HubSpot Reports Strong Q3 2015 Results

Published on November 4, 2015

Subscription Revenue Growth Continues to Accelerate, Full-Year 2015 Guidance Raised

CAMBRIDGE, Mass., Nov. 4, 2015 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the third quarter ended September 30, 2015.

Financial Highlights:

Revenue

Total revenue was $47.7 million, up 57% compared to the third quarter of 2014.
Subscription revenue was $44.1 million, up 59% compared to the third quarter of 2014.
Professional services and other revenue was $3.6 million, up 37% compared to the third quarter of 2014.

Operating Loss

GAAP operating margin was (27.9%) for the quarter, compared to (36.0%) in the third quarter of 2014.
Non-GAAP operating margin was (18.3%) for the quarter, an improvement of approximately 13.5 percentage points from (31.8%) in the third quarter of 2014.
GAAP operating loss was ($13.3) million for the quarter, compared to ($11.0) million in the third quarter of 2014.
Non-GAAP operating loss was ($8.8) million for the quarter, compared to ($9.7) million in the third quarter of 2014.

Net Loss attributable to common stockholders

GAAP net loss attributable to common stockholders was ($13.6) million, or ($0.40) per share for the quarter, compared to ($10.8) million, or ($1.84) per share, in the third quarter of 2014.
Non-GAAP net loss attributable to common stockholders was ($9.0) million, or ($0.27) per share for the quarter, compared to ($9.5) million, or ($1.62) per share, in the third quarter of 2014.
Third quarter weighted average common shares outstanding were 33.8 million compared to 5.9 million shares in the third quarter of 2014.

Balance Sheet and Cash Flow

The company's cash, cash equivalents and investments balance was $148 million as of September 30, 2015.
During the third quarter, the company used ($3.8) million of operating cash flow compared to using ($5.8) million of operating cash flow during the third quarter of 2014.

Additional Recent Business Highlights

Grew total customers to 16,854 at September 30, 2015, up 35% from September 30, 2014.
Increased average subscription revenue per customer during the third quarter of 2015 to $10,607 from $9,183 in the third quarter of 2014.
Completed the company's highly successful annual conference, INBOUND, with more than 14,000 registered attendees. Registered attendance increased approximately 40% compared to last year's conference and made it the largest ever event focused on inbound marketing and sales professionals.
Announced product updates including a Reporting Add-on for marketing and sales product users; an Ads Add-on in partnership with Google and LinkedIn; predictive lead scoring within the marketing product; and improvements to HubSpot Website, HubSpot CRM and Sidekick for Business.
HubSpot also announced HubSpot Connect, a collection of HubSpot integrations that helps bring together data from across key front office systems into one integrated platform, and officially launched Leadin, a tool that individuals and companies can use to better understand their website visitors and leads.

"Q3 was yet another strong quarter for HubSpot and we're thrilled by the results," said Brian Halligan, Chairman and CEO. "We maintained our momentum with strong revenue growth and improved margins – an indicator that our mission to help companies reach their customers in effective and meaningful ways is truly resonating. We're excited that HubSpot has become the engine that helps our customers achieve their business goals."

Business Outlook

Based on information available as of November 4, 2015, HubSpot is issuing guidance for the fourth quarter of 2015 and raising guidance for full year 2015 as indicated below.

Fourth Quarter 2015:

Total revenue is expected to be in the range of $49.7 million to $50.7 million.
Non-GAAP operating loss is expected to in the range of ($6.4) million to ($5.4) million. This excludes stock-based compensation expense of approximately $5.6 million and amortization of acquired intangible assets of approximately $26 thousand.
Non-GAAP net loss per common share is expected to be in the range of ($0.19) to ($0.17). This excludes stock-based compensation expense of approximately $5.6 million and amortization of acquired intangible assets of approximately $26 thousand. This assumes approximately 34.2 million weighted common shares outstanding.

Full Year 2015:

Total revenue is expected to be in the range of $178.5 million to $179.5 million.
Non-GAAP operating loss is expected to in be in the range of ($27.0) million to ($26.0) million. This excludes stock-based compensation expense of approximately $20.9 million and amortization of acquired intangible assets of approximately $96 thousand.
Non-GAAP net loss per common share is expected to be in the range of ($0.80) to ($0.78). This excludes stock-based compensation expense of approximately $20.9 million and amortization of acquired intangible assets of approximately $96 thousand. This assumes approximately 33.3 million weighted common shares outstanding.

Conference Call Information

HubSpot will host a conference call on Wednesday, November 4, 2015, at 5:00 p.m. Eastern Time (ET) to discuss its third quarter 2015 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 46343380. Additionally, a live webcast of the conference call will be available in the "Investor" section of the HubSpot's web site at www.hubspot.com.

Following the conference call, a replay will be available until 11 pm on November 11, 2015 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 46343380. An archived webcast of this conference call will also be available in the "Investor" section of HubSpot's web site at www.hubspot.com. The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

About HubSpot

HubSpot is a leading inbound marketing and sales platform. Over 16,800 customers in over 90 countries use HubSpot's award-winning software, services, and support to create an inbound experience that will attract, engage, and delight customers. Learn more at www.hubspot.com.

The tables at the end of this press release include a reconciliation of generally accepted accounting principles ("GAAP") to non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss attributable to common stockholders for the third quarter ended September 30, 2015 and 2014. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Cautionary Language Concerning Forward-Looking Statements

This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the fourth fiscal quarter of 2015 and full year 2015, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 7, 2015 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

Consolidated Balance Sheets
(in thousands)

	September 30,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	58,809	$	123,721
Short-term investments		45,697		—
Accounts receivable — net of allowance for doubtful accounts of $277 and $218 at September 30, 2015 and December 31, 2014, respectively		19,769		14,270
Deferred commission expense		6,644		5,995
Restricted cash		213		230
Prepaid hosting costs		1,593		1,777
Prepaid expenses and other current assets		4,598		3,516
Total current assets		137,323		149,509
Long-term investments		43,498		—
Property and equipment, net		11,840		11,381
Capitalized software development costs, net		4,468		4,433
Restricted cash		347		—
Other assets		462		116
Intangible assets, net		126		89
Goodwill		9,773		9,330
Total assets		207,837		174,858
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		2,577		2,800
Accrued compensation costs		8,421		7,660
Other accrued expenses		12,208		7,953
Capital lease obligations		397		100
Deferred rent		87		110
Deferred revenue		54,390		40,805
Total current liabilities		78,080		59,428
Capital lease obligations, net of current portion		216		78
Deferred rent, net of current portion		4,759		4,153
Deferred revenue, net of current portion		608		500
Total liabilities		83,663		64,159
Commitments and contingencies
Stockholders' equity:
Common stock		34		32
Additional paid-in capital		314,787		265,113
Accumulated other comprehensive loss		(544)		(145)
Accumulated deficit		(190,103)		(154,301)
Total stockholders' equity		124,174		110,699
Total liabilities and stockholders' equity	$	207,837	$	174,858

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
Revenues:
Subscription	$	44,091	$	27,806	$	118,303	$	74,994
Professional services and other		3,620		2,642		10,514		6,726
Total revenue		47,711		30,448		128,817		81,720
Cost of Revenues:
Subscription		8,470		6,236		22,894		17,000
Professional services and other		4,008		2,969		11,322		8,149
Total cost of revenues		12,478		9,205		34,216		25,149
Gross profit		35,233		21,243		94,601		56,571
Operating expenses:
Research and development		8,128		4,858		23,787		14,498
Sales and marketing		30,868		21,680		81,057		54,700
General and administrative		9,527		5,662		25,782		16,030
Total operating expenses		48,523		32,200		130,626		85,228
Loss from operations		(13,290)		(10,957)		(36,025)		(28,657)
Other (expense) income:
Interest income		131		-		241		4
Interest expense		(31)		(138)		(140)		(259)
Other (expense) income		(186)		302		387		379
Total other (expense) income		(86)		164		488		124
Loss before provision for income taxes		(13,376)		(10,793)		(35,537)		(28,533)
Provision for income taxes		(176)		—		(265)		—
Net loss		(13,552)		(10,793)		(35,802)		(28,533)
Preferred stock accretion		—		(13)		—		(40)
Net loss attributable to common stockholders	$	(13,552)	$	(10,806)	$	(35,802)	$	(28,573)
Net loss attributable to common stockholders per share, basic and diluted	$	(0.40)	$	(1.84)	$	(1.09)	$	(5.00)
Weighted average common shares used in computing basic and diluted net loss attributable to common stockholders per share:		33,819		5,874		32,901		5,715

Consolidated Statements of Cash Flows
(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Operating Activities:
Net loss	$	(13,552)	$	(10,793)	$	(35,802)	$	(28,533)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities
Depreciation and amortization		1,946		1,777		5,511		4,824
Stock-based compensation		4,510		1,266		15,293		3,514
Provision for deferred income taxes		19		—		45		—
Provision for doubtful accounts		463		194		917		452
Amortization of bond premium discount		246		—		438		—
Noncash rent expense		19		30		211		236
Unrealized currency translation		50		(238)		(239)		(238)
Changes in assets and liabilities
Accounts receivable		(4,061)		(1,531)		(6,633)		(3,864)
Prepaid expenses and other assets		2,075		349		(1,277)		146
Deferred commission expense		(635)		(256)		(649)		(846)
Accounts payable		226		(388)		(84)		(328)
Accrued expenses		(9)		960		4,533		2,192
Restricted cash		—		—		—		157
Deferred rent		114		193		379		1,427
Deferred revenue		4,763		2,619		14,294		10,149
Net cash and cash equivalents used in operating activities		(3,826)		(5,818)		(3,063)		(10,712)
Investing Activities:
Purchases of investments		(15,586)		—		(93,869)		—
Maturities of investments		4,000		—		4,000		—
Purchases of property and equipment		(999)		(968)		(2,182)		(5,892)
Capitalization of software development costs		(1,333)		(1,558)		(3,125)		(3,930)
Acquisition of a business		—		—		(600)		—
Acquisition of intangible assets		—		—		—		(80)
Restricted cash		(388)		—		(388)		1,500
Net cash and cash equivalents used in investing activities		(14,306)		(2,526)		(96,164)		(8,402)
Financing Activities:
Secondary offering proceeds, net of offering costs paid of $583		—		—		33,669		—
Payment of offering costs		(10)		(483)		—		(1,990)
Proceeds from draw-down on line of credit		—		13,000		—		18,000
Employee taxes paid related to the net share settlement of stock-based awards		(365)		—		(8,217)		—
Proceeds related to issuance of common stock under stock plans		3,067		1,012		9,256		3,051
Repayments of capital lease obligations		(58)		(22)		(107)		(97)
Net cash and cash equivalents provided by financing activities		2,634		13,507		34,601		18,964
Effect of exchange rate changes on cash and cash equivalents		72		(86)		(286)		(114)
Net decrease in cash and cash equivalents		(15,426)		5,077		(64,912)		(264)
Cash and cash equivalents, beginning of period		74,235		7,302		123,721		12,643
Cash and cash equivalents, end of period	$	58,809	$	12,379	$	58,809	$	12,379

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

GAAP operating loss	$	(13,290)	$	(10,957)	$	(36,025)	$	(28,657)
Stock-based compensation		4,510		1,266		15,293		3,514
Amortization of acquired intangible assets		26		13		70		125
Non-GAAP operating loss	$	(8,754)	$	(9,678)	$	(20,662)	$	(25,018)

GAAP operating margin		(27.9%)		(36.0%)		(28.0%)		(35.1%)
Non-GAAP operating margin		(18.3%)		(31.8%)		(16.0%)		(30.6%)

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

GAAP net loss attributable to common stockholders	$	(13,552)	$	(10,806)	$	(35,802)	$	(28,573)
Stock-based compensation		4,510		1,266		15,293		3,514
Amortization of acquired intangibles		26		13		70		125
Non-GAAP net loss attributable to common stockholders	$	(9,016)	$	(9,527)	$	(20,439)	$	(24,934)

Non-GAAP net loss attributable to common stockholders per share, basic and diluted	$	(0.27)	$	(1.62)	$	(0.62)	$	(4.36)
Weighted average common shares used in computing basic and diluted GAAP and non-GAAP net loss per common share:		33,819		5,874		32,901		5,715

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

	Three Months Ended September 30,
	2015											2014
	COS, Subscription		COS, Prof. services & other		R&D		S&M		G&A			COS, Subscription		COS, Prof. services & other		R&D		S&M		G&A
GAAP expense	$	8,470	$	4,008	$	8,128	$	30,868	$	9,527		$	6,236	$	2,969	$	4,858	$	21,680	$	5,662
Stock -based compensation		(89)		(315)		(1,568)		(1,078)		(1,460)			(24)		(84)		(140)		(560)		(458)
Amortization of acquired intangibles		(20)		-		-		(6)		-			(6)		-		-		(7)		-
Non-GAAP expense	$	8,361	$	3,693	$	6,560	$	29,784	$	8,067		$	6,206	$	2,885	$	4,718	$	21,113	$	5,204

GAAP expense as a percentage of revenue		17.8%		8.4%		17.0%		64.7%		20.0%			20.5%		9.8%		16.0%		71.2%		18.6%
Non-GAAP expense as a percentage of revenue		17.5%		7.7%		13.7%		62.4%		16.9%			20.4%		9.5%		15.5%		69.3%		17.1%



	Nine Months Ended September 30,
	2015											2014
	COS, Subscription		COS, Prof. services & other		R&D		S&M		G&A			COS, Subscription		COS, Prof. services & other		R&D		S&M		G&A
GAAP expense	$	22,894	$	11,322	$	23,787	$	81,057	$	25,782		$	17,000	$	8,149	$	14,498	$	54,700	$	16,030
Stock -based compensation		(249)		(851)		(4,830)		(5,278)		(4,085)			(64)		(236)		(435)		(1,447)		(1,332)
Amortization of acquired intangibles		(50)		-		-		(20)		-			(112)		-		-		(13)		-
Non-GAAP expense	$	22,595	$	10,471	$	18,957	$	75,759	$	21,697	`	$	16,824	$	7,913	$	14,063	$	53,240	$	14,698

GAAP expense as a percentage of revenue		17.8%		8.8%		18.5%		62.9%		20.0%			20.8%		10.0%		17.7%		66.9%		19.6%
Non-GAAP expense as a percentage of revenue		17.5%		8.1%		14.7%		58.8%		16.8%			20.6%		9.7%		17.2%		65.1%		18.0%	%

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014

GAAP subscription margin		35,621		21,570		95,409		57,994
Stock -based compensation		89		24		249		64
Amortization of acquired intangible assets		20		6		50		112
Non-GAAP subscription margin	$	35,730	$	21,600	$	95,708	$	58,170

GAAP subscription margin percentage		80.8%		77.6%		80.6%		77.3%
Non-GAAP subscription margin percentage		81.0%		77.7%		80.9%		77.6%

Non-GAAP Financial Measures

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

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

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

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

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

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SOURCE HubSpot, Inc.

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

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