Netsuite Inc (N)

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NetSuite, Inc. (N)

Q4 2008 Earnings Call

February 10, 2009 5:00 pm ET

Executives

Zachary Nelson – Chief Executive Officer

James McGeever – Chief Financial Officer

Analysts

Tom Roderick – Thomas Weisel Partners

Laura Lederman – William Blair

Brendon Barnicle – Pacific Crest Securities

[Michael Nemeroff – Wedbush Morgan]

Mark Murphy – Piper Jaffray

Adam Holt – Morgan Stanley

Michael Huang – Thinkequity

Presentation

Operator

Welcome to NetSuite's fourth quarter and full year 2008 financial results conference call. (Operator Instructions) At this time, I'd like to turn the conference over to Jim McGeever, Chief Financial Officer of NetSuite.

James McGeever

Good afternoon everyone and welcome to NetSuite's fourth quarter and fiscal year 2008 financial results conference call. By now you should have received a copy of our press release issued 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. Zach and I will begin with prepared remarks and then we'll open up the lines for questions.

As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call. To access the press release and the financial details please access our investor relations web site at www.netsuite.com/investors.

During the call we will be referring to both GAAP and non-GAAP financial measures. The GAAP reconciliation to non-GAAP information is provided in the press release and on our web site. All of the non revenue financial measures we will discuss today are non GAAP unless we state that the measure is a GAAP number. These non-GAAP measures exclude stock based compensation expense and the amortization of intangible assets.

Any non-GAAP outlook we provide has not been reconciled to the comparable GAAP outlook, because we cannot readily estimate the impact of our future stock price on our future stock based compensation expenses.

Some of the information discussed during this call including any financial outlook we provide may constitute forward-looking statements within the meaning of the Federal Securities laws. These statements are subject to risks and uncertainties and assumptions and are based upon information available as of today. 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 any such forward-looking statements are summarized in the press release we issued earlier today. They are also described in detailed reports that we file from time to time with the SEC including our most recent 10-Q filing which I encourage you to read. All of these filings are available at the investor relations section of our web site.

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

Zachary Nelson

Thank you all for joining us this afternoon. Following the shock that hit the world wide economy at the end of Q3, we were cautious as we moved into the fourth quarter. Now with Q4 behind us, I'm happy to report that NetSuite turned in a very strong quarter to close the fiscal year with record results on both top and bottom line.

Q4 also answered the question that some of our investors have asked over the past year. When will NetSuite become profitable? Well, Q4 gave you the answer. For the first time in our history, we made a non-GAAP net profit and were profitable on a non-GAAP operating basis as well. Non-GAAP net profit of $0.01 or $534,000 represents a $2.2 million improvement over the prior quarter.

For the full year, non-GAAP net loss was $0.04 per share or $2.5 million, an improvement over the $0.10 per share or $5.7 million non-GAAP net loss in 2007. And, in the face of what most agree is the most challenging economic environment in our lifetime, NetSuite continued as one of the fastest growing software and software service companies in the world.

Q4 marked another record quarter with revenue growing 30% plus over Q4 2007 to $41.4 million. In a quarter where our revenue was negatively impacted by foreign exchange and saw U.S. equipment and software spending fall some 28%, we were very pleased with the top line performance.

For the year, total revenue reached $152.5 million, growth of more than 40% when compared to 2007. We also saw solid customer acquisition and continued average selling price increases in Q4. We added roughly 350 new customers in the quarter, and importantly, our average selling price hit a new record in Q4 reaching $340,000 per customer.

This increase in average selling price indicates continued success in our efforts to move up market to larger, more profitable customers. For the quarter, our average selling price increased 20% versus Q4 of 2007.

This sizeable growth in average selling price is attributable to several factors. In the quarter, we saw the average number of users per deal increase. Also, new products like NetSuite OneWorld continued to gain traction. NetSuite OneWorld is the first and only on-demand system to deliver real time subsidiary management and business consolidation capabilities to mid market companies for accounting, ERP, CRM and e-commerce operations.

All of this capability comes at a fraction of the cost of traditional on premise ERP solutions. Since its launch in April, NetSuite OneWorld has gained popularity not only in North America but also in Europe and Asia Pacific. There really is no other product like it in the world and it's helping companies run their global business with an ease and at a cost they've never imagined possible.

Less than a year after its introduction, OneWorld has been adopted by more than 200 customers across the globe. OneWorld's impact on NetSuite as a company is also meaningful. In Q4, OneWorld accounted for more than 35% of our new business bookings, were our total average selling price grew to $34,000 per new business contract. That number changes to more than $100,000 per contract when you look only at NetSuite OneWorld new business. And importantly, our pipeline continues to build.

One final point on the Q4 results. While we don't typically talk about bookings, I did want to give you an idea about the tone of the business during the quarter. On a bookings basis, we were up approximately 20% over Q3. As seen in the results of other SAPS companies, and as expected given the economic uncertainty, more of our customers requested quarterly or even monthly payment terms versus the usual one year upfront contract we strive for.

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