HubSpot Reports Q2 2017 Results
CAMBRIDGE, Mass., Aug. 2, 2017 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the second quarter ended June 30, 2017.
Financial Highlights:
Revenue
-- Total revenue was $89.1 million, up 37% compared to the second quarter
of 2016.
-- Subscription revenue was $84.4 million, up 38% compared to the second
quarter of 2016.
-- Professional services and other revenue was $4.7 million, up 17%
compared to the second quarter of 2016.
Operating Income (Loss)
-- GAAP operating margin was (11.9%) for the quarter, compared to (17.0%)
in the second quarter of 2016.
-- Non-GAAP operating margin was 2.7% for the quarter, an improvement of
approximately 7 percentage points from (3.9%) in the second quarter of
2016.
-- GAAP operating loss was ($10.6) million for the quarter, compared to
($11.0) million in the second quarter of 2016.
-- Non-GAAP operating income was $2.4 million for the quarter, compared to
a loss of ($2.5) million in the second quarter of 2016. Non-GAAP
operating income (loss) excludes stock-based compensation expense and
amortization of acquired intangibles.
Net Income (Loss)
-- GAAP net loss was ($9.5) million, or ($0.26) per basic and diluted share
for the quarter, compared to ($11.1) million, or ($0.32) per basic and
diluted share, in the second quarter of 2016.
-- Non-GAAP net income was $2.6 million, or $0.07 per basic and diluted
share for the quarter, compared to net loss of ($2.6) million, or
($0.07) per basic and diluted share, in the second quarter of 2016.
Non-GAAP net income per share excludes stock-based compensation expense,
amortization of acquired intangibles, non-cash interest expense for
amortization of debt discount and debt issuance costs, and the deferred
income tax benefit from convertible notes.
-- Second quarter weighted average basic and diluted shares outstanding for
GAAP net loss per share was 36.7 million, compared to 35.0 million basic
and diluted shares in the second quarter of 2016.
-- Second quarter weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 36.7 million and 39.2 million,
respectively, compared to 35.0 million weighted average basic and
diluted shares in the second quarter of 2016.
Balance Sheet and Cash Flow
-- The Company finalized a $400 million convertible bond offering. The net
proceeds from this offering were approximately $389.2 million. The
Company used approximately $20 million of the net proceeds to pay the
costs associated with a note hedge transaction (after such cost were
partially offset by the proceeds by a warrant transaction). The Company
intends to use the remainder of the net proceeds for general corporate
purposes.
-- The company's cash, cash equivalents and investments balance was $534.3
million as of June 30, 2017.
-- During the second quarter, the company generated $1.8 million of free
cash flow compared to $2.9 million during the second quarter of 2016.
Additional Recent Business Highlights
-- Grew total customers to 34,326 at June 30, 2017, up over 40% from June
30, 2016.
-- Total average subscription revenue per customer was $10,228 during
the second quarter of 2017.
-- Grew marketing customers to 26,560 at June 30, 2017, up 30% from June
30, 2016.
-- Increased marketing average subscription revenue per customer during
the second quarter of 2017 to $12,773 from $11,978 in the second
quarter of 2016.
"Q2 was great quarter for HubSpot and we are pleased with our results," said Brian Halligan, co-founder and CEO. "We continue to see the strong growth from our marketing and sales products, in-particular with our growth stack customers who have adopted both products. We have a significant opportunity to continue increasing the value that we bring to both established and new customers as we work with them to better coordinate their marketing and sales functions to drive growth."
Business Outlook
Based on information available as of August 2, 2017, HubSpot is issuing guidance for the third quarter of 2017 and raising guidance for full year 2017 as indicated below.
Third Quarter 2017:
-- Total revenue is expected to be in the range of $92.8 million to $93.8
million.
-- Non-GAAP operating loss is expected to be between a loss of ($4.5)
million to ($3.5) million. This excludes stock-based compensation
expense of approximately $10.9 million.
-- Non-GAAP net loss per common share is expected to be between a loss of
($0.10) to ($0.08). This excludes stock-based compensation expense of
approximately $10.9 million, non-cash interest expense for the
amortization of debt discount and debt issuance costs of approximately
$4.8 million, and the deferred income tax benefit from convertible notes
of approximately $3.4 million. This assumes approximately 37.1 million
weighted average basic and diluted shares outstanding.
Full Year 2017:
-- Total revenue is expected to be in the range of $362.8 million to $364.8
million, up from our previously guided range of $355.5 million to $359.5
million dollars.
-- Non-GAAP operating income is expected to in be in the range of breakeven
to $2.0 million, up from our previously guided range of a loss of ($5.0)
million to ($3.0) million. This excludes stock-based compensation
expense of approximately $44.4 million, and amortization of acquired
intangible assets of approximately $16 thousand.
-- Non-GAAP net income per common share is expected to be in the range of
$0.03 to $0.07, up from our previously guided range of a loss of ($0.10)
to ($0.04). This excludes stock-based compensation expense of
approximately $44.4 million, amortization of acquired intangible assets
of approximately $16 thousand, non-cash interest expense for the
amortization of debt discount and debt issuance costs of approximately
$12.4 million, and the deferred income tax benefit from convertible
notes of approximately $9.4 million. This assumes approximately 39.6
million weighted average diluted shares outstanding.
Conference Call Information
HubSpot will host a conference call on Wednesday, Aug 2, 2017, at 4:30 p.m. Eastern Time (ET) to discuss its second quarter 2017 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 53211676. 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 Aug 9, 2017 at (800) 585-8367 (domestic) or (416) 621-4642 (international). The replay pass code is 53211676. 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 34,000 total 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 income (loss), operating margin, subscription margin, expense, expense as a percentage of revenue, net income (loss), and free cash flow for the three and six months ended June 30, 2017 and 2016. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."
Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the third fiscal quarter of 2017 and full year 2017, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on May 2, 2017 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,
2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $175,622 $59,702
Short-term investments 316,798 54,648
Accounts receivable - net of allowance for doubtful accounts of $650 and $617 38,466 38,984
at June 30, 2017 and December 31, 2016, respectively
Deferred commission expense 11,149 9,025
Restricted cash - 162
Prepaid hosting costs 1,521 5,299
Prepaid expenses and other current assets 20,224 8,433
------ -----
Total current assets 563,780 176,253
Long-term investments 41,895 35,718
Property and equipment, net 37,618 30,201
Capitalized software development costs, net 7,774 6,523
Restricted cash 5,100 321
Other assets 1,579 966
Goodwill 9,773 9,773
----- -----
Total assets $667,519 $259,755
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $2,865 $4,350
Accrued compensation costs 12,668 11,415
Other accrued expenses 27,354 15,237
Capital lease obligations 780 796
Deferred rent 157 159
Deferred revenue 109,919 95,426
------- ------
Total current liabilities 153,743 127,383
Capital lease obligations, net of current portion 319 275
Deferred rent, net of current portion 16,780 10,079
Deferred revenue, net of current portion 1,394 1,171
Asset retirement obligations 872 591
Other long-term liabilities 1,944 1,556
Convertible senior notes 288,764 -
------- ---
Total liabilities 463,816 141,055
------- -------
Stockholders' equity:
Common stock 36 36
Additional paid-in capital 467,897 365,444
Accumulated other comprehensive loss (266) (864)
Accumulated deficit (263,964) (245,916)
-------- --------
Total stockholders' equity 203,703 118,700
------- -------
Total liabilities and stockholders' equity $667,519 $259,755
======== ========
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended June
30, For the Six Months Ended June 30,
-------------------------------- ---------------------------------
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Subscription $84,363 $60,916 $161,866 $115,852
Professional services and other 4,730 4,058 9,479 8,082
----- ----- ----- -----
Total revenue 89,093 64,974 171,345 123,934
------ ------ ------- -------
Cost of revenues:
Subscription 12,492 9,985 23,901 18,895
Professional services and other 6,099 5,210 11,762 10,271
----- ----- ------ ------
Total cost of revenues 18,591 15,195 35,663 29,166
------ ------ ------ ------
Gross profit 70,502 49,779 135,682 94,768
------ ------ ------- ------
Operating expenses:
Research and development 15,889 11,278 29,259 21,082
Sales and marketing 50,708 39,140 97,380 74,338
General and administrative 14,482 10,391 27,620 20,239
------ ------ ------ ------
Total operating expenses 81,079 60,809 154,259 115,659
------ ------ ------- -------
Loss from operations (10,577) (11,030) (18,577) (20,891)
------- ------- ------- -------
Other expense:
Interest income 734 201 1,037 380
Interest expense (2,832) (93) (2,884) (180)
Other expense (97) (202) (225) (535)
--- ---- ---- ----
Total other expense (2,195) (94) (2,072) (335)
------ --- ------ ----
Loss before income tax benefit (12,772) (11,124) (20,649) (21,226)
Income tax benefit 3,251 60 3,053 8
----- --- ----- ---
Net loss $(9,521) $(11,064) $(17,596) $(21,218)
======= ======== ======== ========
Net loss per share, basic and
diluted $(0.26) $(0.32) $(0.48) $(0.61)
Weighted average common shares
used in computing basic 36,654 35,023 36,431 34,858
and diluted net loss per share:
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Operating Activities:
Net loss $(9,521) $(11,064) $(17,596) $(21,218)
Adjustments to reconcile net loss to net
cash and cash equivalents provide by
operating activities
Depreciation and amortization 3,648 3,022 6,977 5,223
Stock-based compensation 13,006 8,474 22,309 14,705
Benefit for deferred income taxes (3,517) (168) (3,544) (165)
Amortization of debt discount and issuance
costs 2,683 - 2,683 -
(Accretion) amortization of bond discount
premium (132) 190 (55) 411
Noncash rent expense 1,332 837 2,999 1,949
Unrealized currency translation (149) 188 (195) (63)
Changes in assets and liabilities, net of
acquisition
Accounts receivable (3,015) (732) 1,161 (385)
Prepaid expenses and other assets (8,979) (221) (7,918) (2,624)
Deferred commission expense (1,437) 296 (1,901) (3)
Accounts payable 923 1,106 (327) 302
Accrued expenses 6,047 3,091 6,969 1,937
Deferred rent 3,636 (11) 3,602 (34)
Deferred revenue 4,202 3,634 12,655 11,786
----- ----- ------ ------
Net cash and cash equivalents provided by
operating activities 8,727 8,642 27,819 11,821
----- ----- ------ ------
Investing Activities:
Purchases of investments (288,910) (12,142) (305,277) (21,111)
Maturities of investments 21,200 12,468 37,060 21,343
Purchases of property and equipment (5,237) (4,628) (11,072) (11,269)
Capitalization of software development costs (1,730) (1,078) (3,340) (2,512)
Purchases of strategic investments (600) - (600) -
Restricted cash (158) - (4,589) -
---- --- ------ ---
Net cash and cash equivalents used in
investing activities (275,435) (5,380) (287,818) (13,549)
-------- ------ -------- -------
Financing Activities:
Employee taxes paid related to the net share
settlement of stock-based awards (944) (384) (2,097) (1,342)
Proceeds related to the issuance of common
stock under stock plans 3,145 3,176 7,485 6,168
Repayments of capital lease obligations (278) (177) (518) (319)
Proceeds of the issuance of convertible
notes, net of issuance costs paid of
$10,755 389,245 - 389,245 -
Purchase of note hedge related to
convertible notes (78,920) - (78,920) -
Proceeds from the issuance of warrants
related to convertible notes, net of
issuance costs paid of $200 58,880 - 58,880 -
------ --- ------ ---
Net cash and cash equivalents provided by
financing activities 371,128 2,615 374,075 4,507
------- ----- ------- -----
Effect of exchange rate changes on cash and
cash equivalents 1,416 (235) 1,844 302
----- ---- ----- ---
Net increase in cash and cash equivalents 105,836 5,642 115,920 3,081
Cash and cash equivalents, beginning of
period 69,786 53,019 59,702 55,580
------ ------ ------ ------
Cash and cash equivalents, end of period $175,622 $58,661 $175,622 $58,661
======== ======= ======== =======
Reconciliation of non-GAAP operating income (loss) and operating margin
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands,
except
percentages)
GAAP operating loss $(10,577) $(11,030) $(18,577) $(20,891)
Stock-based
compensation 13,006 8,475 22,309 14,705
Amortization of
acquired
intangible assets - 20 16 44
--- --- --- ---
Non-GAAP operating
income (loss) $2,429 $(2,535) $3,748 $(6,142)
====== ======= ====== =======
GAAP operating
margin (11.9%) (17.0%) (10.8%) (16.9%)
Non-GAAP operating
margin 2.7% (3.9%) 2.2% (5.0%)
Reconciliation of non-GAAP net
income (loss) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except per share
amounts)
GAAP net loss $(9,521) $(11,064) $(17,596) $(21,218)
Stock-based compensation 13,006 8,475 22,309 14,705
Amortization of acquired
intangibles - 20 16 44
Amortization of debt discount and
debt issuance costs 2,683 - 2,683 -
Deferred income tax benefit from
convertible notes (3,541) - (3,541) -
------ --- ------ ---
Non-GAAP net income (loss) $2,627 $(2,569) $3,871 $(6,469)
====== ======= ====== =======
Non-GAAP net income (loss) per
share:
Basic $0.07 $(0.07) $0.11 $(0.19)
Diluted $0.07 $(0.07) $0.10 $(0.19)
Shares used in non-GAAP per
share calculations
Basic 36,654 35,023 36,431 34,858
Diluted 39,170 35,023 38,680 34,858
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended June 30,
---------------------------
2017 2016
---- ----
COS, COS, R&D S&M G&A COS,
Subscription Subscription COS, R&D S&M G&A
Prof.
services &
other Prof.
services
& other
GAAP expense $12,492 $6,099 $15,889 $50,708 $14,482 $9,985 $5,210 $11,278 $39,140 $10,391
Stock -based
compensation (178) (666) (3,461) (5,113) (3,588) (131) (477) (2,272) (3,469) (2,126)
Amortization of
acquired
intangibles - - - - - (13) - - (7) -
--- --- --- --- --- --- --- --- --- ---
Non-GAAP expense $12,314 $5,433 $12,428 $45,595 $10,894 $9,841 $4,733 $9,006 $35,664 $8,265
======= ====== ======= ======= ======= ====== ====== ====== ======= ======
GAAP expense as a
percentage of
revenue 14.0% 6.8% 17.8% 56.9% 16.3% 15.4% 8.0% 17.4% 60.2% 16.0%
Non-GAAP expense
as a percentage of
revenue 13.8% 6.1% 13.9% 51.2% 12.2% 15.1% 7.3% 13.9% 54.9% 12.7%
Six Months Ended June 30,
-------------------------
2017 2016
---- ----
COS, COS, R&D S&M G&A COS,
Subscription Subscription COS, R&D S&M G&A
Prof.
services Prof.
& other services
& other
GAAP expense $23,901 $11,762 $29,259 $97,380 $27,620 $18,895 $10,271 $21,082 $74,338 $20,239
Stock -based
compensation (293) (1,115) (5,903) (8,874) (6,124) (224) (800) (4,030) (5,895) (3,756)
Amortization of
acquired
intangibles (9) - - (7) - (31) - - (13) -
--- --- --- --- --- --- --- --- --- ---
Non-GAAP expense $23,599 $10,647 $23,356 $88,499 $21,496 ` $18,640 $9,471 $17,052 $68,430 $16,483
======= ======= ======= ======= ======= ======= ====== ======= ======= =======
GAAP expense as a
percentage of
revenue 13.9% 6.9% 17.1% 56.8% 16.1% 15.2% 8.3% 17.0% 60.0% 16.3%
Non-GAAP expense
as a percentage of
revenue 13.8% 6.2% 13.6% 51.6% 12.5% 15.0% 7.6% 13.8% 55.2% 13.3%
Reconciliation of non-GAAP subscription margin
(in thousands, except percentages)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP subscription
margin $71,871 $50,931 $137,965 $96,957
Stock -based
compensation 178 131 293 224
Amortization of
acquired
intangible assets - 13 9 31
--- --- --- ---
Non-GAAP
subscription
margin $72,049 $51,075 $138,267 $97,212
======= ======= ======== =======
GAAP subscription
margin percentage 85.2% 83.6% 85.2% 83.7%
Non-GAAP
subscription
margin percentage 85.4% 83.8% 85.4% 83.9%
Reconciliation of free cash flow
(in thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP net cash and
cash equivalents
provided by
operating
activities $8,727 $8,642 $27,819 $11,821
Purchases of
property and
equipment (5,237) (4,628) (11,072) (11,269)
Capitalization of
software
development costs (1,730) (1,078) (3,340) (2,512)
------ ------ ------ ------
Non-GAAP free
cash flow $1,760 $2,936 $13,407 $(1,960)
====== ====== ======= =======
Non-GAAP Financial Measures
In this release, HubSpot's non-GAAP operating income (loss), operating margin, subscription margin, expense, expense as a percentage of revenue, net income (loss), 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 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, amortization of acquired intangible assets, non-cash interest expense for the amortization of debt discount and debt issuance costs, and the deferred income tax benefit from convertible notes. 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) 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.
(d) 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.
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SOURCE HubSpot, Inc.
