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HubSpot Reports Q2 2019 Results

August 6, 2019

CAMBRIDGE, MA (August 6, 2019) — HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for second quarter ended June 30, 2019.

 

Financial Highlights:

 

Revenue

  • Total revenue was $163.3 million, up 33% compared to Q2’18.
  • Subscription revenue was $155.9 million, up 34% compared to Q2’18.
  • Professional services and other revenue was $7.4 million, up 23% compared to Q2’18.

Operating Income (Loss)

  • GAAP operating margin was (9.6%), compared to (11.5%) in Q2’18.
  • Non-GAAP operating margin was 8.4%, an improvement of approximately 3.1 percentage points from 5.3% in Q2’18.
  • GAAP operating loss was ($15.7) million, compared to ($14.1) million in Q2’18.
  • Non-GAAP operating income was $13.8 million, compared to $6.5 million in Q2’18.

 

Net Income (Loss)

  • GAAP net loss was ($17.4) million, or ($0.41) per basic and diluted share, compared to ($18.2) million, or ($0.48) per basic and diluted share in Q2’18.
  • Non-GAAP net income was $17.6 million, or $0.42 per basic and $0.37 per diluted share, compared to $7.4 million, or $0.19 per basic and $0.18 per diluted share in Q2’18.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 42.1 million, compared to 38.4 million in Q2’18.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 42.1 million and 47.5 million respectively, compared to 38.4 million and 41.8 million, respectively in Q2’18.

 

Balance Sheet and Cash Flow

  • The company’s cash, cash equivalents and investments balance was $993.8 million as of June 30, 2019.
  • During the second quarter, the company generated $3.4 million of free cash flow compared to $5.2 million during Q2’18.

 

Additional Recent Business Highlights

  • Grew total customers to 64,836 at June 30, 2019 up 35% from June 30, 2018.
  • Total average subscription revenue per customer was $9,913 during the second quarter of 2019 down 1% compared to Q2’18.

“Q2 was another strong quarter for HubSpot,” said Brian Halligan, co-founder and CEO. “Our suite product play is delivering a ton of value for customers and our platform flywheel play is gaining serious momentum among integration partners and our expanding user base.”

 

Business Outlook

Based on information available as of August 6, 2019, HubSpot is issuing guidance for the third quarter of 2019 and full year 2019 as indicated below.

 

Third Quarter 2019:

  • Total revenue is expected to be in the range of $168.0 million to $169.0 million.
  • Non-GAAP operating income is expected to be in the range of $8.0 million to $9.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $0.22 to $0.24. This assumes approximately 48.0 million weighted average diluted shares outstanding.

 

Full Year 2019:

  • Total revenue is expected to be in the range of $663.0 million to $665.0 million.
  • Non-GAAP operating income is expected to in be in the range of $54.0 million to $55.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.39 to $1.41. This assumes approximately 47.1 million weighted average diluted shares outstanding.

 

Use of Non-GAAP Financial Measures

In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our website at ir.hubspot.com.

 

Conference Call Information

HubSpot will host a conference call on Tuesday, August 6, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's second quarter financial results and its business outlook. To access this call, dial (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 5284634. Additionally, a live webcast of the conference call will be available on HubSpot’s Investor Relations website at ir.hubspot.com.

Following the conference call, a replay will be available at (800) 585-8367 (domestic) or (416) 621-4642 (international). The replay passcode is 5284634. An archived webcast of this conference call will also be available on HubSpot’s Investor Relations website at ir.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 growth platform. Over 64,500 total customers in over 100 countries use HubSpot’s award-winning software, services, and support to transform the way they attract, engage, and delight customers. Learn more at www.hubspot.com.

 

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 regarding management’s expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the third fiscal quarter and full year 2019; and statements regarding our positioning for future growth. 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 acquire and integrate companies and assets; 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, 2019 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,
  2019 2018
Assets                
Current assets:                
Cash and cash equivalents   $ 238,080     $ 111,489  
Short-term investments     717,115       480,761  
Accounts receivable     72,999       77,100  
Deferred commission expense     28,672       23,664  
Restricted cash     6,019       5,175  
Prepaid expenses and other current assets     19,991       14,229  
Total current assets     1,082,876       712,418  
Long-term investments     38,628       11,450  
Property and equipment, net     58,471       52,468  
Capitalized software development costs, net     13,616       12,746  
Right-of-use assets     224,980        
Deferred commission expense, net of current portion     18,600       18,114  
Other assets     8,052       6,888  
Intangible assets, net     3,319       4,919  
Goodwill     14,950       14,950  
Total assets   $ 1,463,492     $ 833,953  
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 13,264     $ 7,810  
Accrued compensation costs     20,179       23,589  
Accrued expenses and other current liabilities     28,546       22,305  
Lease liabilities     15,415        
Deferred revenue     195,509       183,305  
Total current liabilities     272,913       237,009  
Lease liabilities, net of current portion     234,724        
Deferred rent, net of current portion           26,445  
Deferred revenue, net of current portion     2,619       2,179  
Other long-term liabilities     5,635       4,897  
Convertible senior notes     329,457       318,782  
Total liabilities     845,348       589,312  
Stockholders’ equity:                
Common stock     43       40  
Additional paid-in capital     990,701       589,708  
Accumulated other comprehensive loss     241       (723 )
Accumulated deficit     (372,841 )     (344,384 )
Total stockholders’ equity     618,144       244,641  
Total liabilities and stockholders’ equity   $ 1,463,492     $ 833,953  

 

 

Consolidated Statements of Operations

(in thousands, except per share data)

 

  For the Three Months Ended June 30, For the Six Months Ended June 30,
  2019 2018 2019 2018
Revenues:                              
Subscription $ 155,876     $ 116,566     $ 300,102     $ 225,168  
Professional services and other   7,379       6,010       14,951       11,964  
Total revenue   163,255       122,576       315,053       237,132  
Cost of revenues:                              
Subscription   23,578       16,964       44,879       32,199  
Professional services and other   7,564       7,887       15,841       15,029  
Total cost of revenues   31,142       24,851       60,720       47,228  
Gross profit   132,113       97,725       254,333       189,904  
Operating expenses:                              
Research and development   40,456       28,485       75,633       54,837  
Sales and marketing   84,079       65,281       158,984       125,191  
General and administrative   23,303       18,011       44,477       35,252  
Total operating expenses   147,838       111,777       279,094       215,280  
Loss from operations   (15,725 )     (14,052 )     (24,761 )     (25,376 )
Other expense:                              
Interest income   5,424       2,092       9,598       3,916  
Interest expense   (5,673 )     (5,326 )     (11,186 )     (10,500 )
Other expense   (672 )     (527 )     (684 )     (810 )
Total other expense   (921 )     (3,761 )     (2,272 )     (7,394 )
Loss before income tax expense   (16,646 )     (17,813 )     (27,033 )     (32,770 )
Income tax expense   (711 )     (412 )     (1,424 )     (903 )
Net loss $ (17,357 )   $ (18,225 )   $ (28,457 )   $ (33,673 )
Net loss per share, basic and diluted $ (0.41 )   $ (0.48 )   $ (0.69 )   $ (0.88 )
    42,127       38,350       41,352       38,093  

 

 

 

 

Consolidated Statements of Cash Flows

(in thousands)

  For the Three Months Ended June 30, For the Six Months Ended June 30,
  2019 2018 2019 2018
Operating Activities:                              
Net loss $ (17,357 )   $ (18,225 )   $ (28,457 )   $ (33,673 )
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities                              
Depreciation and amortization   7,063       5,429       14,035       10,539  
Stock-based compensation   28,663       19,675       49,869       35,721  
(Benefit) provision for deferred income taxes   (107 )     47       (135 )     47  
Amortization of debt discount and issuance costs   5,415       5,054       10,675       9,962  
Accretion of bond discount   (4,070 )     (1,477 )     (6,821 )     (2,641 )
Noncash rent expense         811             1,605  
Unrealized currency translation   263       100       (18 )     136  
Changes in assets and liabilities                              
Accounts receivable   (3,851 )     (218 )     3,907       6,645  
Prepaid expenses and other assets   (7,216 )     (6,592 )     (6,330 )     (4,712 )
Deferred commission expense   (2,205 )     (5,021 )     (5,539 )     (10,089 )
Right-of-use assets   3,757             9,262        
Accounts payable   81       588       4,992       754  
Accrued expenses and other current liabilities   5,359       3,957       3,288       5,631  
Lease liabilities   (6,052 )           (10,162 )      
Deferred rent         3,954             3,906  
Deferred revenue   3,954       5,419       12,847       16,392  
Net cash and cash equivalents provided by operating activities   13,697       13,501       51,413       40,223  
Investing Activities:                              
Purchases of investments   (211,301 )     (155,406 )     (597,802 )     (366,292 )
Maturities and sales of investments   158,925       92,300       342,385       348,550  
Purchases of property and equipment   (7,791 )     (5,071 )     (12,056 )     (11,310 )
Capitalization of software development costs   (2,507 )     (3,190 )     (5,328 )     (5,806 )
Purchases of strategic investments   (352 )           (352 )     (250 )
Net cash and cash equivalents used in investing activities   (63,026 )     (71,367 )     (273,153 )     (35,108 )
Financing Activities:                              
Proceeds from common stock offering, net of offering costs paid of $365               342,628        
Payments for common stock offering costs   (111 )                  
Employee taxes paid related to the net share settlement of stock-based awards   (1,651 )     (1,701 )     (2,735 )     (4,045 )
Proceeds related to the issuance of common stock under stock plans   5,048       5,499       10,738       11,612  
Repayments of capital lease obligations   (87 )     (205 )     (205 )     (417 )
Net cash and cash equivalents provided by financing activities   3,199       3,593       350,426       7,150  
Effect of exchange rate changes on cash, cash equivalents and restricted cash   586       (1,675 )     (198 )     (998 )
Net increase in cash, cash equivalents and restricted cash   (45,544 )     (55,948 )     128,488       11,267  
Cash, cash equivalents and restricted cash, beginning of period   291,146       159,999       117,114       92,784  
Cash, cash equivalents and restricted cash, end of period $ 245,602     $ 104,051     $ 245,602     $ 104,051  

 

 

 

  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
GAAP operating loss $ (15,725 ) $ (14,052 )   $ (24,761 ) $ (25,376 )
Stock-based compensation   28,663     19,675       49,869     35,721  
Amortization of acquired intangible assets   800     50       1,600     100  
Acquisition related expenses   32     802       65     1,604  
Non-GAAP operating income $ 13,770   $ 6,475     $ 26,773   $ 12,049  
                           
GAAP operating margin   (9.6 %)   (11.5 %)     (7.9 %)   (10.7 %)
Non-GAAP operating margin   8.4 %   5.3 %     8.5 %   5.1 %

 

 

 

 

 

  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
GAAP net loss $ (17,357 ) $ (18,225 )   $ (28,457 ) $ (33,673 )
Stock-based compensation   28,663     19,675       49,869     35,721  
Amortization of acquired intangibles assets   800     50       1,600     100  
Acquisition related expenses   32     802       65     1,604  
Non-cash interest expense for amortization of debt discount and debt issuance costs   5,415     5,054       10,675     9,962  
Income tax effects of non-GAAP items                  
Non-GAAP net income $ 17,553   $ 7,356     $ 33,752   $ 13,714  
                           
Non-GAAP net income per share:                          
Basic $ 0.42   $ 0.19     $ 0.82   $ 0.36  
Diluted $ 0.37   $ 0.18     $ 0.73   $ 0.34  
Shares used in non-GAAP per share calculations                          
Basic   42,127     38,350       41,352     38,093  
Diluted   47,532     41,788       46,394     40,892  

 

 


 

  Reconciliation of non-GAAP expense and expense as a percentage of revenue
  (in thousands, except percentages)
  Three Months Ended June 30,
  2019 2018
  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 $ 23,578   $ 7,564   $ 40,456   $ 84,079   $ 23,303     $ 16,964   $ 7,887   $ 28,485   $ 65,281   $ 18,011  
Stock -based compensation   (822 )   (666 )   (10,553 )   (10,523 )   (6,099 )     (317 )   (846 )   (6,111 )   (7,937 )   (4,464 )
Amortization of acquired intangible assets   (800 )                     (50 )                
Acquisition related expenses           (32 )                     (802 )        
Non-GAAP expense $ 21,956   $ 6,898   $ 29,871   $ 73,556   $ 17,204     $ 16,597   $ 7,041   $ 21,572   $ 57,344   $ 13,547  
                                                               
GAAP expense as a percentage of revenue   14.4 %   4.6 %   24.8 %   51.5 %   14.3 %     13.8 %   6.4 %   23.2 %   53.3 %   14.7 %
Non-GAAP expense as a percentage of revenue   13.4 %   4.2 %   18.3 %   45.1 %   10.5 %     13.5 %   5.7 %   17.6 %   46.8 %   11.1 %
                                                               
                                                               
                                                               
  Six Months Ended June 30,
  2019 2018
  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 $ 44,879   $ 15,841   $ 75,633   $ 158,984   $ 44,477     $ 32,199   $ 15,029   $ 54,837   $ 125,191   $ 35,252  
Stock -based compensation   (1,437 )   (1,685 )   (17,644 )   (18,327 )   (10,776 )     (594 )   (1,536 )   (10,875 )   (14,429 )   (8,287 )
Amortization of acquired intangible assets   (1,600 )                     (100 )                
Acquisition related expenses           (65 )                     (1,604 )        
Non-GAAP expense $ 41,842   $ 14,156   $ 57,924   $ 140,657   $ 33,701     $ 31,505   $ 13,493   $ 42,358   $ 110,762   $ 26,965  
                                                               
GAAP expense as a percentage of revenue   14.2 %   5.0 %   24.0 %   50.5 %   14.1 %     13.6 %   6.3 %   23.1 %   52.8 %   14.9 %
Non-GAAP expense as a percentage of revenue   13.3 %   4.5 %   18.4 %   44.6 %   10.7 %     13.3 %   5.7 %   17.9 %   46.7 %   11.4 %

 

 

 


 

Reconciliation of non-GAAP subscription margin                            
(in thousands, except percentages)                            
  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
GAAP subscription margin   $ 132,298   $ 99,602     $ 255,223   $ 192,969  
Stock -based compensation     822     317       1,437     594  
Amortization of acquired intangible assets     800     50       1,600     100  
Non-GAAP subscription margin   $ 133,920   $ 99,969     $ 258,260   $ 193,663  
                             
GAAP subscription margin percentage     84.9 %   85.4 %     85.0 %   85.7 %
Non-GAAP subscription margin percentage     85.9 %   85.8 %     86.1 %   86.0 %

 

 

Reconciliation of free cash flow                            
(in thousands)                            
                             
  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
GAAP net cash and cash equivalents provided by operating activities   $ 13,697   $ 13,501     $ 51,413   $ 40,223  
Purchases of property and equipment     (7,791 )   (5,071 )     (12,056 )   (11,310 )
Capitalization of software development costs     (2,507 )   (3,190 )     (5,328 )   (5,806 )
Free cash flow   $ 3,399   $ 5,240     $ 34,029   $ 23,107  

 

 

               
  Three Months Ended September 30, 2019
GAAP operating income range ($16,880)-($15,880)       ($49,330)-($48,330)    
Stock-based compensation   24,100       100,100  
Amortization of acquired intangible assets   750       3,100  
Acquisition related expenses   30       130  
Non-GAAP operating income range $8,000-$9,000       $54,000-$55,000    

 

 

 

 

 

 

 

 

 

 


 

               
               
  Three Months Ended September 30, 2019
GAAP net loss range ($19,880)-($18,880)       ($59,730)-($58,730)    
Stock-based compensation   24,100       100,100  
Amortization of acquired intangible assets   750       3,100  
Acquisition related expenses   30       130  
Non-cash interest expense for amortization of debt discount and debt issuance costs   5,500       21,800  
Income tax effects of non-GAAP items          
Non-GAAP net income range $10,500-$11,500       $65,400-$66,400    
               
GAAP net income per basic and diluted share ($0.47)-($0.44)       ($1.42)-($1.40)    
Non-GAAP net income per diluted share $0.22-$0.24       $1.39-$1.41    
               
               
Weighted average common shares used in computing GAAP basic and diluted net loss per share: 42,500       42,050    
               
Weighted average common shares used in computing non-GAAP diluted net loss per share: 48,000       47,100    

 

HubSpot’s estimates of stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, and non-cash interest expense for amortization of debt discount and debt issuance costs in future periods assume, among other things, the occurrence of no additional acquisitions, investments or restructurings, and no further revisions to stock-based compensation and related expenses.

 

Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. In this release, HubSpot’s non-GAAP operating income, operating margin, subscription margin, expense, expense as a percentage of revenue, net income, 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 believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. Specifically, these non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. 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. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies. 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. Management may, however, utilize other measures to illustrate performance in the future. 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 stock-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount debt issuance costs, and income tax effects of non-GAAP items. 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.

C. Acquisition related expenses, such as transaction costs and retention payments, are expenses that are not necessarily reflective of operational performance during a period. We believe that the exclusion of this these expenses provides for a useful comparison of our operating results to prior periods and to our peer companies.

D. In May 2017, the Company issued $400 million of convertible notes due in 2022 with a coupon interest rate of 0.25%. The imputed interest rate of the convertible senior notes was approximately 6.95%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense provides for a useful comparison of our operating results to prior periods and to our peer companies.

E. The effects of income taxes on non-GAAP items for current and historical periods is zero due to our history of non-GAAP losses and a full valuation allowance on our U.S. deferred tax assets.

 

Investor Relations Contact:

Charles MacGlashing •

investors@hubspot.com

 

Media Contact:

Ellie Flanagan •

eflanagan@hubspot.com 

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 About HubSpot

HubSpot (NYSE: HUBS) is a leading growth platform. Since 2006, HubSpot has been on a mission to make the world more inbound. Today, over 68,800 total customers in more than 100 countries use HubSpot’s award-winning software, services, and support to transform the way they attract, engage, and delight customers. Comprised of Marketing Hub, Sales Hub, Service Hub, and a powerful free CRM, HubSpot gives companies the tools they need to Grow Better.

HubSpot has been named a top place to work by Glassdoor, Fortune, The Boston Globe, and The Boston Business Journal. The company is headquartered in Cambridge, MA with offices in Dublin, Ireland; Singapore; Sydney, Australia; Tokyo, Japan; Berlin, Germany; Bogotá, Colombia; Paris, France; and Portsmouth, NH.

Learn more at www.hubspot.com.

 

Press Contact

Ellie Flanagan

eflanagan@hubspot.com

857-829-5301