HubSpot Reports Q4 and Full Year 2018 Results

CAMBRIDGE, Mass., Feb. 12, 2019 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the fourth quarter and full year ended December 31, 2018.

Financial Highlights:

Revenue

Fourth Quarter 2018:

    --  Total revenue was $144.0 million, up 35% compared to Q4'17.
    --  Subscription revenue was $136.8 million, up 35% compared to Q4'17.
    --  Professional services and other revenue was $7.2 million, up 49%
        compared to Q4'17.

Full Year 2018:

    --  Total revenue was $513.0 million, up 37% compared to 2017.
    --  Subscription revenue was $487.5 million, up 37% compared to 2017.
    --  Professional services and other revenue was $25.5 million, up 35%
        compared to 2017.

Operating Income (Loss)

Fourth Quarter 2018:

    --  GAAP operating margin was (5.4%), compared to (8.9%) in Q4'17.
    --  Non-GAAP operating margin was 9.8%, an improvement of approximately 5.7
        percentage points from 4.1% in Q4'17.
    --  GAAP operating loss was ($7.8) million, compared to ($9.4) million in
        Q4'17 2017.
    --  Non-GAAP operating income was $14.2 million, compared to $4.3 million in
        Q4'17.

Full Year 2018:

    --  GAAP operating margin was (9.4%), compared to (10.7%) in 2017.
    --  Non-GAAP operating margin was 6.3%, an improvement of approximately 4
        percentage points from 2.3% in 2017.
    --  GAAP operating loss was ($48.3) million, compared to ($40.1) million in
        2017.
    --  Non-GAAP operating income was $32.1 million, compared to $8.6 million in
        2017.

Net Income (Loss)

Fourth Quarter 2018:

    --  GAAP net loss was ($11.5) million, or ($0.29) per basic and diluted
        share, compared to ($11.5) million, or ($0.31) per basic and diluted
        share, in Q4'17.
    --  Non-GAAP net income was $15.8 million, or $0.40 per basic and $0.37 per
        diluted share, compared to $4.6 million, or $0.12 per basic and diluted
        share, in Q4'17.
    --  Weighted average basic and diluted shares outstanding for GAAP net loss
        per share was 39.2 million, compared to 37.4 million basic and diluted
        shares, in Q4'17.
    --  Weighted average basic and diluted shares outstanding for non-GAAP net
        income per share was 39.2 million and 43.0 million respectively,
        compared to 37.4 million and 40.0 million, respectively, in Q4'17.

Full Year 2018:

    --  GAAP net loss was ($63.8) million, or ($1.66) per basic and diluted
        share, compared to ($39.7) million, or ($1.08) per basic and diluted
        share in 2017.
    --  Non-GAAP net income was $36.9 million, or $0.96 per basic and $0.89 per
        diluted, compared to $9.8 million, or $0.27 per basic and $0.25 per
        diluted share, in 2017.
    --  Weighted average basic and diluted shares outstanding for GAAP net loss
        per share was 38.5 million, compared to 36.8 million basic and diluted
        shares 2017.
    --  Weighted average basic and diluted shares outstanding for non-GAAP net
        income per share was 38.5 million and 41.6 million respectively,
        compared to 36.8 million and 38.8 million, respectively, in 2017.

Balance Sheet and Cash Flow

    --  The company's cash, cash equivalents and investments balance was $603.7
        million as of December 31, 2018.
    --  During the fourth quarter, the company generated $25.1 million of free
        cash flow compared to $7.0 million during Q4'17.
    --  The company generated $51.4 million of free cash flow in 2018 compared
        to $22.3 million in 2017.

Additional Recent Business Highlights

    --  Grew total customers to 56,628 at December 31, 2018, up 36% from
        December 31, 2017.
    --  Total average subscription revenue per customer was $10,012 during the
        fourth quarter of 2018 down 2% compared to the fourth quarter of 2017.

"2018 was one of the best years in our history," said Brian Halligan, co-founder and CEO. "We started the year with a really strong marketing application business that helped our customers generate leads and a fast-growing sales enablement business. We ended the year with a full suite of marketing, sales and customer service products that helps our customers grow better by crafting a remarkable experience for their customers. We're extremely pleased with our Q4 results, and I'm very excited on the outlook for our business entering 2019."

Business Outlook
Based on information available as of February 12, 2019, HubSpot is issuing guidance for the first quarter of 2019 and full year 2019 as indicated below.

First Quarter 2019:

    --  Total revenue is expected to be in the range of $146.5 million to $147.5
        million.
    --  Non-GAAP operating income is expected to be in the range of $9.5 million
        to $10.5 million.
    --  Non-GAAP net income per common share is expected to be in the range of
        $0.23 to $0.25. This assumes approximately 44.4 million weighted average
        diluted shares outstanding.

Full Year 2019:

    --  Total revenue is expected to be in the range of $648 million to $652
        million.
    --  Non-GAAP operating income is expected to in be in the range of $46
        million to $50 million.
    --  Non-GAAP net income per common share is expected to be in the range of
        $1.08 to $1.16. This assumes approximately 45.6 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 ir.hubspot.com.

Conference Call Information

HubSpot will host a conference call on Tuesday, February 12, 2019 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 (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 3037758. Additionally, a live webcast of the conference call will be available on HubSpot's Investor Relations website at ir.hubspot.com.

Following the conference call, a replay will be available at (800) 585-8367 (domestic) or (416) 621-4642 (international). The replay pass code is 3037758. An archived webcast of this conference call will also be available on HubSpot's Investor Relations website at ir.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 56,500 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 first fiscal quarter and full year 2019; 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 November 7, 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)




                                                             December 31,                December

                                                                                                  31,


                                                                     2018                         2017




            
              Assets



            Current assets:



            Cash and cash equivalents                                    $
         111,489                $
          87,680



            Short-term investments                                              480,761                       416,663



            Accounts receivable                                                  77,100                        60,676



            Deferred commission expense                                          23,664                        13,343



            Restricted cash                                                       5,175                         4,757


             Prepaid expenses and other current assets                            14,229                        19,382




            Total current assets                                                712,418                       602,501



            Long-term investments                                                11,450                        31,394



            Property and equipment, net                                          52,468                        43,294


             Capitalized software development costs, net                          12,746                         8,760


             Deferred commission expense, net of current
              portion                                                             18,114



            Other assets                                                          6,888                         4,964



            Intangible assets                                                     4,919                         6,312



            Goodwill                                                             14,950                        14,950




            
              Total assets                                      $
         833,953               $
          712,175



                        Liabilities and stockholders
          '
                               equity



            Current liabilities:



            Accounts payable                                               $
         7,810                 $
          4,657



            Accrued compensation costs                                           23,589                        16,329


             Accrued expenses and other current
              liabilities                                                         22,305                        20,430



            Deferred revenue                                                    183,305                       136,880




            Total current liabilities                                           237,009                       178,296


             Deferred rent, net of current portion                                26,445                        18,868


             Deferred revenue, net of current portion                              2,179                         2,277



            Other long-term liabilities                                           4,897                         3,927



            Convertible senior notes                                            318,782                       298,447




            Total liabilities                                                   589,312                       501,815




            Stockholders' equity:



            Common stock                                                             40                            38



            Additional paid-in capital                                          589,708                       496,461



            Accumulated other comprehensive loss                                  (723)                         (57)



            Accumulated deficit                                               (344,384)                    (286,082)




            Total stockholders' equity                                          244,641                       210,360



                        Total liabilities and stockholders
                         '
               equity                              $
         833,953               $
          712,175



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




                                                                             For the Three Months Ended December
                                                                                      31,                                         Year Ended December 31,



                                                                  2018                                     2017                           2018                           2017




              Revenues:



              Subscription                                             $
         136,804                             $
         101,697                            $
          487,450      $
           356,727



              Professional services and other                                 7,218                                      4,844                                     25,530                18,885




              Total revenue                                                 144,022                                    106,541                                    512,980               375,612




              Cost of revenues:



              Subscription                                                   19,742                                     14,729                                     69,718                51,563



              Professional services and other                                 7,622                                      6,327                                     30,639                24,166




              Total cost of revenues                                         27,364                                     21,056                                    100,357                75,729




              Gross profit                                                  116,658                                     85,485                                    412,623               299,883




              Operating expenses:



              Research and development                                       32,005                                     22,286                                    117,603                70,373



              Sales and marketing                                            70,960                                     57,575                                    267,444               212,859



              General and administrative                                     21,525                                     15,057                                     75,834                56,787




              Total operating expenses                                      124,490                                     94,918                                    460,881               340,019




              Loss from operations                                          (7,832)                                   (9,433)                                  (48,258)             (40,136)




              Other expense:



              Interest income                                                 2,844                                      1,526                                      9,176                 3,837



              Interest expense                                              (5,493)                                   (5,234)                                  (21,386)             (13,181)



              Other expense                                                   (405)                                     (308)                                   (1,492)                (559)




              Total other expense                                           (3,054)                                   (4,016)                                  (13,702)              (9,903)




              Loss before income tax (expense) benefit                     (10,886)                                  (13,449)                                  (61,960)             (50,039)



              Income tax (expense) benefit                                    (606)                                     1,914                                    (1,868)               10,325




              Net loss                                                $
         (11,492)                           $
         (11,535)                          $
          (63,828)    $
           (39,714)




              Net loss per share, basic and diluted                     $
         (0.29)                             $
         (0.31)                            $
          (1.66)      $
           (1.08)



              Weighted average common shares used in                         39,153                                     37,385                                     38,529                36,827
    computing basic


                 and diluted net loss per share:



              
                Consolidated Statements of Cash Flows
    (in thousands)




                                                                                                          Three Months Ended        
           
                Year Ended

                                                                                             
           
           December, 31         
           
                December 31,



                                                                                               2018                          2017                              2018                 2017




              
                Operating Activities:



              Net loss                                                                             $
         (11,492)                 $
           (11,535)               $
           (63,828)             $
           (39,714)



              Adjustments to reconcile net loss to net cash and cash

              equivalents provided by operating activities



              Depreciation and amortization                                                                6,889                              4,663                           23,428                         15,786



              Stock-based compensation                                                                    20,927                             12,898                           76,261                         47,317



              Deferred income tax expense (benefit)                                                          (7)                           (2,421)                              36                       (11,546)



              Amortization of debt discount and issuance costs                                             5,232                              4,884                           20,335                         12,366



              Accretion of bond discount                                                                 (2,270)                             (829)                         (6,787)                       (1,576)



              Noncash rent expense                                                                           364                                696                            2,336                          5,039



              Unrealized currency translation                                                                268                                209                              483                          (139)



              Changes in assets and liabilities, net of acquisition



              Accounts receivable                                                                       (14,460)                          (11,670)                        (17,726)                      (20,180)



              Prepaid expenses and other assets                                                            3,057                              (225)                           3,880                        (5,588)



              Deferred commission expense                                                                (8,013)                           (1,993)                        (23,900)                       (4,004)



              Accounts payable                                                                             (964)                             (456)                           3,298                          1,100



              Accrued expenses and other current liabilities                                               8,165                              1,357                           11,920                          8,195



              Deferred rent                                                                                1,812                               (22)                           5,799                          3,559



              Deferred revenue                                                                            23,603                             18,438                           49,316                         38,999




              Net cash and cash equivalents provided by operating activities                              33,111                             13,994                           84,851                         49,614




              
                Investing Activities:



              Purchases of investments                                                                 (156,794)                         (317,373)                       (681,632)                     (890,009)



              Maturities and sales of investments                                                        145,525                            220,600                          644,375                        533,660



              Purchases of property and equipment                                                        (5,617)                           (5,187)                        (22,305)                      (20,276)



              Capitalization of software development costs                                               (2,442)                           (1,765)                        (11,168)                       (7,071)



              Acquisition of a business and purchase of technology                                                                                                                       (9,415)



              Purchases of strategic investments                                                           (200)                             (700)                           (500)                       (3,500)




              Net cash and cash equivalents used in investing activities                                (19,528)                         (104,425)                        (71,230)                     (396,611)




              
                Financing Activities:



              Employee taxes paid related to the net share settlement of                                 (2,100)                           (1,265)                         (8,033)                       (4,419)
    stock-based awards



              Proceeds related to the issuance of common stock under stock                                 4,786                              2,677                           21,555                         13,086
    plans



              Proceeds of the issuance of convertible notes, net of issuance                                                                                                             389,233
    costs paid of $10,767



              Purchase of note hedge related to convertible notes                                                                                                                       (78,920)



              Proceeds from the issuance of warrants related to convertible                                                                                                               58,880
    notes, net of issuance costs of $200



              Repayments of capital lease obligations                                                      (152)                             (267)                           (744)                       (1,054)




              Net cash and cash equivalents provided by financing activities                               2,534                              1,145                           12,778                        376,806




              Effect of exchange rate changes on cash, cash equivalents and restricted cash                (750)                               221                          (2,069)                         2,790




              Net increase in cash, cash equivalents and restricted cash                                  15,367                           (89,065)                          24,330                         32,599



              Cash, cash equivalents and restricted cash, beginning of period                            101,747                            181,849                           92,784                         60,185




              Cash, cash equivalents and restricted cash, end of period                             $
         117,114                    $
           92,784                 $
           117,114              $
             92,784



     
                Reconciliation of non-GAAP operating income and operating          Three Months Ended                          Year ended December 31,


     
                margin                                                                December 31,


     (in thousands, except percentages)



                                                                             2018                        2017                2018                    2017




     GAAP operating loss                                                         $
        (7,832)               $
        (9,433)                              $
        (48,258)   $
        (40,136)



     Stock-based compensation                                                           20,927                       12,898                                       76,261            47,317



     Amortization of acquired intangible assets                                            800                           50                                        1,394               103



     Acquisition related expenses                                                          289                          827                                        2,696             1,266




     Non-GAAP operating income                                                    $
        14,184                  $
        4,342                                $
         32,093    $
           8,550






     GAAP operating margin                                                              (5.4%)                      (8.9%)                                      (9.4%)          (10.7%)



     Non-GAAP operating margin                                                             9.8                          4.1                                          6.3               2.3
                                                                                              %                           %                                           %                %



     
                Reconciliation of non-GAAP net income                                        Three Months Ended                           Year ended December 31,


     (in thousands, except per share amounts)                                                     December 31,



                                                                                    2018                          2017                  2018             2017




     GAAP net loss                                                                      $
          (11,492)              $
         (11,535)                       $
           (63,828)   $
         (39,714)



     Stock-based compensation                                                                     20,927                        12,898                                   76,261             47,317



     Amortization of acquired intangibles assets                                                     800                            50                                    1,394                103



     Acquisition related expenses                                                                    289                           827                                    2,696              1,266


      Non-cash interest expense for amortization of debt discount and debt issuance
       costs                                                                                        5,232                         4,884                                   20,335             12,367


      Deferred income tax benefit from convertible notes and business combination                                              (2,480)                                                  (11,573)



     Income tax effects of  non-GAAP items




     Non-GAAP net income                                                                  $
          15,756                 $
          4,644                          $
           36,858    $
            9,766






     Non-GAAP net income per share:



     Basic                                                                                  $
          0.40                  $
          0.12                            $
           0.96     $
            0.27



     Diluted                                                                                $
          0.37                  $
          0.12                            $
           0.89     $
            0.25



     Shares used in non-GAAP per share calculations



     Basic                                                                                        39,153                        37,385                                   38,529             36,827



     Diluted                                                                                      43,024                        39,978                                   41,595             38,798




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



     (in thousands, except percentages)


                                                                                                                                                 
        
            Three Months Ended December 31,



                                                                                                                                                                  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                                                                                        $
        19,742             $
          7,622              $
              32,005                        $
            70,960              $
             21,525               $
           14,729      $
              6,327         $
              22,286      $
              57,575  $
            15,057



     Stock -based compensation                                                                                (491)                    (585)                        (6,462)                                (8,772)                       (4,617)                        (203)                 (620)                   (3,803)                (5,127)            (3,145)



     Amortization of acquired intangible assets                                                    (800)                                                                                                                                                   (50)



     Acquisition related expenses                                                                                                                     (289)                                                                                                                                                   (827)




     Non-GAAP expense                                                                                    $
        18,451             $
          7,037              $
              25,254                        $
            62,188              $
             16,908               $
           14,476      $
              5,707         $
              17,656      $
              52,448  $
            11,912






     GAAP expense as a percentage of revenue                                                                   13.7                       5.3                            22.2                                    49.3                           14.9                          13.8                    5.9                       20.9                    54.0              14.1
                                                                                                                     %                        %                              %                                      %                             %                            %                     %                         %                      %                  %



     Non-GAAP expense as a percentage of revenue                                                               12.8                       4.9                            17.5                                    43.2                           11.7                          13.6                    5.4                       16.6                    49.2              11.2
                                                                                                                     %                        %                              %                                      %                             %                            %                     %                         %                      %                  %








                                                                                                                                                   
          
            Year ended December 31,



                                                                                                                                                                  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                                                                                        $
        69,718            $
          30,639             $
              117,603                       $
            267,444              $
             75,834               $
           51,563     $
              24,166         $
              70,373     $
              212,859  $
            56,787



     Stock -based compensation                                                                              (1,476)                  (2,924)                       (23,328)                               (31,099)                      (17,434)                        (658)               (2,327)                  (12,816)               (19,016)           (12,500)



     Amortization of acquired intangible assets                                                  (1,394)                                                                                                                                                   (96)                                                                        (7)



     Acquisition related expenses                                                                                                                   (2,696)                                                                                                                                                 (1,266)




     Non-GAAP expense                                                                                    $
        66,848            $
          27,715              $
              91,579                       $
            236,345              $
             58,400               $
           50,809     $
              21,839         $
              56,291     $
              193,836  $
            44,287






     GAAP expense as a percentage of revenue                                                                   13.6                       6.0                            22.9                                    52.1                           14.8                          13.7                    6.4                       18.7                    56.7              15.1
                                                                                                                     %                        %                              %                                      %                             %                            %                     %                         %                      %                  %



     Non-GAAP expense as a percentage of revenue                                                               13.0                       5.4                            17.9                                    46.1                           11.4                          13.5                    5.8                       15.0                    51.6              11.8
                                                                                                                     %                        %                              %                                      %                             %                            %                     %                         %                      %                  %




     
                Reconciliation of non-GAAP subscription


     
                margin



     (in thousands, except percentages)


                                                           Three Months Ended
                                                           
                December 31,                 Year ended December 31,



                                                                                2018            2017                                   2018 2017




     GAAP subscription margin                                                       $
     117,062                              $
     86,968           $
     417,732 $
     305,164



     Stock -based compensation                                                             491                                    203                1,476        658



     Amortization of acquired intangible assets                                            800                                     50                1,394         96




     Non-GAAP subscription margin                                                   $
     118,353                              $
     87,221           $
     420,602 $
     305,918






     GAAP subscription margin percentage                                                  85.6                                   85.5                 85.7       85.5
                                                                                              %                                     %                   %         %



     Non-GAAP subscription margin percentage                                              86.5                                   85.8                 86.3       85.8
                                                                                              %                                     %                   %         %



     
                Reconciliation of free cash flow



     (in thousands)




                                                     Three Months Ended December 31,                 Year ended December 31,



                                                                                2018            2017                                      2018 2017



      GAAP net cash and cash equivalents provided by
       operating activities                                                          $
      33,111                              $
        13,994           $
         84,851 $
          49,614



     Purchases of property and equipment                                               (5,617)                                  (5,187)               (22,305)      (20,276)


      Capitalization of software development costs                                      (2,442)                                  (1,765)               (11,168)       (7,071)




     Free cash flow                                                                 $
      25,052                               $
        7,042           $
         51,378 $
          22,267



     
                Reconciliation of forecasted non-GAAP operating income


     (in thousands, except percentages)


                                                                             Three Months Ended                Year Ended

                                                                               March, 31 2019              December 31, 2019




     GAAP operating income range                                           ($12,030)-($11,030)          ($61,230)-($57,230)



     Stock-based compensation                                                                  20,700                       104,000



     Amortization of acquired intangible assets                                                   800                         3,100



     Acquisition related expenses                                                                  30                           130




     Non-GAAP operating income range                                     
          $9,500-$10,500        
         $46,000-$50,000



     
                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

                                                                                                           March 31, 2019                 December 31, 2019




     GAAP net loss range                                                                               ($16,730)-($15,730)                ($79,930-75,930)



     Stock-based compensation                                                                                              20,700                              104,000



     Amortization of acquired intangible assets                                                                               800                                3,100



     Acquisition related expenses                                                                                              30                                  130



     Non-cash interest expense for amortization of debt discount and debt issuance costs                                    5,300                               21,800



     Income tax effects of  non-GAAP items                                                                    
              $                                 
     $




     Non-GAAP net income range                                                                   
             $10,100-$11,100        
            $49,100-$53,100






     GAAP net income per basic and diluted share                                                   ($0.42)-($0.40)                  ($1.98)-($1.88)



     Non-GAAP net income per diluted share                                                          
              $0.23-$0.25          
              $1.08-$1.16







     Weighted average common shares used in computing GAAP basic and diluted net loss per share:                           39,600                               40,300





     Weighted average common shares used in computing non-GAAP diluted net loss per share:                                 44,400                               45,600

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 stock-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:

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 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.

F. 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.

G. 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.

View original content to download multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q4-and-full-year-2018-results-300794439.html

SOURCE HubSpot