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Netsuite Reports 2Q 23% Revenue Increase Yet Can't Prevent Losses

Netsuite, an enterprise software provider, recently announced its operating results for the second quarter with total revenues for the second quarter at $57.8 million, a 23% increase over the same time last year. This beats analyst estimates of $55.9 million in revenue. Subscription and support revenues made up much of Netsuite’s revenue at $48.2 million, a 21% growth over the same time last year. However, the company still reported losses of $9.8 million, up from $7.2 million in losses during the same time last year.

Calculated billings, which are revenue plus changes in deferred revenue, were $62.6 million this quarter, a 30% increase over the same time last year. Calculated billings have drawn some fire previously as an messy measure. Dennis Howlett, a writer for ZDNet’s Irregular Enterprise explained the concept well in an article:

“When customers are faced with renewals the first thing they usually see is an invoice. Sometimes that invoice can include items they were not expecting. Sometimes that same invoice can be for a renewal amount that doesn’t jibe with what the customer thought they were contracting. Sometimes there are ongoing discussions where the customer is mid-implementation. All these issues have an impact on what the customer is prepared to pay. A negotiation ensues that mostly (but not always) ends up with a downward adjustment to the originally invoiced number or a splitting of the invoice over accounting periods. NetSuite will endeavor to close out the situation within a quarter since that has a direct bearing on 1. what it can count as revenue and 2. the likely cash flow impact. Given NetSuite is hefting some 6,000 plus accounts, that can have a significant in quarter impact although over time it should equal out.”
Cash flows from operations increased $4.0 million in the same time last year to $8.4 million, an increase of 88%. Non-GAAP net income was $1.6 million, which is down $0.3 million from the same time last year. The company also reported the largest number of new customers in two years.

Zach Nelson, Netsuite’s CEO commented on the showing in this financial quarter:

“NetSuite’s strong financial results and the quality and quantity of our customer wins tell the story of how NetSuite is transforming the business capabilities of small, medium and large companies around the globe. Q2 also showed our continued success in moving up market with the announcement of customer wins at billion-dollar revenue companies like Groupon and Qualcomm. NetSuite also marked a milestone during Q2 by signing our largest ever recurring revenue contract with a 45,000 employee global organization that plans to use NetSuite to automate its entire operation including ERP and industry specific functionality.”
What’s your opinion on Netsuite’s financial performance? Was it an overall positive quarter or do the losses dampen the results? Share your thoughts in the comments below.

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[Photo courtesy of vaco.]