HubSpot Reports Q3 2018 Results
CAMBRIDGE, Mass., Nov. 7, 2018 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the third quarter ended September 30, 2018.
Financial Highlights:
Revenue
-- Total revenue was $131.8 million, up 35% compared to the third quarter
of 2017.
-- Subscription revenue was $125.5 million, up 35% compared to the third
quarter of 2017.
-- Professional services and other revenue was $6.3 million, up 39%
compared to the third quarter of 2017.
Operating Income (Loss)
-- GAAP operating margin was (11.4%) for the quarter, compared to (12.4%)
in the third quarter of 2017.
-- Non-GAAP operating margin was 4.4% for the quarter, an improvement of
approximately 3.9 percentage points from 0.5% in the third quarter of
2017.
-- GAAP operating loss was ($15.1) million for the quarter, compared to
($12.1) million in the third quarter of 2017.
-- Non-GAAP operating income was $5.9 million for the quarter, compared to
$0.5 million in the third quarter of 2017.
Net Income (Loss)
-- GAAP net loss was ($18.7) million, or ($0.48) per basic and diluted
share for the quarter, compared to ($10.6) million, or ($0.29) per basic
and diluted share, in the third quarter of 2017.
-- Non-GAAP net income was $7.4 million, or $0.19 per basic and $0.17 per
diluted share for the quarter, compared to $1.3 million, or $0.03 per
basic and diluted share, in the third quarter of 2017.
-- Third quarter weighted average basic and diluted shares outstanding for
GAAP net loss per share was 38.8 million, compared to 37.0 million basic
and diluted shares in the third quarter of 2017.
-- Third quarter weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 38.8 million and 43.1 million
respectively, compared to 37.0 million and 39.4 million, respectively,
in the third quarter of 2017.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $574.5
million as of September 30, 2018.
-- During the third quarter, the company generated $3.2 million of free
cash flow compared to $1.8 million during the third quarter of 2017.
Additional Recent Business Highlights
-- Grew total customers to 52,505 at September 30, 2018, up 40% from
September 30, 2017.
-- Total average subscription revenue per customer was $9,959 during the
third quarter of 2018 down 4% compared to the third quarter of 2017.
"HubSpot delivered another strong quarter with total revenue growth of 35% and a 4-point improvement in non-GAAP operating margins versus last year" said Brian Halligan, co-founder and CEO. " We've invested heavily in our platform to capitalize on the massive opportunity in the mid-market. I'm excited about the strength we're seeing across the business and we're well positioned to continue to grow with our customers for years to come."
Business Outlook
Based on information available as of November 7, 2018, HubSpot is issuing guidance for the fourth quarter of 2018 and raising guidance for full year 2018 as indicated below.
Fourth Quarter 2018:
-- Total revenue is expected to be in the range of $136.5 million to $137.5
million.
-- Non-GAAP operating income is expected to be in the range of $11.5
million to $12.5 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.29 to $0.31. This assumes approximately 43.2 million weighted average
diluted shares outstanding.
Full Year 2018:
-- Total revenue is expected to be in the range of $505.5 million to $506.5
million, up from our previously guided range of $496.8 million to $498.8
million.
-- Non-GAAP operating income is expected to in be in the range of $29.5
million to $30.5 million, up from our previously guided range of $24.3
million to $26.3 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.80 to $0.82, up from our previously guided range of $0.63 to $0.67.
This assumes approximately 42.3 million weighted average diluted shares
outstanding.
Use of Non-GAAP Financial Measures
In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discuss non-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our website at www.hubspot.com.
Conference Call Information
HubSpot will host a conference call on Wednesday, November 7, 2018 at 4:30 p.m. Eastern Time (ET) to discuss the company's third 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 7858547. 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 7858547. 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 growth platform. Over 52,500 total customers in over 100 countries use HubSpot's award-winning software, services, and support to transform the way they attract, engage, and delight customers. Learn more at www.hubspot.com.
Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the fourth fiscal quarter and full year 2018; statements regarding the opportunity in the mid-market; and statements regarding our positioning for future growth. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully acquire and integrate companies and assets; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 1, 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)
September 30, December
31,
2018 2017
Assets
Current assets:
Cash and cash equivalents $
96,122 $
87,680
Short-term investments 465,166 416,663
Accounts receivable - net of allowance for doubtful accounts of $1,389 63,107 60,676
and $638 at September 30, 2018 and December 31, 2017, respectively
Deferred commission expense 18,759 13,343
Restricted cash 5,175 4,757
Prepaid expenses and other current assets 18,132 19,382
Total current assets 666,461 602,501
Long-term investments 13,234 31,394
Property and equipment, net 51,913 43,294
Capitalized software development costs, net 12,539 8,760
Deferred commission expense, net of current portion 15,176
Other assets 5,656 4,964
Intangible assets 5,719 6,312
Goodwill 14,950 14,950
Total assets $
785,648 $
712,175
Liabilities and stockholders
'
equity
Current liabilities:
Accounts payable $
8,817 $
4,657
Accrued compensation costs 19,182 16,329
Other accrued expenses 22,781 20,430
Deferred revenue 160,509 136,880
Total current liabilities 211,289 178,296
Deferred rent, net of current portion 24,549 18,868
Deferred revenue, net of current portion 2,132 2,277
Other long-term liabilities 4,715 3,927
Convertible senior notes 313,550 298,447
Total liabilities 556,235 501,815
Stockholders' equity:
Common stock 40 38
Additional paid-in capital 563,034 496,461
Accumulated other comprehensive loss (769) (57)
Accumulated deficit (332,892) (286,082)
Total stockholders' equity 229,413 210,360
Total liabilities and stockholders
'
equity $
785,648 $
712,175
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended For the Nine Months Ended September
September 30, 30,
2018 2017 2018 2017
Revenues:
Subscription $
125,478 $
93,164 $
350,646 $
255,030
Professional services and other 6,348 4,562 18,312 14,041
Total revenue 131,826 97,726 368,958 269,071
Cost of revenues:
Subscription 17,777 12,933 49,976 36,834
Professional services and other 7,988 6,077 23,017 17,839
Total cost of revenues 25,765 19,010 72,993 54,673
Gross profit 106,061 78,716 295,965 214,398
Operating expenses:
Research and development 30,761 18,828 85,598 48,087
Sales and marketing 71,293 57,904 196,484 155,284
General and administrative 19,057 14,110 54,309 41,730
Total operating expenses 121,111 90,842 336,391 245,101
Loss from operations (15,050) (12,126) (40,426) (30,703)
Other expense:
Interest income 2,416 1,274 6,332 2,311
Interest expense (5,393) (5,063) (15,893) (7,947)
Other expense (277) (26) (1,087) (251)
Total other expense (3,254) (3,815) (10,648) (5,887)
Loss before income tax (expense) benefit (18,304) (15,941) (51,074) (36,590)
Income tax (expense) benefit (359) 5,358 (1,262) 8,411
Net loss $
(18,663) $
(10,583) $
(52,336) $
(28,179)
Net loss per share, basic and diluted $
(0.48) $
(0.29) $
(1.37) $
(0.77)
Weighted average common shares used in 38,762 37,047 38,319 36,639
computing basic and diluted net loss per share:
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Operating Activities:
Net loss $
(18,663) $
(10,583) $
(52,336) $
(28,179)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by operating activities
Depreciation and amortization 6,000 4,146 16,539 11,123
Stock-based compensation 19,613 12,110 55,334 34,419
Provision (benefit) for deferred income taxes (4) (5,581) 43 (9,125)
Amortization of debt discount and issuance costs 5,141 4,799 15,103 7,482
Accretion of bond discount (1,876) (692) (4,517) (747)
Noncash rent expense 367 1,344 1,972 4,343
Unrealized currency translation 79 (153) 215 (348)
Changes in assets and liabilities, net of acquisition
Accounts receivable (9,911) (9,671) (3,266) (8,510)
Prepaid expenses and other assets 5,535 2,555 823 (5,363)
Deferred commission expense (5,798) (110) (15,887) (2,011)
Accounts payable 3,508 1,883 4,262 1,556
Accrued expenses (1,876) (131) 3,755 6,838
Deferred rent 81 (21) 3,987 3,581
Deferred revenue 9,321 7,906 25,713 20,561
Net cash and cash equivalents provided by 11,517 7,801 51,740 35,620
operating activities
Investing Activities:
Purchases of investments (158,546) (267,359) (524,838) (572,636)
Maturities of investments 150,300 276,000 498,850 313,060
Purchases of property and equipment (5,378) (4,017) (16,688) (15,089)
Capitalization of software development costs (2,920) (1,966) (8,726) (5,306)
Acquisition of a business and purchase of technology (9,415) (9,415)
Purchases of strategic investments (50) (2,200) (300) (2,800)
Net cash and cash equivalents used in investing (16,594) (8,957) (51,702) (292,186)
activities
Financing Activities:
Employee taxes paid related to the net share settlement of (1,888) (1,057) (5,933) (3,154)
stock-based awards
Proceeds related to the issuance of common stock under 5,157 2,924 16,769 10,409
stock plans
Repayments of capital lease obligations (175) (269) (592) (787)
Proceeds of the issuance of convertible notes, net of (12) 389,233
issuance costs paid of $10,767
Purchase of note hedge related to convertible notes (78,920)
Proceeds from the issuance of warrants related to 58,880
convertible notes, net of issuance costs of $200
Net cash and cash equivalents provided by 3,094 1,586 10,244 375,661
financing activities
Effect of exchange rate changes on cash, cash equivalents and (321) 697 (1,319) 2,569
restricted cash
Net increase in cash, cash equivalents and restricted cash (2,304) 1,127 8,963 121,664
Cash, cash equivalents and restricted cash, beginning of period 104,051 180,722 92,784 60,185
Cash, cash equivalents and restricted cash, end of period $
101,747 $
181,849 $
101,747 $
181,849
Reconciliation of non-GAAP operating income and operating Three Months Ended Nine Months Ended
margin September 30, September 30,
(in thousands, except percentages)
2018 2017 2018 2017
GAAP operating loss $
(15,050) $
(12,126) $
(40,426) $
(30,703)
Stock-based compensation 19,612 12,110 55,334 34,419
Amortization of acquired intangible assets 494 38 594 54
Acquisition related expenses 802 439 2,407 439
Non-GAAP operating income $
5,858 $
461 $
17,909 $
4,209
GAAP operating margin (11.4%) (12.4%) (11.0%) (11.4%)
Non-GAAP operating margin 4.4 0.5 4.9 1.6
% % % %
Reconciliation of non-GAAP net income Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts)
2018 2017 2018 2017
GAAP net loss $
(18,663) $
(10,583) $
(52,336) $
(28,179)
Stock-based compensation 19,612 12,110 55,334 34,419
Amortization of acquired intangibles assets 494 38 594 54
Acquisition related expenses 802 439 2,407 439
Non-cash interest expense for amortization of debt discount and debt 5,141 4,799 15,103 7,482
issuance costs
Deferred income tax benefit from convertible notes and business (5,552) (9,093)
combination
Income tax effects of non-GAAP items
Non-GAAP net income $
7,386 $
1,251 $
21,102 $
5,122
Non-GAAP net income per share:
Basic $
0.19 $
0.03 $
0.55 $
0.14
Diluted $
0.17 $
0.03 $
0.51 $
0.13
Shares used in non-GAAP per share calculations
Basic 38,762 37,047 38,319 36,639
Diluted 43,101 39,443 41,314 38,763
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended September 30,
2018 2017
COS, COS, R&D S&M G&A COS,
Subscription Subscription COS, R&D S&M G&A
Prof. Prof.
services services
& other & other
GAAP expense $
17,777 $
7,988 $
30,761 $
71,293 $
19,057 $
12,933 $
6,077 $
18,828 $
57,904 $
14,110
Stock -based compensation (391) (803) (5,990) (7,898) (4,530) (163) (591) (3,110) (5,015) (3,231)
Amortization of acquired intangible (494) (38)
assets
Acquisition related expenses (802) (439)
Non-GAAP expense $
16,892 $
7,185 $
23,969 $
63,395 $
14,527 $
12,732 $
5,486 $
15,279 $
52,889 $
10,879
GAAP expense as a percentage of 13.5 6.1 23.3 54.1 14.5 13.2 6.2 19.3 59.3 14.4
% % % % % % % % % %
revenue
Non-GAAP expense as a percentage of 12.8 5.5 18.2 48.1 11.0 13.0 5.6 15.6 54.1 11.1
% % % % % % % % % %
revenue
Nine Months Ended September 30,
2018 2017
---
COS, COS, R&D S&M G&A COS,
Subscription Subscription COS, R&D S&M G&A
Prof. Prof.
services services
& other & other
GAAP expense $
49,976 $
23,017 $
85,598 $
196,484 $
54,309 $
36,834 $
17,839 $
48,087 $
155,284 $
41,730
Stock -based compensation (985) (2,339) (16,866) (22,327) (12,817) (455) (1,707) (9,013) (13,889) (9,355)
Amortization of acquired intangible (594) (47) (7)
assets
Acquisition related expenses (2,407) (439)
Non-GAAP expense $
48,397 $
20,678 $
66,325 $
174,157 $
41,492 $
36,332 $
16,132 $
38,635 $
141,388 $
32,375
GAAP expense as a percentage of 13.5 6.2 23.2 53.3 14.7 13.7 6.6 17.9 57.7 15.5
% % % % % % % % % %
revenue
Non-GAAP expense as a percentage of 13.1 5.6 18.0 47.2 11.2 13.5 6.0 14.4 52.5 12.0
% % % % % % % % % %
revenue
Reconciliation of non-GAAP subscription
margin
(in thousands, except percentages)
Three Months Ended September Nine Months Ended September
30, 30,
2018 2017 2018 2017
GAAP subscription margin $
107,701 $
80,231 $
300,670 $
218,196
Stock -based compensation 391 163 985 455
Amortization of acquired intangible assets 494 38 594 47
Non-GAAP subscription margin $
108,586 $
80,432 $
302,249 $
218,698
GAAP subscription margin percentage 85.8 86.1 85.7 85.6
% % % %
Non-GAAP subscription margin percentage 86.5 86.3 86.2 85.8
% % % %
Reconciliation of free cash flow
(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
GAAP net cash and cash equivalents provided $
11,517 $
7,801 $
51,740 $
35,620
by operating activities
Purchases of property and equipment (5,378) (4,017) (16,688) (15,089)
Capitalization of software development costs (2,920) (1,966) (8,726) (5,306)
Free cash flow $
3,219 $
1,818 $
26,326 $
15,225
Reconciliation of forecasted non-GAAP operating income
(in thousands, except percentages)
Three Months Ended Year Ended
December 31, 2018 December 31, 2018
GAAP operating income range
$(9,800) - $(8,800)
$(49,900) - $(48,900)
Stock-based compensation 20,200 75,300
Amortization of acquired intangible assets 800 1,400
Acquisition related expenses 300 2,700
Non-GAAP operating income range
$11,500 - $12,500
$29,500 - $30,500
Reconciliation of forecasted non-GAAP net income and non-
GAAP net income per share
(in thousands, except per share amounts)
Three Months Ended Year Ended
December 31, 2018 December 31, 2018
GAAP net loss range
$(14,000) - $(13,000)
$(65,900) - $(64,900)
Stock-based compensation 20,200 75,300
Amortization of acquired intangible assets 800 1,400
Acquisition related expenses 300 2,700
Non-cash interest expense for amortization of debt discount and 5,200 20,300
debt issuance costs
Income tax effects of non-GAAP items
Non-GAAP net income range
$12,500 - $13,500
$33,800 - $34,800
GAAP net income per basic and diluted share
$(0.36) - $(0.33)
$(1.71)-$(1.69)
Non-GAAP net income per diluted share
$0.29-$0.31
$0.80-$0.82
Weighted average common shares used in computing GAAP 39,100 38,500
basic and diluted net loss per share:
Weighted average common shares used in computing non- 43,200 42,300
GAAP diluted net loss per share:
HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, and non-cash interest expense for amortization of debt discount and debt issuance costs in future periods assume, among other things, the occurrence of no additional acquisitions, investments or restructurings, and no further revisions to stock-based compensation and related expenses.
Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. In this release, HubSpot's non-GAAP operating income, operating margin, subscription margin, expense, expense as a percentage of revenue, net income, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.
Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. Specifically, these non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management's ability to make useful forecasts. In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Management may, however, utilize other measures to illustrate performance in the future. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included above in this press release.
These non-GAAP measures exclude share-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount debt issuance costs, the deferred income tax benefit from convertible notes and acquisitions, and income tax effects of non-GAAP items. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:
1. Stock-based compensation is a non-cash expense accounted for in
accordance with FASB ASC Topic 718. We believe that the exclusion of
stock-based compensation expense allows for financial results that are
more indicative of our operational performance and provide for a useful
comparison of our operating results to prior periods and to our peer
companies because stock-based compensation expense varies from period to
period and company to company due to such things as differing valuation
methodologies and changes in stock price.
2. Expense for the amortization of acquired intangible assets is a non-cash
item, and we believe that the exclusion of this amortization expense
provides for a useful comparison of our operating results to prior
periods and to our peer companies.
3. Acquisition related expenses, such as transaction costs and retention
payments, are expenses that are not necessarily reflective of operational
performance during a period. We believe that the exclusion of this these
expenses provides for a useful comparison of our operating results to
prior periods and to our peer companies.
4. In May 2017, the Company issued $400 million of convertible notes due in
2022 with a coupon interest rate of 0.25%. The imputed interest rate of
the convertible senior notes was approximately 6.95%. This is a result of
the debt discount recorded for the conversion feature that is required to
be separately accounted for as equity, and debt issuance costs, which
reduce the carrying value of the convertible debt instrument. The debt
discount is amortized as interest expense together with the issuance
costs of the debt. The expense for the amortization of debt discount and
debt issuance costs is a non-cash item, and we believe the exclusion of
this interest expense provides for a useful comparison of our operating
results to prior periods and to our peer companies.
5. The deferred income tax benefit from the convertible notes issued in May
2017 is a non-cash item created by the difference in the carrying amount
and tax basis of the convertible notes. This taxable temporary difference
resulted in the Company recognizing a $9.4 million deferred tax liability
which was recorded as an adjustment to additional paid-in capital on the
consolidated balance sheet. The creation of the deferred tax liability is
recognized as a component of equity and represents a source of future
taxable income which supports the realization of a portion of the income
tax benefit associated with the current year loss from operations. The
deferred income tax benefit from the convertible notes is a non-cash item
that is unique to the issuance of the Company's convertible notes, and we
believe the exclusion of this deferred tax benefit provides for a useful
comparison of our operating results to prior periods and to our peer
companies.
6. The deferred income tax benefit from the business combination entered
into in September 2017 is a non-cash item created by the difference in
the carrying amount and tax basis of the assets and liabilities acquired.
This taxable temporary difference resulted in the Company recognizing a
$2.2 million deferred tax liability which was recorded as an adjustment
to goodwill on the consolidated balance sheet. The creation of the
deferred tax liability represents a source of future taxable income which
supports the realization of a portion of the income tax benefit
associated with historical net operating losses. The deferred income tax
benefit from the business combination is a non-cash item that is unique
to the business combination, and we believe the exclusion of this
deferred tax benefit provides for a useful comparison of our operating
results to prior periods and to our peer companies.
7. The effects of income taxes on non-GAAP items for current and historical
periods is zero due to our history of non-GAAP losses and a full
valuation allowance on our U.S. deferred tax assets.
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SOURCE HubSpot, Inc.
