HubSpot Reports Q3 2016 Results

November 02, 2016

Strong Revenue Growth with Improved Profitability
Full-Year 2016 Guidance Raised

CAMBRIDGE, Mass., Nov. 2, 2016 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the third quarter ended September 30th, 2016.

HubSpot, Inc. logo - www.hubspot.com.

Financial Highlights:
Revenue

  • Total revenue was $70.6 million, up 48% compared to the third quarter of 2015.
  • Subscription revenue was $66.5 million, up 51% compared to the third quarter of 2015.
  • Professional services and other revenue was $4.1 million, up 13% compared to the third quarter of 2015.

Operating Loss

  • GAAP operating margin was (14.1%) for the quarter, compared to (27.9%) in the third quarter of 2015.
  • Non-GAAP operating margin was (1.8%) for the quarter, an improvement of approximately 16.5 percentage points from (18.3%) in the third quarter of 2015.
  • GAAP operating loss was ($10.0) million for the quarter, compared to ($13.3) million in the third quarter of 2015.
  • Non-GAAP operating loss was ($1.2) million for the quarter, compared to ($8.8) million in the third quarter of 2015.

Net Loss

  • GAAP net loss was ($10.5) million, or ($0.30) per share for the quarter, compared to ($13.6) million, or ($0.40) per share, in the third quarter of 2015.
  • Non-GAAP net loss was ($1.8) million, or ($0.05) per share for the quarter, compared to ($9.0) million, or ($0.27) per share, in the third quarter of 2015.
  • Third quarter weighted average common shares outstanding were 35.4 million compared to 33.8 million shares in the third quarter of 2015.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $151.7 million as of September 30th, 2016.
  • During the third quarter of 2016, the company generated $5.27 million of operating cash flow and invested $3.74 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of $1.53 million. During the third quarter of 2015, the company used ($3.83) million of operating cash flow and invested $2.33 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of ($6.16) million.           

Additional Recent Business Highlights

  • Grew total customers to 21,658 at September 30th, 2016, up 29% from September 30th, 2015.
  • Increased average subscription revenue per customer during the third quarter of 2016 to $12,320 from $10,607 in the third quarter of 2015.
  • Increased average subscription revenue per customer during the third quarter of 2016 to $12,320, up 16% from $10,607 in the third quarter of 2015.

"We are proud to have delivered another strong quarter in Q3 of this year. For the third quarter in a row, we have reported positive cash flow, providing proof of our momentum and our commitment to strong, consistent growth across the business," said Brian Halligan, HubSpot co-founder and CEO. "We've always said that the power of HubSpot is how helpful, human-centric and holistic our platform and philosophy are -- those three special ingredients have helped us grow a global inbound community that reached new heights this quarter."

Business Outlook
Based on information available as of November 2, 2016, HubSpot is issuing guidance for the fourth quarter of 2016 and raising guidance for full year 2016 as indicated below.

Fourth Quarter 2016:

  • Total revenue is expected to be in the range of $73.7 million to $74.7 million.
  • Non-GAAP operating loss is expected to in the range of ($7.6) million to ($6.6) million. This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.22) to ($0.20). This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand. This assumes approximately 35.7 million weighted common shares outstanding.

Full Year 2016:

  • Total revenue is expected to be in the range of $268.2 million to $269.2 million.
  • Non-GAAP operating loss is expected to in be in the range of ($15.0) million to ($14.0) million. This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.45) to ($0.43). This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand. This assumes approximately 35.2 million weighted common shares outstanding.

Conference Call Information
HubSpot will host a conference call on Wednesday, November 2nd, 2016, at 4:30 p.m. Eastern Time (ET) to discuss its third quarter 2016 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 92793380. Additionally, a live webcast of the conference call will be available in the "Investor" section of the HubSpot's web site at www.hubspot.com.

Following the conference call, a replay will be available until 11 pm on November 9, 2016 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 92793380. An archived webcast of this conference call will also be available in the "Investor" section of HubSpot's web site at www.hubspot.com. The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

About HubSpot
HubSpot is a leading inbound marketing and sales platform. Over 21,500 customers in over 90 countries use HubSpot's award-winning software, services, and support to create an inbound experience that will attract, engage, and delight customers. Learn more at www.hubspot.com.

The tables at the end of this press release include a reconciliation of generally accepted accounting principles ("GAAP") to non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss for the third quarter ended September 30, 2016 and 2015. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the fourth fiscal quarter of 2016 and full year 2016, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform.  These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning.  These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made.  Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.  Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 3, 2016 and our other SEC filings.  We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

 

 

Consolidated Balance Sheets
(in thousands)












September 30,


December 31,



2016


2015

Assets







Current assets:







Cash and cash equivalents


$

61,439


$

55,580

Short-term investments



52,555



48,972

Accounts receivable — net of allowance for doubtful accounts of $520 and $371 
     at September 30, 2016 and December 31, 2015, respectively



30,436



25,142

Deferred commission expense



8,205



8,114

Prepaid hosting costs



1,240



3,047

Prepaid expenses and other current assets



10,187



4,899

Total current assets



164,062



145,754

Long-term investments



37,669



40,566

Property and equipment, net



29,041



18,161

Capitalized software development costs, net



5,840



4,655

Restricted cash



380



363

Other assets



985



1,007

Intangible assets, net



36



100

Goodwill



9,773



9,773

Total assets


$

247,786


$

220,379

Liabilities and stockholders' equity







Current liabilities:







Accounts payable


$

3,004


$

2,588

Accrued compensation costs



10,284



11,371

Other accrued expenses



17,383



12,313

Capital lease obligations



764



542

Deferred rent



207



86

Deferred revenue



83,328



64,407

Total current liabilities



114,970



91,307

Capital lease obligations, net of current portion



247



277

Deferred rent, net of current portion



8,849



6,345

Deferred revenue, net of current portion



918



732

Other long-term liabilities



644



10

Total liabilities



125,628



98,671

Stockholders' equity:







Common stock



35



34

Additional paid-in capital



354,743



322,833

Accumulated other comprehensive loss



(533)



(805)

Accumulated deficit



(232,087)



(200,354)

Total stockholders' equity



122,158



121,708

Total liabilities and stockholders' equity


$

247,786


$

220,379

 

 

Consolidated Statements of Operations
(in thousands, except per share data)












For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,



2016



2015


2016



2015

Revenues:















Subscription


$

66,505



$

44,091


$

182,357



$

118,303

Professional services and other



4,084




3,620



12,166




10,514

Total revenue



70,589




47,711



194,523




128,817

Cost of Revenues:















Subscription



10,655




8,470



29,550




22,894

Professional services and other



5,157




4,008



15,428




11,322

Total cost of revenues



15,812




12,478



44,978




34,216

Gross profit



54,777




35,233



149,545




94,601

Operating expenses:















Research and development



12,100




8,128



33,182




23,787

Sales and marketing



41,193




30,868



115,531




81,057

General and administrative



11,435




9,527



31,674




25,782

Total operating expenses



64,728




48,523



180,387




130,626

Loss from operations



(9,951)




(13,290)



(30,842)




(36,025)

Other (expense) income:















Interest income



224




131



604




241

Interest expense



(97)




(31)



(277)




(140)

Other (expense) income



(365)




(186)



(900)




387

Total other (expense) income



(238)




(86)



(573)




488

Loss before income tax provision



(10,189)




(13,376)



(31,415)




(35,537)

Income tax provision



(326)




(176)



(318)




(265)

Net loss


$

(10,515)



$

(13,552)


$

(31,733)



$

(35,802)

Net loss per share, basic and diluted


$

(0.30)



$

(0.40)


$

(0.91)



$

(1.09)

Weighted average common shares used in computing basic
and diluted net loss per share:



35,393




33,819



35,038




32,901

 

 

Consolidated Statements of Cash Flows
(in thousands)




Three Months Ended

September 30,


Nine Months Ended

September 30,



2016


2015


2016


2015

Operating Activities:













Net loss


$

(10,515)


$

(13,552)


$

(31,733)


$

(35,802)

Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities













Depreciation and amortization



2,769



1,946



7,992



5,511

Stock-based compensation



8,695



4,510



23,401



15,293

Provision for deferred income taxes





19



(165)



45

Amortization of bond premium discount



136



246



547



438

Noncash rent expense



744



19



2,693



211

Unrealized currency translation



(82)



50



(146)



(239)

Changes in assets and liabilities













Accounts receivable



(4,755)



(3,598)



(5,140)



(5,716)

Prepaid expenses and other assets



(762)



2,075



(3,386)



(1,277)

Deferred commission expense



(77)



(635)



(80)



(649)

Accounts payable



431



226



733



(84)

Accrued expenses



1,800



(9)



3,737



4,533

Deferred rent



(41)



114



(75)



379

Deferred revenue



6,929



4,763



18,715



14,294

Net cash and cash equivalents provided by (used in)
operating activities



5,272



(3,826)



17,093



(3,063)

Investing Activities:













Purchases of investments



(23,212)



(15,586)



(44,323)



(93,869)

Maturity of investment



22,045



4,000



43,388



4,000

Purchases of property and equipment



(2,081)



(999)



(13,350)



(2,182)

Capitalization of software development costs



(1,661)



(1,333)



(4,173)



(3,125)

Acquisition of a business









(600)

Restricted cash





(388)





(388)

Net cash and cash equivalents used in investing
activities



(4,909)



(14,306)



(18,458)



(96,164)

Financing Activities:













Secondary offering  proceeds, net of offering costs paid of $583









33,669

Payment of offering costs





(10)





-

Employee taxes paid related to the net share settlement of stock-based awards



(478)



(365)



(1,820)



(8,217)

Proceeds related to issuance of common stock under stock plans



2,977



3,067



9,145



9,256

Repayments of capital lease obligations



(209)



(58)



(528)



(107)

Net cash and cash equivalents provided by financing
activities



2,290



2,634



6,797



34,601

Effect of exchange rate changes on cash



125



72



427



(286)

Net increase (decrease) in cash and cash equivalents



2,778



(15,426)



5,859



(64,912)

Cash and cash equivalents, beginning of period



58,661



74,235



55,580



123,721

Cash and cash equivalents, end of period


$

61,439


$

58,809


$

61,439


$

58,809

 

 

Reconciliation of non-GAAP operating loss and
operating margin


Three Months Ended
September  30,



Nine Months Ended
September  30,



2016


2015



2016


2015

(in thousands, except percentages)




























GAAP operating loss


$

(9,951)


$

(13,290)



$

(30,842)


$

(36,025)

Stock-based compensation



8,695



4,510




23,401



15,293

Amortization of acquired intangible assets



20



26




64



70

Non-GAAP operating loss


$

(1,236)


$

(8,754)



$

(7,377)


$

(20,662)















GAAP operating margin



(14.1%)



(27.9%)




(15.9%)



(28.0%)

Non-GAAP operating margin



(1.8%)



(18.3%)




(3.8%)



(16.0%)

























































Reconciliation of non-GAAP net loss


Three Months Ended
September  30,



Nine Months Ended
September  30,



2016


2015



2016


2015

(in thousands, except per share amounts)


























GAAP net loss


$

(10,515)


$

(13,552)



$

(31,733)


$

(35,802)

Stock-based compensation



8,695



4,510




23,401



15,293

Amortization of acquired intangibles



20



26




64



70

Non-GAAP net loss


$

(1,800)


$

(9,016)



$

(8,268)


$

(20,439)















Non-GAAP net loss per share, basic and diluted


$

(0.05)


$

(0.27)



$

(0.24)


$

(0.62)

Weighted average common shares used in computing basic and
diluted GAAP and  non-GAAP net loss per common share:



35,393



33,819




 

35,038



32,901

 

 

 

Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)

 




Three Months Ended September  30,


2016



2015


COS, Subscription


COS,
Prof.
services
&
other


R&D


S&M


G&A



COS, Subscription


COS,
Prof.
services
&
other


R&D


S&M


G&A

GAAP expense

$

10,655


$

5,157


$

12,100


$

41,193


$

11,435



$

8,470


$

4,008


$

8,128


$

30,868


$

9,527

Stock -based compensation


(139)



(438)



(2,341)



(3,473)



(2,304)




(89)



(315)



(1,568)



(1,078)



(1,460)

Amortization of acquired intangibles


(13)



-



-



(7)



-




(20)



-



-



(6)



-

Non-GAAP expense

$

10,503


$

4,719


$

9,759


$

37,713


$

9,131



$

8,361


$

3,693


$

6,560


$

29,784


$

8,067
































GAAP expense as a percentage of revenue


15.1%



7.3%



17.1%



58.4%



16.2%




17.8%



8.4%



17.0%



64.7%



20.0%

Non-GAAP expense as a percentage of revenue


14.9%



6.7%



13.8%



53.4%



12.9%




17.5%



7.7%



13.7%



62.4%



16.9%































































































Nine Months Ended September  30,


2016



2015


COS, Subscription


COS,
Prof.
services
&
other


R&D


S&M


G&A



COS, Subscription


COS,
Prof.
services
&
other


R&D


S&M


G&A

GAAP expense

$

29,550


$

15,428


$

33,182


$

115,531


$

31,674



$

22,894


$

11,322


$

23,787


$

81,057


$

25,782

Stock -based compensation


(363)



(1,238)



(6,371)



(9,368)



(6,061)




(249)



(851)



(4,830)



(5,278)



(4,085)

Amortization of acquired intangibles


(44)



-



-



(20)



-




(50)



-



-



(20)



-

Non-GAAP expense

$

29,143


$

14,190


$

26,811


$

106,143


$

25,613



$

22,595


$

10,471


$

18,957


$

75,759


$

21,697
































GAAP expense as a percentage of revenue


15.2%



7.9%



17.1%



59.4%



16.3%




17.8%



8.8%



18.5%



62.9%



20.0%

Non-GAAP expense as a percentage of revenue


15.0%



7.3%



13.8%



54.6%



13.2%




17.5%



8.1%



14.7%



58.8%



16.8%

 

 

Reconciliation of non-GAAP subscription margin
(in thousands, except percentages)









Three Months Ended September 30,



Nine Months Ended September  30,



2016


2015



2016


2015















GAAP subscription margin


$

55,850


$

35,621



$

152,807


$

95,409

Stock -based compensation



139



89




363



249

Amortization of acquired intangible
assets



13



20




44



50

Non-GAAP subscription margin


$

56,002


$

35,730



$

153,214


$

95,708















GAAP subscription margin percentage



84.0%



80.8%




83.8%



80.6%

Non-GAAP subscription margin percentage



84.2%



81.0%




84.0%



80.9%

 

 

Non-GAAP Financial Measures

In this release, HubSpot's non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, net loss, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included above in this press release.

These non-GAAP measures exclude share-based compensation and amortization of acquired intangible assets. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:



(a)

Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense allows for financial results that are more indicative of our operational performance and provide for a useful comparison of our operating results to prior periods and to our peer companies because stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price.



(b)

Expense for the amortization of acquired intangible assets is a non-cash item, and we believe that the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods and to our peer companies.

 

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To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/hubspot-reports-q3-2016-results-300355905.html

SOURCE HubSpot, Inc.

Investor Relations Contact: Charles MacGlashing, (857) 829-5429, investors@hubspot.com; Media Contact: Laura Moran, (857) 829-5688, lmoran@hubspot.com

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