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HubSpot Reports Q4 and Full Year 2018 Results

February 12, 2019

HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the fourth quarter and full year ended December 31, 2018.


Financial Highlights: 

Revenue

Fourth Quarter 2018:

  •  Total revenue was $144.0 million, up 35% compared to Q4’17.
  •  Subscription revenue was $136.8 million, up 35% compared to Q4’17.
  •  Professional services and other revenue was $7.2 million, up 49% compared to Q4’17.

Full Year 2018:

  •  Total revenue was $513.0 million, up 37% compared to 2017.
  •  Subscription revenue was $487.5 million, up 37% compared to 2017.
  •  Professional services and other revenue was $25.5 million, up 35% compared to 2017.

 

Operating Income (Loss)

Fourth Quarter 2018:

  • GAAP operating margin was (5.4%), compared to (8.9%) in Q4’17.
  • Non-GAAP operating margin was 9.8%, an improvement of approximately 5.7 percentage points from 4.1% in Q4’17.
  • GAAP operating loss was ($7.8) million, compared to ($9.4) million in Q4’17 2017.
  • Non-GAAP operating income was $14.2 million, compared to $4.3 million in Q4’17.

Full Year 2018:

  • GAAP operating margin was (9.4%), compared to (10.7%) in 2017.
  • Non-GAAP operating margin was 6.3%, an improvement of approximately 4 percentage points from 2.3% in 2017.
  • GAAP operating loss was ($48.3) million, compared to ($40.1) million in 2017.
  • Non-GAAP operating income was $32.1 million, compared to $8.6 million in 2017.

 

Net Income (Loss)

Fourth Quarter 2018:

  • GAAP net loss was ($11.5) million, or ($0.29) per basic and diluted share, compared to ($11.5) million, or ($0.31) per basic and diluted share, in Q4’17.
  • Non-GAAP net income was $15.8 million, or $0.40 per basic and $0.37 per diluted share, compared to $4.6 million, or $0.12 per basic and diluted share, in Q4’17.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 39.2 million, compared to 37.4 million basic and diluted shares, in Q4’17.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 39.2 million and 43.0 million respectively, compared to 37.4 million and 40.0 million, respectively, in Q4’17.

 

Full Year 2018:

  • GAAP net loss was ($63.8) million, or ($1.66) per basic and diluted share, compared to ($39.7) million, or ($1.08) per basic and diluted share in 2017.
  • Non-GAAP net income was $36.9 million, or $0.96 per basic and $0.89 per diluted, compared to $9.8 million, or $0.27 per basic and $0.25 per diluted share, in 2017.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 38.5 million, compared to 36.8 million basic and diluted shares 2017.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 38.5 million and 41.6 million respectively, compared to 36.8 million and 38.8 million, respectively, in 2017.

 

Balance Sheet and Cash Flow

  • The company’s cash, cash equivalents and investments balance was $603.7 million as of December 31, 2018.
  • During the fourth quarter, the company generated $25.1 million of free cash flow compared to $7.0 million during Q4’17.
  • The company generated $51.4 million of free cash flow in 2018 compared to $22.3 million in 2017.

 

Additional Recent Business Highlights

  • Grew total customers to 56,628 at December 31, 2018, up 36% from December 31, 2017.
  • Total average subscription revenue per customer was $10,012 during the fourth quarter of 2018 down 2% compared to the fourth quarter of 2017.

 

“2018 was one of the best years in our history,” said Brian Halligan, co-founder and CEO. “We started the year with a really strong marketing application business that helped our customers generate leads and a fast-growing sales enablement business. We ended the year with a full suite of marketing, sales and customer service products that helps our customers grow better by crafting a remarkable experience for their customers.  We’re extremely pleased with our Q4 results, and I’m very excited on the outlook for our business entering 2019.”

 

Business Outlook
Based on information available as of February 12, 2019, HubSpot is issuing guidance for the first quarter of 2019 and full year 2019 as indicated below.


First Quarter 2019:

  • Total revenue is expected to be in the range of $146.5 million to $147.5 million.
  • Non-GAAP operating income is expected to be in the range of $9.5 million to $10.5 million.
  • Non-GAAP net income per common share is expected to be in the range of $0.23 to $0.25. This assumes approximately 44.4 million weighted average diluted shares outstanding.

 

Full Year 2019:

  • Total revenue is expected to be in the range of $648 million to $652 million.
  • Non-GAAP operating income is expected to in be in the range of $46 million to $50 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.08 to $1.16. This assumes approximately 45.6 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, February 12, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's fourth quarter and full-year financial results and its business outlook. To access this call, dial (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 3037758. 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 pass code is 3037758. 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 56,500 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 first 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 November 7, 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)

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,489

 

 

$

87,680

 

Short-term investments

 

 

480,761

 

 

 

416,663

 

Accounts receivable

 

 

77,100

 

 

 

60,676

 

Deferred commission expense

 

 

23,664

 

 

 

13,343

 

Restricted cash

 

 

5,175

 

 

 

4,757

 

Prepaid expenses and other current assets

 

 

14,229

 

 

 

19,382

 

Total current assets

 

 

712,418

 

 

 

602,501

 

Long-term investments

 

 

11,450

 

 

 

31,394

 

Property and equipment, net

 

 

52,468

 

 

 

43,294

 

Capitalized software development costs, net

 

 

12,746

 

 

 

8,760

 

Deferred commission expense, net of current portion

 

 

18,114

 

 

 

 

Other assets

 

 

6,888

 

 

 

4,964

 

Intangible assets

 

 

4,919

 

 

 

6,312

 

Goodwill

 

 

14,950

 

 

 

14,950

 

Total assets

 

$

833,953

 

 

$

712,175

 

Liabilities and stockholders equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,810

 

 

$

4,657

 

Accrued compensation costs

 

 

23,589

 

 

 

16,329

 

Accrued expenses and other current liabilities

 

 

22,305

 

 

 

20,430

 

Deferred revenue

 

 

183,305

 

 

 

136,880

 

Total current liabilities

 

 

237,009

 

 

 

178,296

 

Deferred rent, net of current portion

 

 

26,445

 

 

 

18,868

 

Deferred revenue, net of current portion

 

 

2,179

 

 

 

2,277

 

Other long-term liabilities

 

 

4,897

 

 

 

3,927

 

Convertible senior notes

 

 

318,782

 

 

 

298,447

 

Total liabilities

 

 

589,312

 

 

 

501,815

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

40

 

 

 

38

 

Additional paid-in capital

 

 

589,708

 

 

 

496,461

 

Accumulated other comprehensive loss

 

 

(723)

 

 

 

(57)

 

Accumulated deficit

 

 

(344,384)

 

 

 

(286,082)

 

Total stockholders’ equity

 

 

244,641

 

 

 

210,360

 

Total liabilities and stockholders equity

 

$

833,953

 

 

$

712,175

 

 

  

Consolidated Statements of Operations

(in thousands, except per share data)

 

For the Three Months Ended December 31,

 

 

Year Ended December 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

136,804

 

 

$

101,697

 

 

$

487,450

 

 

$

356,727

 

Professional services and other

 

7,218

 

 

 

4,844

 

 

 

25,530

 

 

 

18,885

 

Total revenue

 

144,022

 

 

 

106,541

 

 

 

512,980

 

 

 

375,612

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

19,742

 

 

 

14,729

 

 

 

69,718

 

 

 

51,563

 

Professional services and other

 

7,622

 

 

 

6,327

 

 

 

30,639

 

 

 

24,166

 

Total cost of revenues

 

27,364

 

 

 

21,056

 

 

 

100,357

 

 

 

75,729

 

Gross profit

 

116,658

 

 

 

85,485

 

 

 

412,623

 

 

 

299,883

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

32,005

 

 

 

22,286

 

 

 

117,603

 

 

 

70,373

 

Sales and marketing

 

70,960

 

 

 

57,575

 

 

 

267,444

 

 

 

212,859

 

General and administrative

 

21,525

 

 

 

15,057

 

 

 

75,834

 

 

 

56,787

 

Total operating expenses

 

124,490

 

 

 

94,918

 

 

 

460,881

 

 

 

340,019

 

Loss from operations

 

(7,832

)

 

 

(9,433

)

 

 

(48,258

)

 

 

(40,136

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

2,844

 

 

 

1,526

 

 

 

9,176

 

 

 

3,837

 

Interest expense

 

(5,493

)

 

 

(5,234

)

 

 

(21,386

)

 

 

(13,181

)

Other expense

 

(405

)

 

 

(308

)

 

 

(1,492

)

 

 

(559

)

Total other expense

 

(3,054

)

 

 

(4,016

)

 

 

(13,702

)

 

 

(9,903

)

Loss before income tax (expense) benefit

 

(10,886

)

 

 

(13,449

)

 

 

(61,960

)

 

 

(50,039

)

Income tax (expense) benefit

 

(606

)

 

 

1,914

 

 

 

(1,868

)

 

 

10,325

 

Net loss

$

(11,492

)

 

$

(11,535

)

 

$

(63,828

)

 

$

(39,714

)

Net loss per share, basic and diluted

$

(0.29

)

 

$

(0.31

)

 

$

(1.66

)

 

$

(1.08

)

Weighted average common shares used in computing basic

   and diluted net loss per share:

 

39,153

 

 

 

37,385

 

 

 

38,529

 

 

 

36,827

 

 

 

Consolidated Statements of Cash Flows

(in thousands)

 

 

Three Months Ended

December, 31

 

 

Year Ended

December 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(11,492

)

 

$

(11,535

)

 

$

(63,828

)

 

$

(39,714

)

Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

6,889

 

 

 

4,663

 

 

 

23,428

 

 

 

15,786

 

Stock-based compensation

 

20,927

 

 

 

12,898

 

 

 

76,261

 

 

 

47,317

 

Deferred income tax expense (benefit)

 

(7

)

 

 

(2,421

)

 

 

36

 

 

 

(11,546

)

Amortization of debt discount and issuance costs

 

5,232

 

 

 

4,884

 

 

 

20,335

 

 

 

12,366

 

Accretion of bond discount

 

(2,270

)

 

 

(829

)

 

 

(6,787

)

 

 

(1,576

)

Noncash rent expense

 

364

 

 

 

696

 

 

 

2,336

 

 

 

5,039

 

Unrealized currency translation

 

268

 

 

 

209

 

 

 

483

 

 

 

(139

)

Changes in assets and liabilities, net of acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(14,460

)

 

 

(11,670

)

 

 

(17,726

)

 

 

(20,180

)

Prepaid expenses and other assets

 

3,057

 

 

 

(225

)

 

 

3,880

 

 

 

(5,588

)

Deferred commission expense

 

(8,013

)

 

 

(1,993

)

 

 

(23,900

)

 

 

(4,004

)

Accounts payable

 

(964

)

 

 

(456

)

 

 

3,298

 

 

 

1,100

 

Accrued expenses and other current liabilities

 

8,165

 

 

 

1,357

 

 

 

11,920

 

 

 

8,195

 

Deferred rent

 

1,812

 

 

 

(22

)

 

 

5,799

 

 

 

3,559

 

Deferred revenue

 

23,603

 

 

 

18,438

 

 

 

49,316

 

 

 

38,999

 

Net cash and cash equivalents provided by operating activities

 

33,111

 

 

 

13,994

 

 

 

84,851

 

 

 

49,614

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of investments

 

(156,794

)

 

 

(317,373

)

 

 

(681,632

)

 

 

(890,009

)

Maturities and sales of investments

 

145,525

 

 

 

220,600

 

 

 

644,375

 

 

 

533,660

 

Purchases of property and equipment

 

(5,617

)

 

 

(5,187

)

 

 

(22,305

)

 

 

(20,276

)

Capitalization of software development costs

 

(2,442

)

 

 

(1,765

)

 

 

(11,168

)

 

 

(7,071

)

Acquisition of a business and purchase of technology

 

 

 

 

 

 

 

 

 

 

(9,415

)

Purchases of strategic investments

 

(200

)

 

 

(700

)

 

 

(500

)

 

 

(3,500

)

Net cash and cash equivalents used in investing activities

 

(19,528

)

 

 

(104,425

)

 

 

(71,230

)

 

 

(396,611

)

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(2,100

)

 

 

(1,265

)

 

 

(8,033

)

 

 

(4,419

)

Proceeds related to the issuance of common stock under stock plans

 

4,786

 

 

 

2,677

 

 

 

21,555

 

 

 

13,086

 

Proceeds of the issuance of convertible notes, net of issuance costs paid of $10,767

 

 

 

 

 

 

 

 

 

 

389,233

 

Purchase of note hedge related to convertible notes

 

 

 

 

 

 

 

 

 

 

(78,920

)

Proceeds from the issuance of warrants related to convertible notes, net of issuance costs of $200

 

 

 

 

 

 

 

 

 

 

58,880

 

Repayments of capital lease obligations

 

(152

)

 

 

(267

)

 

 

(744

)

 

 

(1,054

)

Net cash and cash equivalents provided by financing activities

 

2,534

 

 

 

1,145

 

 

 

12,778

 

 

 

376,806

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(750

)

 

 

221

 

 

 

(2,069

)

 

 

2,790

 

Net increase in cash, cash equivalents and restricted cash

 

15,367

 

 

 

(89,065

)

 

 

24,330

 

 

 

32,599

 

Cash, cash equivalents and restricted cash, beginning of period

 

101,747

 

 

 

181,849

 

 

 

92,784

 

 

 

60,185

 

Cash, cash equivalents and restricted cash, end of period

$

117,114

 

 

$

92,784

 

 

$

117,114

 

 

$

92,784

 

 

Reconciliation of non-GAAP operating income and operating margin

(in thousands, except percentages)

Three Months Ended December 31,

 

 

Year ended December 31,

 

 

2018

 

2017

 

 

2018

 

2017

 

GAAP operating loss

$

(7,832

)

$

(9,433

)

 

$

(48,258

)

$

(40,136

)

Stock-based compensation

 

20,927

 

 

12,898

 

 

 

76,261

 

 

47,317

 

Amortization of acquired intangible assets

 

800

 

 

50

 

 

 

1,394

 

 

103

 

Acquisition related expenses

 

289

 

 

827

 

 

 

2,696

 

 

1,266

 

Non-GAAP operating income

$

14,184

 

$

4,342

 

 

$

32,093

 

$

8,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating margin

 

(5.4

%)

 

(8.9

%)

 

 

(9.4

%)

 

(10.7

%)

Non-GAAP operating margin

 

9.8

%

 

4.1

%

 

 

6.3

%

 

2.3

%

 

 

 

 

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

Three Months Ended December 31,

 

 

Year ended December 31,

 

 

2018

 

2017

 

 

2018

 

2017

 

GAAP net loss

$

(11,492

)

$

(11,535

)

 

$

(63,828

)

$

(39,714

)

Stock-based compensation

 

20,927

 

 

12,898

 

 

 

76,261

 

 

47,317

 

Amortization of acquired intangibles assets

 

800

 

 

50

 

 

 

1,394

 

 

103

 

Acquisition related expenses

 

289

 

 

827

 

 

 

2,696

 

 

1,266

 

Non-cash interest expense for amortization of debt discount and debt issuance costs

 

5,232

 

 

4,884

 

 

 

20,335

 

 

12,367

 

Deferred income tax benefit from convertible notes and business combination

 

 

 

(2,480

)

 

 

 

 

(11,573

)

Income tax effects of  non-GAAP items

 

 

 

 

 

 

 

 

 

Non-GAAP net income

$

15,756

 

$

4,644

 

 

$

36,858

 

$

9,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.40

 

$

0.12

 

 

$

0.96

 

$

0.27

 

Diluted

$

0.37

 

$

0.12

 

 

$

0.89

 

$

0.25

 

Shares used in non-GAAP per share calculations

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

39,153

 

 

37,385

 

 

 

38,529

 

 

36,827

 

Diluted

 

43,024

 

 

39,978

 

 

 

41,595

 

 

38,798

 

 

Reconciliation of non-GAAP expense and expense as a percentage of revenue

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

2018

 

 

2017

 

 

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

$

19,742

 

$

7,622

 

$

32,005

 

$

70,960

 

$

21,525

 

 

$

14,729

 

$

6,327

 

$

22,286

 

$

57,575

 

$

15,057

 

Stock -based compensation

 

(491

)

 

(585

)

 

(6,462

)

 

(8,772

)

 

(4,617

)

 

 

(203

)

 

(620

)

 

(3,803

)

 

(5,127

)

 

(3,145

)

Amortization of acquired intangible assets

 

(800

)

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

Acquisition related expenses

 

 

 

 

 

(289

)

 

 

 

 

 

 

 

 

 

 

(827

)

 

 

 

 

Non-GAAP expense

$

18,451

 

$

7,037

 

$

25,254

 

$

62,188

 

$

16,908

 

 

$

14,476

 

$

5,707

 

$

17,656

 

$

52,448

 

$

11,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP expense as a percentage of revenue

 

13.7

%

 

5.3

%

 

22.2

%

 

49.3

%

 

14.9

%

 

 

13.8

%

 

5.9

%

 

20.9

%

 

54.0

%

 

14.1

%

Non-GAAP expense as a percentage of revenue

 

12.8

%

 

4.9

%

 

17.5

%

 

43.2

%

 

11.7

%

 

 

13.6

%

 

5.4

%

 

16.6

%

 

49.2

%

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2018

 

 

2017

 

 

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

$

69,718

 

$

30,639

 

$

117,603

 

$

267,444

 

$

75,834

 

 

$

51,563

 

$

24,166

 

$

70,373

 

$

212,859

 

$

56,787

 

Stock -based compensation

 

(1,476

)

 

(2,924

)

 

(23,328

)

 

(31,099

)

 

(17,434

)

 

 

(658

)

 

(2,327

)

 

(12,816

)

 

(19,016

)

 

(12,500

)

Amortization of acquired intangible assets

 

(1,394

)

 

 

 

 

 

 

 

 

 

 

(96

)

 

 

 

 

 

(7

)

 

 

Acquisition related expenses

 

 

 

 

 

(2,696

)

 

 

 

 

 

 

 

 

 

 

(1,266

)

 

 

 

 

Non-GAAP expense

$

66,848

 

$

27,715

 

$

91,579

 

$

236,345

 

$

58,400

 

 

$

50,809

 

$

21,839

 

$

56,291

 

$

193,836

 

$

44,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP expense as a percentage of revenue

 

13.6

%

 

6.0

%

 

22.9

%

 

52.1

%

 

14.8

%

 

 

13.7

%

 

6.4

%

 

18.7

%

 

56.7

%

 

15.1

%

Non-GAAP expense as a percentage of revenue

 

13.0

%

 

5.4

%

 

17.9

%

 

46.1

%

 

11.4

%

 

 

13.5

%

 

5.8

%

 

15.0

%

 

51.6

%

 

11.8

%

 

 

Reconciliation of non-GAAP subscription margin

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

Year ended December 31,

 

 

 

2018

 

2017

 

 

2018

 

2017

 

GAAP subscription margin

 

$

117,062

 

$

86,968

 

 

$

417,732

 

$

305,164

 

Stock -based compensation

 

 

491

 

 

203

 

 

 

1,476

 

 

658

 

Amortization of acquired intangible assets

 

 

800

 

 

50

 

 

 

1,394

 

 

96

 

Non-GAAP subscription margin

 

$

118,353

 

$

87,221

 

 

$

420,602

 

$

305,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP subscription margin percentage

 

 

85.6

%

 

85.5

%

 

 

85.7

%

 

85.5

%

Non-GAAP subscription margin percentage

 

 

86.5

%

 

85.8

%

 

 

86.3

%

 

85.8

%

 

Reconciliation of free cash flow

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

Year ended December 31,

 

 

 

2018

 

2017

 

 

2018

 

2017

 

GAAP net cash and cash equivalents provided by operating activities

 

$

33,111

 

$

13,994

 

 

$

84,851

 

$

49,614

 

Purchases of property and equipment

 

 

(5,617

)

 

(5,187

)

 

 

(22,305

)

 

(20,276

)

Capitalization of software development costs

 

 

(2,442

)

 

(1,765

)

 

 

(11,168

)

 

(7,071

)

Free cash flow

 

$

25,052

 

$

7,042

 

 

$

51,378

 

$

22,267

 

 

 

Reconciliation of forecasted non-GAAP operating income

(in thousands, except percentages)

 

 

 

 

 

 

 

 

Three Months Ended March, 31 2019

 

 

Year Ended

December 31, 2019

 

GAAP operating income range

($12,030)-($11,030)

 

 

($61,230)-($57,230)

 

Stock-based compensation

 

20,700

 

 

 

104,000

 

Amortization of acquired intangible assets

 

800

 

 

 

3,100

 

Acquisition related expenses

 

30

 

 

 

130

 

Non-GAAP operating income range

$9,500-$10,500

 

 

$46,000-$50,000

 

 

Reconciliation of forecasted non-GAAP net income and non-GAAP net income per share

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

Year Ended

December 31, 2019

 

GAAP net loss range

($16,730)-($15,730)

 

 

($79,930-75,930)

 

Stock-based compensation

 

20,700

 

 

 

104,000

 

Amortization of acquired intangible assets

 

800

 

 

 

3,100

 

Acquisition related expenses

 

30

 

 

 

130

 

Non-cash interest expense for amortization of debt discount and debt issuance costs

 

5,300

 

 

 

21,800

 

Income tax effects of  non-GAAP items

$

 

 

$

 

Non-GAAP net income range

$10,100-$11,100

 

 

$49,100-$53,100

 

 

 

 

 

 

 

 

 

GAAP net income per basic and diluted share

($0.42)-($0.40)

 

 

($1.98)-($1.88)

 

Non-GAAP net income per diluted share

$0.23-$0.25

 

 

$1.08-$1.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

39,600

 

 

 

40,300

 

 

 

 

 

 

 

 

 

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

 

44,400

 

 

 

45,600

 

 

 

 

 

 

 

 

  

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, 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:      

  1. 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.
  2. 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.
  3. 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.
  4. 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. 
  5. 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.
  6. 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.
  7. 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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