Protiviti and NASDAQ's IPO webinar 2013

Blueprint for IPO Readiness

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© 2013 Protiviti Inc.

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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.

[email protected]

Joseph Brantuk is Vice President at NASDAQ OMX, managing new listings

efforts in domestic listings across all sectors.


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.

[email protected]

mailto:[email protected]




Meet Jim.

Jim McGeever is responsible for many of NetSuite's internal operations

including sales, services, support and administration, and spearheads

NetSuite's industry and customer satisfaction programs.


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 NetSuite's 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.

[email protected]




Agenda

IPO Market Update

Public Company Readiness -

Infrastructure Considerations

Best Practices for Upgrading Financial

Systems, Processes and Controls

© Copyright 2010, The NASDAQ OMX Group, Inc. All rights reserved.

7

NASDAQ – Where the Ideas of Tomorrow Raise Capital Today

OVER $2 BILLION IN IPO

PROCEEDS RAISED

YTD BEST

PERRFORMING IPO

OVER 200

COMPANIES WITH

APPLICATIONS SUBMITTED

LARGEST

CONSUMER IPO

57% OF 2013 TECH IPOS

LISTED ON NASDAQ

CHOICE BRAND NAME

CONSUMER IPOS

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=qe4P91xZlb1u_M&tbnid=_AYQ3KqVrjrpdM:&ved=0CAUQjRw&url=http://www.ncl.com/nclweb/pressroom/imageLibraryDetail.html?groupId=Logos_NCL&ei=dhFTUbWjNtPr0QGP3YDYBQ&bvm=bv.44342787,d.dmg&psig=AFQjCNEymc1HZFhEpGt7BCabP6b8UMEZng&ust=1364484853587964

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=tDYWUdJoydq41M&tbnid=8iBtzZma407kOM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/File:West_Corporation_Logo.jpg&ei=pRFTUYTHA_GP0QGjxICwDg&bvm=bv.44342787,d.dmg&psig=AFQjCNGqLfYYr7kIXe_SBHpxgqEsGtzeXQ&ust=1364484899300041

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=5yFpo7Ymmlaj8M&tbnid=dY15AvTfpRpcSM:&ved=0CAUQjRw&url=http://zolmax.com/cyrusone-inc-plans-special-dividend-of-0-16-cone/50947/&ei=vxFTUZTqEKmy0QGl8oDYBA&bvm=bv.44342787,d.dmg&psig=AFQjCNHzU4eCVBu3HlT-3aC4vVlh7FKDZQ&ust=1364484925451454

8

U.S. IPO Pipeline

Source: www.RenaissanceCaptial.com

104

314

255 260

297

102 118

253 257

140

31

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

All IPO Filings by Year

9

Pricing and Sector Statistics Technology IPOs are the Most Popular in the Last 12 Months


68

216 192 196

214

31 63

154 125 128

30

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD

IPO Pricings by Year

23%

21%

18%

13%

11%

10

72%

56%

14%

9%

13% 11% 11% 11%

13%

3%

7% 10% 10%

14% 14% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 2013

1st Day “POP” Statistic

Average First Day Pop was 13% in 2013


11

Summary of Current IPO Market

• YTD, the top IPO industries were Technology, Financials, and Health Care.

Industry Breakdown

• 2013 YTD IPO pricings are down 22.4% from the same period in 2012

Pricing Activity

• Proceeds raised increased 37% 2013 YTD compared to the same period in 2012

Proceeds Raised

• 2013 YTD VC backed pricings are down 40% from the same period in 2012

Venture Backed IPOs

• 2013 YTD PE backed pricings are down 62% from the same period in 2012

Private Equity Backed IPOs

• Confidential filings under JOBS Act has reduced pipeline visibility US IPO. Currently 156 companies are in the pipeline

IPO Pipeline

12

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.

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.

Volatility impacts on the IPO market

0

10

20

30

40

50

60

70

80

90

# of Priced IPOs VIX

VIX Market Volatility Index 2007 through March 2013



Do you have questions for Joe?

Poll Question 1:

What is the most interesting market outcome or

activity from 2012 to 2013 for you?

A. JOBs Act impact

B. Decrease in PE backed pricing from 2012

C. Top IPO industries: Technology, Financial,

and Healthcare

D. None of the above

IPO Readiness – Systems, Processes & Controls

© NetSuite Inc. 2013 Confidential 15

Jim McGeever, COO & former CFO, NetSuite

© NetSuite 2013 16

• 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

– Audit

Meet Jim McGeever

© NetSuite 2013 17

• World’s most deployed cloud ERP

• Used by 16,000+ organizations

• Fastest growing top 10 Financial

Management Solution*

• Used across approx. 100 countries

• Founded 1998

• Publicly traded on NYSE: “N”

• Offices in 10 countries

• 1,700+ employees

• 2012 revenue: $309M

Background Performance

* For North America Source: Gartner, April 2011

Powers Disruptive Innovators

Powers Enterprises

NetSuite: Quick Take

© NetSuite 2013 18

NetSuite’s Own IPO

18

Timing

• December 20, 2007

• Later in the year than originally planned

• IPO market was just starting to thaw

Approach

• NetSuite used a modified Dutch auction

• In theory this sets price closer to actual market value

• Credit Suisse underwrote

Results

• Opened at $26. Later surged to $35, peak was $45

• Raised 80% more cash than planned

• $1.5 billion market cap at end of opening day

© NetSuite 2013 19

• 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

one

Pre-IPO Planning & Preparation

© NetSuite 2013 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 expenses

© NetSuite 2013 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 advance

© NetSuite 2013 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

important

© NetSuite 2013 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 roles

© NetSuite 2013 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 bad



Do you have questions for Jim?

Poll Question 2:

Are you in the process of preparing for an IPO?

A. Thinking about it

B. In the process

C. Would like to start within the next year or so

D. No

Public Company Readiness -

Infrastructure Considerations

Steve Hobbs



Going Public – Business Implications

Accurate

Financial

Reporting

and Effective

Forecasting

The Company must ensure it has the requisite skills and organization to

understand the application of all relevant accounting principles and ensure

accurate financial reporting.

• SEC reporting

• Key judgments and estimates

• Significant accounting policies

• Internal reporting and forecasting

Efficient

Financial

Close

In order to meet the revised SEC filing requirements, the company must

ensure that it has an accurate and efficient financial close process.

• Expanded close process

• Timely filing restrictions

• Certifications and disclosure committees

• Expanded FP&A processes



Going Public – Business Implications (continued)

Appropriate

Corporate

Governance

and SOX

Compliance

Ensuring that the company has a robust, regulatory and corporate

governance understanding and an efficient, internal control environment is

critical to achieving initial and ongoing compliance with both SOX and

industry regulations.

• SOX readiness vs. compliance

• Board composition and committee charters

• Internal control and audit activities

Scalable IT

Environment

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.

• Enterprise applications

• Governance practices

• Security and privacy

• Operational processes and controls



Going Public – Business Implications (continued)

Effective

Registration

Statement

Process

Ensuring that the distraction of the registration statement process to the

business in minimized and the process is effectively managed by a PMO.

• Enterprise-wide coordination and PMO

• Development of quarterly information

• Development of MD&A, CD&A & other SEC reporting (non-GAAP

measures)

Organizational

Capabilities

Reviewing key functions and skills needed to facilitate anticipated

sustainable, scalable growth as a public company.

• SEC reporting, budgeting and forecasting

• Investor relations

• Expanded treasury, legal and internal audit



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.

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.

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



Becoming SOX Ready

SOX Section Key SOX Activity Recommended

Implementation Timeframe

Section 404* 1. Document the Company's Significant Business Processes Affecting

Financial Reporting Prior to IPO

Section 404* 2. Identify Risk, Controls and Areas of Improvement in Internal Control

Over Financial Reporting Prior to IPO

Section 404* 3. Implement a process to test internal controls and report on that

testing Prior to initial 10-K

Section 404* 4. Remediate internal control gaps where necessary Prior to initial 10-K

Other Key

Considerations* 5. Evaluate Need for Internal Audit Function After 404 Compliance

Other Key

Considerations

6. Evaluate Need for Enhanced Financial Reporting Function to

Support New Reporting and Disclosure Requirements Prior to IPO

Section 302 / 906 7. Implement a CEO/CFO Certifications Process By initial 10-Q

Section 406 8. Make Code of Ethics and Business Conduct Policy Publicly

Available Prior to IPO

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".



Timeline – Based on an IPO in 18 Months

SOX Readiness Activities

• Risk Assessment

• Document Critical

Processes

• Validate Control Design

• Indentify Control Gaps

• Remediate Control Design

Gaps

2013

IPO

Eff

ec

tive

Da

te

2014 Q1 Q2 Q3 Q4

2015 Q1 Q2 Q3 Q4 Q2 Q3 Q4

Public

Company

Readiness

Assessment

Kickoff - All Hands Meeting

• Registration Statement

• Position Papers

• Drafting Sessions

• Due Diligence

• SEC Comments

• Road Show Address Private to Public

Company Gaps (focus varies

by Company):

• Financial Reporting

• Policy and Procedure

Development

• Planning and Forecasting

• Financial Close Process

• Org..Structure – Board

Composition, Governance

• IT Applications,

Infrastructure, Security

Phase I

4-6 weeks

Phase II

Preceding the IPO kickoff

(effort varies by company)

Phase III

4-6 months

Phase IV

Through 2nd 10-K Filing

SOX Compliance Activities

302 Certifications



AREA

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 Management

No

w

Pre

-IP

O

Po

st-

IPO

Low Medium High

As part of the analysis our observations have

been plotted according to their urgency to

implement and estimated level of effort.

High Medium Low

Priority

1 2

4

6

5

7

3

8

9

10

11

12 13

14

16

19

22

18

17

21

15

20

Urg

en

cy

to

im

ple

me

nt

Prioritization Heat Map

Estimated Level of Effort



IPO

Effective

High Medium Low

Level of Effort

On-going Initial S-1

Filed

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 Management

Action Plan – Base Timeline IPO Readiness Timeline and Estimated Level of Effort



Going Public Under the New JOBS Act

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 X

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

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 X

Going Public Under the New JOBS Act (continued)



Do you have questions for Steve?

Poll Question 3:

What was the most tangible takeaway for you

from this webinar?

A. Better understanding of the IPO market in

2013

B. Financial processes, systems and controls

C. Infrastructure readiness considerations

D. All of the above



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.

Economy & Finance

Protiviti and NASDAQ's IPO webinar 2013