HubSpot Reports Q2 2015 Results

Published on August 6, 2015

Continued Strong Revenue Growth, Improved Margins and Positive Cash Flow From Operations - Raises Full-Year 2015 Guidance

CAMBRIDGE, Mass., Aug. 6, 2015 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the second quarter ended June 30, 2015.

Financial Highlights:

Revenue

Total revenue was $42.9 million, up 58% compared with the second quarter of 2014.
Subscription revenue was $39.3 million, up 58% compared with the second quarter of 2014.
Professional services and other revenue was $3.7 million, up 67% compared with the second quarter of 2014.

Operating Loss

GAAP operating margin was (26.4%) for the quarter, compared with (30.5%) in the second quarter of 2014.
Non-GAAP operating margin was (13.2%) for the quarter, an improvement of approximately 13 percentage points from (26.0%) in the second quarter of 2014.
GAAP operating loss was ($11.3) million for the quarter, compared to ($8.3) million in the second quarter of 2014.
Non-GAAP operating loss was ($5.7) million for the quarter, compared to ($7.1) million in the second quarter of 2014.

Net Loss attributable to common stockholders

GAAP net loss attributable to common stockholders was ($11.4) million, or ($0.34) per share for the quarter, compared to ($8.3) million, or ($1.44) per share, in the second quarter of 2014.
Non-GAAP net loss attributable to common stockholders was ($5.7) million, or ($0.17) per share for the quarter, compared to ($7.1) million, or ($1.22) per share, in the second quarter of 2014.
Second quarter weighted average common shares outstanding were 33.2 million compared to 5.8 million shares in the second quarter of 2014.

Balance Sheet and Cash Flow

The company's cash and cash equivalents balance was $74.2 million as of June 30, 2015.
During the second quarter, the company generated $1.6 million of operating cash flow compared to using ($2.3) million of cash in operations during the second quarter of 2014.

Additional Recent Business Highlights

Grew total customers to 15,839 at June 30, 2015, up 36% from June 30, 2014.
Increased average subscription revenue per customer (ASRPC) during the second quarter of 2015 to $10,127 from $8,823 in the second quarter of 2014.

"The first half of 2015 has been a transformative time for HubSpot," said Brian Halligan, Chairman and CEO. "We've seen tremendous momentum, from strong revenue growth and positive cash flow from operations to improved margins. We see our positive growth as a sign that our solve-for-the-customer mentality is working and that our marketing and sales products are in turn helping our customers grow their businesses."

Business Outlook

Based on information available as of August 6, 2015, HubSpot is issuing guidance for the third quarter of 2015 and raising guidance for full year 2015 as indicated below.

Third Quarter 2015:

Total revenue is expected to be in the range of $44.0 million to $45.0 million.
Non-GAAP operating loss is expected to in the range of ($11.3) million to ($10.3) million. This excludes stock-based compensation expense of approximately $4.6 million and amortization of acquired intangible assets of approximately $26 thousand.
Non-GAAP net loss per common share is expected to be in the range of ($0.34) to ($0.32). This excludes stock-based compensation expense of approximately $4.6 million and amortization of acquired intangible assets of approximately $26 thousand. This assumes approximately 33.9 million weighted common shares outstanding.

Full Year 2015:

Total revenue is expected to be in the range of $171.7 million to $173.7 million.
Non-GAAP operating loss is expected to in be in the range of ($30.9) million to ($28.9) million. This excludes stock-based compensation expense of approximately $21.5 million and amortization of acquired intangible assets of approximately $96 thousand.
Non-GAAP net loss per common share is expected to be in the range of ($0.92) to ($0.88). This excludes stock-based compensation expense of approximately $21.5 million and amortization of acquired intangible assets of approximately $96 thousand. This assumes approximately 33.3 million weighted common shares outstanding.

Conference Call Information

HubSpot will host a conference call on Thursday, August 6, 2015, at 5:00 p.m. Eastern Time (ET) to discuss its second quarter 2015 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 69239654. 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 5 pm on August 13, 2015 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 69239654. 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 15,500 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 attributable to common stockholders for the second quarter ended June 30, 2015 and 2014. 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 third fiscal quarter of 2015 and full year 2015, 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 May 7, 2015 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)

	June 30,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	74,235	$	123,721
Short-term investments		35,591		—
Accounts receivable — net of allowance for doubtful accounts of $233 and $218 at June 30, 2015 and December 31, 2014, respectively		16,217		14,270
Deferred commission expense		6,009		5,995
Restricted cash		210		230
Prepaid hosting costs		1,928		1,777
Prepaid expenses and other current assets		6,570		3,516
Total current assets		140,760		149,509
Long-term investments		42,342		—
Property and equipment, net		11,337		11,381
Capitalized software development costs, net		4,233		4,433
Other assets		259		116
Intangible assets, net		153		89
Goodwill		9,773		9,330
Total assets		208,857		174,858
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		2,415		2,800
Accrued compensation costs		8,182		7,660
Other accrued expenses		12,608		7,953
Capital lease obligations		235		100
Deferred rent		562		110
Deferred revenue		49,712		40,805
Total current liabilities		73,714		59,428
Capital lease obligations, net of current portion		141		78
Deferred rent, net of current portion		4,149		4,153
Deferred revenue, net of current portion		534		500
Total liabilities		78,538		64,159
Commitments and contingencies
Stockholders' equity:
Common stock		33		32
Additional paid-in capital		307,295		265,113
Accumulated other comprehensive loss		(458)		(145)
Accumulated deficit		(176,551)		(154,301)
Total stockholders' equity		130,319		110,699
Total liabilities and stockholders' equity	$	208,857	$	174,858

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
Subscription	$	39,273	$	24,903	$	74,212	$	47,188
Professional services and other		3,668		2,195		6,895		4,084
Total revenue		42,941		27,098		81,107		51,272
Cost of Revenues:
Subscription		7,484		5,668		14,424		10,765
Professional services and other		3,789		2,614		7,314		5,181
Total cost of revenues		11,273		8,282		21,738		15,946
Gross profit		31,668		18,816		59,369		35,326
Operating expenses:
Research and development		8,158		4,948		15,658		9,641
Sales and marketing		26,291		17,094		50,188		33,020
General and administrative		8,541		5,051		16,255		10,356
Total operating expenses		42,990		27,093		82,101		53,017
Loss from operations		(11,322)		(8,277)		(22,732)		(17,691)
Other (expense) income:
Interest income		101		1		108		3
Interest expense		(79)		(70)		(109)		(121)
Other (expense) income		(55)		67		572		65
Total other (expense) income		(33)		(2)		571		(53)
Loss before provision for income taxes		(11,355)		(8,279)		(22,161)		(17,744)
Provision for income taxes		(37)		-		(89)		-
Net loss		(11,392)		(8,279)		(22,250)		(17,744)
Preferred stock accretion		-		(13)		-		(27)
Net loss attributable to common stockholders	$	(11,392)	$	(8,292)	$	(22,250)	$	(17,771)
Net loss attributable to common stockholders per share, basic and diluted	$	(0.34)	$	(1.44)	$	(0.69)	$	(3.15)
Weighted average common shares used in computing basic and diluted net loss attributable to common stockholders per share:		33,208		5,773		32,432		5,636

Consolidated Statements of Cash Flows
(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Operating Activities:
Net loss	$	(11,392)	$	(8,279)	$	(22,250)	$	(17,744)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities
Depreciation and amortization		1,818		1,604		3,565		3,047
Stock-based compensation		5,642		1,176		10,783		2,248
Provision for deferred income taxes		—		—		26		—
Provision for doubtful accounts		245		158		454		258
Amortization of bond premium discount		190		—		192		—
Noncash rent expense		24		115		192		206
Unrealized currency translation		159		—		(289)		—
Changes in assets and liabilities
Accounts receivable		(912)		(1,127)		(2,572)		(2,329)
Prepaid expenses and other assets		(2,201)		(195)		(3,352)		(203)
Deferred commission expense		(18)		(313)		(14)		(590)
Accounts payable		800		702		(310)		60
Accrued expenses		3,890		590		4,542		1,232
Restricted cash		—		220		—		157
Deferred rent		265		232		265		1,234
Deferred revenue		3,068		2,799		9,531		7,530
Net cash and cash equivalents provided by (used in) operating activities		1,578		(2,318)		763		(4,894)
Investing Activities:
Purchases of investments		(52,499)		—		(78,283)		—
Purchases of property and equipment		(158)		(2,444)		(1,183)		(4,924)
Capitalization of software development costs		(1,022)		(1,418)		(1,792)		(2,372)
Acquisition of a business		—		-		(600)		—
Acquisition of intangible assets		—		(80)		—		(80)
Restricted cash		—		1,500		—		1,500
Net cash and cash equivalents used in investing activities		(53,679)		(2,442)		(81,858)		(5,876)
Financing Activities:
Secondary offering proceeds, net of offering costs paid of $573		—		—		33,679		—
Payment of offering costs		(435)		—		—		—
Proceeds from draw-down on line of credit		—		5,000		—		5,000
Employee taxes paid related to the net share settlement of stock-based awards		(7,852)		—		(7,852)		—
Proceeds related to issuance of common stock under stock plans		5,223		635		6,189		2,039
Payment of deferred initial public offering costs		—		(1,481)		—		(1,507)
Repayments of capital lease obligations		(25)		(28)		(49)		(75)
Net cash and cash equivalents (used in) provided by financing activities		(3,089)		4,126		31,967		5,457
Effect of exchange rate changes on cash		50		(31)		(358)		(28)
Net decrease in cash and cash equivalents		(55,140)		(665)		(49,486)		(5,341)
Cash and cash equivalents, beginning of period		129,375		7,967		123,721		12,643
Cash and cash equivalents, end of period	$	74,235	$	7,302	$	74,235	$	7,302

Reconciliation of non-GAAP operating loss and operating margin	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
(in thousands, except percentages)

GAAP operating loss	$	(11,322)	$	(8,277)	$	(22,732)	$	(17,691)
Stock-based compensation		5,642		1,176		10,783		2,248
Amortization of acquired intangible assets		26		50		44		112
Non-GAAP operating loss	$	(5,654)	$	(7,051)	$	(11,905)	$	(15,331)

GAAP operating margin		(26.4%)		(30.5%)		(28.0%)		(34.5%)
Non-GAAP operating margin		(13.2%)		(26.0%)		(14.7%)		(29.9%)

Reconciliation of non-GAAP net loss attributable to common stockholders	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
(in thousands, except per share amounts)

GAAP net loss attributable to common stockholders	$	(11,392)	$	(8,292)	$	(22,250)	$	(17,771)
Stock-based compensation		5,642		1,176		10,783		2,248
Amortization of acquired intangibles		26		50		44		112
Non-GAAP net loss attributable to common stockholders	$	(5,724)	$	(7,066)	$	(11,423)	$	(15,411)

Non-GAAP net loss attributable to common stockholders per share, basic and diluted	$	(0.17)	$	(1.22)	$	(0.35)	$	(2.73)
Weighted average common shares used in computing basic and diluted GAAP and non-GAAP net loss per common share:		33,208		5,773		32,432		5,636

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

	Three Months Ended June 30,
	2015															2014
	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	$	7,484		$	3,789		$	8,158		$	26,291		$	8,541		$	5,668		$	2,614		$	4,948		$	17,094		$	5,051
Stock -based compensation		(92)			(347)			(1,629)			(2,077)			(1,497)			(24)			(83)			(153)			(475)			(441)
Amortization of acquired intangibles		(19)			-			-			(7)			-			(43)			-			-			(7)			-
Non-GAAP expense	$	7,373		$	3,442		$	6,529		$	24,207		$	7,044		$	5,601		$	2,531		$	4,795		$	16,612		$	4,610

GAAP expense as a percentage of revenue		17	%		9	%		19	%		61	%		20	%		21	%		10	%		18	%		63	%		19	%
Non-GAAP expense as a percentage of revenue		17	%		8	%		15	%		56	%		16	%		21	%		9	%		18	%		61	%		17	%



	Six Months Ended June 30,
	2015															2014
	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	$	14,424		$	7,314		$	15,658		$	50,188		$	16,255		$	10,765		$	5,181		$	9,641		$	33,020		$	10,356
Stock -based compensation		(159)			(604)			(3,262)			(4,132)			(2,626)			(40)			(152)			(299)			(887)			(870)
Amortization of acquired intangibles		(30)			-			-			(14)			-			(105)			-			-			(7)			-
Non-GAAP expense	$	14,235		$	6,710		$	12,396		$	46,042		$	13,629		$	10,620		$	5,029		$	9,342		$	32,126		$	9,486

GAAP expense as a percentage of revenue		18	%		9	%		19	%		62	%		20	%		21	%		10	%		19	%		64	%		20	%
Non-GAAP expense as a percentage of revenue		18	%		8	%		15	%		57	%		17	%		21	%		10	%		18	%		63	%		19	%

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014

GAAP subscription margin	$	31,789		$	19,235		$	59,788			$ 36,423
Stock -based compensation		92			24			159			40
Amortization of acquired intangible assets		19			43			30			105
Non-GAAP subscription margin	$	31,900		$	19,302		$	59,977		$	36,568

GAAP subscription margin percentage		80.9	%		77.2	%		80.6	%		77.2	%
Non-GAAP subscription margin percentage		81.2	%		77.5	%		80.8	%		77.5	%

Non-GAAP Financial Measures

In this release, HubSpot's non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss attributable to common stockholders 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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SOURCE HubSpot, Inc.

Investor Relations Contact: Lisa Mullan, (857) 829-5429, investors@hubspot.com or Media Contact: Laura Moran, (857) 829-5688, lmoran@hubspot.com

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