HubSpot Reports Q1 2018 Results

HubSpot Reports Q1 2018 Results

CAMBRIDGE, Mass., May 10, 2018 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading CRM, marketing, sales and customer experience platform, today announced financial results for the first quarter ended March 31, 2018.

Financial Highlights:

Revenue

    --  Total revenue was $114.6 million, up 39% compared to the first quarter
        of 2017.
    --  Subscription revenue was $108.6 million, up 40% compared to the first
        quarter of 2017.
    --  Professional services and other revenue was $6.0 million, up 25%
        compared to the first quarter of 2017.

Operating Income (Loss)

    --  GAAP operating margin was (9.9%) for the quarter, compared to (9.7%) in
        the first quarter of 2017.
    --  Non-GAAP operating margin was 4.9% for the quarter, an improvement of
        approximately 3.3 percentage points from 1.6% in the first quarter of
        2017.
    --  GAAP operating loss was ($11.3) million for the quarter, compared to
        ($8.0) million in the first quarter of 2017.
    --  Non-GAAP operating income was $5.6 million for the quarter, compared to
        $1.3 million in the first quarter of 2017. Non-GAAP operating income
        excludes stock-based compensation expense, amortization of acquired
        intangible assets, and acquisition related expenses.

Net Income (Loss)

    --  GAAP net loss was ($15.4) million, or ($0.41) per basic and diluted
        share for the quarter, compared to ($8.1) million, or ($0.22) per basic
        and diluted share, in the first quarter of 2017.
    --  Non-GAAP net income was $6.4 million, or $0.17 per basic and $0.15 per
        diluted share for the quarter, compared to a net income of $1.2 million,
        or $0.03 per basic and diluted share, in the first quarter of 2017. 
        Non-GAAP net income per share excludes stock-based compensation expense,
        amortization of acquired intangible assets, acquisition related
        expenses, and non-cash interest expense for amortization of debt
        discount and debt issuance costs.
    --  First quarter weighted average basic and diluted shares outstanding for
        GAAP net loss per share was 37.8 million, compared to 36.2 million basic
        and diluted shares in the first quarter of 2017.
    --  First quarter weighted average basic and diluted shares outstanding for
        non-GAAP net income per share was 37.8 million and 41.0 million,
        respectively, compared to 36.2 million and 38.5 million, respectively,
        in the first quarter of 2017.

Balance Sheet and Cash Flow

    --  The company's cash, cash equivalents and investments balance was $557.5
        million as of March 31, 2018.
    --  During the first quarter, the company generated $17.9 million of free
        cash flow compared to $11.6 million during the first quarter of 2017.

Additional Recent Business Highlights

    --  Grew total customers to 44,894 at March 31, 2018, up 44% from March 31,
        2017.

    --  Total average subscription revenue per customer was $10,016 during the
        first quarter of 2018 down 3% from the first quarter of 2017.

"Q1 was another strong quarter for HubSpot and I'm very pleased with the results. I'm really excited that today we're launching our new Service Hub product line - an all-in-one customer service system designed to help our customers provide their customers with a superior end to end experience," said Halligan. "With the launch of Service Hub, we now have three strong pillars in our suite, integrated on top of a CRM that is scaling well with our freemium entry point. Over the next year, we see a ton of opportunity with Service Hub and other initiatives as we continue to push forward with our mission to help millions of organizations grow better."

Business Outlook
Based on information available as of May 10, 2018, HubSpot is issuing guidance for the second quarter of 2018 and raising guidance for full year 2018 as indicated below.

Second Quarter 2018:

    --  Total revenue is expected to be in the range of $117 million to $118
        million.
    --  Non-GAAP operating income is expected to be in the range of $5.3 million
        to $6.3 million. This excludes stock-based compensation expense of
        approximately $19.6 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
        $0.14 to $0.16.  This excludes stock-based compensation expense of
        approximately $19.6 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
        $5.1 million.  This assumes approximately 41.5 million weighted average
        diluted shares outstanding.

Full Year 2018:

    --  Total revenue is expected to be in the range of $489 million to $492
        million, up from our previously guided range of $481 million to $485
        million.
    --  Non-GAAP operating income is expected to in be in the range of $22
        million to $25 million, up from our previously guided range of $20
        million to $24 million. This excludes stock-based compensation expense
        of approximately $76 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
        $0.59 to $0.65, up from our previously guided range of $0.51 to $0.59.
        This excludes stock-based compensation expense of approximately $76
        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 42.3 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 Thursday, May 10, 2018 at 4:30 p.m. Eastern Time (ET) to discuss the company's first quarter financial results and its business outlook. To access this call, dial (866) 393-4306 (domestic) or (734) 385-2616 (international). The conference ID is 6597714. 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 6597714. 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 44,500 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 ended March 31, 2018 and 2017. 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 second fiscal quarter and full year 2018; 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 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 Annual Report on Form 10-K filed on February 13, 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)


                            March 31,            December 31,

                                  2018                    2017
                                  ----                    ----

    Assets

    Current assets:

    Cash and cash
     equivalents                        $154,031                  $87,680

    Short-term investments               375,379                  416,663

    Accounts receivable -
     net of allowance for
     doubtful accounts of
     $577 and $617 at March
     31, 2018 and December
     31, 2017, respectively               54,208                   60,676

    Deferred commission
     expense                              12,721                   13,343

    Restricted cash                        5,968                    4,757

    Prepaid hosting costs                  1,648                    4,964

    Prepaid expenses and
     other current assets                 15,588                   14,418
                                          ------                   ------

    Total current assets                 619,543                  602,501

    Long-term investments                 28,100                   31,394

    Property and equipment,
     net                                  47,734                   43,294

    Capitalized software
     development costs, net                9,885                    8,760

    Deferred commission
     expense, net of
     current portion                      11,228                        -

    Other assets                           5,273                    4,964

    Intangible assets, net                 6,262                    6,312

    Goodwill                              14,950                   14,950
                                          ------                   ------

    Total assets                        $742,975                 $712,175
                                        ========                 ========

    Liabilities and
     stockholders' equity

    Current liabilities:

    Accounts payable                      $5,194                   $4,657

    Accrued compensation
     costs                                14,680                   16,329

    Other accrued expenses                23,996                   20,430

    Deferred revenue                     148,500                  136,880
                                         -------                  -------

    Total current
     liabilities                         192,370                  178,296

    Deferred rent, net of
     current portion                      19,646                   18,868

    Deferred revenue, net
     of current portion                    2,284                    2,277

    Other long-term
     liabilities                           4,222                    3,927

    Convertible senior
     notes                               303,355                  298,447
                                         -------                  -------

    Total liabilities                    521,877                  501,815
                                         -------                  -------

    Stockholders' equity:

    Common stock                              39                       38

    Additional paid-in
     capital                             516,934                  496,461

    Accumulated other
     comprehensive loss                    (138)                    (57)

    Accumulated deficit                (295,737)               (286,082)
                                        --------                 --------

    Total stockholders'
     equity                              221,098                  210,360
                                         -------                  -------

    Total liabilities and
     stockholders' equity               $742,975                 $712,175
                                        ========                 ========



    Consolidated Statements
     of Operations

    (in thousands, except
     per share data)


                                Three Months Ended March 31,
                                ----------------------------

                                                        2018           2017
                                                        ----           ----

    Revenues:

    Subscription                                              $108,602        $77,503

    Professional services
     and other                                                   5,954          4,749
                                                                 -----          -----

    Total revenue                                              114,556         82,252
                                                               -------         ------

    Cost of revenues:

    Subscription                                                15,235         11,409

    Professional services
     and other                                                   7,142          5,663
                                                                 -----          -----

    Total cost of revenues                                      22,377         17,072
                                                                ------         ------

    Gross profit                                                92,179         65,180
                                                                ------         ------

    Operating expenses:

    Research and development                                    26,352         13,370

    Sales and marketing                                         59,910         46,672

    General and
     administrative                                             17,241         13,138
                                                                ------         ------

    Total operating expenses                                   103,503         73,180
                                                               -------         ------

    Loss from operations                                      (11,324)       (8,000)
                                                               -------         ------

    Other (expense) income:

    Interest income                                              1,824            303

    Interest expense                                           (5,174)          (52)

    Other expense                                                (283)         (128)
                                                                  ----           ----

    Total other (expense)
     income                                                    (3,633)           123
                                                                ------            ---

    Loss before income tax
     expense                                                  (14,957)       (7,877)

    Income tax expense                                           (491)         (198)
                                                                  ----           ----

    Net loss                                                 $(15,448)      $(8,075)
                                                              ========        =======

    Net loss per share,
     basic and diluted                                         $(0.41)       $(0.22)

    Weighted average common
     shares used in
     computing basic                                            37,832         36,205

       and diluted net loss per
        share:


    Consolidated Statements of Cash Flows

    (in thousands)


                                                   For the Three Months Ended March
                                                                  31,
                                                  ---------------------------------

                                                                               2018           2017
                                                                               ----           ----

    Operating Activities:

    Net loss                                                                        $(15,448)      $(8,075)

    Adjustments to reconcile net loss to net cash
     and cash equivalents provided

       by operating activities

    Depreciation and amortization                                                       5,110          3,329

    Stock-based compensation                                                           16,046          9,303

    Benefit for deferred income taxes                                                       -          (27)

    Amortization of debt discount and issuance
     costs                                                                              4,908              -

    (Accretion) amortization of bond discount
     premium                                                                          (1,164)            77

    Noncash rent expense                                                                  794          1,667

    Unrealized currency translation                                                        36           (46)

    Changes in assets and liabilities

    Accounts receivable                                                                 6,863          4,176

    Prepaid expenses and other assets                                                   1,880          1,061

    Deferred commission expense                                                       (5,068)         (464)

    Accounts payable                                                                      166        (1,250)

    Accrued expenses                                                                    1,674            922

    Deferred rent                                                                        (48)          (34)

    Deferred revenue                                                                   10,973          8,453
                                                                                       ------          -----

    Net cash and cash equivalents provided by
     operating activities                                                              26,722         19,092
                                                                                       ------         ------

    Investing Activities:

    Purchases of investments                                                        (210,886)      (16,367)

    Maturities of investments                                                         256,250         15,860

    Purchases of property and equipment                                               (6,239)       (5,835)

    Capitalization of software development costs                                      (2,616)       (1,610)

    Purchases of strategic investments                                                  (250)             -
                                                                                         ----            ---

    Net cash and cash equivalents provided by
     (used in) investing activities                                                    36,259        (7,952)
                                                                                       ------         ------

    Financing Activities:

    Employee taxes paid related to the net share
     settlement of stock-based awards                                                 (2,344)       (1,153)

    Proceeds related to the issuance of common
     stock under stock plans                                                            6,113          4,340

    Repayments of capital lease obligations                                             (212)         (240)
                                                                                         ----           ----

    Net cash and cash equivalents provided by
     financing activities                                                               3,557          2,947
                                                                                        -----          -----

    Effect of exchange rate changes on cash, cash
     equivalents, and restricted cash                                                     677            454
                                                                                          ---            ---

    Net increase in cash, cash equivalents, and
     restricted cash                                                                   67,215         14,541

    Cash, cash equivalents and restricted cash,
     beginning of period                                                               92,784         60,185
                                                                                       ------         ------

    Cash, cash equivalents and restricted cash,
     end of period                                                                   $159,999        $74,726
                                                                                     ========        =======





    Reconciliation
     of non-GAAP
     operating
     income and
     operating
     margin         Three Months Ended March 31,
                    ----------------------------

                                            2018           2017
                                            ----           ----

    (in thousands,
     except
     percentages)


    GAAP operating
     loss                                        $(11,324)      $(8,000)

    Stock-based
     compensation                                   16,046          9,303

    Amortization of
     acquired
     intangible
     assets                                             50             16

    Acquisition
     related
     expenses                                          802              -
                                                       ---            ---

    Non-GAAP
     operating
     income                                         $5,574         $1,319
                                                    ======         ======


    GAAP operating
     margin                                         (9.9%)        (9.7%)

    Non-GAAP
     operating
     margin                                           4.9%          1.6%


    Reconciliation
     of non-GAAP
     net income     Three Months Ended March 31,
                    ----------------------------

                                            2018           2017
                                            ----           ----

    (in thousands,
     except per
     share amounts)


    GAAP net loss                                $(15,448)      $(8,075)

    Stock-based
     compensation                                   16,046          9,303

    Amortization of
     acquired
     intangibles                                        50             16

    Acquisition
     related
     expenses                                          802              -

    Amortization of
     debt discount
     and debt
     issuance costs                                  4,908              -
                                                     -----            ---

    Non-GAAP net
     income                                         $6,358         $1,244
                                                    ======         ======


    Non-GAAP net
     income per
     share:

    Basic                                            $0.17          $0.03

    Diluted                                          $0.15          $0.03

    Shares used in
     non-GAAP per
     share
     calculations

    Basic                                           37,832         36,205

    Diluted                                         41,048         38,497



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

    (in thousands, except percentages)

                                                                                                                       Three Months Ended March 31,
                                                                                                                       ----------------------------

                                                                                                                          2018                                                                 2017
                                                                                                                          ----                                                                 ----

                                                                                  COS,             COS, Prof. R&D    S&M                     G&A                    COS,    COS, Prof.
                                                                              Subscription         services &                                                  Subscription services &
                                                                                                     other                                                                     other       R&D      S&M         G&A

    GAAP expense                                                                           $15,235            $7,142             $26,352               $59,910                     $17,241              $11,409          $5,663        $13,370         $46,672          $13,138

    Stock -based
     compensation                                                                            (277)            (690)            (4,764)              (6,492)                    (3,823)               (115)          (449)       (2,442)        (3,770)         (2,527)

    Amortization of
     acquired
     intangibles                                                                              (50)                -                  -                    -                          -                 (9)              -             -            (7)               -

    Acquisition related
     expenses                                                                                    -                -              (802)                    -                          -                   -              -             -              -               -
                                                                                               ---              ---               ----                   ---                        ---                 ---            ---           ---            ---             ---

    Non-GAAP expense                                                                       $14,908            $6,452             $20,786               $53,418                     $13,418              $11,285          $5,214        $10,928         $42,895          $10,611
                                                                                           =======            ======             =======               =======                     =======              =======          ======        =======         =======          =======


    GAAP expense as a
     percentage of
     revenue                                                                                 13.3%             6.2%              23.0%                52.3%                      15.1%               13.9%           6.9%         16.3%          56.7%           16.0%

    Non-GAAP expense as
     a percentage of
     revenue                                                                                 13.0%             5.6%              18.1%                46.6%                      11.7%               13.7%           6.3%         13.3%          52.2%           12.9%



    Reconciliation of
     non-GAAP
     subscription
     margin

    (in thousands,
     except
     percentages)


                       Three Months Ended March 31,
                       ----------------------------

                                               2018         2017
                                               ----         ----


    GAAP subscription
     margin                                         $93,367       $66,094

    Stock -based
     compensation                                       277           115

    Amortization of
     acquired
     intangible assets                                   50             9
                                                        ---           ---

    Non-GAAP
     subscription
     margin                                         $93,694       $66,218
                                                    =======       =======


    GAAP subscription
     margin percentage                                86.0%        85.3%

    Non-GAAP
     subscription
     margin percentage                                86.3%        85.4%




    Reconciliation of
     free cash flow

    (in thousands)


                       Three Months Ended March 31,
                       ----------------------------

                                               2018         2017
                                               ----         ----


    GAAP net cash and
     cash equivalents
     provided by
     operating
     activities                                     $26,722       $19,092

    Purchases of
     property and
     equipment                                      (6,239)      (5,835)

    Capitalization of
     software
     development costs                              (2,616)      (1,610)
                                                     ------        ------

    Free cash flow                                  $17,867       $11,647
                                                    =======       =======

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. 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, and non-cash interest expense for the amortization of debt discount and debt issuance costs. 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.

CONTACT: Investor Relations Contact: Charles MacGlashing, investors@hubspot.com, Media Contact: Ellie Botelho, ebotelho@hubspot.com

View original content with multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q1-2018-results-300646667.html

SOURCE HubSpot, Inc.