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NetSuite Inc. (N)

Morgan Stanley Conference

February 26, 2013; 06:15 p.m. ET


Ron Gill - Chief Financial Officer


Adam Holt - Morgan Stanley


[No presentation session for this event]

Question-and Answer Session

Adam Holt

So you can sit there and I can sit here.

Ron Gill

Very well.

Adam Holt

So they can look this way. All right why don’t everyone – get everyone to come in. Shut the doors if possible and we’ll go ahead and get started.

Thanks everyone for coming. It’s always great to see a full room in the late afternoon. Very happy to have our next presenter for a conversation, Ron Gill, the Chief Financial Officer at NetSuite, and I, for those of you who don’t know, my name is Adam Holt, and I run the software group in Equity Research at Morgan Stanley.

So I’ll start the Q&A and then we want to make sure we get some of your questions answered as well. So just raise your hand and we’ll call on you for the webcast. So with that, thanks so much for coming.

So you guys just came off of a very good fourth quarter, a very good end of the year, where you had a number of different metrics converged to drive out performance. Can you walk us through what you saw and how you set the table for calendar ‘13?

Ron Gill

Yes, it was a good year for us and we’ve had a couple of good years in a row now with the business accelerating very well. Obviously I think still some macro economic challenges in 2012. Certainly there seems to be a lot of uncertainty in the overall business environment.

We had a pretty good year; revenue growth accelerated its about 31% revenue growth. We grew operating cash flow at about 50% year-over-year; we grew net income and operating income growth at about 75% year-over-year. So a pretty good year for us in terms of the overall performance of the business, and the business has been accelerating pretty well, really in the last couple of years. We drew something like 22% the year before, so a nice acceleration in the business.

And its really been driven by the core ERP business and increasingly by sort of move up market into the larger end of the mid market space and now into the sort of two tier business into the enterprise space as well.

Adam Holt

I want to drill into a couple of those things, for some of you in the back, there is some room up here on the left side and then on the right side if you want to come in and sit down.

So why don’t we start with the spending environment. It doesn’t look to us like there was a whole lot of help form a macro perspective, particularity in the SMB business in calendar ’12. How are you thinking about the spending environment in the macro and what is embedded in your numbers for calendar ’13?

Ron Gill

Yes, the overall macro environment certainly has been uncertain for several years now. I’ve been CFO at NetSuite for 2.5 years and it sort of feels like every other quarter there’s some sort of a shock that either the USS being downgraded or what is a bad job’s report or whether its a bad day in the stock market or whether its a fiscal cliff or it’s a cluster or something that makes everybody think that the word’s about to come to an end. That’s been the environment that we’ve been in for the past couple of years and as I said, I think the business has grown pretty well and accelerated pretty nicely through that period.

So obviously there are some other trends, other than the overall macro economic trend I think that has been nice tailwinds for us. Certainly just a general acceptance for SaaS, both in the mid market and increasingly in the enterprise, and then our own product readiness has probably helped with that as well. So we’ve been able to grow pretty well, even in a fairly uncertain environment.

So that’s probably a long way of saying, we don’t have a great deal of concern about macro economic environment having an impact on us in 2013 as well. So we are not really planning with any sort of uncertainty in mind. We are very well aware that had we paused and been overly conservative in the past couple of years with each one of those scares, we probably wouldn’t have been set up as well for growth as we are now.

So we are kind of investing full stream ahead with the expectation that those trends overwhelm any weakness that we see in the macro environment in 2013 again.

Adam Holt

That’s terrific. I want to touch on a few of the key growth initiatives. One is, you talked a lot about sort of expanding your sales capacity and where you are in terms of the amount of sales folks that are ramped to how much capacity you are putting in the next year. Could you set the context for us, so we can get a flavor for how you’re thinking about what you’ve done and what you have going forward.

Ron Gill

Yes, it’s a good question, because we’ve certainly felt capacity constrained in terms of sales capacity. We’ve been very adding very aggressively, probably some of you heard us talk about in 2012, having a what was admittedly a bit of stretch goal of adding 60% year-over-year increase in sales capacity.

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