How to Buy Cloud Finance Apps / Finance and accounting (F&A) is one of the newest application categories to move to the cloud.

Drew Robb for Enterprise Apps Today writes:  The cloud has invaded many areas of the enterprise, and recently it has been the turn of finance and accounting applications to become cloud enabled. It is now possible to run just about any finance function in the cloud. But is it wise, and if so, how can it be done to ensure that it does not compromise the security or performance of what are typically mission-critical workloads?

Rene Lacerte, founder and CEO of Bill.com, believes it is not only wise, but an essential element of organizational evolution. He points to the mountains of paperwork that typically weigh down an accounting department, even one with sophisticated in-house software tools.

It will take a move to the cloud to fully eliminate what are largely 19^th and 20^th century workflows from the enterprise, he said. "The days of overloaded file cabinets and towering stacks of paper are over."

Lacerte insists it is possible to go completely paperless with smooth and efficient electronic workflows that don’t rely on the postal service or overflowing inboxes. Once you move your finance/accounting to the cloud, he said, it makes no difference whether you have an in-house team or an outsourced team.

"The cloud allows anyone who needs access to connect, whether they’re sitting in the same room or halfway around the world," said John Shapiro, group product manager, QuickBooks Online. "This helps a business to maximize productivity by collaborating in the cloud with clients or bookkeepers, reduces paper invoices and receipts, and connects them with online banking so transactions are automatically reconciled."

F&A Features and Functionality

Lacerte cautions users to pay attention to the details. For example, accounting service should be able to incorporate supporting documents such as contracts and cleared check images.

"I can’t tell you how many times I tried to drill down on a profit and loss statement only to be stumped when I got to the original transaction and wasn’t able to see the actual invoice or supporting contract," Lacerte said.

Another important consideration is how well the cloud application connects with banking institutions. This allows users to have all the information they need, whether it is a vendor inquiring about a payment or the customer inquiring about a pending payment to them. With the speed of business today, online bank integration is a must.

Lacerte also recommends that users insist upon mobile-centric financial cloud services, which enable access to review bills, schedule payments and invoice customers from anywhere. Such apps should be able to work with any smartphone or tablet. A recent survey of Bill.com users found that over 70 percent rated the ability to access their data from a mobile device as a must-have.  

There are other factors to take into account, as well. It is probably smart to find a service that integrates and syncs with popular finance apps such as QuickBooks for Windows, QuickBooks Online and Xero. Chris Farrell, CEO of expense management vendor Tallie, advises users to look for automated workflows that provide value in term of process simplification and integrate with existing accounting systems

Short List of Cloud Finance Apps [snip]  The article continues @ Enterprise Apps Today, click here to continue reading.

Drew Robb is a freelance writer specializing in technology and engineering. Currently living in Florida, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press). Click here to buy the book, here to buy or rent the Kindle Edition.

An Introduction to the Alternative Minimum Tax

Matt Summitt for JPMS Cox writes: One of the most complicated and often misunderstood aspects of our tax code deals with the alternative minimum tax, more often referred to as AMT.  An individual’s AMT liability is a separate calculation (reported on Form 6251) that is performed alongside the calculation of their regular tax liability.  If the tax calculated on Form 6251 is less than your regular tax liability, then you do not owe any AMT.  If, however, your AMT liability is greater than the regular tax as calculated on Form 1040, then the difference between the two will be added to line 45 on Form 1040 as an additional tax owed.

The entire premise behind the alternative minimum tax is to limit a taxpayer’s benefit for certain deductions.  In short, alternative minimum tax law provides that some people (higher income taxpayers) are not entitled to certain deductions typically allowed under the regular tax system.  These deductions are typically referred to as AMT preference items.   A listing of the more common AMT preference items for individual taxpayers is as follows:

• Taxes included as an itemized deduction on Schedule A
• Miscellaneous deductions subject to the 2% threshold included on Schedule A
• Tax-free interest income from specified private activity bonds
• Long-term contracts (the difference between percentage of completion and completed contract method of accounting)
• Incentive stock option exercises
• Depreciation (differences between regular tax calculation and the calculation using AMT rules)

The starting point in calculating your AMT liability is line 41 of Form 1040, which is your adjusted gross income less your itemized deductions (or standard deduction).  From here, the items listed above and any other preference items are included and your alternative minimum taxable income (or AMTI) is calculated.  After considering these preference items, certain taxpayers are allowed an exemption that reduces AMTI.  This exemption is the primary reason that many individuals in a lower income tax bracket do not have any AMT liability.  The exemption amount for 2013 (if you were not subject to the exemption phase-out) was as follows:

• $80,800 for married filing joint taxpayers
• $51,900 for single or head of household taxpayers
• $40,400 for married filing separately taxpayers

One piece of good news about this form is that the AMT cannot touch the preferred tax rate on long-term capital gains and qualified dividends.  A taxpayer is able to remove these items to ensure that they receive the benefit of these lower tax rates (15% or 20% for 2013, depending on your tax bracket).  The rest of your income, however, is subject to the full force of the tax.

The calculation of your individual (or a corporation’s) AMT is similar to what is commonly referred to as a “flat” tax.  A taxpayer’s AMTI less their applicable exemption is multiplied an applicable rate, as determined below:

• If AMTI less the applicable exemption is $179,500 or less for a married filing joint taxpayer ($89,750 for married filing separately), multiply this amount by 26%
• If AMTI less exemptions is $179,501 or more for the same, multiply this amount by 28% and then subtract $3,590 (or $1,795 if married filing separately)

The amount calculated is referred to as your tentative minimum tax.  After this amount has been calculated, Form 6251 compares the amount calculated above to a taxpayer’s regular tax liability as reported on Form 1040, line 44.  If your tentative minimum tax is more than your regular tax, then the difference between the two is required to be added on Form 1040 and is referred to as your AMT liability.  At the end of the day, a taxpayer is required to pay the higher of their calculated AMT liability or regular tax liability.

As you can see, the process involved in calculating your AMT liability is not a simple one.  This tax has often been known to cause quite a painful surprise come tax return filing time as many taxpayers who might have had an increase in income were not planning on losing benefit from some of the deductions they received in the past (like the state income tax deduction).  Although it may not be possible to completely avoid paying any AMT, proper planning can assist in doing whatever possible to soften the blow.

Form 6251 – http://www.irs.gov/pub/irs-pdf/f6251.pdf

Form 1040 – http://www.irs.gov/pub/irs-pdf/f1040.pdf

Visit JPMS Cox by Clicking Here

Hubdoc Looks to Take Accounting Automation to the Next Level

Ryan Lazanis writes for TechVibes.com:  The team at Hubdoc certainly gets it. Today, automation in your accounting is key.

Friends since the 80’s, lawyer Jamie Shulman & marketing guru Jamie McDonald took a look around them and started asking themselves why their personal and business lives felt so cluttered. Too many recurring bills, too many receipts, too many invoices. To retrieve each and every one of them required a separate web login and with that, a corresponding timely, inefficient process.

With nothing on the market that chases after your bills and centralizes them and with too many websites and passwords to remember to fetch them, the Jamies set out to create their own platform that would do so.

With that in mind, Hubdoc was launched in 2012 as a product geared specifically for individuals. “We wanted to build a platform that would consolidate all bills in 1 place. There are too many sites you need to go to get your bills and too many passwords,” says Jamie Shulman.

After launching Hubdoc, the team quickly realized that an even bigger opportunity existed for the product: the small business market.

Small businesses have the headache of needing to do their bookkeeping on a regular basis. Chasing after bills and entering data has typically been a big part of process. As an accountant, I can vouch for this first hand. Hubdoc easily and beautifully centralizes this all into one “hub." Not only that, but Hubdoc also aims to automate some of the more manual parts of your accounting by parsing data from bills and receipts and then effortlessly syncing them with your cloud accounting system. This equates to an unprecedented amount of time savings in an area of your accounting that was typically painful.

Upon logging in to your account, Hubspot greets you with an easy to understand dashboard. On the left you’ll have a folder for each different account that has been connected to Hubdoc as well as a stream of bills that have been downloaded. Connecting an account is super simple as all that’s needed is the login credentials for any bill that you want Hubspot to retrieve. There are a ton of different accounts that you can add to Hubspot. Example include Rogers, Bell, bank accounts, credit card accounts and a bunch of different SaaS products. The selection certainly isn’t lacking.

Once an account is connected, Hubdoc will automatically fetch the invoice for you, sort them into their respective folder and then parse the most important data such as the date, due date, invoice number and amount, thereby eliminating much of the manual data entry.

But the main benefit of Hubdoc, in my opinion, is its ability to integrate with your cloud accounting system as mentioned above. Currently Hubdoc supports integration with Xero and Quickbooks Online. Once integrated, you can set Hubdoc to automatically transfer bills that have been retrieved by Hubdoc into your cloud accounting system using the data that has been parsed. This will then populate into Xero and Quickbooks Online as a bill awaiting payment or a bill that has been already paid, depending on how you had set up that account in Hubdoc. So not only will Hubdoc chase after bills for you, but they’ll also enter it into your accounting system. Can you say automated goodness?

The team at Hubdoc have also launched an iPhone and Android app so that you can scan those annoying little receipts that you are constantly getting and sticking in a shoebox and instead upload and organize them on the go.

In terms of pricing, their consumer account is 100% free which limits you to a specific type of bill that you can connect to Hubdoc. Business accounts allow you to import every bill from their list and will run you $20 per month.

The product is both made for the consumer and small business markets, but the ones that would benefit the most would be those in small businesses that receive a pile of bills on a recurring monthly basis and need to be absolutely organized for accounting purposes.

The best part about Hubdoc is that it puts a large emphasis on automating some of the more manual parts of your accounting. This is what we live for at Xen Accounting and this is certainly the future of accounting. No doubt, Hubdoc gets this and they are certainly doing their part in taking your accounting to the next level.

Company:

Xen Accounting Inc.

Website:

http://www.xenaccounting.com

Location:

Montréal, Québec, Canada

Xen Accounting is a fully virtual, online Canadian Chartered Accountant firm geared specifically for micro businesses, consultants and freelancers in the tech community. Designed for modern day business owners who are always connected and always on the move, Xen Accounting uses cutting edge cloud and mobile accounting technology in order to blend innovative software experiences with personal, professional...more

Company:

Hubdoc

Website:

http://www.hubdoc.com

Location:

Toronto, Ontario, Canada

Hubdoc was born out of frustration: frustration with paper bills, electronic bills and filing cabinets. Frustration with filing documents only to never be able to find them. Frustration with remembering usernames and passwords and an inability to find important documents when you need them. That’s a lot of frustration! At Hubdoc, we are building a simple application to solve this problem. Our vision is simple: one... more

A Summer Adjustment Can Prevent a Tax-Time Surprise

When it comes to filing a federal tax return, many people discover that they either get a larger refund or owe more tax than they expected. But this type of tax surprise doesn’t have to happen to you. One way to prevent it is to change the amount of tax withheld from your wages. You can also change the amount of estimated tax you pay. Here are some tips to help you bring the amount of tax that you pay in during the year closer to what you’ll actually owe:

•    New Job.   When you start a new job, you must fill out a Form W-4, Employee's Withholding Allowance Certificate. Your employer will use the form to figure the amount of federal income tax to withhold from your pay. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. This tool is easy to use and it’s available 24/7.

•    Estimated Tax.  If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, dividends or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay it four times a year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to figure the tax.

•    Life Events.  Make sure you change your Form W-4 or change the amount of estimated tax you pay when certain life events take place. A change in your marital status, the birth of a child or buying a new home can change the amount of taxes you owe. You can usually submit a new Form W–4 anytime.

•    Changes in Circumstances.  If you receive advance payment of thepremium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more see Publication 505, Tax Withholding and Estimated Tax. You can get it on IRS.gov, or call 800-TAX-FORM (800-829-3676) to get it by mail.

Tax Efficient Investing: How Tax Pressures May Impact the Investment Management Landscape

Sean Cunniff for Deloitte Services LP, writes: In late April of this year, I was chatting with two of my neighbors after a town hall meeting. One, a certified public accountant, remarked to the other, a trust officer at a regional bank, that it had been a very unpleasant tax season. The trust officer agreed, stating that his firm had received more complaints about taxes than any other time in recent memory.

I believe the clear reason is that many people, particularly those with higher incomes, are just now feeling the pain of recent tax increases. These increases include the new Medicare surcharge, the increase in the top rate to 39.6 percent, the increase in the rate for long-term gains and qualified dividends to 20 percent, as well as the phase-out of several exemptions. Taken together these changes resulted in significantly higher taxes for many individuals.

The town hall conversation about the uptick in complaints about taxes made me wonder if investors will become more tax sensitive in the future and if the interest in "tax efficient" investing will grow.

Here are a few thoughts:

Tax impact is real but not always apparent
Taxes can have a significant impact on financial outcomes and on the net after-tax cash available following a transaction, such as a sale of securities. However, investors are not always aware of the extent of the impact until well after the transaction. This lack of awareness could result in more taxes paid by the account holder than if tax planning had been in place.

Exactness with taxes is possible, but difficult to achieve
Tax exposure can be managed — to an extent. However, doing so is very complex, requires significant planning, and involves many assumptions, such as the future of tax rates. Using history as a guide, we can be confident that tax rates will not be the same as they are today. This and other necessary assumptions make long-term tax planning very challenging.

Tax advice is personal and very hard to scale
Because the tax code is complex and individual situations are unique, it is very hard to build tools and processes that are effective for large numbers of people. One industry executive told me that each line of an investor's tax return should be reviewed in order to provide truly effective tax planning. In addition, advisors need to understand the investor's wealth- transfer goals and objectives. These are very challenging services to scale.

Tax data and information can be helpful
While scaling tax advice is very difficult, it is possible to provide automated tax information. For example, investment managers and brokerage firms are now required to report cost basis information to the IRS. At some financial service institutions this same data is being reported to customers. For example, before placing a trade, a customer is made aware of its potential tax impact and/or warned that a wash sale might be taking place. This information can help financial advisors work more proactively with tax advisors to determine better outcomes for the client.

Tax diversification offers flexibility
The three primary types of investment accounts are taxable, tax–deferred and tax-free. In an environment where future tax rates are unpredictable, it may make sense for many taxpayers to hold at least some assets in each type of account. This offers the most tax flexibility, no matter what happens in the future, when drawing down assets for retirement.

Asset location has an impact
Another important concept that is linked to tax diversification is "asset location," which refers to the type of securities that are held in an account type. For example, it may make sense to hold income-producing assets such as taxable bonds in a tax-advantaged account in order to defer taxes wherever possible. Academic research¹ has shown such strategies can have a material impact on financial outcomes.

Taxes–loss harvesting: tread carefullyTax-loss harvesting is a well-known tax management technique, used by investors and advisors. Used correctly, it can be very effective; however, it is no panacea. Because every harvested loss reduces an investment's cost basis, it is a deferral of taxes into the future. This can work out very well, but may also cause an investor to pay higher taxes in certain situations.

Financial services institutions tend to tread carefully in the area of taxes, since many do not offer tax advice. However, certain firms are not ignoring the tax issue. Some companies are offering enhanced tax data as mentioned above, some offer tax overlay portfolio management, and others work closely with their client's tax advisors. My sense is that along with changing tax rates and complexity, the interest in tax-efficient investing will grow for the simple reason that tax liability is one of the few areas where investors may see a direct impact.

What do you think?

To comment visit Deloitte here.

Tax “Brujeria” - Transitional Tax Planning Considerations to Move Your Business to Puerto Rico

Gerald Nowotny for Gerald Nowotny, Osborne & Osborne,  writes: The other day I asked the garage attendant who was of Puerto Rican (PR) ancestry and listening to Salsa music as she worked, which group was the most influential band in her estimation – La Sonora Poncena or El Gran Combo. For the uninformed, this is like asking someone to choose between The Beatles or The Rolling Stones. Both bands have over fifty years of performance history and a string of hits in Latin America that could circle the globe. She said, “Probably El Gran Combo because they don’t call it La Universidad de la Salsa for no reason.” This was indeed a very astute and thoughtful answer because the band has had so many singers and band members that have defined the Afro-Cuban aka Salsa genre around the world for decades. One of the band’s great hits was “Brujeria”(translated “Witchcraft” or “Black Magic”) speaking to the “black magic” charm that some women possess. This is my invitation to listen to the song on YouTube. It is a classic! Tax planning on a multi-jurisdictional basis effectively can also require a similar type of mysticism.

I have written a series of articles espousing the benefits of Puerto Rican Acts 22 and 20 for tax planning purposes. The combination of these benefits for an American living on the Mainland is extremely powerful. In effect, Puerto Rican residency is the antidote to expatriation fever. Unlike expatriation, an American taxpayer does not run the risk of becoming the Black Sheep of the family for expatriating. Grandpa who fought in WWII does not need to rollover in his grave. Mama does not need to cry “Where did I go wrong”! The beauty of Acts 22 and 20 is that it allows the American taxpayer to retain his U.S. citizenship while severing the shackles of worldwide taxation of U.S. taxpayers. If you want to see what patriotism looks like, take a look at all of the Puerto Ricans that have served in the Armed Forces and fought in our wars. Nine Boricuas have won the Medal of Honor!

While it is true in geometry that the shortest distance between two points is a straight line, the same may not be true in tax planning. One of the challenges for an American taxpayer who has a business and wants to move his business to the PR and become a PR resident, is the transition planning. How does a business owner with multiple shareholders take advantage of the PR opportunity when his shareholders can’t find PR on a map? How does a business owner with an existing business maintain a staff in his existing business that will remain stateside while the business owner moves to the PR? Aside from the tax planning considerations, there are a number of logistical “nuts and bolts” considerations to be weighed in this transition planning. This article is a quick summary of some of those considerations with some ideas of how to deal with them. As the cliché goes “The devil is in the details”!

Overview of Puerto Rican Tax Considerations and Residency

A. Puerto Rican Tax Basics

Two important pieces of legislation were passed by the Puerto Rican legislature in 2012. Both the Export Services Act (Act 20) and the Individual Investors Act (Act 22) were signed into law by the Governor of Puerto Rico on January 17, 2012.

A Puerto Rican entity is not sub­ject to U.S. income taxation unless the entity is en­gaged in a trade or business within the United States and its income is considered effectively connected income, or investment income.

What does it take to become a Puerto Rican resident in order to take advantage of Act 22? How about S50 for the application fee which is less than the cost of dinner in a good restaurant, and meeting three tax tests? For federal income tax purposes the taxpayer will be considered a bona fide resident of Puerto Rico if you meet the following: (i) Substantial Presence Test -the physical presence test (generally spending 183 days in PR, or less than 90 days in the US); (ii) the tax home test; and (iii) Closer Connection Test - the closer connection test for the entire taxable year which means that you can’t have stronger personal connections to another jurisdiction that is not Puerto Rico.

(1) The Individual Investor's Act

Under the Individual Investors Act, neither capital gains (long-term or short-term), interest, nor dividends are subject to Puerto Ri­can taxation. Dividend income is subject to U.S. fed­eral income taxation for U.S.-sourced dividend income, as is interest income unless the interest income is exempt under the portfolio interest exemption. The law capture built in gain preceding Puerto Rican residency and taxes the pre-residency appreciation at ten percent during the first ten years following residency and five percent for the next ten years.

(2) The Export Services Act

A business that relocates to Puerto Rico can signifi­cantly reduce its tax liability provided that the Puerto Rican entity is not engaged in a U.S. trade or busi­ness. The top U.S. corporate tax rate is 35 percent to 40 percent for most corporations, assuming a federal rate of 35 percent and a state rate of five percent. Under Puerto Rico’s Export Services Act, the corporate tax rate is flat four percent. Addition­ally, shareholders who relocate to Puerto Rico will have a 100 percent exemption on corporate distributions re­ceived from the Puerto Rican company.

Under the Export Services Act, services that are di­rected to foreign markets may generate income that will qualify for the special tax rate. Services for for­eign markets include services performed for nonresi­dent individuals and businesses. The term range of eligible services ranges from consulting, and professional services (law, engineering, architecture) to investment management.

In many cases, a business may have multiple owners and is often the case, the business owner cannot convince the spouses of his fellow shareholders to move to Puerto Rico. Surprise! It is possible to structure a new Puerto Rican corporation with the business owner that becomes a Puerto Rican resident. The new corporation can be structured so that the new Puerto Rican corporation is not treated as a controlled foreign corporation for tax purposes allowing the Puerto Rican corporation to be taxed at four percent instead of 39.6 percent or 35 percent.

Controlled Foreign Corporation (CFC) Considerations

The CFC rules are designed to prevent U.S. owned businesses from deferring their income in low tax jurisdictions. The rules have an intricate system of attribution rules designed to eliminate the gaps designed to prevent the creation of foreign corporations in low tax jurisdictions. From a PR tax planning, a PR resident that is a shareholder is excluded from the definition of a U.S. person for U.S. CFC testing purposes under IRC Sec 957(c)(1).

A foreign corporation will be a CFC if on any day during its tax year, one or more U.S. shareholders directly, indirectly, or constructively own more than fifty percent of the total combined voting power of all classes of the foreign corporation's voting stock or more than fifty percent of the total value of the foreign corporation's stock.

For purposes of the CFC rules, a U.S. shareholder is a "United States person" who "owns or is considered as owning" ten percent or more of the total combined voting power of all classes of stock entitled to vote. In order to apply these rules, the IRS needs to determine that:

1. One or more U.S. taxpayers own 10% or more of the total combined voting power of all classes of stock entitled to vote, 

And

2. The ten percent U.S. shareholders collectively own more than 50% of the total combined voting power of the corporation's outstanding stock or more than 50% of the total value of the stock of the corporation

In the case of a business owner with multiple shareholders who do not want to move to the PR, it may be possible to structure a new PR corporation owned by the business owner that becomes a new PR resident. A partnership or LLC could be created as a joint venture vehicle between the PR-US companies to direct profits on a pro rata basis between the two operations. Alternatively, the PR corporation might provide certain services for the U.S. corporation and have an intra-company agreement between the two companies subject to transfer pricing considerations. An important point is the fact that the new PR resident as the majority owner with voting control has the ability to legally circumvent the application of the CFC rules and consequently have business income taxed at a much lower rate – four percent instead of 45-50 percent.

Additionally, the PR Corporation has the ability to reinvest the earnings on a tax-deferred basis without the application of the passive foreign investment company (PFIC) rules or CFC rules. Dividends could be paid to the U.S. shareholders of the Puerto Rican corporation as a qualified dividend taxed at twenty percent (plus the Medicare surtax-3.8 percent). The PR shareholder is able to take a dividend from the PR corporation without PR or federal taxation.

Planning for the Year of the Move

Another tax planning consideration is minimizing U.S. taxation prior to becoming a PR Resident.  Based on the existing operation, it is not practical to turn the “spigot” off on the U.S. operation. Important staff may remain behind providing the business with experience and expertise. Nevertheless, strategies that provide tax reduction and deferral become increasingly important such as qualified retirement plans (particularly defined benefit plans) and captive insurance companies. These strategies and “drain the swap” reducing current U.S. taxation while providing long-term deferral with no taxation or minimal taxation. Sophisticated tax planning strategies such as charitable remainder trust and charitable lead trusts and pooled income fund can reduce and eliminate capital gains taxation on pre-residency capital appreciation while retaining a lifetime income which may be received as a new PR resident on a tax-free basis.  

Summary

We always want to know how to get from here to there and it is usually not a straight line! To the best of my knowledge, the PR offers some of the best tax incentives on the Planet for U.S. taxpayers that seek tax relief, but cannot “stomach” the thought of renouncing their U.S. citizenship. The PR solution under Acts 22 and 20 provides a nice hybrid solution. The “price” of PR residency is relatively small in terms of personal or financial considerations. The ideas in this short article should get the “wheels” turning to determine how to get from here to there!

You can follow the author on Twitter by clicking here, and @ Long Gray Line Consulting Here.

Agiliron 7.7 Connects eCommerce Retailers with QuickBooks Online

Pedro Hernandez for Small Business Computing writes:  Agiliron, a software-as-a-service (SaaS) provider (that you pronounce "agile iron"), has launched version 7.7 of the company's platform, marking the first time that the product links with QuickBooks Online.

The latest version closes the loop for small and midsized retailers that want to keep their financial affairs in order on Intuit's cloud, according to Stan Roach, chief revenue officer of Agiliron. QuickBooks Online is the cloud-based version of Inuit's venerable accounting software that helps small business track and manage their finances without making big upfront investments in hardware and software. An App Center provides expandability, allowing customers to tailor the product's capabilities to their needs.

Improving the QuickBooks Online Experience

However, said Roach, QuickBooks online lacked a way for retailers to capitalize on the platform's extensibility. "QuickBooks Online was mainly sold to the service sector," said Roach. Retailers and business-to-business (B2B) vendors were left to their own devices, by and large.

"It didn't have an order and inventory tracking system," said Roach. That gap in functionality can make it challenging for small and midsized ecommerce and brick-and-mortar-based companies to coordinate the multi-channel sales and accounting sides of their businesses.

Agiliron 7.7 bridges that gap, according to Roach.

The solution allows QuickBooks Online customers—the SaaS-based product is also compatible with on-premises QuickBooks installations—to manage their online sales channels, point-of-sale transactions, customers and inventory. Agiliron syncs with Intuit's platform to provide users with a real-time view of how their sales activities affect their bottom line.

The company's technology does more than account for every piece of inventory and properly record and process every sale. It opens up new sales channels that can help grow a small or midsized business, asserted Roach.

"Amazon did $24 billion in sales with third-party merchants last year," said Roach. Agiliron's software consolidates the management of online marketplaces and coordinates inventory, letting SMBs stretch into new markets and efficiently sell across multiple channels.

"Amazon and eBay have their own admin panel," reminded Roach. In general, small businesses owners have better ways of spending their time than managing both—or more if they plan to reach more customers. Yet, merchants won't get far unless they make a move into "all the places where people by product," he said. Agiliron represents "easy found money with a platform that helps you to go those places."

Agiliron's philosophy is best encapsulated by the company's tagline, said Roach. "Sell more in more places, but manage in one." It's a sentiment shared by Agiliron's CEO, Satish Menon.

"Offering the flexibility and scalability to sell products in multiple places, yet manage in one, requires an integrated suite of functionality built around a unified data model," he said in a statement. It's a concept that, while complex in execution, yields "simple results for our customers—more revenue that's easier to manage," he added.

Ronny Tey, group marketing manager for QuickBooks Apps said in a written statement that the integration "is all about giving retailers, wholesalers, light manufacturers and other product-selling businesses the ability to sell their products across multiple channels through the Agiliron Suite while seamlessly syncing their data in QuickBooks Online."

Roach sees this as another step in small business IT's eventual (and inevitable) move to cloud.

The days of pricey software and big server expenditures are over. What's more, cloud services offer SMBs advanced capabilities that were once reserved for large enterprises. "The old distaste for IT is going to gradually shift as SaaS provides headache-free IT," he said. "SaaS is going to be their best new friend."

NetSuite's (N) CEO Zachary Nelson on Q2 2014 Results - Earnings Call Transcript

SeekingAlpha reports: NetSuite Inc. (NYSE:N) Q2 2014 Earnings Conference Call

July 24, 2014, 05:00 PM ET

Executives

Jennifer Gianola - Director, Investor Relations

Zachary Nelson - President and Chief Executive Officer

Ronald Gill - Chief Financial Officer

Analysts

Jason Maynard - Wells Fargo

Frank Robinson - Goldman Sachs

Samad Samana - FBR Capital Markets

Brad Reback - Stifel

Harris Heyer - Barclays

Justin Furby - William Blair & Company

Philip Winslow - Credit Suisse

Alex Zukin - Stephens

Operator

Good afternoon. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the NetSuite Q2 earnings conference call. (Operator Instructions) I now turn the call over to Jennifer Gianola, Director of Investor Relations. You may begin your conference.

Jennifer Gianola - Director, Investor Relations

Good afternoon, everyone, and welcome to NetSuite's second quarter 2014 financial results conference call. A more complete disclosure can be found in the press release issued about an hour ago, as well as in our related Form 8-K furnished to the SEC earlier today. To access the press release and the financial details, please visit the Investor Relations section of our website.

As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call. On the call with me today is Zach Nelson, our Chief Executive Officer; and Ron Gill, our Chief Financial Officer. Zach and Ron will begin with prepared remarks, and we will turn the call over to question-and-answer session.

During the call, we will be referring to both GAAP and non-GAAP financial measures. The reconciliation of our GAAP to non-GAAP financial information is provided in our press release, which is available on our website. All of the non-revenue financial measures we will discuss today are non-GAAP, unless we state that the measure is a GAAP measure.

The primary purpose of today's call is to discuss the second quarter 2014 financial results. However, some of the information discussed during this call, including financial outlook we provide, may constitute forward-looking statements within the meaning of the U.S. federal securities 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 or outlook. Risks and uncertainties that would cause our results to differ materially from those expressed or implied by such forward-looking statements include those summarized in the press release that we issued today. These risks and additional risks are also described in detail in reports that we file from time to time with the SEC, including our most recent 10-K and 10-Q filings, which I encourage you to read.

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

Zach Nelson

Thank you, Jennifer. And welcome everyone to NetSuite's conference call to discuss our fiscal 2014 second quarter results. After a quarter like Q2, it's hard not to look back and appreciate all that we have accomplished with a history of firsts, from our founding in 1998 as arguably the first cloud business application provider to our position today as the most widely deployed ERP-based cloud suite in the world.

But what is even more exciting is that we have an enormous opportunity in front of us. We are really just at the beginning of the journey to create the next-generation business system for companies of the future.

Q2 also provided a few new-first in our history. On the business front, we hit two milestones worth noting. First, we had our first $100 million recurring revenue quarter. In addition, based on our Q2 results, NetSuite has become the first ERP driven cloud software company to achieve an annual total revenue run rate of over $0.5 billion.

On the industry front, we also received notable recognition during the quarter. Last month, NetSuite was recognized by Forbes Magazine as one of the most innovative growth companies in the world. In June, the Software & Information Industry Association announced that NetSuite had won three CODiE awards for product excellence.

First, we won for OneWorld, named as the best financial management solution. We also won for NetSuite PSA, named as the best project management solution. And finally, we won for NetSuite SuiteCommerce, named the best commerce solution.

As you read in today's press release, our second quarter's performance highlights our continued progress. We once had record revenue, hitting the high-end of our revenue outlook for the quarter and we exceeded our outlook on both operating cash flow and non-GAAP EPS.

For the quarter, year-over-year our topline grew by 30% to a record $131.8 million. Revenue grew 32% year-over-year at slightly faster pace than what we saw in Q2 of 2013.

Our non-GAAP earnings came in $0.06 per share, well above our previously stated outlook of $0.02 to $0.03 per share for the quarter. In addition, operating cash flow came in at a healthy $18.6 million versus our stated outlook of $14 million to $15 million. In Q2, calculated billings defined as the change in deferred revenue plus revenue grew by 34% over Q2 of 2013.

These quarterly results are a tribute to our customers, who are using NetSuite to transform their operations and enable their business decision. And we had our strongest Q2 since 2009 in terms of new customer additions, adding more than 360 new customers to our installed base. Our average selling price was up slightly over the prior year and for the first half of the year, it is up more than 40%.

Probably, the biggest highlight of the quarter was SuiteWorld, our annual global gathering for customers and partners. We exceeded our goals for this conference with over 6,500 members of the NetSuite committee joining to share the unique experience of SuiteWorld. That's 30% more than the roughly 50% who attended it just one-year ago.

And one of the most notable things about SuiteWorld was the sheer amount of product we introduced. A reflection of the increased investment we have made across the suite to support the vertical and horizontal business applications needs of our growing customer base. As announced at SuiteWorld, we launched new capabilities that allow us to address the needs of large services and project-based businesses.

The new NetSuite SRP provides a comprehensive end-to-end services resource planning solution that supports an entire services business. We are seeing significant upsell and new customer wins from customers who have either bought the entire SRP suite in the past or bought modules, such as the advanced projects, resource allocation, job costing and budgeting.

We are in the process of rolling SRP out globally and we anticipate similar success in EMEA and APAC from both software and services verticals. And during the quarter, our services verticals saw good new business growth. So we are pleased with the early success of the new offering.

With out SuiteGL announcement, feedback from customers, as this capability is game changing in meeting local statutory and business process requirements. We have just scratched the surface on use cases for SuiteGL. And we are working closely with our partners and customers, as they begin to adopt the new technology, starting with the 2014 two release, which is rolling out later this quarter.

Also, later this year, we are planning to rollout our next-generation user interface. NetSuite over the years has pioneered many of the features considered standard today in a modern web-based application, and the new UI build on that heritage. This release will include a fantastic mix of features that are simple, intuitive and bold. We believe the new user interface will make NetSuite the easiest and most enjoyable business application to use anywhere.

And finally, we delivered new capabilities in our SuiteCommerce offering that enabled global customers to deliver a true omnichannel experience to their customers. While most people consider omnichannel commerce a concern only for B2C companies, we believe omnichannel will be an important capability in any business model.

For example, the State of Texas Comptroller's Office was featured at SuiteWorld, highlighting their use of our SuiteCommerce capabilities to support their government-to-government internal purchasing portal. And I'm happy to announce that they have gone completely live across all their department and agencies, since the time that their CIO joined us on stage. The new SuiteCommerce B2B portal that we also announced at SuiteWorld is now rolling out to customers to support their omnichannel business model requirements as well.

The other important capability unique to SuiteCommerce, in addition to its ability to support multiple business models, B2B, B2C, B-2-anything, is its ability to support those customer requirements around the globe in multiple languages, in multiple currencies.

And in that regard, last week we announced the important acquisition of Venda, Europe's pioneering provider of cloud-based ecommerce to some of the biggest and best known brands in the world. And while they certainly do have great customer logos using their offerings, this acquisition is really about extending our strategy to take advantage of our market opportunity around the globe.

Today, about 24% of our revenue comes from outside the U.S. and Europe remains one of our biggest growth opportunities. While we have done well in Europe, we could do better with more resources, focus and investment. And as I have said in the past, we would be doubling down in Europe someday. Well, someday officially arrived last Thursday.

While there is a lot of work ahead, we think the financial results we delivered in Q2 provide the proof that the investments we are making in our strategy of brining the power of unified cloud-based business applications to companies of all sizes are paying off for our customers, our employees and our shareholders.

And so with that, let me turn it over to Ron Gill, our CFO.

Ronald Gill - Chief Financial Officer

Thank you, Zach. I'm pleased to report another excellent quarter at NetSuite. We had a very successful first half of 2014, and are on track for a really solid year. In Q2, we had a fantastic SuiteWorld, brought onboard a record number of new employees and reported record revenue and deferred revenue.

But just to step back a moment, and put the quarter in some historical context, our revenue in the second quarter of 2014 alone was more than the revenue we recorded during our entire fiscal 2007, the year that we went public. Our revenue of $255 million for the first half of 2014 was more revenue than we posted for our entire fiscal 2011.

In other words, the steady effort to build a world-class company by growing a high-quality team, building an increasingly sophisticated product and providing a great experience for our customers continues to pay off.

Let me take you through some of the numbers in more detail. As a reminder, all of the non-revenue financial figures I will discuss here are non-GAAP, unless I state the measure is a GAAP number. Revenues are of course GAAP numbers, and as always, you can find a reconciliation of GAAP to non-GAAP results in today's press release.

During Q2, total revenue grew to $131.8 million, up 7% sequentially and up 30% over Q2 of 2013. This is our eighth consecutive quarter, with a year-over-year growth rate in total revenue of 30% or more.

Recurring revenues from subscription and support grew 6% sequentially and 32% over the year-ago quarter to $105.9 million, representing, as Zach mentioned, our first ever $100 million recurring revenue quarter. Non-recurring revenue, which comes primarily from professional services was $25.9 million for the quarter and grew 25% over that for the same period last year.

Moving down the P&L to gross margins. We saw an increase in our total gross margin year-over-year from 71% to 72%. Gross margins on recurring revenue improved from 85% in the year-ago quarter to 86%, and the gross margin on non-recurring revenue was down from 16% in the year-ago quarter to 14% in the second quarter of this year.

Overall, we expect the blended gross margin to be approximately 71% to 72% of revenue for the full year in 2014. In Q2, 24% of our revenue was generated outside the United States.

Turning to our non-GAAP operating expenses. We continue to make significant investments in our product team as well as in expanding sales capacity. The product organization, where the number of employees in the team was up more than 40% over the year-ago quarter, continues to be the fastest growing area of the company.

Product development expense was $18.5 million for the quarter and represented 14% of Q2 2014 revenue. I expect that spending on the product team will be approximately 13% to 14% of revenue for 2014.

Sales and marketing expenses were $60.6 million or 46% of revenue in Q2 on par with the same percentage of revenue in Q2 of last year. As Zach discussed, we hosted the largest SuiteWorld ever in Q2, but the team did a good job of managing that spend and strong attendance and partnership participation helped offset the cost as well.

G&A expenses were $9.4 million or 7.1% of revenue in the second quarter, that's down from 7.7% of revenue in Q2 of 2013. So we continue to have good scaling efficiency in that area. Non-GAAP operating income in the second quarter was $5.8 million, up 22% over the prior year, and equating to a non-GAAP operating margin of 4.4%.

During the quarter we reported a net income tax expense of approximately $448,000. We continue to expect our net operating losses to offset any domestic earnings for tax purposes for the foreseeable future. Non-GAAP net income for the second quarter was $4.8 million, up 20% over the prior year. Non-GAAP earnings per share for Q2 were $0.06. This was up from $0.05 in the year-ago quarter.

Moving on to the balance sheet. We had another great quarter for cash collections and closed the quarter with a record $479 million in cash and cash equivalents. Cash flow from operations in Q2 was $18.6 million, up 19% year-over-year.

Moving down the balance sheet, from cash to deferred revenue. Our total deferred revenue balance increased 39% year-over-year to a record $252 million. As you may calculate from the financials published in the press release, calculated billings defined as the quarterly revenue plus the change in deferred revenue, were $146.5 million for the quarter, representing an increase of 34% over the second quarter of 2013.

As I have consistently pointed out on these calls, there is a wide array of factors that influence calculated billings and quarter-to-quarter fluctuations in the calculated billing's metric should not be taken as an indicator of changes in future revenues.

Headcount on June 30, 2014, was 2,762, up 29% from Q2 of 2013. We added a record 212 employees to our headcount across the organization in Q2 with the fastest growing teams being those in product development and sales.

Before I move on to outlook, I'd like to briefly address the recent acquisition. As we announced last week on July 17, we acquired Venda, a privately held ecommerce company based in London. This is not a material transaction for us and we did not publish the purchase price in the press release, but since the announcement there has been some speculation, both about the purchase price itself and about the run rate of revenue that company was doing before the acquisition.

I've seen estimates as high as a few hundred million dollars for the purchase price and of revenue in the $40 million range. To bring things down to earth of it, I want to clarify that the total purchase price pay was $50.5 million in a combination of cash and stock. As you can imagine at that price, the revenue estimates are also well off the mark. We did acquire a great team of people with significant domain expertise, a great product and some wonderful customers, but nowhere near that amount of revenue.

Given the current state of business and the accounting required by the acquisition, we're currently forecasting incremental revenue to NetSuite for the remainder of 2014 of about $5 million. And we expect the bottomline impact to be dilutive.

With that understanding I'd like to move to the forward-looking financial outlook, which is covered by the cautionary language I outlined at the start of the call and based on assumptions, which are subject to change overtime.

We've had a great first half and have solid momentum going into the second half of the year. Taking into account the Venda acquisition, we're raising our revenue outlook for the year to a new range from $545 million to $550 million.

Given our EPS and cash flow over performance in the first half, I believe we can observe the dilutive impact from Venda I mentioned and still be within our current outlook, so we're maintaining our outlook for operating cash flow of $65 million to $70 million and non-GAAP EPS of $0.24 to $0.26 for 2014.

For the third quarter of 2014, we expect revenues to be in the range of $140 million to $142 million. We anticipate non-GAAP EPS of approximately $0.03 to $0.04 and operating cash flow of $14 million to $15 million for the quarter.

In summary, the first half was a great start to the year. We're positioned well for a strong second half and an another year of record revenues and industry-leading growth. That concludes my prepared remarks.

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

Zachary Nelson - President and Chief Executive Officer

Thank you, Ron. Ron's comments detail that the significant momentum we gained in 2013, carried over into the first half of 2014. And I think the trends driving NetSuite's growth will continue as the year progresses.

To summarize, the highlights in today's prepared comments, we posted record revenue, record deferred revenue, record levels of revenue retention, our 20^th consecutive quarter of revenue growth, our eighth consecutive quarter of 30% or greater revenue growth, and today we have more employees at NetSuite than we have had in our history.

By achieving a $0.50 billion total revenue run rate this quarter, we are well on our way of achieving our goal to be the leading provider of next-generation business systems and to achieve $1 billion and beyond in annual revenue. Our consistent vision of designing a system to run a business and deliver it via the cloud continues to be the driving force behind what we do at NetSuite.

And with that, we will turn it over to the operator for your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jason Maynard from Wells Fargo.

Jason Maynard - Wells Fargo

I have two questions for you. So first, Zach, can you maybe talk a little bit more about your international and European opportunity? And you made the comment about doubling down, and I'd just be curious in terms of beyond the acquisition of Venda, what other investments do you think are necessary to really make that a bigger part of the overall revenue stream?

And then just quickly, Ron, you gave the $5 million contribution to revenue, maybe I missed it. But what would you assume just sort of compared to last quarter's guidance, the EPS dilution from the deal would be for the second half of the year?

Zachary Nelson - President and Chief Executive Officer

Thank you, Jason. So I'll take the first half about just the strategy around international investments and maybe the other things we'll have to do. I think one of the great things about Venda, as I've said, in discussing this acquisition, is the fact that I think now we really do have critical mass, certainly in the U.K. with the addition of the Venda team. The Venda location right in the Central London, all of those things I think will have a big impact on our ability to execute from a distribution standpoint in Europe.

The other aspect of executing in Europe, we have great capabilities in One World today for companies operating really in any country, we have multi-currency, we have multi-language, our tax engine is unmatched in the world in terms of being able to comply with local statutory requirements.

But as you begin to get into some of these countries more specifically, the actual business practices and the customs differ materially. And so now our ability to have visibility in sort of the second and third derivatives issues around doing business and not ecommerce business, but any type of business in places like Germany and France.

I think we'll have much better visibility into that. We'd able to finely tune our product to look and smell and feel that much more French or German, as the case maybe, as we go to those markets.

So I think that insight is going to be important. I think in terms of additional investments, obviously I think the big additional investment certainly in Europe, perhaps a little bit less so in parts of Asia. It is just the language requirement of our people, and the ability to actually conduct business in German and in French specifically. And so I think that will be another big piece of investment you'll see here.

And over time, that will be the next big piece of investment, is how do you go to Germany. Well, you go hire German sales people, German SEs, German consulting, German support, and that's yet another large investment that I don't think we have in front of us, but I think the Venda acquisition gives us the foundation to begin to make those investments coherently.

And then finally, that the final piece, of course, is the data center in Europe. And as you know, we've been talking about the data center in Europe here, the Venda acquisition actually gives us now obviously a data center in Europe, given that they're delivering to most of their customers out of that data center. And so we're also gaining great expertise in terms of making the decision on how to rollout the data center in Europe. They have a great data center operations team. So we also have to foot up on that front as well.

Ronald Gill - Chief Financial Officer

Maybe I'll take the second part of that question, Jason. So yes, $5 million on the revenue, it's probably a few cents dilutive on EPS. We over-performed plan on EPS in Q1 and have just done the same again in Q2. So we were probably on target to overachieve EPS for the year. So as I said in the prepared remarks, I think we can absorb this diluted impact and still be back within the original guidance range to $0.24 to $0.26.

Operator

Your next question comes from the line of Greg Dunham.

Frank Robinson - Goldman Sachs

You actually have Frank Robinson here for Greg Dunham. I guess want to say, starting at early March, we saw like significant sell-off in growth stocks and some investors seem to be favoring stocks, because they're more profitable. On previous calls, you stated, you prefer to invest as you can get the growth. Have your thoughts around that changed at all?

Zachary Nelson - President and Chief Executive Officer

No. Not at all. Frank, and I think every study that you see and certainly history tells us that if you to can invest, every software coming to invest in growth, the winners investing growth, when the growth opportunity present itself. And so that's certainly our tendency and it's been what we stated for all the time since we've been public.

And so while we did overachieve on the bottomline, and we're happy about that from a fiscal management standpoint, frankly, we would have rather spent that money investing to get growth not so much for this year, as you know it takes a while for this to impact, but get the growth for next year.

And so we're happy about the extra EPS, but in some ways we feel frankly that we should have spent that money in our growth strategy. Now that said, the fact that we did deliver extra EPS, the thing that we won't do is just spend the money to spend the money. And if we can't spend the money efficiently to invest in that growth, we're not going to go, just try to wipeout over attainment just to show that we're spending the money.

So I think we invested wisely and we're going to continue to invest it wisely, and we have invested it wisely over the past several years. I think you've seen that result in more and more growth and that's really what our whole strategy is here.

Frank Robinson - Goldman Sachs

And I want to go back to the Venda acquisition. You listed a bunch of things you got from the acquisition in terms of more capacitating Europe data center and a different things like that. But was there any unique functionality you got with the acquisition. And I guess, was there any plans to integrate the product with SuiteCommerce?

Zachary Nelson - President and Chief Executive Officer

Well, they have a very deep product certainly, and so there are many capabilities in the product that are exciting. I think from a strategy standpoint, the thing that I am most excited about in terms of what we're getting from Venda from a product standpoint, but really more of a domain expertise standpoint is depth of knowledge around shipping and payments, which are substantially different in Europe, so many of our customers are beginning to go global.

We can see on the horizon that we're going to have to address many of these unique shipping and payment requirements of Europe. And so I think this is really going to give us a good wake in terms of addressing those.

In terms of integrating Venda with the NetSuite platform, we already have some customers that are using Venda in conjunction with NetSuite today. And so there are some integrations that exist, so we'll certainly continue to support those and we'll support a variety of deployment options depending on what the customer sees fit.

I think more likely than not, you'll see customers deploying Venda with legacy systems like SAP, where they don't necessarily want to replace the ERP system. But every customer has unique strategy and we'll certainly look to support that and the products that we own.

Operator

Your next question comes from the line of Samad Samana from FBR Capital Markets.

Samad Samana - FBR Capital Markets

I wanted to ask a question on Venda and then SuiteCommerce. Could you give us a little bit of idea of how fast Venda was growing by itself and the typical customer size? And then I have a follow-up on SuiteCommerce.

Zachary Nelson - President and Chief Executive Officer

Venda was very similar to OpenAir for those of you that remember that acquisition, which is our first acquisition, while probably back in 2008 or something like that. And a lot of similarities between the two, and the biggest similarity between the two, at least from an operation standpoint was they had great product teams, they had great service teams, they had great support teams, they had almost non-existent sales team. And so it's safe to say Venda was not growing. When we acquired it, it turns out we need sales people to grow revenue.

So it's great news that on the logos, we're getting incredibly happy customers. We're getting incredible development team. We're getting a great services and support team. The nature of what NetSuite does in acquisitions is trying to acquire great teams more so than fast growing revenue streams or large customer bases frankly. So it's really sort of a perfect match for the way we look at acquisitions in that regard.

And then the second half of the question.

Samad Samana - FBR Capital Markets

So on SuiteCommerce, could you give us an update on where your deals are coming from? Are you seeing greater uptick within the install-based or do you certainly see a healthier flow of new customers that are new to NetSuite coming because of SuiteCommerce?

Zachary Nelson - President and Chief Executive Officer

SuiteCommerce's continues to do really well. It's like every new product introduction at NetSuite, the installed base tends to be the early adopters, because people are waiting for that functionality. So you've certainly seen that. I don't know the exact number, but I'm sure it's pretty close to equal proportions new and existing.

The other thing that's very different about SuiteCommerce and Venda or Demandware or any other ecommerce product in the market is SuiteCommerce applies really to not just B2C environments, it applies almost across all of our industry groups. So you're seeing the new B2B portal being used in our manufacturing vertical as manufacturers begin to want to do B2B transaction through an incredibly functional and beautiful website.

State of Texas is another one, right, where you're seeing the government agencies wanting to do effectively commerce applications, but in that case to their internal audiences. So the big difference between SuiteCommerce and really every other solution on there it's not just omnichannel, which we've nailed with the integration of our retail point-of-sales system and the SuiteCommerce capabilities, but also omni-business model, B2B, B2C.

And so we certainly look at SuiteCommerce on a standalone basis, but you also need to put into your mind and into your model, that SuiteCommerce also gets sold almost across all of our verticals. The primary exception to that from a vertical standpoint would the services companies, if they're pure project-based services businesses, they may not have the need for an omnichannel commerce machine.

But every other industry group software -- we have software companies deploying it for maintenance and renewals management. Manufacturing and distribution, obviously B2B and many of those guys are expanding with B2C models as well. You've now seen government roll it out, and then certainly retail. So it's a really broad application of the technology, and that's why we say, we don't believe omnichannel is a retail problem, it's an every company problem.

Operator

Your next question comes from Brad Reback from Stifel.

Brad Reback - Stifel

Zach, can you maybe talk to the ASP commentary. It's been a couple of years since you haven't seen healthy growth, obviously with the move up in market. Do you think this is a transitory sort of timing event or have you gotten to a place where it should be more stable going forward?

Zachary Nelson - President and Chief Executive Officer

Ron always cautions people on a number of these metrics to not take a point in time, the calculated billings is one that he is always cautioning folks to at a single point in time not to look too much into it, because there are a lot of factors that come into play. I would say ASP is also one of those factors.

In this particular quarter, we did see growth. We did an enormous deal in our installed base. In fact, it was our largest annualized recurring deal ever in our history. But because it was in our installed base, we don't count on the average selling price, because that only talks about new business.

So we're happy to see it grow. Over the past six months it's grown 40%. I mean that'd be hard for us to find any certainly a SaaS company on the planet that grew their average selling price 40% over the last six months. So we're pretty excited about what's happening there.

This other thing that was also very exciting and may relate somewhat to ASPs, which is the big jump off we saw in customer account, right, 360-plus customers. And some times when you sign up more customers, you do do it at a slightly smaller average selling price, but, hey, hurt me with more customers.

In terms of our modeling, we've had healthy, I think, certainly it's safe to say 20% average selling price growth over the last couple of years. We're clearly on track for that. And frankly when we build the model, we don't even build that sort of level of average selling price growth into our model. So those are my thoughts on average selling price.

Ronald Gill - Chief Financial Officer

I can just elaborate on that a little bit. And so you probably remember that last quarter ASPs were up 90% year-over-year. So of course, that's not what we expect to see every quarter is that dramatic in increase. I have often talked about this phenomenon with you guys, where as we sell into larger and larger accounts and more enterprise accounts, those accounts have a lot more room for upsell than the traditional mid-market accounts that we used to sell to.

And we certainly saw that this quarter. As Zach mentioned, with the largest recurring revenue deal we've ever done, but it was an upsell deal. So it doesn't count in the ASP. If I were to count that deal or is if it were a new deal, we've been looking at ASP increase of something like 25% year-over-year for Q2.

Operator

Your next question comes from the line of Raimo Lenschow from Barclays.

Harris Heyer - Barclays

This is Harris Heyer for Raimo. Thanks for taking the question and congrats on a good quarter. I was just hoping you could give a little bit more commentary on kind of how you've seen big deals trending. I know and obviously it's kind of lumpy pattern. But can you give a little bit more color there and what you see going forward?

Zachary Nelson - President and Chief Executive Officer

The nature of the big deals really hasn't changed much, I guess generally speaking. You know there are big deals where NetSuite's being used as the end-to-end enterprise system, and then there are big deals that are being deployed in a two-tier model. And those each have a little different flavor to them in terms of the sales cycle and who's involved, and all those things.

I would say on the former, we saw a great quarter in terms of go lives for large companies deploying NetSuite across the entire organization. So we had a $1 billion software company go live on NetSuite this quarter. That's a big software company. As you guys know, there aren't that many billion dollar software companies.

I think today CommVault was announced replacing something like 12 different applications with NetSuite. That's a $500 million software company. That's another big company in particular in that vertical. So I think that piece is doing well and two-tier continues to do as well beyond sort of financial consolidation, sort of the functional two-tier we've talked about before, when companies begin to deploy ecommerce. NetSuite is their ecommerce platform within these large organizations.

I'd say the biggest change for us, in addition to the fact that it is lumpy, interestingly things do change in those deals more quickly than you might think in terms of the dynamics of what's happening inside the company. It's really just the presence of the CIO. The small and mid-sized businesses typically don't really have a CIO level person or a CIO level organization, which is why the cloud is great for them, because guess what, they don't want to manage software.

And so the thing that we really have to retool for and refactor for in our organization is another person in the room, a very important person called the CIO, and addressing their concern. So that's really the biggest change I think in the sales model standpoint.

In terms of go-to-market, again, as you look at those large companies the SIs are playing a huge role. Very excited about what's going on with all of our SI partners in terms of their dedication of people and resources and the growth of the pipeline there. So we're very excited I think about what the SIs are bringing to the table in that regard.

Harris Heyer - Barclays

And if you don't mind just one more quick follow-up. You've seen kind of a really steady and nice increase in your renewal rate from Q2 last year, when it was at 86%. Do you have any updates there?

Ronald Gill - Chief Financial Officer

I'm not sure where the 86% comes from, because I know we haven't published a renewal rate, our overall retention would be higher than that rate. But you're right in the first part, the premise of your question, that we have seen it improve. And if you go back several years, then we've seen dramatic improvement.

And I know we get to say like on this quarter, again, we had a record retention rate. So really unprecedented rate of retention, but the amount of movement we see in this metric now is pretty small. It's improving in very, very small increment at this point. It's fun to say that it's a new record, but in terms of projecting out in the future and projecting any like further real impact to the model I'm kind of projecting steady state at this point, because I just can't imagine retention getting much better.

Operator

Your next question comes from the line of Justin Furby with William Blair & Company.

Justin Furby - William Blair & Company

Ron, on the booking side, were there any kind of anomalies in that number in areas like duration, et cetera, that might have moved it one way or the other? And then was that large upsell that Zach just mentioned, was that part of the calculated billing numbers for Q2?

Ronald Gill - Chief Financial Officer

Not a big normalization this quarter, yet a stronger dollar hurt a little bit. So that was a little bit of a drag on calculated billings. Overall, billing term helped a little bit, so that boosted calculated billings. If you did the normalized number, it would normalize down a couple of points, so not a big change.

And then of course, I mean every deal that we do is of course in the calculated billings number. So it's literally the -- I am doing the calculations that you guys can see on the face of financials, so the deferred revenue and the revenue. So, yes, of course, every deal is in there. But that billing term normalization that I am doing would take out, if there was any multiyear effect of that or anything. So obviously, it's not having a really outsized impact on it.

Justin Furby - William Blair & Company

And going forward is there any kind of deferred revenue that we'd thinking about what Venda, when it hits your books for Q3?

Ronald Gill - Chief Financial Officer

Yes. There is always this impact whenever you do an acquisition, especially in this aspect. So they do have a little bit of deferred revenue. It's not a huge number, but it is a real number, and so that will sort of slowdown the uptake of revenue in our books from their business.

The way they are recognizing revenue on some of their projects, which are currently in progress during implementation, we won't be able to do that revenue recognition until that's gone live. And so we'll have some delays there in the uptick of revenue. But overall, the deferred revenue, it's not a huge number, it's more of a little bit of a drag relative to what their run rate would be on Q3. And then we're probably at more than normalized rate in Q4.

Justin Furby - William Blair & Company

And then just, Zach, on the strategy piece on the purchase, I guess I'm still not clear. So are you going be selling multiple products of Venda potentially in Europe, like SuiteCommerce in the U.S.? And will you continue to sell Venda as a standalone platform? You mentioned that a lot of customers use other ERP system, so I'm sure you'll continue to support that, but will you also sell it to new customers that might prefer hybrid approach?

Zachary Nelson - President and Chief Executive Officer

Yes. I mean the focus for NetSuite is always the NetSuite core product. So SuiteCommerce globally is really the focus, and what Venda gives us there is the opportunity to invest more from a distribution standpoint in Europe on SuiteCommerce and other NetSuite products.

That said, very much like OpenAir. When we acquired OpenAir, there were large companies, Siemens is a good example in Germany, which is one of our largest OpenAir customers, where they had an SAP backbone and they were going to replace that. So we were happy to sell them OpenAir. So when those scenarios exist, we're happy to provide a product like OpenAir or product like Venda.

The other thing we've seen certainly is we've done that historically is getting a foothold in those accounts with any NetSuite branded product. Actually it becomes very important when they do decide to trade out there legacy stone-age SAP or Sage implementation, because they're already using NetSuite effectively, they're happy. And when they do come to the ERP replacement cycle, it brings us to the front of the queue. So there were some net positives from that approach as well.

Justin Furby - William Blair & Company

So it sounds like you will continue to have SuiteCommerce, you'll be selling that and then Venda as a separate product as well, is that fair to say?

Zachary Nelson - President and Chief Executive Officer

Absolutely. We want actually some great deals in Europe with SuiteCommerce to date. So we're pretty happy about that. We're just going to be able to get more domain expertise on that core capability as well as distribution capability as well.

Justin Furby - William Blair & Company

And then, completely separate, on the two-tier deals or sizing today, I guess if you look at sort of your new deals, how big -- what's the way to think about two-tier as a percentage of sort of your new business? And where do you think in over the next three to five years or even longer-term, where do you think that goes and maybe what are implications for you guys on the sales and marketing side and from a leverage perspective, if that continues to go up, assuming it does?

Zachary Nelson - President and Chief Executive Officer

Two-tier really isn't a category that we track here. Because frankly all SaaS software, most SaaS software typically does move in around the edges, even in sort of a mid-sized company you might see NetSuite being deployment in a two-tier fashion. So I think two-tier for us is a way and a way that customers are thinking about it, but it's not something we track as a revenue driver or a revenue category per se. So I wouldn't even know how to answer that.

I mean some of the products that make up two-tier of course are OneWorld, and OneWorld continues to grow at a percentage of overall bookings, for example, across 50% this quarter. So that's maybe a proxy for two-tier maybe not now, because smaller companies need OneWorld as well, but it's interesting to see across the 50% threshold. So that might give you a little idea.

Operator

Your next question comes from Philip Winslow from Credit Suisse.

Philip Winslow - Credit Suisse

Most of my questions have been answered, but I just want to dig in the OneWorld for a little bit. Obviously, that's been a great success. Zach, just kind of want to get your update there as far as where do you think sort of that the industry is in terms of just adoption of large enterprises, in terms of just an on-demand two-tier ERP offering. Are we starting to crossover from sort of early adopters to sort of mainstream acceptance? And then I just have one follow-up to that.

Zachary Nelson - President and Chief Executive Officer

Well, I still think we're early in all of our ERP cycles frankly. If you just look at our market share, we've crossed over recently on the Gartner Financial Management Systems chart into the top-10, but we have a lot of room to go on the market share for us. So I think that all of these markets, it's just beginning.

But the good news is that I've always said, if you look at left on that market share chart and the right on that market share chart, you don't see a single modern cloud-based application. And that's I think the big thing that you're seeing and you're even seeing it from the guys who don't have the modern cloud-based applications, all they talk about is cloud. So guess what, all anyone thinks about now in terms of deploying any application is cloud first.

And that's probably the most important thing you've seen happen over the last year industry-wide is you watched the SAP advertising, the Microsoft advertising, the Epicor go down say to the advertising, it's all about the cloud. And guess what they really don't have a native cloud application even to speak of. So to me that's a reflection of what their customers are telling them. And we're certainly seeing that's more customers. So I think you could be entering a period of accelerated adoption of solutions like NetSuite.

Now, again, ERP solutions are always slower to move in. I put that caveat on there, it's the heart transplant, but more and more hearts are getting fixed certainly as every company tries to move its business to the cloud. And you really need assistant that looks more like NetSuite, obviously for a modern business and you do like the applications that I mentioned previously. So I think we're still in early adoption, but it's clearly becoming rapid early adoption now.

Philip Winslow - Credit Suisse

And then obviously, you've talked a lot about your vertical and horizontal business applications and NetSuite's focus on there in sort of broadening and deepening, and there was also clearly at focus at SuiteWorld. I was wondering if you could just update on that in sort of where you're focus points are right now and then where do you kind of see that evolving every time?

Ronald Gill - Chief Financial Officer

Yes. So I'll talk a little bit about the verticals. But I think that sort of broad picture to put across these industry groups is, I really do believe that the lines between what makes up a retailer and what makes up a manufacturer are starting to blur. And that's across industry. What's a product company, what's a service company, they're all beginning to blur. And that's really what's causing companies to rethink their infrastructures, how do they support these evolving business models in their world.

And amazingly NetSuite's really the only product that's ever been developed that allows you manage a product and a services company in the single application. And so that's I think going in the future, that's going to be important characteristic of NetSuite that there is no other application on the planet that looks like that. So I'm pretty excited about that, that evolution of our product.

But if you look at the software at internet space, I mean I have to believe we're the dominant platform there. We've grown our logos this year by 58%. If you look at the two big -- there were two software IPOs this quarter, Zendesk and MobileIron, both on NetSuite, great work there. So it's really the platform for next generation technology companies. That includes next-generation hardware companies.

Our manufacturing in WD vertical is doing very well. We had a news release talk today about Penguin, distributor of data center systems replacing SAP agree with NetSuite. GoPro and Arista went public on a NetSuite this quarter. So again, you're looking at the platform of the future, for the companies of the future and believe me, the companies of past who want to be the companies of the future notice that and they want to be on the system like NetSuite.

Retail, obviously, doing great in retail. That's our highest average selling price of any other verticals. Lots of industry recognition. And we are starting to see the B2B, B2C, B2-anything model on a single platform begin to rollout with NetSuite with some of the customers I have mentioned. And certainly, Venda, it helps us do that on a global scale.

And in the services vertical, which is where we focus on heavily at SuiteWorld, we rolled out the new SRP product. We've got almost approaching 100 companies live on the new NetSuite SRP product. So really excited about that.

The other thing I'd say about services is, lots of product companies have services businesses, and so the combination of the SRP capability with our products capability is really unmatched in the industry. So I could keep going on forever here, but I think I'll better stop.

Operator

Your next question comes from the line of Abhey Lamba from Mizuho Securities.

Unidentified Analyst

This is [indiscernible] for Abhey. Most of our questions have been answered, but just in terms of the specifically in the retail segment, how would categorize your value proposition versus other players. I know you talked about it to some extent, but specifically in retail segment?

Zachary Nelson - President and Chief Executive Officer

Well, in retail it's really easy, we are the only cloud-based provider of an omnichannel commerce solution. We are the only integrated cloud solution as point of sale, e-commerce and mobile commerce running on a common infrastructure. Everyone else trying to buy that solution, it has multiple elements, they have a retail infrastructure, they have ecommerce infrastructure, then you have to tie the hairball back together again. That's not the future of retail.

If you look at the great retailers of the world, who were people trying to imitate as people like Apple, where your experience in-store is pretty darn identical to your experience online. Guess what? To deliver that type of solution, you need a solution like NetSuite. That's plain and simple. So that's certainly our strongest vertical.

Then, on top of that of course you layer underneath that all the OneWorld's capability, the ability to take that model anywhere on the globe with multi-currency, multi-tax, multi-language, multi-site, that's the second element that no one is even close to matching. So we're very confident of our position in retail against anybody, not even cloud vendors on premise. In hard goods retail, there is no better solution than NetSuite.

Operator

We have time for one more question. Your question is from Alex Zukin from Stephens.

Alex Zukin - Stephens

Most of my questions have been answered. But I just wanted to touch on the large deal with an existing customer. Could you walk through kind of what exactly that deal look like? Was it a SuiteCommerce upsell, was it OneWorld, just help us understand kind of dynamic of that deal?

Zachary Nelson - President and Chief Executive Officer

Yes, I'll tell you exactly the dynamics of that deal. This company, very large company, had spent nine months and $52 million trying to upgrade their SAP system. After the nine month period, they were presented with another bill for another $100 million to actually make the upgrade work and they wisely said, stop, we're not going to spend another $100 million, after we spent the $50 million to make this thing work. And they came to NetSuite and said, how can you guys help us out of this quagmire?

And that was really how the sales cycle of what they've seen in their other divisions, how well NetSuite work for their complex software divisions. And they figured out, like many of our customers do, this is actually a better solution, then find a retrofit, an agent, archaic system, by spending as much money as humanly possible to make it work, it still doesn't work. So it was a very exciting deal on many fronts.

Alex Zukin - Stephens

And just one follow-up on that and maybe the competitive environment within that deal, in particular, and just in general are you seeing anymore competition with Workday, Microsoft, some entrants?

Zachary Nelson - President and Chief Executive Officer

No. I think it's pretty much -- in terms of competition it's pretty much the same old story we've been saying for several years. It varies a bit by vertical, right. So as we get stronger and bigger and things like manufacturing, a wholesale distribution, you start seeing us replace a lot more Epicor and those types of solution. That's also the case in retail. SAP is still a mess and the Penguin replacement is just another example of that opportunity.

On the Microsoft front, from an ERP perspective, I don't think again they're really doing anything and they seem to be more worried about fins and phones than cloud-based software. So they have other fish to fry, apparently. And what is interesting, again, in financials they really don't have the capability to run significant companies in the verticals that we are in, right. And they have no product capabilities as an example and manufacturing and distribution.

But we did have one interesting data point, we never like to take one data point and make it a trend, but we had one very large customer this quarter come to us to license TribeHR, which as you all know we bought recently, because the Workday build that was handed to them was so enormous that they just couldn't stomach paying it, and now they're looking at Tribe. So who knows, you know, they are not really competing much with us, but maybe we will be competing with them soon.

Well, great. Well, thank you all. Sorry, operator, I'll just close off here.

Thank you all for joining us. It's been a great Q2 and we're on to the second half of the year. So with that, we will close the call for the day. Thank you very much.

Ronald Gill - Chief Financial Officer

Thanks everybody.

Operator

This concludes today's conference call. You may now disconnect.