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NetSuite Inc. (N)

Q4 2009 Earnings Call

February 4, 2009 5:00 pm ET


Zachary Nelson – President, Chief Executive Officer

James McGeever – Chief Financial Officer


Laura Lederman – William Blair

Bryan McGrath – Credit Suisse

David Hilal – FBR Capital Markets

Brendan Barnicle – Pacific Crest Securities

Thomas Ernst – Deutsche Bank

Michael Huang – Thinkequity

Sasa Zoravic – Janney Montgomery Scott



Welcome to today’s NetSuite fourth quarter fiscal year 2009 conference. At this time I would like to turn the conference over to Jim McGeever, Chief Financial Officer.

James McGeever

Good afternoon everyone and welcome to NetSuite’s fourth quarter and 2009 year end 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 line 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 website at

During the call we will be referring to both GAAP and non-GAAP financial measures. The GAAP reconciliation to our non-GAAP 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 state the measure is a GAAP number. These non-GAAP measures exclude stock based compensation expenses, expense relating to the amortization of intangible assets and the transaction costs relating to acquisitions.

Any non-GAAP outlook we provide has not be reconciled with the comparable GAAP outlook because among other things, we cannot reliably estimate our future stock based compensation expenses which are dependent on our future stock price.

Some of the information discussed during this call including any financial outlook we provide may constitute forward-looking statements within the meanings of U.S. Federal Security 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. The risks and uncertainties that would cause our results to differ materially from those expressed or implied by any forward-looking statements are summarized in the release that we issued today. They are also described in detail in reports that we file from time to time with the SEC including our most recent 10-K filing which I encourage you to read. All of these filings are available in the investor relations section of our website.

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

Zachary Nelson

Thank you Jim and thank you all for joining us today. While 2009 started in the worst of times for our customers and the global economy, we closed the year at least relative to where the year began in the best of times.

In a year that saw most of our ERP competitor sales decline, NetSuite took market share and achieved record results on the top line, bottom line and in operating cash flow. In many ways, the challenges the industry faced in 2009 made NetSuite a much stronger company as we head into 2010 and beyond.

2009 was a very painful year for traditional providers of on premise software and their struggles allowed us to put a great deal of distance between us and them. As well, 2009 showed us definitively that our efforts to move up market, to drive customer satisfaction and to verticalize our products were the right focus areas.

The impact of our competitor’s struggles, customers growing preference for Cloud based solutions and our excellent execution against our strategic initiatives are reflected in the results we are presenting today.

Q4 marked another record quarter with revenue growing to $43 million, exceeding our earlier stated outlook. For the year, total revenue reached $166.5 million, growth of more than 9% when compared to FY 2008. And more importantly, recurring revenue grew by 16% in 2009 when compared to 2008.

FY 2009 also proved to be a watershed year as we proved the profitability of our model. We recorded a non-GAAP operating profit and non-GAAP net income for each and every quarter of 2009.

In what I think is fair to call a phenomenal performance, non-GAAP net income improved 233% for the year, improving to a gain of $3.3 million as compared to the $2.5 million non-GAAP net loss in 2008. This represents a swing in our non-GAAP earnings per share of $0.09 year over year.

In Q4, our non-GAAP net income grew to $1.3 million representing a $991,000 improvement over Q3 ’09 and an improvement of $805,000 over the same quarter last year.

In addition, in 2009 we focused on operating cash flow as a key metric for the company. For the year, we far exceeded our stated target of operating cash flow breakeven by delivering $4.8 million of operating cash flow, and in Q4 we recorded our highest ever quarterly cash flow from operations, generating $3.5 million of cash.

These solid financial results were driven in part by excellent execution on the strategic initiatives we laid out at the beginning of the year. In particular, during 2009 we focused on enabling larger companies to enjoy the benefits of Cloud computing and our integrated suite of applications, and those efforts paid off for NetSuite and for our new customers.

On the sales front, we grew billings, calculated by most analysts as the change in deferred revenue plus revenue, by 18% over Q4 in 2008, our fastest billings growth rate in more than a year. Sequentially, billings grew 8% over Q3.

Q4’s billing growth was driven not only by our highest quarterly number of new customers added during 2009, but also our focus on adding the right types of customers. During Q4 we added approximately 295 new customers, the most in any quarter for the year.

Importantly, we set a record for average selling price per new customer, reaching approximately $38,000. For the quarter, our average selling price per customer increased over 10% versus Q4 of 2008 which was our previous quarterly high water mark.

Partially driving this ASP growth was NetSuite One World. One World continues to attract companies with multi-national subsidiaries and those companies tend to be larger and more complex than our traditional customers. In Q4 ’09, One World new business bookings was the highest of any quarter in the year. In fact, we have customers using NetSuite and NetSuite One World today to manage their operations in more than 100 countries around the globe.

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