HubSpot Reports Q3 2018 Results
Published on November 7, 2018
CAMBRIDGE, Mass., Nov. 7, 2018 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the third quarter ended September 30, 2018.
Financial Highlights:
Revenue
- Total revenue was $131.8 million, up 35% compared to the third quarter of 2017.
- Subscription revenue was $125.5 million, up 35% compared to the third quarter of 2017.
- Professional services and other revenue was $6.3 million, up 39% compared to the third quarter of 2017.
Operating Income (Loss)
- GAAP operating margin was (11.4%) for the quarter, compared to (12.4%) in the third quarter of 2017.
- Non-GAAP operating margin was 4.4% for the quarter, an improvement of approximately 3.9 percentage points from 0.5% in the third quarter of 2017.
- GAAP operating loss was ($15.1) million for the quarter, compared to ($12.1) million in the third quarter of 2017.
- Non-GAAP operating income was $5.9 million for the quarter, compared to $0.5 million in the third quarter of 2017.
Net Income (Loss)
- GAAP net loss was ($18.7) million, or ($0.48) per basic and diluted share for the quarter, compared to ($10.6) million, or ($0.29) per basic and diluted share, in the third quarter of 2017.
- Non-GAAP net income was $7.4 million, or $0.19 per basic and $0.17 per diluted share for the quarter, compared to $1.3 million, or $0.03 per basic and diluted share, in the third quarter of 2017.
- Third quarter weighted average basic and diluted shares outstanding for GAAP net loss per share was 38.8 million, compared to 37.0 million basic and diluted shares in the third quarter of 2017.
- Third quarter weighted average basic and diluted shares outstanding for non-GAAP net income per share was 38.8 million and 43.1 million respectively, compared to 37.0 million and 39.4 million, respectively, in the third quarter of 2017.
Balance Sheet and Cash Flow
- The company's cash, cash equivalents and investments balance was $574.5 million as of September 30, 2018.
- During the third quarter, the company generated $3.2 million of free cash flow compared to $1.8 million during the third quarter of 2017.
Additional Recent Business Highlights
- Grew total customers to 52,505 at September 30, 2018, up 40% from September 30, 2017.
- Total average subscription revenue per customer was $9,959 during the third quarter of 2018 down 4% compared to the third quarter of 2017.
"HubSpot delivered another strong quarter with total revenue growth of 35% and a 4-point improvement in non-GAAP operating margins versus last year" said Brian Halligan, co-founder and CEO. " We've invested heavily in our platform to capitalize on the massive opportunity in the mid-market. I'm excited about the strength we're seeing across the business and we're well positioned to continue to grow with our customers for years to come."
Business Outlook
Based on information available as of November 7, 2018, HubSpot is issuing guidance for the fourth quarter of 2018 and raising guidance for full year 2018 as indicated below.
Fourth Quarter 2018:
- Total revenue is expected to be in the range of $136.5 million to $137.5 million.
- Non-GAAP operating income is expected to be in the range of $11.5 million to $12.5 million.
- Non-GAAP net income per common share is expected to be in the range of $0.29 to $0.31. This assumes approximately 43.2 million weighted average diluted shares outstanding.
Full Year 2018:
- Total revenue is expected to be in the range of $505.5 million to $506.5 million, up from our previously guided range of $496.8 million to $498.8 million.
- Non-GAAP operating income is expected to in be in the range of $29.5 million to $30.5 million, up from our previously guided range of $24.3 million to $26.3 million.
- Non-GAAP net income per common share is expected to be in the range of $0.80 to $0.82, up from our previously guided range of $0.63 to $0.67. This assumes approximately 42.3 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 www.hubspot.com.
Conference Call Information
HubSpot will host a conference call on Wednesday, November 7, 2018 at 4:30 p.m. Eastern Time (ET) to discuss the company's third quarter financial results and its business outlook. To access this call, dial (866) 393-4306 (domestic) or (734) 385-2616 (international). The conference ID is 7858547. Additionally, a live webcast of the conference call will be available in the "Investors" section of HubSpot's website at www.hubspot.com.
Following the conference call, a replay will be available at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 7858547. An archived webcast of this conference call will also be available in the "Investors" section of HubSpot's website 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 growth platform. Over 52,500 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 fourth fiscal quarter and full year 2018; statements regarding the opportunity in the mid-market; 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 August 1, 2018 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, |
|
||
|
|
|
2018 |
|
|
2017 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
96,122 |
|
|
$ |
87,680 |
|
|
Short-term investments |
|
|
465,166 |
|
|
|
416,663 |
|
|
Accounts receivable — net of allowance for doubtful accounts of $1,389 |
|
|
63,107 |
|
|
|
60,676 |
|
|
Deferred commission expense |
|
|
18,759 |
|
|
|
13,343 |
|
|
Restricted cash |
|
|
5,175 |
|
|
|
4,757 |
|
|
Prepaid expenses and other current assets |
|
|
18,132 |
|
|
|
19,382 |
|
|
Total current assets |
|
|
666,461 |
|
|
|
602,501 |
|
|
Long-term investments |
|
|
13,234 |
|
|
|
31,394 |
|
|
Property and equipment, net |
|
|
51,913 |
|
|
|
43,294 |
|
|
Capitalized software development costs, net |
|
|
12,539 |
|
|
|
8,760 |
|
|
Deferred commission expense, net of current portion |
|
|
15,176 |
|
|
|
— |
|
|
Other assets |
|
|
5,656 |
|
|
|
4,964 |
|
|
Intangible assets |
|
|
5,719 |
|
|
|
6,312 |
|
|
Goodwill |
|
|
14,950 |
|
|
|
14,950 |
|
|
Total assets |
|
$ |
785,648 |
|
|
$ |
712,175 |
|
|
Liabilities and stockholders ' equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,817 |
|
|
$ |
4,657 |
|
|
Accrued compensation costs |
|
|
19,182 |
|
|
|
16,329 |
|
|
Other accrued expenses |
|
|
22,781 |
|
|
|
20,430 |
|
|
Deferred revenue |
|
|
160,509 |
|
|
|
136,880 |
|
|
Total current liabilities |
|
|
211,289 |
|
|
|
178,296 |
|
|
Deferred rent, net of current portion |
|
|
24,549 |
|
|
|
18,868 |
|
|
Deferred revenue, net of current portion |
|
|
2,132 |
|
|
|
2,277 |
|
|
Other long-term liabilities |
|
|
4,715 |
|
|
|
3,927 |
|
|
Convertible senior notes |
|
|
313,550 |
|
|
|
298,447 |
|
|
Total liabilities |
|
|
556,235 |
|
|
|
501,815 |
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
Common stock |
|
|
40 |
|
|
|
38 |
|
|
Additional paid-in capital |
|
|
563,034 |
|
|
|
496,461 |
|
|
Accumulated other comprehensive loss |
|
|
(769) |
|
|
|
(57) |
|
|
Accumulated deficit |
|
|
(332,892) |
|
|
|
(286,082) |
|
|
Total stockholders' equity |
|
|
229,413 |
|
|
|
210,360 |
|
|
Total liabilities and stockholders ' equity |
|
$ |
785,648 |
|
|
$ |
712,175 |
|
|
Consolidated Statements of Operations |
|||||||||||||||
|
(in thousands, except per share data) |
|||||||||||||||
|
|
|||||||||||||||
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription |
$ |
125,478 |
|
|
$ |
93,164 |
|
|
$ |
350,646 |
|
|
$ |
255,030 |
|
|
Professional services and other |
|
6,348 |
|
|
|
4,562 |
|
|
|
18,312 |
|
|
|
14,041 |
|
|
Total revenue |
|
131,826 |
|
|
|
97,726 |
|
|
|
368,958 |
|
|
|
269,071 |
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription |
|
17,777 |
|
|
|
12,933 |
|
|
|
49,976 |
|
|
|
36,834 |
|
|
Professional services and other |
|
7,988 |
|
|
|
6,077 |
|
|
|
23,017 |
|
|
|
17,839 |
|
|
Total cost of revenues |
|
25,765 |
|
|
|
19,010 |
|
|
|
72,993 |
|
|
|
54,673 |
|
|
Gross profit |
|
106,061 |
|
|
|
78,716 |
|
|
|
295,965 |
|
|
|
214,398 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
30,761 |
|
|
|
18,828 |
|
|
|
85,598 |
|
|
|
48,087 |
|
|
Sales and marketing |
|
71,293 |
|
|
|
57,904 |
|
|
|
196,484 |
|
|
|
155,284 |
|
|
General and administrative |
|
19,057 |
|
|
|
14,110 |
|
|
|
54,309 |
|
|
|
41,730 |
|
|
Total operating expenses |
|
121,111 |
|
|
|
90,842 |
|
|
|
336,391 |
|
|
|
245,101 |
|
|
Loss from operations |
|
(15,050) |
|
|
|
(12,126) |
|
|
|
(40,426) |
|
|
|
(30,703) |
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
2,416 |
|
|
|
1,274 |
|
|
|
6,332 |
|
|
|
2,311 |
|
|
Interest expense |
|
(5,393) |
|
|
|
(5,063) |
|
|
|
(15,893) |
|
|
|
(7,947) |
|
|
Other expense |
|
(277) |
|
|
|
(26) |
|
|
|
(1,087) |
|
|
|
(251) |
|
|
Total other expense |
|
(3,254) |
|
|
|
(3,815) |
|
|
|
(10,648) |
|
|
|
(5,887) |
|
|
Loss before income tax (expense) benefit |
|
(18,304) |
|
|
|
(15,941) |
|
|
|
(51,074) |
|
|
|
(36,590) |
|
|
Income tax (expense) benefit |
|
(359) |
|
|
|
5,358 |
|
|
|
(1,262) |
|
|
|
8,411 |
|
|
Net loss |
$ |
(18,663) |
|
|
$ |
(10,583) |
|
|
$ |
(52,336) |
|
|
$ |
(28,179) |
|
|
Net loss per share, basic and diluted |
$ |
(0.48) |
|
|
$ |
(0.29) |
|
|
$ |
(1.37) |
|
|
$ |
(0.77) |
|
|
Weighted average common shares used in |
|
38,762 |
|
|
|
37,047 |
|
|
|
38,319 |
|
|
|
36,639 |
|
|
Consolidated Statements of Cash Flows |
|||||||||||||||
|
(in thousands) |
|||||||||||||||
|
|
|||||||||||||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(18,663) |
|
|
$ |
(10,583) |
|
|
$ |
(52,336) |
|
|
$ |
(28,179) |
|
|
Adjustments to reconcile net loss to net cash and cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
6,000 |
|
|
|
4,146 |
|
|
|
16,539 |
|
|
|
11,123 |
|
|
Stock-based compensation |
|
19,613 |
|
|
|
12,110 |
|
|
|
55,334 |
|
|
|
34,419 |
|
|
Provision (benefit) for deferred income taxes |
|
(4) |
|
|
|
(5,581) |
|
|
|
43 |
|
|
|
(9,125) |
|
|
Amortization of debt discount and issuance costs |
|
5,141 |
|
|
|
4,799 |
|
|
|
15,103 |
|
|
|
7,482 |
|
|
Accretion of bond discount |
|
(1,876) |
|
|
|
(692) |
|
|
|
(4,517) |
|
|
|
(747) |
|
|
Noncash rent expense |
|
367 |
|
|
|
1,344 |
|
|
|
1,972 |
|
|
|
4,343 |
|
|
Unrealized currency translation |
|
79 |
|
|
|
(153) |
|
|
|
215 |
|
|
|
(348) |
|
|
Changes in assets and liabilities, net of acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
(9,911) |
|
|
|
(9,671) |
|
|
|
(3,266) |
|
|
|
(8,510) |
|
|
Prepaid expenses and other assets |
|
5,535 |
|
|
|
2,555 |
|
|
|
823 |
|
|
|
(5,363) |
|
|
Deferred commission expense |
|
(5,798) |
|
|
|
(110) |
|
|
|
(15,887) |
|
|
|
(2,011) |
|
|
Accounts payable |
|
3,508 |
|
|
|
1,883 |
|
|
|
4,262 |
|
|
|
1,556 |
|
|
Accrued expenses |
|
(1,876) |
|
|
|
(131) |
|
|
|
3,755 |
|
|
|
6,838 |
|
|
Deferred rent |
|
81 |
|
|
|
(21) |
|
|
|
3,987 |
|
|
|
3,581 |
|
|
Deferred revenue |
|
9,321 |
|
|
|
7,906 |
|
|
|
25,713 |
|
|
|
20,561 |
|
|
Net cash and cash equivalents provided by |
|
11,517 |
|
|
|
7,801 |
|
|
|
51,740 |
|
|
|
35,620 |
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
(158,546) |
|
|
|
(267,359) |
|
|
|
(524,838) |
|
|
|
(572,636) |
|
|
Maturities of investments |
|
150,300 |
|
|
|
276,000 |
|
|
|
498,850 |
|
|
|
313,060 |
|
|
Purchases of property and equipment |
|
(5,378) |
|
|
|
(4,017) |
|
|
|
(16,688) |
|
|
|
(15,089) |
|
|
Capitalization of software development costs |
|
(2,920) |
|
|
|
(1,966) |
|
|
|
(8,726) |
|
|
|
(5,306) |
|
|
Acquisition of a business and purchase of technology |
|
— |
|
|
|
(9,415) |
|
|
|
— |
|
|
|
(9,415) |
|
|
Purchases of strategic investments |
|
(50) |
|
|
|
(2,200) |
|
|
|
(300) |
|
|
|
(2,800) |
|
|
Net cash and cash equivalents used in investing |
|
(16,594) |
|
|
|
(8,957) |
|
|
|
(51,702) |
|
|
|
(292,186) |
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee taxes paid related to the net share settlement of |
|
(1,888) |
|
|
|
(1,057) |
|
|
|
(5,933) |
|
|
|
(3,154) |
|
|
Proceeds related to the issuance of common stock under |
|
5,157 |
|
|
|
2,924 |
|
|
|
16,769 |
|
|
|
10,409 |
|
|
Repayments of capital lease obligations |
|
(175) |
|
|
|
(269) |
|
|
|
(592) |
|
|
|
(787) |
|
|
Proceeds of the issuance of convertible notes, net of |
|
— |
|
|
|
(12) |
|
|
|
— |
|
|
|
389,233 |
|
|
Purchase of note hedge related to convertible notes |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(78,920) |
|
|
Proceeds from the issuance of warrants related to |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,880 |
|
|
Net cash and cash equivalents provided by |
|
3,094 |
|
|
|
1,586 |
|
|
|
10,244 |
|
|
|
375,661 |
|
|
Effect of exchange rate changes on cash, cash equivalents and |
|
(321) |
|
|
|
697 |
|
|
|
(1,319) |
|
|
|
2,569 |
|
|
Net increase in cash, cash equivalents and restricted cash |
|
(2,304) |
|
|
|
1,127 |
|
|
|
8,963 |
|
|
|
121,664 |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
104,051 |
|
|
|
180,722 |
|
|
|
92,784 |
|
|
|
60,185 |
|
|
Cash, cash equivalents and restricted cash, end of period |
$ |
101,747 |
|
|
$ |
181,849 |
|
|
$ |
101,747 |
|
|
$ |
181,849 |
|
|
Reconciliation of non-GAAP operating income and operating (in thousands, except percentages) |
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
||||
|
GAAP operating loss |
$ |
(15,050) |
|
$ |
(12,126) |
|
|
$ |
(40,426) |
|
$ |
(30,703) |
|
|
Stock-based compensation |
|
19,612 |
|
|
12,110 |
|
|
|
55,334 |
|
|
34,419 |
|
|
Amortization of acquired intangible assets |
|
494 |
|
|
38 |
|
|
|
594 |
|
|
54 |
|
|
Acquisition related expenses |
|
802 |
|
|
439 |
|
|
|
2,407 |
|
|
439 |
|
|
Non-GAAP operating income |
$ |
5,858 |
|
$ |
461 |
|
|
$ |
17,909 |
|
$ |
4,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin |
|
(11.4%) |
|
|
(12.4%) |
|
|
|
(11.0%) |
|
|
(11.4%) |
|
|
Non-GAAP operating margin |
|
4.4 |
% |
|
0.5 |
% |
|
|
4.9 |
% |
|
1.6 |
% |
|
|
|||||||||||||
|
|
|||||||||||||
|
Reconciliation of non-GAAP net income (in thousands, except per share amounts) |
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
||||
|
GAAP net loss |
$ |
(18,663) |
|
$ |
(10,583) |
|
|
$ |
(52,336) |
|
$ |
(28,179) |
|
|
Stock-based compensation |
|
19,612 |
|
|
12,110 |
|
|
|
55,334 |
|
|
34,419 |
|
|
Amortization of acquired intangibles assets |
|
494 |
|
|
38 |
|
|
|
594 |
|
|
54 |
|
|
Acquisition related expenses |
|
802 |
|
|
439 |
|
|
|
2,407 |
|
|
439 |
|
|
Non-cash interest expense for amortization of debt discount and debt |
|
5,141 |
|
|
4,799 |
|
|
|
15,103 |
|
|
7,482 |
|
|
Deferred income tax benefit from convertible notes and business |
|
— |
|
|
(5,552) |
|
|
|
— |
|
|
(9,093) |
|
|
Income tax effects of non-GAAP items |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Non-GAAP net income |
$ |
7,386 |
|
$ |
1,251 |
|
|
$ |
21,102 |
|
$ |
5,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.19 |
|
$ |
0.03 |
|
|
$ |
0.55 |
|
$ |
0.14 |
|
|
Diluted |
$ |
0.17 |
|
$ |
0.03 |
|
|
$ |
0.51 |
|
$ |
0.13 |
|
|
Shares used in non-GAAP per share calculations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
38,762 |
|
|
37,047 |
|
|
|
38,319 |
|
|
36,639 |
|
|
Diluted |
|
43,101 |
|
|
39,443 |
|
|
|
41,314 |
|
|
38,763 |
|
|
Reconciliation of non-GAAP expense and expense as a percentage of revenue |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
(in thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2018 |
|
|
2017 |
|
||||||||||||||||||||||||||
|
|
COS, Subscription |
|
COS, |
|
R&D |
|
S&M |
|
G&A |
|
|
COS, Subscription |
|
COS, |
|
R&D |
|
S&M |
|
G&A |
|
||||||||||
|
GAAP expense |
$ |
17,777 |
|
$ |
7,988 |
|
$ |
30,761 |
|
$ |
71,293 |
|
$ |
19,057 |
|
|
$ |
12,933 |
|
$ |
6,077 |
|
$ |
18,828 |
|
$ |
57,904 |
|
$ |
14,110 |
|
|
Stock -based compensation |
|
(391) |
|
|
(803) |
|
|
(5,990) |
|
|
(7,898) |
|
|
(4,530) |
|
|
|
(163) |
|
|
(591) |
|
|
(3,110) |
|
|
(5,015) |
|
|
(3,231) |
|
|
Amortization of acquired intangible |
|
(494) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
(38) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Acquisition related expenses |
|
— |
|
|
— |
|
|
(802) |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
(439) |
|
|
— |
|
|
— |
|
|
Non-GAAP expense |
$ |
16,892 |
|
$ |
7,185 |
|
$ |
23,969 |
|
$ |
63,395 |
|
$ |
14,527 |
|
|
$ |
12,732 |
|
$ |
5,486 |
|
$ |
15,279 |
|
$ |
52,889 |
|
$ |
10,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP expense as a percentage of |
|
13.5 |
% |
|
6.1 |
% |
|
23.3 |
% |
|
54.1 |
% |
|
14.5 |
% |
|
|
13.2 |
% |
|
6.2 |
% |
|
19.3 |
% |
|
59.3 |
% |
|
14.4 |
% |
|
Non-GAAP expense as a percentage of |
|
12.8 |
% |
|
5.5 |
% |
|
18.2 |
% |
|
48.1 |
% |
|
11.0 |
% |
|
|
13.0 |
% |
|
5.6 |
% |
|
15.6 |
% |
|
54.1 |
% |
|
11.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||||||||
|
|
2018 |
|
|
2017 |
|
||||||||||||||||||||||||||
|
|
COS, Subscription |
|
COS, |
|
R&D |
|
S&M |
|
G&A |
|
|
COS, Subscription |
|
COS, |
|
R&D |
|
S&M |
|
G&A |
|
||||||||||
|
GAAP expense |
$ |
49,976 |
|
$ |
23,017 |
|
$ |
85,598 |
|
$ |
196,484 |
|
$ |
54,309 |
|
|
$ |
36,834 |
|
$ |
17,839 |
|
$ |
48,087 |
|
$ |
155,284 |
|
$ |
41,730 |
|
|
Stock -based compensation |
|
(985) |
|
|
(2,339) |
|
|
(16,866) |
|
|
(22,327) |
|
|
(12,817) |
|
|
|
(455) |
|
|
(1,707) |
|
|
(9,013) |
|
|
(13,889) |
|
|
(9,355) |
|
|
Amortization of acquired intangible |
|
(594) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
(47) |
|
|
— |
|
|
— |
|
|
(7) |
|
|
— |
|
|
Acquisition related expenses |
|
— |
|
|
— |
|
|
(2,407) |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
(439) |
|
|
— |
|
|
— |
|
|
Non-GAAP expense |
$ |
48,397 |
|
$ |
20,678 |
|
$ |
66,325 |
|
$ |
174,157 |
|
$ |
41,492 |
|
|
$ |
36,332 |
|
$ |
16,132 |
|
$ |
38,635 |
|
$ |
141,388 |
|
$ |
32,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP expense as a percentage of |
|
13.5 |
% |
|
6.2 |
% |
|
23.2 |
% |
|
53.3 |
% |
|
14.7 |
% |
|
|
13.7 |
% |
|
6.6 |
% |
|
17.9 |
% |
|
57.7 |
% |
|
15.5 |
% |
|
Non-GAAP expense as a percentage of |
|
13.1 |
% |
|
5.6 |
% |
|
18.0 |
% |
|
47.2 |
% |
|
11.2 |
% |
|
|
13.5 |
% |
|
6.0 |
% |
|
14.4 |
% |
|
52.5 |
% |
|
12.0 |
% |
|
Reconciliation of non-GAAP subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||
|
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
||||
|
GAAP subscription margin |
|
$ |
107,701 |
|
$ |
80,231 |
|
|
$ |
300,670 |
|
$ |
218,196 |
|
|
Stock -based compensation |
|
|
391 |
|
|
163 |
|
|
|
985 |
|
|
455 |
|
|
Amortization of acquired intangible assets |
|
|
494 |
|
|
38 |
|
|
|
594 |
|
|
47 |
|
|
Non-GAAP subscription margin |
|
$ |
108,586 |
|
$ |
80,432 |
|
|
$ |
302,249 |
|
$ |
218,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP subscription margin percentage |
|
|
85.8 |
% |
|
86.1 |
% |
|
|
85.7 |
% |
|
85.6 |
% |
|
Non-GAAP subscription margin percentage |
|
|
86.5 |
% |
|
86.3 |
% |
|
|
86.2 |
% |
|
85.8 |
% |
|
Reconciliation of free cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||
|
|
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
||||
|
GAAP net cash and cash equivalents provided |
|
$ |
11,517 |
|
$ |
7,801 |
|
|
$ |
51,740 |
|
$ |
35,620 |
|
|
Purchases of property and equipment |
|
|
(5,378) |
|
|
(4,017) |
|
|
|
(16,688) |
|
|
(15,089) |
|
|
Capitalization of software development costs |
|
|
(2,920) |
|
|
(1,966) |
|
|
|
(8,726) |
|
|
(5,306) |
|
|
Free cash flow |
|
$ |
3,219 |
|
$ |
1,818 |
|
|
$ |
26,326 |
|
$ |
15,225 |
|
|
Reconciliation of forecasted non-GAAP operating income (in thousands, except percentages) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
||
|
GAAP operating income range |
$(9,800) - $(8,800) |
|
|
$(49,900) - $(48,900) |
|
||
|
Stock-based compensation |
|
20,200 |
|
|
|
75,300 |
|
|
Amortization of acquired intangible assets |
|
800 |
|
|
|
1,400 |
|
|
Acquisition related expenses |
|
300 |
|
|
|
2,700 |
|
|
Non-GAAP operating income range |
$11,500 - $12,500 |
|
|
$29,500 - $30,500 |
|
||
|
Reconciliation of forecasted non-GAAP net income and non- (in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
||
|
GAAP net loss range |
$(14,000) - $(13,000) |
|
|
$(65,900) - $(64,900) |
|
||
|
Stock-based compensation |
|
20,200 |
|
|
|
75,300 |
|
|
Amortization of acquired intangible assets |
|
800 |
|
|
|
1,400 |
|
|
Acquisition related expenses |
|
300 |
|
|
|
2,700 |
|
|
Non-cash interest expense for amortization of debt discount and |
|
5,200 |
|
|
|
20,300 |
|
|
Income tax effects of non-GAAP items |
|
— |
|
|
|
— |
|
|
Non-GAAP net income range |
$12,500 - $13,500 |
|
|
$33,800 - $34,800 |
|
||
|
|
|
|
|
|
|
|
|
|
GAAP net income per basic and diluted share |
$(0.36) - $(0.33) |
|
|
$(1.71)-$(1.69) |
|
||
|
Non-GAAP net income per diluted share |
$0.29-$0.31 |
|
|
$0.80-$0.82 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing GAAP |
39,100 |
|
|
38,500 |
|
||
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing non- |
43,200 |
|
|
42,300 |
|
||
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 share-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount debt issuance costs, the deferred income tax benefit from convertible notes and acquisitions, 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:
- 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.
- 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.
- 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.
- 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.
- The deferred income tax benefit from the convertible notes issued in May 2017 is a non-cash item created by the difference in the carrying amount and tax basis of the convertible notes. This taxable temporary difference resulted in the Company recognizing a $9.4 million deferred tax liability which was recorded as an adjustment to additional paid-in capital on the consolidated balance sheet. The creation of the deferred tax liability is recognized as a component of equity and represents a source of future taxable income which supports the realization of a portion of the income tax benefit associated with the current year loss from operations. The deferred income tax benefit from the convertible notes is a non-cash item that is unique to the issuance of the Company's convertible notes, and we believe the exclusion of this deferred tax benefit provides for a useful comparison of our operating results to prior periods and to our peer companies.
- The deferred income tax benefit from the business combination entered into in September 2017 is a non-cash item created by the difference in the carrying amount and tax basis of the assets and liabilities acquired. This taxable temporary difference resulted in the Company recognizing a $2.2 million deferred tax liability which was recorded as an adjustment to goodwill on the consolidated balance sheet. The creation of the deferred tax liability represents a source of future taxable income which supports the realization of a portion of the income tax benefit associated with historical net operating losses. The deferred income tax benefit from the business combination is a non-cash item that is unique to the business combination, and we believe the exclusion of this deferred tax benefit provides for a useful comparison of our operating results to prior periods and to our peer companies.
- 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.
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SOURCE HubSpot, Inc.