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NetSuite Inc. (N)

Q3 2008 Earnings Call Transcript

November 3, 2008, 5:00 pm ET


Jim McGeever – CFO

Zach Nelson – President and CEO


Jeff Keene – William Blair

Patrick Walravens – JMP Securities

Atul Bagga – ThinkEquity

Gordon [ph] – Thomas Weisel Partners



Good day and welcome to the NetSuite third quarter 2008 financial results conference call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mr. Jim McGeever, Chief Financial Officer of NetSuite. Please go ahead sir.

Jim McGeever

Thank you. Good afternoon everyone and welcome to NetSuite's third quarter 2008 financial results conference call. We will discuss the results for our quarter, which ended September 30th. By now you should have received a copy of our press release, which was released today after the market closed and furnished on Form 8-K to the SEC. Joining me on the call today is Zach Nelson, our Chief Executive Officer.

Today's call will begin with Zach providing a brief overview of our record results with some color on the drivers of our business. Then I will review our key financial results in more detail and provide our financial outlook for the fourth quarter of 2008. We will then take some questions.

Today's call is being recorded and a replay will be available shortly following the conclusion of the call. To access the release, the financial detail of our website replay, please access our Investor Relations website at Customers who purchase our service should make sure the decisions are based on features that are currently available. Please be advised that any unreleased services or features that NetSuite reference in today’s discussion or other public segments are not currently available and may not be delivered on time or at all.

During this call, we will be referencing both GAAP and non-GAAP financial measures and wish to note that GAAP reconciliation information is provided in the press release and on our website. All of the non-revenue financial measures we will discuss today are non-GAAP unless we specifically state that the measure is a GAAP number. The non-GAAP measure excludes stock-based compensation expense and the amortization of intangible assets.

Some of the information discussed during this call, particularly information regarding our revenue, including expectations concerning revenue growth, non-GAAP net income and loss, business strategy, customer demand, market observations and future product plans are based on information available as of today, November 3rd, 2008.

In addition, some of the forward-looking statements we will make on today's call constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. We disclaim any obligation to update any forward-looking statements.

The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements are summarized in the press release we issued earlier today. They are also described in detail in our 10-Q filed with the SEC for the second quarter of 2008, which is available on our investor relations website, and which I encourage you to read.

With that, I will now turn the call over to Zach Nelson.

Zach Nelson

Thanks, Jim, and thank you everyone for joining us today. We had a strong quarter that once again established NetSuite as one of the fastest growing public software and software service vendors in the industry, and when one views our Q3 performance through the lens of a global economic environment that by any measure is creating enormous challenges for companies across all industries, we were particularly satisfied.

In this environment, we were able to post record results, which included our 36th straight quarter of increased revenue. On the top line, we delivered revenue of $40.4 million. Year-over-year, our revenue growth was 44% as compared with 43% last quarter. We also hit our bottom line targets. In terms of operating loss, we continued to progress with our third quarter non-GAAP operating loss decreasing to $1.5 million, an improvement of $392,000 over the second quarter of 2008.

In terms of net income, excluding the impact of foreign exchange losses, which for the first time in our history had a material impact on our income and balance sheet, we posted a loss of $0.01 per share for the quarter.

Our bookings numbers were good, but they obviously were impacted by the market jitters experienced in the latter portion of September. In particular, in the last two days of the quarter, we saw a freezing of our pipeline due to the inability of the US Congress to pass the initial Wall Street bail out bill, and we, like most other software companies, booked a healthy portion of our new business in the final days of the quarter.

Even in the phase of that watershed event, we did sign more than 330 new customers for the quarter, which is within our cited internal range of 300 to 500 new customers per quarter and again hit a record for average selling price beating the record $30,000 per customer level we saw in Q2.

We also did add to our short-term deferred revenue when you back out the effect of our non-recurring Japanese contract. Jim will discuss these results and other financial metrics in more detail later. I would also like to briefly highlight our continued execution against the key product sales and services strategies during the quarter.

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