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Protiviti and NASDAQ's IPO webinar 2013

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Protiviti, NASDAQ & NetSuite discuss readiness for filing for an IPO. A webinar hosted by Protiviti in April 2013.

Published in: Economy & Finance, Business
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Protiviti and NASDAQ's IPO webinar 2013

  1. 1. Blueprint for IPO ReadinessIf you are having trouble hearing the audio through the computer, a separate phone line has been set-up: +18669669439 Conference ID: 30626142
  2. 2. Please remember… Following the webinar, all attendees will receive a link to a copy of the presentation and recording. If you are having trouble hearing the audio through the computer, a separate phone line has been set-up. • +1 866.966.9439 • Conference ID: 306261422 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  3. 3. Meet Steve and Joe. Steve Hobbs is our host and moderator today. He is Protiviti’s Managing Director leading the Public Company Transformation solution. Professional Background: He works extensively with a number of pre-IPO companies in the social media, technology, and consumer products industries. He has served over 100 public companies during his 25 year career with assistance in IPO preparation & execution, international expansion and numerous operational issues. Numerous companies rely on Steve with their SEC investigations, inquiries, financial restatements and comment letters. Steve.Hobbs@protiviti.com Joseph Brantuk is Vice President at NASDAQ OMX, managing new listings efforts in domestic listings across all sectors. Professional Background: He brings over ten years of experience within the exchange field, to bear on his work in guiding companies and their legal /financial advisors on the process of listing on the U.S.’s largest electronic market. His focus on working with early stage companies to maximize the financing and visibility opportunities that can be provided by public capital markets means, he also works very closely with venture capital, private equity and investment firms to educate them on the liquidity options NASDAQ can provide Council. Joseph.Brantuk@nasdaqomx.com3 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  4. 4. Meet Jim. Jim McGeever is responsible for many of NetSuites internal operations including sales, services, support and administration, and spearheads NetSuites industry and customer satisfaction programs. Professional Background: He joined NetSuite in 2000 and, as chief financial officer, rapidly built a global financial organization across seven countries and was a driving force behind NetSuites successful IPO in 2007. Previously, McGeever was director of finance for Clontech Laboratories, the corporate controller at Photon Dynamics, and a chartered accountant at Ernst & Young. He holds a B.Sc. from the London School of Economics and in 2007 was named the Bay Area CFO of the Year. Jmcgeever@netsuite.com4 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  5. 5. Agenda IPO Market Update Best Practices for Upgrading Financial Systems, Processes and Controls Public Company Readiness - Infrastructure Considerations5 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  6. 6. © Copyright 2010, The NASDAQ OMX Group, Inc. All rights reserved.
  7. 7. NASDAQ – Where the Ideas of Tomorrow Raise Capital Today OVER $2 BILLION IN IPO PROCEEDS RAISED YTD BEST PERRFORMING IPO LARGEST CONSUMER IPO OVER 200 COMPANIES WITH APPLICATIONS SUBMITTED 57% OF 2013 TECH IPOS LISTED ON NASDAQ CHOICE BRAND NAME CONSUMER IPOS7
  8. 8. U.S. IPO Pipeline All IPO Filings by Year 350 314 297 300 255 260 253 257 250 200 150 140 118 104 102 100 50 31 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20138 Source: www.RenaissanceCaptial.com
  9. 9. Pricing and Sector Statistics Technology IPOs are the Most Popular in the Last 12 Months 23% 11% 13% 21% 18% 250 IPO Pricings by Year 216 214 192 196 200 154 150 125 128 100 68 63 50 31 30 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD9 Source: www.RenaissanceCaptial.com
  10. 10. 1st Day “POP” Statistic Average First Day Pop was 13% in 2013 80% 72% 70% 60% 56% 50% 40% 30% 20% 14% 13% 13% 14% 14% 13% 11% 11% 11% 10% 10% 9% 10% 7% 3% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 201310 Source: www.RenaissanceCaptial.com
  11. 11. Summary of Current IPO Market • YTD, the top IPO industries were Technology, Financials, and Health Industry Breakdown Care. • 2013 YTD IPO pricings are down 22.4% from the same period in Pricing Activity 2012 • Proceeds raised increased 37% 2013 YTD compared to the same Proceeds Raised period in 2012 • 2013 YTD VC backed pricings are down 40% from the same period Venture Backed IPOs in 2012 • 2013 YTD PE backed pricings are down 62% from the same period Private Equity Backed IPOs in 2012 • Confidential filings under JOBS Act has reduced pipeline visibility IPO Pipeline US IPO. Currently 156 companies are in the pipeline11
  12. 12. Volatility impacts on the IPO market Market wide volatility is nearing the low levels we saw in January 2007. As can be seen, volatility is one factor that can affect IPO pricings. VIX Market Volatility Index 2007 through March 2013 90 80 70 60 50 40 30 20 10 0 # of Priced IPOs VIX The VIX is the CBOE Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk.12
  13. 13. Do you have questions for Joe?13 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  14. 14. Poll Question 1:What is the most interesting market outcome oractivity from 2012 to 2013 for you?A. JOBs Act impactB. Decrease in PE backed pricing from 2012C. Top IPO industries: Technology, Financial, and HealthcareD. None of the above
  15. 15. IPO Readiness – Systems, Processes &ControlsJim McGeever, COO & former CFO, NetSuite© NetSuite Inc. 2013 Confidential 15
  16. 16. Meet Jim McGeever • NetSuite, 2000 – present – COO – 15th employee, former CFO – Led N’s successful IPO in 2007 • Clontech, 1998 – 2000 – Corporate Controller • Photon Dynamics, 1994 – 1998 – Corporate Controller – IPO in 1995 • Ernst & Young – Audit16 © NetSuite 2013
  17. 17. NetSuite: Quick Take Background Performance • Founded 1998 • World’s most deployed cloud ERP • Publicly traded on NYSE: “N” • Used by 16,000+ organizations • Offices in 10 countries • Fastest growing top 10 Financial • 1,700+ employees Management Solution* • 2012 revenue: $309M • Used across approx. 100 countries Powers Enterprises Powers Disruptive Innovators17 © NetSuite 2013 * For North America Source: Gartner, April 2011
  18. 18. NetSuite’s Own IPO Timing Approach Results • December 20, • NetSuite used a • Opened at $26. 2007 modified Dutch Later surged to • Later in the year auction $35, peak was than originally • In theory this sets $45 planned price closer to • Raised 80% more • IPO market was actual market cash than planned just starting to value • $1.5 billion thaw • Credit Suisse market cap at end underwrote of opening day18 © NetSuite 2013 18
  19. 19. Pre-IPO Planning & Preparation • Consider how going public will impact all areas of your company • Identify gaps between public company requirements and current capabilities • Assess expertise needed - beyond legal & investment banking • Start acting like a public company before you are one19 © NetSuite 2013
  20. 20. Improve Systems, Processes & Controls Financial Systems: build a strong, comprehensive foundation 1. Revenue reconciliation between sales/orders and accounting 2. Ability to consolidate and close the books on a time; international subsidiaries increase complexity 3. Strong forecasting capabilities for both revenue and expenditures Processes & Controls: establish and improve 1. Processes and controls to ensure revenue recognition compliance; most critical area and where automation will pay dividends 2. Processes and controls for major expenditure categories, such as marketing or R&D 3. Employment agreements and approval of requisitions must be centralized; allows you to control ~70% of your expenses20 © NetSuite 2013
  21. 21. More Thoughts on Financial Systems… • Recommend having 2-3 years of previously audited financials in your system in advance of IPO • Need the ability to have accounting policy changes reflected in your systems – Don’t just talk to your auditors talk to your peers • Piecemeal approaches often lead to investments later that exceed the cost of laying a comprehensive foundation in advance21 © NetSuite 2013
  22. 22. Prepare for Rigorous Financial Reporting • Consider in advance how things need to be after going public – Automation is critical when there is rapid growth, scarce resources, high transaction volumes, and no room for financial reporting errors • Financial statement production must be clean and efficient – NetSuite operates with a 7 day close. Dashboards provide management with real-time MTD and QTD views. • Its not just the Q’s and K’s – Any number that you disclose publically especially on earnings calls needs to have the same level of financial rigor as required disclosures • Don’t forget the reporting you need to run the business – SEC reporting is important, but management reporting is as or more important22 © NetSuite 2013
  23. 23. Establish Good Corporate Governance • Don’t underestimate the time and effort required to establish good corporate governance • Ideally board members understand your industry and the challenges the management team faces • Executive management team and the board must establish and maintain strong communication and governance practices • A governance framework helps board members and executive management understand their responsibilities and roles23 © NetSuite 2013
  24. 24. Lessons Learned at NetSuite 1. Run like a public company before you become one 2. Invest early in your G&A team 3. Get a great stock administrator 4. Hire a tax professional before you think you need them 5. Don’t change auditors during the process 6. There is a lot to do BUT, its really not that bad24 © NetSuite 2013
  25. 25. Do you have questions for Jim?25 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  26. 26. Poll Question 2:Are you in the process of preparing for an IPO?A. Thinking about itB. In the processC. Would like to start within the next year or soD. No
  27. 27. Public Company Readiness -Infrastructure Considerations Steve Hobbs
  28. 28. Going Public – Business Implications The Company must ensure it has the requisite skills and organization to understand the application of all relevant accounting principles and ensure Accurate accurate financial reporting. Financial Reporting • SEC reporting and Effective • Key judgments and estimates Forecasting • Significant accounting policies • Internal reporting and forecasting In order to meet the revised SEC filing requirements, the company must ensure that it has an accurate and efficient financial close process. Efficient • Expanded close process Financial • Timely filing restrictions Close • Certifications and disclosure committees • Expanded FP&A processes28 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  29. 29. Going Public – Business Implications (continued) Ensuring that the company has a robust, regulatory and corporate governance understanding and an efficient, internal control environment is Appropriate critical to achieving initial and ongoing compliance with both SOX and Corporate industry regulations. Governance and SOX • SOX readiness vs. compliance Compliance • Board composition and committee charters • Internal control and audit activities Reviewing the IT system environment/infrastructure to ensure that the Company is able to handle projected growth in the business is imperative in being public. Scalable IT • Enterprise applications Environment • Governance practices • Security and privacy • Operational processes and controls29 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  30. 30. Going Public – Business Implications (continued) Ensuring that the distraction of the registration statement process to the business in minimized and the process is effectively managed by a PMO. Effective Registration • Enterprise-wide coordination and PMO Statement • Development of quarterly information Process • Development of MD&A, CD&A & other SEC reporting (non-GAAP measures) Reviewing key functions and skills needed to facilitate anticipated sustainable, scalable growth as a public company. Organizational • SEC reporting, budgeting and forecasting Capabilities • Investor relations • Expanded treasury, legal and internal audit30 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  31. 31. Efficient Financial Close A company that has an efficient, standardized financial close process will go a long way to ensuring accurate and complete SEC reporting, not to mention a timely earnings release with quality review time in advance from senior management, general counsel, external auditors and legal counsel. Category of Filer Form 10-K Deadline*** Form 10-Q Deadline*** Large Accelerated Filer* 60 days after fiscal year-end 40 days after fiscal quarter-end Accelerated Filer** 75 days after fiscal year-end 40 days after fiscal quarter-end Non-Accelerated Filer (all others) 90 days after fiscal year-end 45 days after fiscal quarter-end Notes: * A "Large Accelerated Filer" has an aggregate market value held by non-affiliates of $700m or more as of the last business day of the most recent Q2. Once you are in, you have to fall below $500m to get out. ** An "Accelerated Filer" has an aggregate market value held by non-affiliates of $75-700m as of the last business day of the most recent Q2 (unless you were previously a Large Accelerated Filer, in which case the range is $50-500m). Once you are in, you have to fall below $50m to get out. *** An Emerging Growth Company (EGC) files consistent with its Category of Filer (Accelerated or Non-Accelerated). An EGC is defined as having total annual gross revenue < $1B and is exempted from certain regulatory requirements (e.g., Section 404(b) of the Sarbanes-Oxley Act of 2002), for up to five years.31 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  32. 32. Becoming SOX Ready Recommended SOX Section Key SOX Activity Implementation Timeframe 1. Document the Companys Significant Business Processes Affecting Section 404* Prior to IPO Financial Reporting 2. Identify Risk, Controls and Areas of Improvement in Internal Control Section 404* Prior to IPO Over Financial Reporting 3. Implement a process to test internal controls and report on that Section 404* Prior to initial 10-K testing Section 404* 4. Remediate internal control gaps where necessary Prior to initial 10-K Other Key 5. Evaluate Need for Internal Audit Function After 404 Compliance Considerations* Other Key 6. Evaluate Need for Enhanced Financial Reporting Function to Prior to IPO Considerations Support New Reporting and Disclosure Requirements Section 302 / 906 7. Implement a CEO/CFO Certifications Process By initial 10-Q 8. Make Code of Ethics and Business Conduct Policy Publicly Section 406 Prior to IPO Available Section 301 9. Establish "Whistle Blower" Hotline Prior to IPO Notes: * An Emerging Growth Company (EGC) is exempted from certain regulatory requirements including, Section 404(b) of the Sarbanes-Oxley Act of 2002 for up to five years, or until the earliest of four dates: 1. The last date of the fiscal year following the fifth anniversary of their IPO, 2. The last date of the fiscal year where total annual gross revenues > $1B, 3. The date the issuer has, during the previous three-year period, issued > $1B in nonconvertible debt; or 4. The date the company is deemed to be a "large accelerated filer".32 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  33. 33. Timeline – Based on an IPO in 18 Months 2013 2014 2015 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SOX Readiness Activities • Risk Assessment • Document Critical Processes Kickoff - All Hands Meeting IPO Effective Date • Validate Control Design • Registration Statement Public • Indentify Control Gaps • Position Papers Company • Remediate Control Design • Drafting Sessions Readiness Gaps • Due Diligence Assessment • SEC Comments Address Private to Public • Road Show Company Gaps (focus varies by Company): SOX Compliance Activities • Financial Reporting • Policy and Procedure Development • Planning and Forecasting • Financial Close Process • Org..Structure – Board Composition, Governance • IT Applications, Infrastructure, Security Phase I Phase II Phase III Phase IV Preceding the IPO kickoff 4-6 weeks (effort varies by company) 4-6 months Through 2nd 10-K Filing 302 Certifications33 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  34. 34. Prioritization Heat Map As part of the analysis our observations have AREA been plotted according to their urgency to 1. IPO Preparation and Registration Statement implement and estimated level of effort. 1 AF-1 S-1 Preparation / SEC Reg. S-X and S-K Disclosures 2 AF-2 Company Specific Reporting Requirements 4 14 3 AF-6 Interim Reporting 2 1 9 3 4 OR-1 IPO Project Management Office Now 15 8 2. Accounting and Finance 20 21 5 AF-3 Financial Close / Consolidation 6 AF-4 Budgeting and Forecasting 7 AF-5 Develop Ongoing Reporting Process (10-Qs / 10-Ks) Urgency to implement 18 5 19 3. Organizational Readiness 7 8 OR-2 Chief Financial Officer 9 OR-3 SEC Reporting Function 16 6 Pre-IPO 10 OR-4 Investor Relations Function 11 17 11 OR-5 General Counsel 12 OR-6 Risk, Compliance and Internal Audit Function 10 13 OR-7 Tax Function 4. Corporate Governance and Compliance 13 22 14 GC-1 Legal Entity / Organizational Structure 12 Post-IPO 15 GC-2 Board of Directors Composition, Committees and Charters 16 GC-3 Key Governance Policies and Committees 17 AF-7 Company-wide Policies and Procedures 18 GC-4 Sarbanes-Oxley Readiness 5. Information Technology Readiness Low Medium High 19 IT-1 General Controls Estimated Level of Effort 20 IT-2 People and Leadership 21 IT-3 Technology Priority 22 IT-4 Business Continuity Management High Medium Low34 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  35. 35. Action Plan – Base Timeline IPO Readiness Timeline and Estimated Level of Effort Level of Effort High Medium Low On-going Initial S-1 IPO Filed Effective AREA Q2 2012 Q3 2012 Q4 2012 Q1 2013 1. IPO Preparation and Registration Statement 1 AF-1 S-1 Preparation / SEC Reg. S-X and S-K Disclosures 2 AF-2 Company Specific Reporting Requirements 3 AF-6 Interim Reporting 4 OR-1 IPO Project Management Office 2. Accounting and Finance 5 AF-3 Financial Close / Consolidation 6 AF-4 Budgeting and Forecasting 7 AF-5 Develop Ongoing Reporting Process (10-Qs / 10-Ks) 3. Organizational Readiness 8 OR-2 Chief Financial Officer 9 OR-3 SEC Reporting Function 10 OR-4 Investor Relations Function 11 OR-5 General Counsel 12 OR-6 Risk, Compliance and Internal Audit Function 13 OR-7 Tax Function 4. Corporate Governance and Compliance 14 GC-1 Legal Entity / Organizational Structure 15 GC-2 Board of Directors Composition, Committees and Charters 16 GC-3 Key Governance Policies and Committees 17 AF-7 Company-wide Policies and Procedures 18 GC-4 Sarbanes-Oxley Readiness 5. Information Technology Readiness 19 IT-1 General Controls 20 IT-2 People and Leadership 21 IT-3 Technology 22 IT-4 Business Continuity Management35 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  36. 36. Going Public Under the New JOBS Act While the new JOBS Act provides for potentially easier (but limited) capital raising and a few relaxations in disclosures, solicitation and the presentation of historical financial information, it does NOT change a myriad of existing SEC and Stock Exchange requirements. Under the JOBS Act Still Applicable Capital Raising Emerging Growth Company election X Confidential Form S-1 filings X Increased flexibility for Regulation A filings X Accelerated analyst reporting X Relaxed investor solicitation and advertising X Allows for crowd funding transactions X Increase in unaccredited investor threshold X Corporate Governance Exclusion of selected executive compensation disclosures X Possible exemption of future auditor rotation requirements X Annual proxy statements X Annual shareholder meetings X Accounting and auditing complaints hotline X Independent Audit Committee and at least one financial expert X Compensation and Nominating committees X Board risk oversight disclosures X Compliance with applicable stock exchange listing standards X Insider trading restrictions X36 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  37. 37. Going Public Under the New JOBS Act (continued) Under the JOBS Act Still Applicable Finance, Accounting and Internal Controls Option to exclude application of new accounting pronouncements X Reduction in audited financial statement periods in Form S-1 X Exemption from Auditor Attestation on Internal Control Over Financial Reporting (Section 404b) X Quarterly certification on disclosure controls and procedures X Management certification of Internal Control over Financial Reporting Section 404a) X Quarterly Form 10-Q X Annual Form 10-K X Timely Form 8-K on material changes X Annual financial statement audits X Quarterly auditor reviews X Effective P&L forecasting X Adequate information systems X37 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  38. 38. Do you have questions for Steve?38 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.
  39. 39. Poll Question 3:What was the most tangible takeaway for youfrom this webinar?A. Better understanding of the IPO market in 2013B. Financial processes, systems and controlsC. Infrastructure readiness considerationsD. All of the above
  40. 40. Confidentiality Statement and Restriction for Use This document contains confidential material proprietary to Protiviti Inc. ("Protiviti"), a wholly-owned subsidiary of Robert Half International Inc. ("RHI"). RHI is a publicly-traded company and as such, the materials, information, ideas, and concepts contained herein are non-public, should be used solely and exclusively to evaluate the capabilities of Protiviti to provide assistance to your Company, and should not be used in any inappropriate manner or in violation of applicable securities laws. The contents are intended for the use of your Company and may not be distributed to third parties.40 © 2013 Protiviti Inc. CONFIDENTIAL: This document is for your companys internal use only and may not be copied nor distributed to another third party.

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