HubSpot Reports Strong Q4 and Full Year 2017 Results
CAMBRIDGE, Mass., Feb. 13, 2018 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading CRM, marketing, sales and customer experience platform, today announced financial results for the fourth quarter and full year ended December 31, 2017. The company also announced today that John Kinzer, its Chief Financial Officer, will be leaving at the end of 2018. The Company has initiated a search for a new CFO, and Mr. Kinzer will work to ensure a smooth transition of his duties once a new CFO is appointed.
"On behalf of the entire HubSpot team, I want to thank John for his many contributions since joining the company in 2013. He was an instrumental part of our successful transition from a private to a public company and our success in scaling up our business," said Brian Halligan, HubSpot Co-founder and CEO. "We will miss him following his departure and wish him the best."
"My more than four years at HubSpot have been an amazing experience, working with a very talented group of people to help our customers grow better, and building a big business in the process," said Kinzer. "Heading into 2018 HubSpot has never been on stronger footing, and I look forward to ensuring a smooth transition in the coming months."
Financial Highlights:
Revenue
Fourth Quarter 2017:
-- Total revenue was $106.5 million, up 39% compared to the fourth quarter
of 2016.
-- Subscription revenue was $101.7 million, up 40% compared to the fourth
quarter of 2016.
-- Professional services and other revenue was $4.8 million, up 20%
compared to the fourth quarter of 2016.
Full Year 2017:
-- Total revenue was $375.6 million, up 39% compared to 2016.
-- Subscription revenue was $356.7 million, up 40% compared to 2016.
-- Professional services and other revenue was $18.9 million, up 17%
compared to 2016.
Operating Income (Loss)
Fourth Quarter 2017:
-- GAAP operating margin was (8.9%) for the quarter, compared to (18.1%) in
the fourth quarter of 2016.
-- Non-GAAP operating margin was 4.1% for the quarter, an improvement of
approximately 10 percentage points from (5.9%) in the fourth quarter of
2016.
-- GAAP operating loss was ($9.4) million for the quarter, compared to
($13.8) million in the fourth quarter of 2016.
-- Non-GAAP operating income was $4.3 million for the quarter, compared to
a loss of ($4.5) million in the fourth quarter of 2016. Non-GAAP
operating income (loss) excludes stock-based compensation expense,
amortization of acquired intangible assets, and acquisition related
expenses.
Full Year 2017:
-- GAAP operating margin was (10.7%) for 2017, compared to (16.5%) in 2016.
-- Non-GAAP operating margin was 2.3% for 2017, an improvement of
approximately 6.7 percentage points from (4.4%) in 2016.
-- GAAP operating loss was ($40.1) million for 2017, compared to ($44.7)
million in 2016.
-- Non-GAAP operating income was $8.6 million in 2017, compared to a loss
of ($11.9) million in 2016. Non-GAAP operating income (loss) excludes
stock-based compensation expense, amortization of acquired intangible
assets, and acquisition related expenses.
Net Income (Loss)
Fourth Quarter 2017:
-- GAAP net loss was ($11.5) million, or ($0.31) per basic and diluted
share for the quarter, compared to ($13.8) million, or ($0.39) per basic
and diluted share, in the fourth quarter of 2016.
-- Non-GAAP net income was $4.6 million, or $0.12 per basic and diluted
share for the quarter, compared to a net loss of ($4.5) million, or
($0.13) per basic and diluted share, in the fourth quarter of 2016.
Non-GAAP net income (loss) per share excludes stock-based compensation
expense, amortization of acquired intangible assets, acquisition related
expenses, non-cash interest expense for amortization of debt discount
and debt issuance costs, and the deferred income tax benefit from
convertible notes and business combination.
-- Fourth quarter weighted average basic and diluted shares outstanding for
GAAP net loss per share was 37.4 million, compared to 35.7 million basic
and diluted shares in the fourth quarter of 2016.
-- Fourth quarter weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 37.4 million and 40.0 million,
respectively, compared to 35.7 million weighted average basic and
diluted shares in the fourth quarter of 2016.
Full Year 2017:
-- GAAP net loss was ($39.7) million, or ($1.08) per basic and diluted
share for 2017, compared to ($45.6) million, or ($1.29) per basic and
diluted share, in 2016.
-- Non-GAAP net income was $9.8 million, or $0.27 per basic share and $0.25
per diluted share for 2017, compared to a net loss of ($12.8) million,
or ($0.36) per basic and diluted share, in 2016. Non-GAAP net income
(loss) per share excludes stock-based compensation expense, amortization
of acquired intangible assets, acquisition related expenses, non-cash
interest expense for amortization of debt discount and debt issuance
costs, and the deferred income tax benefit from convertible notes and
business combination.
-- 2017 weighted average basic and diluted shares outstanding for GAAP net
loss per share was 36.8 million, compared to 35.2 million basic and
diluted shares in 2016.
-- 2017 weighted average basic and diluted shares outstanding for non-GAAP
net income per share was 36.8 million and 38.8 million, respectively,
compared to 35.2 million weighted average basic and diluted in 2016.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $535.7
million as of December 31, 2017.
-- During the fourth quarter, the company generated $7.0 million of free
cash flow compared to using ($1.7) million of free cash flow during the
fourth quarter of 2016.
-- During the full year, the company generated $22.3 million of free cash
flow compared to using ($2.2) million during the full year 2016.
Additional Recent Business Highlights
-- Grew total customers to 41,593 at December 31, 2017, up 48% from
December 31, 2016.
-- Total average subscription revenue per customer was $10,255 during the
fourth quarter of 2017.
"2017 was another exciting year for HubSpot. We made great strides in building out our freemium model, found more ways to delight our customers and continued our evolution from a single product application company to a front office suite with the goal of becoming the growth platform for SMB's," said Halligan. "As we head into 2018, I think we have a clear set of plays in place that will set us up for continued success into the future."
Business Outlook
Based on information available as of February 13, 2018, HubSpot is issuing guidance for the first quarter and full year of 2018 as indicated below.
First Quarter 2018:
-- Total revenue is expected to be in the range of $109.2 million to $110.2
million.
-- Non-GAAP operating income is expected to be in the range of $4.0 million
to $5.0 million. This excludes stock-based compensation expense of
approximately $15.2 million, amortization of acquired intangible assets
of approximately $50 thousand, and acquisition related expenses of
approximately $800 thousand.
-- Non-GAAP net income per common share is expected to be in the range of
$0.10 to $0.12. This excludes stock-based compensation expense of
approximately $15.2 million, amortization of acquired intangible assets
of approximately $50 thousand, acquisition related expenses of
approximately $800 thousand, and non-cash interest expense for the
amortization of debt discount and debt issuance costs of approximately
$4.9 million. This assumes approximately 40.3 million weighted average
diluted shares outstanding.
Full Year 2018:
-- Total revenue is expected to be in the range of $481 million to $485
million.
-- Non-GAAP operating income is expected to in be in the range of $20.0
million to $24.0 million. This excludes stock-based compensation expense
of approximately $76.0 million, amortization of acquired intangible
assets of approximately $200 thousand, and acquisition related expenses
of approximately $2.7 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.51 to $0.59. This excludes stock-based compensation expense of
approximately $76.0 million, amortization of acquired intangible assets
of approximately $200 thousand, acquisition related expenses of
approximately $2.7 million, and non-cash interest expense for the
amortization of debt discount and debt issuance costs of approximately
$20.3 million. This assumes approximately 40.7 million weighted average
diluted shares outstanding.
HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets, and acquisition-related expenses 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.
Conference Call Information
HubSpot will host a conference call on Tuesday, February 13, 2018 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 (866) 393-4306 (domestic) or (734) 385-2616 (international). The conference ID is 9863059. 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 9863059. 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 CRM, marketing, sales, and customer experience platform. Over 41,500 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 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 months and year ended December 31, 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 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 2018; statements regarding the announced leadership transition; and statements regarding our ability to achieve continued success into the future. 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 and sales 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 1, 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)
December 31, December 31,
2017 2016
---- ----
Assets
Current assets:
Cash and cash
equivalents $87,680 $59,702
Short-term investments 416,663 54,648
Accounts receivable-
net of allowance for
doubtful accounts of
$638 60,676 38,984
and $617 at December
31, 2017 and 2016,
respectively
Deferred commission
expense 13,343 9,025
Restricted cash 4,757 162
Prepaid hosting costs 4,964 5,299
Prepaid expenses and
other current assets 14,418 8,433
------ -----
Total current assets 602,501 176,253
Long-term investments 31,394 35,718
Property and equipment,
net 43,294 30,201
Capitalized software
development costs, net 8,760 6,523
Restricted cash 347 321
Other assets 4,617 950
Intangible assets, net 6,312 16
Goodwill 14,950 9,773
------ -----
Total assets $712,175 $259,755
======== ========
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable $4,657 $4,350
Accrued compensation
costs 16,329 11,415
Other accrued expenses 20,430 16,192
Deferred revenue 136,880 95,426
------- ------
Total current
liabilities 178,296 127,383
Deferred rent, net of
current portion 18,868 10,079
Deferred revenue, net
of current portion 2,277 1,171
Other long-term
liabilities 3,927 2,422
Convertible senior
notes 298,447 -
------- ---
Total liabilities 501,815 141,055
------- -------
Stockholders' equity:
Common stock 38 36
Additional paid-in
capital 496,461 365,444
Accumulated other
comprehensive loss (57) (864)
Accumulated deficit (286,082) (245,916)
-------- --------
Total stockholders'
equity 210,360 118,700
------- -------
Total liabilities and
stockholders' equity $712,175 $259,755
======== ========
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Subscription $101,697 $72,418 $356,727 $254,775
Professional services and other 4,844 4,026 18,885 16,192
----- ----- ------ ------
Total revenue 106,541 76,444 375,612 270,967
------- ------ ------- -------
Cost of Revenues:
Subscription 14,729 11,632 51,563 41,182
Professional services and other 6,327 5,255 24,166 20,683
----- ----- ------ ------
Total cost of revenues 21,056 16,887 75,729 61,865
------ ------ ------ ------
Gross profit 85,485 59,557 299,883 209,102
------ ------ ------- -------
Operating expenses:
Research and development 22,286 12,815 70,373 45,997
Sales and marketing 57,575 47,116 212,859 162,647
General and administrative 15,057 13,446 56,787 45,120
------ ------ ------ ------
Total operating expenses 94,918 73,377 340,019 253,764
------ ------ ------- -------
Loss from operations (9,433) (13,820) (40,136) (44,662)
------ ------- ------- -------
Other (expense) income:
Interest income 1,526 262 3,837 854
Interest expense (5,234) - (13,181) (265)
Other expense (308) (56) (559) (956)
---- --- ---- ----
Total other (expense) income (4,016) 206 (9,903) (367)
------ --- ------ ----
Loss before income tax benefit
(expense) (13,449) (13,614) (50,039) (45,029)
Income tax benefit (expense) 1,914 (215) 10,325 (533)
----- ---- ------ ----
Net loss $(11,535) $(13,829) $(39,714) $(45,562)
======== ======== ======== ========
Net loss per share, basic and
diluted $(0.31) $(0.39) $(1.08) $(1.29)
Weighted average common shares
used in 37,385 35,672 36,827 35,197
computing basic and diluted net
loss per share:
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
Operating Activities:
Net loss $(11,535) $(13,829) $(39,714) $(45,562)
Adjustments to reconcile net loss to net cash
and cash
equivalents provided by operating activities
Depreciation and amortization 4,663 3,185 15,786 11,177
Stock-based compensation 12,898 9,274 47,317 32,675
Deferred income tax (benefit) expense (2,421) 32 (11,546) (133)
Amortization of debt discount and issuance
costs 4,884 - 12,366 -
(Accretion) amortization of bond discount
premium (829) 100 (1,576) 647
Non-cash rent expense 696 1,275 5,039 3,968
Unrealized currency translation 209 227 (139) 81
Changes in assets and liabilities
Accounts receivable (11,670) (8,959) (20,180) (14,099)
Prepaid expenses and other assets (225) (2,740) (5,588) (6,126)
Deferred commission expense (1,993) (373) (4,004) (453)
Accounts payable (456) 250 1,100 983
Accrued expenses 1,357 267 8,195 4,004
Deferred rent (22) (32) 3,559 (107)
Deferred revenue 18,438 13,596 38,999 32,311
------ ------ ------ ------
Net cash and cash equivalents provided by
operating 13,994 2,273 49,614 19,366
activities
Investing Activities:
Purchases of investments (317,373) (7,808) (890,009) (52,131)
Maturities and sales of investments 220,600 7,452 533,660 50,840
Purchases of property and equipment (5,187) (2,439) (20,276) (15,789)
Capitalization of software development costs (1,765) (1,576) (7,071) (5,749)
Acquisition of a business and purchase of
technology - - (9,415) -
Purchase of strategic investments (700) - (3,500) -
Restricted cash - (128) (4,586) (128)
--- ---- ------ ----
Net cash and cash equivalents used in
investing (104,425) (4,499) (401,197) (22,957)
activities
Financing Activities:
Employee taxes paid related to the net share
settlement of (1,265) (548) (4,419) (2,368)
stock-based awards
Proceeds related to the issuance of common
stock under stock plans 2,677 2,439 13,086 11,584
Proceeds from issuance of convertible notes,
net of issuance costs - - 389,233 -
paid of $10,767
Purchase of note hedge related to convertible
notes - - (78,920) -
Proceeds from the issuance of warrants
related to convertible notes, - - 58,880 -
net of issuance costs paid of $200
Repayment of capital lease obligations (267) (215) (1,054) (743)
---- ---- ------ ----
Net cash and cash equivalents provided by
financing 1,145 1,676 376,806 8,473
activities
Effect of exchange rate changes on cash 223 (1,187) 2,755 (760)
--- ------ ----- ----
Net (decrease) increase in cash and cash
equivalents (89,063) (1,737) 27,978 4,122
Cash and cash equivalents, beginning of
period 176,743 61,439 59,702 55,580
------- ------ ------ ------
Cash and cash equivalents, end of period $87,680 $59,702 $87,680 $59,702
======= ======= ======= =======
Reconciliation of non-
GAAP operating income Three Months Ended Year Ended
(loss) and operating
margin December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except
percentages)
GAAP operating loss $(9,433) $(13,820) $(40,136) $(44,662)
Stock-based
compensation 12,898 9,274 47,317 32,675
Amortization of
acquired intangible
assets 50 20 103 84
Acquisition related
expenses 827 - 1,266 -
--- --- ----- ---
Non-GAAP operating
income (loss) $4,342 $(4,526) $8,550 $(11,903)
====== ======= ====== ========
GAAP operating margin (8.9%) (18.1%) (10.7%) (16.5%)
Non-GAAP operating
margin 4.1% (5.9%) 2.3% (4.4%)
Reconciliation of non-
GAAP net income
(loss) Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except
per share amounts)
GAAP net loss $(11,535) $(13,829) $(39,714) $(45,562)
Stock-based
compensation 12,898 9,274 47,317 32,675
Amortization of
acquired intangibles 50 20 103 84
Acquisition related
expenses 827 - 1,266 -
Amortization of debt
discount and debt
issuance costs 4,884 - 12,367 -
Deferred income tax
benefit from
convertible notes and (2,480) - (11,573) -
business combination
Non-GAAP net income
(loss) $4,644 $(4,535) $9,766 $(12,803)
====== ======= ====== ========
Non-GAAP net income
(loss) per share:
Basic $0.12 $(0.13) $0.27 $(0.36)
Diluted $0.12 $(0.13) $0.25 $(0.36)
Shares used in non-
GAAP per share
calculations
Basic 37,385 35,672 36,827 35,197
Diluted 39,978 35,672 38,798 35,197
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended December 31,
-------------------------------
2017 2016
---- ----
COS, Prof. R&D S&M G&A COS, COS, Prof. R&D S&M G&A
COS,
Subscription services & Subscription services &
other other
GAAP expense $14,729 $6,327 $22,286 $57,575 $15,057 $11,632 $5,255 $12,815 $47,116 $13,446
Stock -based
compensation (203) (620) (3,803) (5,127) (3,145) (149) (402) (2,457) (3,984) (2,282)
Amortization of
acquired
intangibles (50) - - - - (13) - - (7) -
Acquisition related
expenses - - (827) - - - - - - -
--- --- ---- --- --- --- --- --- --- ---
Non-GAAP expense $14,476 $5,707 $17,656 $52,448 $11,912 $11,470 $4,853 $10,358 $43,125 $11,164
======= ====== ======= ======= ======= ======= ====== ======= ======= =======
GAAP expense as a
percentage of
revenue 13.8% 5.9% 20.9% 54.0% 14.1% 15.2% 6.9% 16.8% 61.6% 17.6%
Non-GAAP expense as
a percentage of
revenue 13.6% 5.4% 16.6% 49.2% 11.2% 15.0% 6.3% 13.5% 56.4% 14.6%
Year Ended December 31,
-----------------------
2017 2016
---- ----
COS, COS, Prof. R&D S&M G&A COS, COS, Prof. R&D S&M G&A
Subscription services & Subscription services &
other other
GAAP expense $51,563 $24,166 $70,373 $212,859 $56,787 $41,182 $20,683 $45,997 $162,647 $45,120
Stock -based
compensation (658) (2,327) (12,816) (19,016) (12,500) (512) (1,640) (8,828) (13,352) (8,343)
Amortization of
acquired
intangibles (96) - - (7) - (57) - - (27) -
Acquisition related
expenses - - (1,266) - - - - - - -
--- --- ------ --- --- --- --- --- --- ---
Non-GAAP expense $50,809 $21,839 $56,291 $193,836 $44,287 $40,613 $19,043 $37,169 $149,268 $36,777
======= ======= ======= ======== ======= ======= ======= ======= ======== =======
GAAP expense as a
percentage of
revenue 13.7% 6.4% 18.7% 56.7% 15.1% 15.2% 7.6% 17.0% 60.0% 16.7%
Non-GAAP expense as
a percentage of
revenue 13.5% 5.8% 15.0% 51.6% 11.8% 15.0% 7.0% 13.7% 55.1% 13.6%
Reconciliation of non-GAAP subscription margin
(in thousands, except percentages)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP subscription
margin $86,968 $60,786 $305,164 $213,593
Stock -based
compensation 203 149 658 512
Amortization of
acquired intangible
assets 50 13 96 57
--- --- --- ---
Non-GAAP
subscription margin $87,221 $60,948 $305,918 $214,162
======= ======= ======== ========
GAAP subscription
margin percentage 85.5% 83.9% 85.5% 83.8%
Non-GAAP
subscription margin
percentage 85.8% 84.2% 85.8% 84.1%
Reconciliation of free cash flow
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
GAAP net cash and
cash equivalents
provided by $13,994 $2,273 $49,614 $19,366
operating
activities
Purchases of
property and
equipment (5,187) (2,439) (20,276) (15,789)
Capitalization of
software
development costs (1,765) (1,576) (7,071) (5,749)
------ ------ ------ ------
Free cash flow $7,042 $(1,742) $22,267 $(2,172)
====== ======= ======= =======
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 (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 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. Management uses these 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. 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 and debt issuance costs, and the deferred income tax benefit from convertible notes and business combination. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:
(a) Stock-based compensation is a non-
cash expense accounted for in
accordance with FASB ASC Topic 718.
We believe that the exclusion of
stock-based compensation expense
allows for financial results that
are more indicative of our
operational performance and provide
for a useful comparison of our
operating results to prior periods
and to our peer companies because
stock-based compensation expense
varies from period to period and
company to company due to such
things as differing valuation
methodologies and changes in stock
price.
(b) Expense for the amortization of
acquired intangible assets is a
non-cash item, and we believe that
the exclusion of this amortization
expense provides for a useful
comparison of our operating results
to prior periods and to our peer
companies.
(c) Acquisition related expenses, such
as transaction costs and retention
payments, are expenses that are not
necessarily reflective of
operational performance during a
period. We believe that the
exclusion of this these expenses
provides for a useful comparison of
our operating results to prior
periods and to our peer companies.
(d) In May 2017, the Company issued $400
million of convertible notes due in
2022 with a coupon interest rate of
0.25%. The imputed interest rate of
the convertible senior notes was
approximately 6.95%. This is a
result of the debt discount
recorded for the conversion feature
that is required to be separately
accounted for as equity, and debt
issuance costs, which reduce the
carrying value of the convertible
debt instrument. The debt discount
is amortized as interest expense
together with the issuance costs of
the debt. The expense for the
amortization of debt discount and
debt issuance costs is a non-cash
item, and we believe the exclusion
of this interest expense provides
for a useful comparison of our
operating results to prior periods
and to our peer companies.
(e) The 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 historical net
operating losses. 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.
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SOURCE HubSpot
