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NetSuite (N)

Q4 2012 Results Earnings Call

January 31, 2013 5:00 p.m. ET

Executives

Ronald Gill - CFO

Zachary Nelson - CEO

Analysts

Gregory Dunham - Goldman Sachs

Raimo Lenschow - Barclays

Jason Maynard - Wells Fargo

Philip Winslow - Crédit Suisse

Mark Murphy - Piper Jaffray

Laura Lederman - William Blair

[unintelligible] - Deutsche Bank

Adam Holt - Morgan Stanley

Michael Huang - Needham

Karl Keirstead - BMO Capital Markets

Scott Berg - Northland Capital Markets

Presentation

Operator

Welcome everyone, and welcome to the NetSuite fourth quarter and fiscal 2012 financial results conference call. [Operator instructions.] At this time, I will turn things over to your host, Mr. Ron Gill, chief financial officer. Please go ahead sir.

Ronald Gill

Thank you, operator. Good afternoon everyone, and welcome to NetSuite’s fourth quarter and fiscal 2012 financial results conference call. A more complete disclosure of our results can be found in our press release issued about an hour ago, as well as in our related Form 8-K furnished to the SEC earlier today.

To access the press release and the financial details, please see the Investor Relations section of our website. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.

On the call with me today is Zach Nelson, our Chief Executive Officer. Zach and I will begin with prepared remarks and then we will open up the line for questions. During the call, we'll be referring to both GAAP and non-GAAP financial measures. The reconciliation of our GAAP to non-GAAP financial information is provided in our press release, which is available on our website. All of the non-revenue financial measures we will discuss today are non-GAAP, unless we state the measure is a GAAP measure.

The primary purpose of today's call is to discuss our third quarter 2012 results. However, some of the information discussed during this call, including any financial outlook we provide, may constitute forward-looking statements within the meaning of U.S. federal securities laws. These statements are subject to risks, uncertainties and assumptions and are based on financial information available as of today. We disclaim any obligation to update any forward-looking statements or outlook.

Risks and uncertainties that would cause our results to differ materially from those expressed or implied by any such forward-looking statements include those summarized in the press release that we issued today. These risks and additional risks are also described in detail in reports that we file from time to time with the SEC, including our most recent 10-K and 10-Q filings, which I encourage you to read.

With that, I'll turn over the call to Zach.

Zachary Nelson

Thank you, Ron, and thank you all for joining us. It is a pleasure to speak with you today and provide our final report on the 2012 fiscal year. While some legacy client server application vendors continued to struggle and missed their top line and bottom line forecasts, NetSuite went from strength to strength to deliver our best year as a public company, with record results on the top line, non-GAAP bottom line, and cash flow.

And what’s most exciting about these record results is that we are just at the beginning of the disruption of the traditional ERP market. Given our momentum, at the end of this call, we will also raise the top line outlook for 2013 that we gave on our last quarterly call, as well as provide outlook on the rest of our traditional metrics.

While we had a strong Q4, our pipeline is by no means drained, and we have already had a great start to the new year. While Ron will detail our quarterly and fiscal year numbers, I would like to cover some of the highlights of our results.

For the quarter, on the top line, our revenue grew by 33% year over year to a record $85 million for the quarter, exceeding our previously stated outlook of $82.5 million to $83 million. For the year, we closed with record revenue of $300.8 million, growth of 30.7%.

In Q4, on the bottom line, we delivered $0.06 of non-GAAP EPS, exceeding our previously stated outlook of $0.03 to $0.04. As we discussed during our Q3 call, Q4 began a new level of incremental investment that we plan to accelerate in 2013 to take advantage of our market position and the growing market demand we see.

For the year, we delivered record non-GAAP EPS of $0.26 per share, exceeding the top of the outlook we gave at the beginning of the year by $0.05. In Q4 on the cash flow front, we exceeded the outlook we gave by delivering $13.4 million of operating cash flow, versus our outlook of $12 million to $12.5 million of cash flow. We ended 2012 with more than $185 million in cash, a record total for NetSuite.

And finally, deferred revenue also exhibited healthy growth. Year over year, total deferred revenue grew an impressive 45%. In addition, short term deferred revenue accelerated from approximately 40% year over year growth in the year ago quarter to 46% year over year growth in the current quarter. Calculated billings, defined as quarterly revenue plus the change in deferred revenue, grew at 41% year over year.

All in all, NetSuite’s quarterly and fiscal year financial results were spectacular, and were driven by the tremendous effort and commitment of our now more than 1,700 employees around the globe. In particular, our sales organization really delivered in 2012, and 2012 was the latest in a string of great years delivered by our sales team.

As always happens as you close the books on the last year and the dial is reset to zero, you make alterations to your sales force. One change we will be making this year will be in the leadership of our sales organization. James Ramsey, who has been with NetSuite for almost 10 years, has decided to take a leave of absence from the company.

Unlike enterprise software companies that close most of their business on December 31, NetSuite runs our organization as a monthly sales operation. In his tenure here, James has had the joy of closing more than 100 months. Given the intensity of the last decade, and James’ incredible dedication and success during that period, we can understand his desire to step back for a while.

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