On the closing date, the Company paid approximately $9.7 million in cash and will pay an additional $202,000 in the third quarter of 2016. Of the consideration paid, $1.4 million is being held in escrow for up to 24 months following the close of the transaction in the event of certain breaches of representations and warranties. Acquisition related transaction costs amounted to $1.0 million in the three months period ended June 30, 2016, and are reflected as general and administrative expense in the Company's statement of operations. The initial accounting for PFS accounts receivable, intangible assets, other employee related liabilities, and vendor obligations is incomplete because the Company is in the process of determining the fair value of these assets and liabilities. The Company is also undertaking an analysis of certain tax matters associated with the PFS acquisition which could result in an adjustment to the acquisition price allocation. MSC On February 26, 2016, the Company acquired certain assets and assumed certain obligations from an on-demand manufacturing software company ("MSC"), a private company that provides its customers with resource planning, production scheduling and quality management services. MSC functionality will be added to the Company's existing solution. Beginning in the first quarter of 2016, MSC assets, liabilities and operating results are reflected in the Company’s condensed consolidated financial statements from the date of acquisition. The Company paid approximately $9.3 million in cash. Of the consideration paid, $1.1 million is being held in escrow for up to 24 months following the close of the transaction in the event of certain breaches of representations, and warranties. Additionally, $400,000 of the total consideration is being held in escrow for potential tax obligations covered in the purchase agreement. Acquisition related transaction costs amounted to $725,000 in the six months ended June 30, 2016, and are reflected as general and administrative expense in the statement of operations. The initial accounting for MSC accounts receivable, intangible assets, other customer related liabilities, and vendor obligations is incomplete because the Company is in the process of determining the fair value of these assets and liabilities. The Company is also undertaking an analysis of certain tax matters associated with the MSC acquisition which could result in an adjustment to the acquisition price allocation. Comparative pro forma financial information for the acquisitions above have not been presented because the historical financial results of both PFS and MSC are not material to the Company's condensed consolidated results of operations individually or in aggregate. Goodwill The following table details the Company's goodwill activity during the six months ended June 30, 2016:
On June 8, 2015, the Company completed the purchase of all the outstanding equity of Bronto Software, Inc. (“Bronto"), a private company that provides a cloud-based marketing platform for its customers to drive revenue through their email, mobile and social campaigns. Bronto functionality enhances the Company’s existing email marketing solution and its existing omnichannel commerce platform. The Company paid approximately $98.2 million in cash and issued 1,030,508 unregistered shares of the Company's common stock with a fair value of $85.9 million, inclusive of a discount from the quoted market price due to certain trading restrictions associated with the shares. During the second quarter of 2016, the Company decreased Bronto goodwill by $1.1 million due to working capital and tax adjustments. On August 5, 2015, the Company completed the purchase of all the outstanding equity of Monexa Services Inc. ("Monexa"), a private company that provides cloud-based invoicing and payment services for its customers. Monexa functionality enhances the Company’s existing invoicing and payment solution. On the closing date, the Company paid approximately $33.1 million in cash as consideration. During the first quarter of 2016, the Company increased the fair value of the customer relationships and developed technology by a total of $900,000 resulting in a reduction of goodwill. The initial accounting for Monexa intangible assets is incomplete because the Company is in the process of determining the fair value of these assets. The Company is also undertaking an analysis of certain tax matters associated with the Monexa acquisition which could result in an adjustment to the acquisition price allocation. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss is comprised of foreign currency translation gains and losses, net of tax, marketable securities unrealized gains and losses and an accumulated pension liability for employees located in the Philippines. There were no significant reclassification adjustments out of accumulated other comprehensive loss to the condensed consolidated statement of operations and comprehensive loss. |
Financial Instruments |
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Hedging Activity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments | Financial Instruments The Company invests primarily in money market funds, commercial paper, highly liquid debt instruments of the U.S. government and its agencies, U.S. municipal obligations, and U.S. and foreign corporate debt securities. All highly liquid investments with maturities of 90 days or less from date of purchase are classified as cash equivalents and all highly liquid investments with maturities of greater than 90 days but less than a year from date of purchase are classified as short-term marketable securities. Highly liquid investments with maturities of greater than a year from the balance sheet date are classified as marketable securities, non-current. Short-term marketable securities and marketable securities, non-current are also classified as available-for-sale. The Company intends to hold marketable securities, non-current, until maturity; however, it may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisition. Consequently, the Company may or may not hold securities with stated maturities greater than twelve months until maturity. The Company carries its fixed income investments at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss, a component of total equity. Realized gains or losses are included in other income / (expense), net section of the condensed consolidated statement of operations and comprehensive loss. When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in the other income / (expense), net section of the consolidated statement of operations and comprehensive loss. Cash equivalents and Marketable securities consist of the following investments:
The Company does not believe any of the unrealized losses represent an other-than-temporary impairment based on its evaluation of available evidence as of June 30, 2016. The Company expects to receive the full principal and interest on the following cash equivalents and marketable securities as of June 30, 2016:
Fair Value Measurements The Company measures certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:
Level 1 Measurements The Company's cash equivalents held in money market funds and available-for-sale United States Treasury securities are measured at fair value using level 1 inputs. Level 2 Measurements The Company's available-for-sale corporate debt securities, commercial paper and United States government agency securities are measured at fair value using level 2 inputs. The Company obtains the fair values of its level 2 available-for-sale securities from a professional pricing service. The Company’s foreign currency forward contracts are measured at fair value using foreign currency rates quoted by banks or foreign currency dealers and other public data sources. Such instruments are classified as Level 2 and are included in other current assets and liabilities. The fair value of these financial assets and liabilities was determined using the following inputs as of June 30, 2016 and December 31, 2015:
Balance Sheet Hedging - Hedging of Foreign Currency Assets and Liabilities During the six months ended June 30, 2016, the Company hedged certain of its nonfunctional currency denominated assets and liabilities to reduce the risk that earnings would be adversely affected by changes in exchange rates. Gains and losses from these forward contracts are recorded each period as a component of other income / (expense) in the condensed consolidated statements of operations. The notional amount of derivative instruments acquired during the period was $234.4 million. The Company accounts for derivative instruments as other current assets and liabilities on the balance sheet and measures them at fair value with changes in the fair value recorded as other income / (expense). These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being economically hedged. As of June 30, 2016 and December 31, 2015, the Company had the following outstanding foreign exchange forward contracts:
The fair value of the derivative instruments reported on the Company’s Condensed Consolidated Balance Sheet were as follows:
The effect of derivative instruments on the Company's Condensed Consolidated Statement of Operations and Comprehensive Loss was as follows for the periods presented:
The Company has entered into its foreign exchange contracts with multiple counterparties. During the periods such contracts are open, the Company is subject to a potential maximum amount of loss due to credit risk equal to the gross fair value of the derivative instrument, if the counterparties to the instruments failed completely to perform according to the terms of the contracts. The agreements with the counterparties do not require either party to provide collateral to mitigate the credit risk of the agreements. |
Commitments and Contingencies |
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Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies The Company is involved in various legal proceedings and receives claims from time to time, arising from the normal course of business activities. The Company has accrued for estimated losses in the accompanying condensed consolidated financial statements for matters with respect to which it believes the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable. Accrued estimated losses included in the financial statements as of June 30, 2016 are negligible. During the three months ended June 30, 2016, the Company entered into various office space leases to expand its operations primarily in the United States and the Philippines. The corresponding lease terms for these agreements expire at various dates through 2027. The Company will pay a total of $8.3 million, net of any lessor lease incentives, over the corresponding lease terms for additional office space. During the three months ended March 31, 2016, the Company entered into various office space leases to expand its operations primarily in the United Kingdom and Australia. The corresponding lease terms for these agreements expire at various dates through 2024. The Company will pay a total of $10.2 million, net of any lessor lease incentives, over the corresponding lease terms for additional office space. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2016 are as follows:
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Stock-based Compensation |
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Jun. 30, 2016 | |
Stock-based Compensation [Abstract] | |
Share-based Compensation | Stock-based Compensation In April 2016, the Company's board of directors granted selected executives and other key employees 236,586 performance share units ("PSUs") whose vesting is contingent upon the Company's performance in comparison to certain indexed companies' performance over a three year period. In May 2019, the Company will determine the number of shares the participants will receive which can range from zero to 200% based on the Company's performance. The fair value and the related stock-based compensation expense of performance based PSUs are determined based on the value of the underlying shares on the date of grant and will be recognized over the performance term. The fair value of the market-based PSUs on the date of grant (measurement date) is $73.13 for the 231,443 shares granted on April 1, 2016 and $99.91 for the 5,143 shares granted on April 28, 2016. The fair value was calculated using a Monte Carlo simulation model that estimates the distribution of the potential outcomes of the PSU grants based on simulated future stock prices of the indexed companies. Under the Company's employee stock purchase plan ("ESPP"), employees may purchase the Company’s common stock through accumulated payroll deductions. Stock purchase rights are granted to eligible employees during a six month offering period with purchase dates at the end of each offering period. The offering periods generally commence each May 1 and November 1. Shares are purchased through employees’ payroll deductions, up to a maximum of 15% of employees’ compensation, at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the date of the employee’s entrance to the offering period or the purchase date. During the second quarter of 2016, employees purchased 98,099 shares for $64.52 per share under the ESPP. ESPP share-based compensation expense was $2.0 million and $1.1 million for the six and three months ended June 30, 2016, respectively. During the first quarter of 2016, the Company's board of directors set the performance goals for 41,635 performance shares (“PS”), with a fair value of $53.66 per share, that were included in the 2015 PS grant to selected executives and other key employees. The PS vesting is contingent upon the Company meeting certain company-wide revenue performance goals (performance-based) in 2016. These shares are subject to term vesting conditions. The PS fair value and the related stock-based compensation expense were determined based on the value of the underlying shares on February 9, 2016 when the performance goals were established and will be recognized over the vesting term. During the interim financial periods, management estimates the probable number of PS that will be granted until the achievement of the performance goals are known at December 31, 2016. |
Debt |
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Debt | Debt 0.25% Convertible Senior Notes In June 2013, the Company issued at par value $310.0 million of 0.25% convertible senior notes due June 1, 2018 (the “Notes”). Interest is payable semi-annually in arrears on December 1 and June 1 of each year, commencing December 1, 2013. The Notes are governed by an indenture dated as of June 4, 2013, between the Company, as issuer, and Wells Fargo Bank, National Association, as trustee. The Notes do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company. The Notes are unsecured and rank senior in right of payment to the Company's future indebtedness that is expressly subordinated in right of payment to the Notes, rank equal in right of payment to the Company's existing and future unsecured indebtedness that is not so subordinated. The Notes are effectively subordinated in right of payment to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all existing and future indebtedness, liabilities incurred by our subsidiaries including trade payables, and preferred stock of the Company. Upon conversion, the Company may choose to pay or deliver, as the case may be, either cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. If converted, holders will receive, at the Company's election, cash and/or shares of the Company's common stock for the principal amount of the Notes and any amounts in excess of the principal amounts. The Company intends to settle the principal amount of the Notes with cash if converted. The initial conversion rate is 8.6133 shares of the Company's common stock per $1,000 principal amount of Notes, subject to anti-dilution adjustments. The initial conversion price is approximately $116.10 per share of the Company's common stock and represents a conversion premium of approximately 35% based on the last reported sale price of the Company's common stock of $86.00 on May 29, 2013, the date the Notes offering was priced. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note unless the conversion date occurs after a regular record date related to the Notes and prior to the related interest payment date. At any time prior to the close of business on the business day immediately preceding March 1, 2018, holders may convert their Notes at their option only under the following circumstances:
On and after March 1, 2018 until the close of business on the business day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. If a make-whole fundamental change (as defined in the Indenture governing the Notes) occurs when the Company's stock price is between $86.00 and $275.00 per share and a holder elects to convert its Notes in connection with such make-whole fundamental change, such holder may be entitled to an increase in the conversion rate as provided for in the Indenture governing the Notes. As of June 30, 2016, circumstances that would give rise to a conversion option for the holders of Notes do not exist. Holders of the Notes have the right to require the Company to purchase with cash all or a portion of the Notes upon the occurrence of any event that constitutes a fundamental change (as defined in the Indenture governing the Notes) at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense using the effective interest method over the term of the Note. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the $8.4 million in transaction costs related to the Note issuance, the Company allocated the total amount incurred to the liability and equity components based on their relative values. The $6.7 million in transaction costs attributable to the liability component which offset the convertible notes are being amortized to interest expense over the term of the Notes, and the $1.7 million in transaction costs attributable to the equity component were netted with the equity component in additional paid-in capital. The Notes consisted of the following as of June 30, 2016:
(1) Included in the consolidated balance sheets within additional paid-in capital, net of the $1.7 million in equity issuance costs. To comply with the recent FASB accounting guidance, effective in the first quarter of 2016, the Company changed the presentation of unamortized transaction costs on the balance sheets from being presented in other long term assets to a direct deduction from the convertible debt liability. The Company also retrospectively changed its December 31, 2015 balance sheet for this presentation. The Notes are carried at face value less any unamortized debt discount and transaction costs, and also require disclosure of an estimate of fair value. The Company considers the fair value of the Notes at each balance sheet date to be a level 2 measurement because it is determined based on a recent quoted market price or dealer quote for the Notes. The Notes quoted market price or dealer quote is based on the trading price of the Company's common stock and market activity that is less than an active exchange. As of June 30, 2016, the remaining life of the Notes is approximately 1.9 years. The following table sets forth total interest expense recognized related to the Notes:
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Income Taxes |
6 Months Ended |
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Jun. 30, 2016 | |
Income Taxes [Abstract] | |
Income Taxes | Income Taxes The Company has incurred annual operating losses since inception. As a result of those continuing losses, management has determined insufficient evidence exists to support that it is more likely than not that the Company will realize the benefits of its U.S. net deferred tax assets and therefore has recorded a valuation allowance to reduce the net carrying value of these deferred tax assets to zero. Accordingly, the Company has not recorded a provision for income taxes for any of the periods presented other than provisions for state and foreign income taxes. As of June 30, 2016, the Company had net deferred tax asset in foreign jurisdictions of approximately $700,000. Based on available evidence, both positive and negative, the Company believes that it is more likely than not that the benefits of the foreign deferred tax assets will be realized in full with the exception of the Japanese deferred tax assets. The Company does not anticipate a material change in the total amount or composition of its unrecognized tax benefits within 12 months of the reporting date. As of June 30, 2016, the Company has not provided for residual U.S. taxes on any of its income from foreign jurisdictions since it intends to indefinitely reinvest the net undistributed earnings of its foreign subsidiaries offshore. The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to the carry forward of net operating losses, the Company's income tax returns generally remain subject to examination by federal and most state tax authorities. In most of the Company's significant foreign jurisdictions, 2009 through the current taxable year remain subject to examination by their respective tax authorities. |
Net Loss Per Common Share |
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Net Loss Per Common Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss Per Common Share | Net Loss Per Share of Common Stock Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potential dilutive shares of common stock, including options, restricted stock units ("RSUs"), performance share units ("PSUs"), performance shares ("PS"), employee stock purchase plan shares and convertible debt shares. Basic and diluted net loss per share of common stock were the same for all periods presented as the impact of all potentially dilutive securities outstanding was anti-dilutive. The following table presents the calculation of the numerator and denominator used in the basic and diluted net loss per share of common stock:
The Company’s unvested RSUs, PSUs and PS do not contain non-forfeitable rights to dividends and dividend equivalents. As such, unvested RSUs, PSUs and PS are not participating securities and the Company is not required to use the two-class method to calculate diluted earnings per share in periods when the Company has net income. The following table presents the weighted average potential shares that are excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti‑dilutive effect:
The effect of the convertible Notes is reflected in diluted earnings per share by application of the treasury stock method as the Company intends to settle the principal amount of the Note in cash upon conversion. During the six and three months ended June 30, 2016, the Company's weighted average common stock price was below the Notes conversion price for the periods during which the Notes were outstanding. |
Related Party Transactions |
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Related Party Transactions | Related Party Transactions The Company has entered into various software license agreements with Oracle USA, Inc., an affiliate of Oracle Corporation. Lawrence J. Ellison, who beneficially owns a significant portion of the Company’s common stock, is the Chief Technology Officer, a director and a principal stockholder of Oracle Corporation. On February 28, 2013, the Company entered into the third amendment to the perpetual software license agreement with Oracle USA ("Amendment"). The Amendment provides for a 48 month extension to the May 2010 second amendment to the Oracle unlimited license agreement. The Amendment provides that the Company will pay a one-time fee of $13.1 million to extend the term for unlimited licenses from May 31, 2014 to May 31, 2018. The Amendment also provides for technical support services. During the first quarters of 2015 and 2016, the Company renewed the support service agreement for $4.3 million per annum and may renew support services for the 2017 annual period at the same rate. The support services to be provided to the Company by Oracle automatically renew unless the Company provides written notice of cancellation at least 60 days prior to the support renewal date. The Company financed the license fees due under the Amendment pursuant to a note issued to Oracle Credit Corporation. The note bears interest at a rate of 2.00% per annum with payments scheduled over the term of the amendment. The Company discounted the note at a rate of 4.5% because it approximates the interest rate the Company would obtain on the open market. The $12.4 million discounted note value was recorded as an asset addition to property and equipment that will be depreciated over seven years. Future debt payments under notes payable as of June 30, 2016 are as follows:
The following table details payments to Oracle USA and Oracle Credit Corporation for support services and license fees related to the following periods:
The Company has also entered into various other software license agreements with Oracle Corporation. During the three months ended June 30, 2016, the Company entered into an agreement with Oracle Corporation to purchase additional software licenses and support for $450,000. The licenses were recorded as an asset addition to property and equipment that will be depreciated over seven years. During the six months ended June 30, 2016, the Company received negligible payments from Oracle Corporation and received payments totaling $150,000 during the same period in 2015 for services it performed. In addition to the companies affiliated with Lawrence J. Ellison, the Company enters into sales and purchases agreements with various companies that have a relationship with the Company's executive officers or members of the Company's board of directors. The relationships are typically an equity investment by the executive officer or board member in the customer / vendor company or the Company's executive officer or board member is a member of the customer / vendor company's board of directors. The Company has renewed the license agreements and sold additional services to these customers or purchased services from these vendors at various points in time. As of June 30, 2016, the Company's accounts receivable related to these customers totaled $0.7 million. Below is a summary of transactions between the Company and related parties other than Mr. Ellison:
A member of the Company's board of directors, Edward Zander, is a member of the EVault, Inc. board of directors. During the second quarter of 2016, the Company entered into a $153,000 agreement for the Company to provide services to EVault, Inc. A member of the Company's board of directors, Kevin Thompson, is the President and Chief Executive Officer of SolarWinds. During the second quarter of 2016, the Company entered into a $208,000 agreement for the Company to provide services to SolarWinds. The Company's President and Chief Operating Officer, Jim McGeever, is a member of the Twilio Inc. board of directors. During the second quarter of 2016, the Company entered into a $326,000 agreement for the Company to provide services to Twilio Inc. The Company's President, Worldwide Sales and Distribution, Marc Huffman, is a member of the ChannelAdvisor board of directors. During the first quarter of 2016, the Company entered into a $219,000 agreement for the Company to provide services to ChannelAdvisor. Additionally, during the second quarter of 2016, the Company entered into a $112,000 agreement for the Company to provide services to ChannelAdvisor. A member of the Company's board of directors, William Beane III, is the General Manager of the Oakland Athletics. During the first quarter of 2016, the Company entered into a $510,000 amendment to the agreement with the Oakland Athletics to purchase in-stadium sponsorship. |
Subsequent Event |
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Jun. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Event | Subsequent Event On July 28, 2016, the Company 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 conditioned on there having been validly tendered and not withdrawn: (1) a number of shares of Common Stock that, together with any shares of Common Stock owned by Oracle and certain of its affiliates, represents a majority of the shares of Common Stock (calculated on a fully diluted basis in accordance with the definitive agreement); and (2) a number of shares Common Stock (excluding, in such number, shares of Common Stock beneficially owned by: (i) NetSuite Restricted Holdings LLC, Lawrence J. Ellison, David Ellison and Margaret Ellison (and their respective affiliates who beneficially own shares of Common Stock) (collectively, the “LJE Parties”); (ii) Oracle and certain of its affiliates; and (iii) any executive officers or directors of the Company and their affiliates (the persons and entities referred to in clauses (i), (ii) and (iii), the “Specified Persons”)) that represents a majority of the shares of Common Stock issued and outstanding immediately prior to the acceptance time (excluding, from such issued and outstanding shares, shares of Common Stock beneficially owned by the Specified Persons). The consummation of the transaction is also conditioned on (1) receipt of certain regulatory approvals, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and certain foreign antitrust laws; (2) the accuracy of the representations and warranties and compliance with the covenants contained in the definitive agreement, subject to qualifications; and (3) other customary conditions. The transaction is expected to close in 2016. |
Basis of Presentation Significant Accounting Policies (Policies) |
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Basis of Presentation [Abstract] | |||||||||||||||||
Marketable Securities, Available-for-sale Securities, Policy | Financial Instruments The Company invests primarily in money market funds, commercial paper, highly liquid debt instruments of the U.S. government and its agencies, U.S. municipal obligations, and U.S. and foreign corporate debt securities. All highly liquid investments with maturities of 90 days or less from date of purchase are classified as cash equivalents and all highly liquid investments with maturities of greater than 90 days but less than a year from date of purchase are classified as short-term marketable securities. Highly liquid investments with maturities of greater than a year from the balance sheet date are classified as marketable securities, non-current. Short-term marketable securities and marketable securities, non-current are also classified as available-for-sale. The Company intends to hold marketable securities, non-current, until maturity; however, it may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisition. Consequently, the Company may or may not hold securities with stated maturities greater than twelve months until maturity. The Company carries its fixed income investments at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss, a component of total equity. Realized gains or losses are included in other income / (expense), net section of the condensed consolidated statement of operations and comprehensive loss. When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in the other income / (expense), net section of the consolidated statement of operations and comprehensive loss. |
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Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. |
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Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. |
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Revenue Recognition | Revenue Recognition The Company generates revenue from two sources: (1) subscription and support; and (2) professional services and other. Subscription and support revenue includes subscription fees from customers accessing its on-demand application suite and support fees from customers purchasing support. Arrangements with customers do not provide the customer with the right to take possession of the software supporting the on-demand application service at any time. Professional services and other revenue includes fees generated from training and consulting services such as business process mapping, configuration, data migration and integration. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. For the most part, subscription and support agreements are entered into for 12 to 36 months. In aggregate, 85% of the professional services component of the arrangements with customers is performed within 300 days of entering into a contract with the customer. The subscription agreements generally provide service level commitments of 99.5% uptime per period, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers up to the value of an entire month of their subscription and support fees. In light of the Company’s historical experience with meeting its service level commitments, the Company's accrued liability related to such obligations in the accompanying consolidated financial statements is negligible. The Company commences revenue recognition when all of the following conditions are met:
In most instances, revenue from new customer acquisition is generated under sales agreements with multiple elements, comprised of subscription and support fees from customers accessing the Company's on-demand application suite and professional services associated with consultation services. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control. Subscription and support have standalone value because they are routinely sold separately by the Company. Professional services have standalone value because the Company has sold professional services separately and there are several third-party vendors that routinely provide similar professional services to its customers on a standalone basis. The Company allocates revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. As the Company has been unable to establish VSOE or TPE for the elements of its arrangements, the Company establishes the ESP for each element primarily by considering the weighted average of actual sales prices of professional services sold on a standalone basis and subscription and support including various add-on modules when sold together without professional services, and other factors such as gross margin objectives, pricing practices and growth strategy. The consideration allocated to subscription and support is recognized as revenue over the contract period commencing when the subscription service is made available to the customer. The consideration allocated to professional services is recognized as revenue using the proportional performance method. The total arrangement fee for a multiple element arrangement is allocated based on the relative ESP of each element. However, since the professional services are generally completed prior to completion of delivery of subscription and support services, the revenue recognized for professional services in a given reporting period does not include fees subject to delivery of subscription and support services. This results in the recognition of revenue for professional services that is generally no greater than the contractual fees for those professional services. For single element sales agreements, subscription and support revenue is recognized ratably over the contract term beginning on the provisioning date of the contract. The Company recognizes professional services revenue using the proportional performance method for single element arrangements. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenues. |
Basis of Presentation (Tables) |
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Schedule of Goodwill | The following table details the Company's goodwill activity during the six months ended June 30, 2016:
On June 8, 2015, the Company completed the purchase of all the outstanding equity of Bronto Software, Inc. (“Bronto"), a private company that provides a cloud-based marketing platform for its customers to drive revenue through their email, mobile and social campaigns. Bronto functionality enhances the Company’s existing email marketing solution and its existing omnichannel commerce platform. The Company paid approximately $98.2 million in cash and issued 1,030,508 unregistered shares of the Company's common stock with a fair value of $85.9 million, inclusive of a discount from the quoted market price due to certain trading restrictions associated with the shares. During the second quarter of 2016, the Company decreased Bronto goodwill by $1.1 million due to working capital and tax adjustments. On August 5, 2015, the Company completed the purchase of all the outstanding equity of Monexa Services Inc. ("Monexa"), a private company that provides cloud-based invoicing and payment services for its customers. Monexa functionality enhances the Company’s existing invoicing and payment solution. On the closing date, the Company paid approximately $33.1 million in cash as consideration. During the first quarter of 2016, the Company increased the fair value of the customer relationships and developed technology by a total of $900,000 resulting in a reduction of goodwill. |
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Revenue by geographic region | Revenue by geographic region, based on the billing address of the customer, was as follows for the periods presented:
No single country outside the United States represented more than 10% of revenue during the six months ended June 30, 2016 or 2015 |
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Schedule of Business Acquisitions, by Acquisition |
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Schedule of Finite-Lived Intangible Assets |
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Financial Instruments (Tables) |
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Hedging Activity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Available-for-sale Securities Reconciliation | Cash equivalents and Marketable securities consist of the following investments:
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Investments Classified by Contractual Maturity Date | The Company expects to receive the full principal and interest on the following cash equivalents and marketable securities as of June 30, 2016:
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Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The fair value of these financial assets and liabilities was determined using the following inputs as of June 30, 2016 and December 31, 2015:
|
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Schedule of Notional Amounts of Outstanding Derivative Positions | As of June 30, 2016 and December 31, 2015, the Company had the following outstanding foreign exchange forward contracts:
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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The fair value of the derivative instruments reported on the Company’s Condensed Consolidated Balance Sheet were as follows:
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Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) | The effect of derivative instruments on the Company's Condensed Consolidated Statement of Operations and Comprehensive Loss was as follows for the periods presented:
|
Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2016 are as follows:
|
Debt (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Nonoperating Income (Expense) | The following table sets forth total interest expense recognized related to the Notes:
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Schedule of Debt | The Notes consisted of the following as of June 30, 2016:
Future debt payments under notes payable as of June 30, 2016 are as follows:
|
Net Loss Per Common Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss Per Common Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following table presents the calculation of the numerator and denominator used in the basic and diluted net loss per share of common stock:
The Company’s unvested RSUs, PSUs and PS do not contain non-forfeitable rights to dividends and dividend equivalents. As such, unvested RSUs, PSUs and PS are not participating securities and the Company is not required to use the two-class method to calculate diluted earnings per share in periods when the Company has net income. |
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The following table presents the weighted average potential shares that are excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti‑dilutive effect:
The effect of the convertible Notes is reflected in diluted earnings per share by application of the treasury stock method as the Company intends to settle the principal amount of the Note in cash upon conversion. During the six and three months ended June 30, 2016, the Company's weighted average common stock price was below the Notes conversion price for the periods during which the Notes were outstanding. |
Related Party Transactions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Transactions | Below is a summary of transactions between the Company and related parties other than Mr. Ellison:
|
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Schedule of Debt | The Notes consisted of the following as of June 30, 2016:
Future debt payments under notes payable as of June 30, 2016 are as follows:
|
Basis of Presentation Revenue by Region (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Revenue by Region [Line Items] | |||||
Revenues | $ 230,771 | $ 177,280 | $ 447,349 | $ 342,097 | |
International Revenue as a Percentage of Total Revenue | 25.00% | 25.00% | 25.00% | 26.00% | |
United States | |||||
Revenue by Region [Line Items] | |||||
Revenues | $ 172,158 | $ 133,269 | $ 334,638 | $ 254,639 | |
Non-US [Member] | |||||
Revenue by Region [Line Items] | |||||
Revenues | 58,613 | $ 44,011 | 112,711 | $ 87,458 | |
Long-Lived Assets | $ 27,652 | $ 27,652 | $ 21,400 |
Basis of Presentation Intangible Assets with Definitive Lives (Details) - MSC [Member] $ in Thousands |
Feb. 26, 2016
USD ($)
|
---|---|
Developed Technology Rights [Member] | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Intangible assets | $ 1,500 |
Intangible asset, useful life | 5 years |
Customer Relationships [Member] | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Intangible assets | $ 250 |
Intangible asset, useful life | 4 years |
Basis of Presentation Goodwill Rollforward (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2016 |
|
Goodwill [Roll Forward] | ||
Balance as of January 1, 2016 | $ 291,956 | |
Other adjustments to goodwill | (1,872) | |
Foreign exchange adjustment | 813 | |
Balance as of June 30, 2016 | $ 305,705 | 305,705 |
Bronto Business Combination [Member] | ||
Goodwill [Roll Forward] | ||
Other adjustments to goodwill | $ 1,100 | |
MSC [Member] | ||
Goodwill [Roll Forward] | ||
Goodwill, Acquired During Period | 7,774 | |
PFS [Member] | ||
Goodwill [Roll Forward] | ||
Goodwill, Acquired During Period | $ 7,034 |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Mar. 31, 2016 |
---|---|---|
Operating Leased Assets [Line Items] | ||
Remainder of 2016 | $ 8,259 | |
2017 | 25,063 | |
2018 | 24,965 | |
2019 | 23,200 | |
2020 | 18,908 | |
Thereafter | 37,191 | |
Future minimum lease payments | 137,586 | |
United States and Philippines | ||
Operating Leased Assets [Line Items] | ||
Future minimum lease payments | $ 8,300 | |
United Kingdom and Australia | ||
Operating Leased Assets [Line Items] | ||
Future minimum lease payments | $ 10,200 |
Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Apr. 28, 2016 |
Apr. 01, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2016 |
|
Market-based PSU [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Performance shares granted | 5,143 | 231,443 | 236,586 | ||
Performance share fair value | $ 99.91 | $ 73.13 | |||
2015 Performance Shares [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Performance shares granted | 41,635 | ||||
Performance share fair value | $ 53.66 | ||||
ESPP [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
ESPP purchase price per share | $ 64.52 | ||||
ESPP share-based compensation expense | $ 1.1 | $ 2.0 | |||
shares purchased under ESPP | 98,099 |
Income Taxes (Details) $ in Thousands |
Jun. 30, 2016
USD ($)
|
---|---|
Foreign Country [Member] | |
Net deferred tax assets | $ 700 |
Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings per share, basic and diluted, [Line Items] | ||||
Net loss | $ (37,743) | $ (32,287) | $ (67,488) | $ (55,000) |
Weighted average number of shares used in computing net loss per share | 80,641 | 77,975 | 80,364 | 77,627 |
Net loss per common share, basic and diluted | $ (0.47) | $ (0.41) | $ (0.84) | $ (0.71) |
Antidilutive shares: | ||||
Antidilutive securities excluded from computation of loss per share | 6,623 | 5,457 | 5,769 | 5,270 |
Stock Options | ||||
Antidilutive shares: | ||||
Antidilutive securities excluded from computation of loss per share | 1,932 | 2,306 | 1,861 | 2,237 |
Unvested RSUs, PSUs, PS and ESPP awards | ||||
Antidilutive shares: | ||||
Antidilutive securities excluded from computation of loss per share | 4,691 | 3,151 | 3,908 | 3,033 |
Related Party Transactions Related Party Debt Table (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Mar. 31, 2014 |
Mar. 31, 2013 |
Mar. 01, 2013 |
|
Debt Instrument [Line Items] | |||||||
Effective interest rate | 5.40% | 5.40% | |||||
Oracle | |||||||
Debt Instrument [Line Items] | |||||||
Oracle license fee due on amendment date | $ 450 | $ 450 | $ 13,100 | ||||
Annual support contract cost | $ 4,300 | ||||||
Oracle note annual interest rate | 2.00% | ||||||
Effective interest rate | 4.50% | ||||||
Oracle license asset addition to property and equipment | $ 12,400 | ||||||
Debt payments - Remainder of 2016 | 1,560 | 1,560 | |||||
Debt payments - 2017 | 3,119 | 3,119 | |||||
Total future debt payments | 4,679 | 4,679 | |||||
Amount representing interest | 185 | 185 | |||||
Present value of future debt payments | 4,494 | 4,494 | |||||
License fee | 721 | $ 690 | 1,434 | $ 1,371 | |||
Support sevices | 1,075 | 1,075 | 2,150 | 2,150 | |||
Interest paid to Oracle | 58 | 90 | 125 | 188 | |||
Total paid | $ 1,854 | $ 1,855 | $ 3,709 | $ 3,709 |
Subsequent Events (Details) - Oracle Corporation [Member] - NetSuite Inc. [Member] - Subsequent Event [Member] $ / shares in Units, $ in Billions |
Jul. 28, 2016
USD ($)
$ / shares
|
---|---|
Subsequent Event [Line Items] | |
Share price | $ / shares | $ 109.00 |
Consideration transferred | $ | $ 9.3 |
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