HubSpot Reports Q2 2019 Results
CAMBRIDGE, Mass., Aug. 6, 2019 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for second quarter ended June 30, 2019.
Financial Highlights:
Revenue
-- Total revenue was $163.3 million, up 33% compared to Q2'18. -- Subscription revenue was $155.9 million, up 34% compared to Q2'18. -- Professional services and other revenue was $7.4 million, up 23% compared to Q2'18.
Operating Income (Loss)
-- GAAP operating margin was (9.6%), compared to (11.5%) in Q2'18. -- Non-GAAP operating margin was 8.4%, an improvement of approximately 3.1 percentage points from 5.3% in Q2'18. -- GAAP operating loss was ($15.7) million, compared to ($14.1) million in Q2'18. -- Non-GAAP operating income was $13.8 million, compared to $6.5 million in Q2'18.
Net Income (Loss)
-- GAAP net loss was ($17.4) million, or ($0.41) per basic and diluted share, compared to ($18.2) million, or ($0.48) per basic and diluted share in Q2'18. -- Non-GAAP net income was $17.6 million, or $0.42 per basic and $0.37 per diluted share, compared to $7.4 million, or $0.19 per basic and $0.18 per diluted share in Q2'18. -- Weighted average basic and diluted shares outstanding for GAAP net loss per share was 42.1 million, compared to 38.4 million in Q2'18. -- Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 42.1 million and 47.5 million respectively, compared to 38.4 million and 41.8 million, respectively in Q2'18.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $993.8 million as of June 30, 2019. -- During the second quarter, the company generated $3.4 million of free cash flow compared to $5.2 million during Q2'18.
Additional Recent Business Highlights
-- Grew total customers to 64,836 at June 30, 2019 up 35% from June 30, 2018. -- Total average subscription revenue per customer was $9,913 during the second quarter of 2019 down 1% compared to Q2'18.
"Q2 was another strong quarter for HubSpot," said Brian Halligan, co-founder and CEO. "Our suite product play is delivering a ton of value for customers and our platform flywheel play is gaining serious momentum among integration partners and our expanding user base."
Business Outlook
Based on information available as of August 6, 2019, HubSpot is issuing guidance for the third quarter of 2019 and full year 2019 as indicated below.
Third Quarter 2019:
-- Total revenue is expected to be in the range of $168.0 million to $169.0 million. -- Non-GAAP operating income is expected to be in the range of $8.0 million to $9.0 million. -- Non-GAAP net income per common share is expected to be in the range of $0.22 to $0.24. This assumes approximately 48.0 million weighted average diluted shares outstanding.
Full Year 2019:
-- Total revenue is expected to be in the range of $663.0 million to $665.0 million. -- Non-GAAP operating income is expected to in be in the range of $54.0 million to $55.0 million. -- Non-GAAP net income per common share is expected to be in the range of $1.39 to $1.41. This assumes approximately 47.1 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, August 6, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's second quarter financial results and its business outlook. To access this call, dial (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 5284634. 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 passcode is 5284634. 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 64,500 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 third 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 May 7, 2019 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.
Consolidated Balance Sheets (in thousands) June December 30, 31, 2019 2018 Assets Current assets: Cash and cash equivalents $ 238,080 $ 111,489 Short-term investments 717,115 480,761 Accounts receivable 72,999 77,100 Deferred commission expense 28,672 23,664 Restricted cash 6,019 5,175 Prepaid expenses and other current assets 19,991 14,229 Total current assets 1,082,876 712,418 Long-term investments 38,628 11,450 Property and equipment, net 58,471 52,468 Capitalized software development costs, net 13,616 12,746 Right-of-use assets 224,980 Deferred commission expense, net of current portion 18,600 18,114 Other assets 8,052 6,888 Intangible assets, net 3,319 4,919 Goodwill 14,950 14,950 Total assets $ 1,463,492 $ 833,953 Liabilities and stockholders ' equity Current liabilities: Accounts payable $ 13,264 $ 7,810 Accrued compensation costs 20,179 23,589 Accrued expenses and other current liabilities 28,546 22,305 Lease liabilities 15,415 Deferred revenue 195,509 183,305 Total current liabilities 272,913 237,009 Lease liabilities, net of current portion 234,724 Deferred rent, net of current portion 26,445 Deferred revenue, net of current portion 2,619 2,179 Other long-term liabilities 5,635 4,897 Convertible senior notes 329,457 318,782 Total liabilities 845,348 589,312 Stockholders' equity: Common stock 43 40 Additional paid-in capital 990,701 589,708 Accumulated other comprehensive loss 241 (723) Accumulated deficit (372,841) (344,384) Total stockholders' equity 618,144 244,641 Total liabilities and stockholders ' equity $ 1,463,492 $ 833,953
Consolidated Statements of Operations (in thousands, except per share data) For the Three Months Ended June 30, For the Six Months Ended June 30, 2019 2018 2019 2018 Revenues: Subscription $ 155,876 $ 116,566 $ 300,102 $ 225,168 Professional services and other 7,379 6,010 14,951 11,964 Total revenue 163,255 122,576 315,053 237,132 Cost of revenues: Subscription 23,578 16,964 44,879 32,199 Professional services and other 7,564 7,887 15,841 15,029 Total cost of revenues 31,142 24,851 60,720 47,228 Gross profit 132,113 97,725 254,333 189,904 Operating expenses: Research and development 40,456 28,485 75,633 54,837 Sales and marketing 84,079 65,281 158,984 125,191 General and administrative 23,303 18,011 44,477 35,252 Total operating expenses 147,838 111,777 279,094 215,280 Loss from operations (15,725) (14,052) (24,761) (25,376) Other expense: Interest income 5,424 2,092 9,598 3,916 Interest expense (5,673) (5,326) (11,186) (10,500) Other expense (672) (527) (684) (810) Total other expense (921) (3,761) (2,272) (7,394) Loss before income tax expense (16,646) (17,813) (27,033) (32,770) Income tax expense (711) (412) (1,424) (903) Net loss $ (17,357) $ (18,225) $ (28,457) $ (33,673) Net loss per share, basic and diluted $ (0.41) $ (0.48) $ (0.69) $ (0.88) Weighted average common shares used in computing basic 42,127 38,350 41,352 38,093 and diluted net loss per share:
Consolidated Statements of Cash Flows (in thousands) For the Three Months For the Six Months Ended June 30, Ended June 30, 2019 2018 2019 2018 Operating Activities: Net loss $ (17,357) $ (18,225) $ (28,457) $ (33,673) Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities Depreciation and amortization 7,063 5,429 14,035 10,539 Stock-based compensation 28,663 19,675 49,869 35,721 (Benefit) provision for deferred income taxes (107) 47 (135) 47 Amortization of debt discount and issuance costs 5,415 5,054 10,675 9,962 Accretion of bond discount (4,070) (1,477) (6,821) (2,641) Noncash rent expense 811 1,605 Unrealized currency translation 263 100 (18) 136 Changes in assets and liabilities Accounts receivable (3,851) (218) 3,907 6,645 Prepaid expenses and other assets (7,216) (6,592) (6,330) (4,712) Deferred commission expense (2,205) (5,021) (5,539) (10,089) Right-of-use assets 3,757 9,262 Accounts payable 81 588 4,992 754 Accrued expenses and other current liabilities 5,359 3,957 3,288 5,631 Lease liabilities (6,052) (10,162) Deferred rent 3,954 3,906 Deferred revenue 3,954 5,419 12,847 16,392 Net cash and cash equivalents provided by 13,697 13,501 51,413 40,223 operating activities Investing Activities: Purchases of investments (211,301) (155,406) (597,802) (366,292) Maturities and sales of investments 158,925 92,300 342,385 348,550 Purchases of property and equipment (7,791) (5,071) (12,056) (11,310) Capitalization of software development costs (2,507) (3,190) (5,328) (5,806) Purchases of strategic investments (352) (352) (250) Net cash and cash equivalents used in investing (63,026) (71,367) (273,153) (35,108) activities Financing Activities: Proceeds from common stock offering, net of offering costs 342,628 paid of $365 Payments for common stock offering costs (111) Employee taxes paid related to the net share settlement of (1,651) (1,701) (2,735) (4,045) stock-based awards Proceeds related to the issuance of common stock under stock 5,048 5,499 10,738 11,612 plans Repayments of capital lease obligations (87) (205) (205) (417) Net cash and cash equivalents provided by 3,199 3,593 350,426 7,150 financing activities Effect of exchange rate changes on cash, cash equivalents and 586 (1,675) (198) (998) restricted cash Net increase in cash, cash equivalents and restricted cash (45,544) (55,948) 128,488 11,267 Cash, cash equivalents and restricted cash, beginning of period 291,146 159,999 117,114 92,784 Cash, cash equivalents and restricted cash, end of period $ 245,602 $ 104,051 $ 245,602 $ 104,051
Reconciliation of non-GAAP operating income and operating margin Three Months Ended Six Months Ended June 30, June 30, (in thousands, except percentages) 2019 2018 2019 2018 GAAP operating loss $ (15,725) $ (14,052) $ (24,761) $ (25,376) Stock-based compensation 28,663 19,675 49,869 35,721 Amortization of acquired intangible assets 800 50 1,600 100 Acquisition related expenses 32 802 65 1,604 Non-GAAP operating income $ 13,770 $ 6,475 $ 26,773 $ 12,049 GAAP operating margin (9.6) (11.5) (7.9) (10.7) % % % % Non-GAAP operating margin 8.4 5.3 8.5 5.1 % % % %
Reconciliation of non-GAAP net income Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share amounts) 2019 2018 2019 2018 GAAP net loss $ (17,357) $ (18,225) $ (28,457) $ (33,673) Stock-based compensation 28,663 19,675 49,869 35,721 Amortization of acquired intangibles assets 800 50 1,600 100 Acquisition related expenses 32 802 65 1,604 Non-cash interest expense for amortization of debt discount and debt 5,415 5,054 10,675 9,962 issuance costs Income tax effects of non-GAAP items Non-GAAP net income $ 17,553 $ 7,356 $ 33,752 $ 13,714 Non-GAAP net income per share: Basic $ 0.42 $ 0.19 $ 0.82 $ 0.36 Diluted $ 0.37 $ 0.18 $ 0.73 $ 0.34 Shares used in non-GAAP per share calculations Basic 42,127 38,350 41,352 38,093 Diluted 47,532 41,788 46,394 40,892
Reconciliation of non-GAAP expense and expense as a percentage of revenue (in thousands, except percentages) Three Months Ended June 30, 2019 2018 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 $ 23,578 $ 7,564 $ 40,456 $ 84,079 $ 23,303 $ 16,964 $ 7,887 $ 28,485 $ 65,281 $ 18,011 Stock -based compensation (822) (666) (10,553) (10,523) (6,099) (317) (846) (6,111) (7,937) (4,464) Amortization of acquired intangible (800) (50) assets Acquisition related expenses (32) (802) Non-GAAP expense $ 21,956 $ 6,898 $ 29,871 $ 73,556 $ 17,204 $ 16,597 $ 7,041 $ 21,572 $ 57,344 $ 13,547 GAAP expense as a percentage of 14.4 4.6 24.8 51.5 14.3 13.8 6.4 23.2 53.3 14.7 % % % % % % % % % % revenue Non-GAAP expense as a percentage of 13.4 4.2 18.3 45.1 10.5 13.5 5.7 17.6 46.8 11.1 % % % % % % % % % % revenue Six Months Ended June 30, 2019 2018 --- 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 $ 44,879 $ 15,841 $ 75,633 $ 158,984 $ 44,477 $ 32,199 $ 15,029 $ 54,837 $ 125,191 $ 35,252 Stock -based compensation (1,437) (1,685) (17,644) (18,327) (10,776) (594) (1,536) (10,875) (14,429) (8,287) Amortization of acquired intangible (1,600) (100) assets Acquisition related expenses (65) (1,604) Non-GAAP expense $ 41,842 $ 14,156 $ 57,924 $ 140,657 $ 33,701 $ 31,505 $ 13,493 $ 42,358 $ 110,762 $ 26,965 GAAP expense as a percentage of 14.2 5.0 24.0 50.5 14.1 13.6 6.3 23.1 52.8 14.9 % % % % % % % % % % revenue Non-GAAP expense as a percentage of 13.3 4.5 18.4 44.6 10.7 13.3 5.7 17.9 46.7 11.4 % % % % % % % % % % revenue
Reconciliation of non-GAAP subscription margin (in thousands, except percentages) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 GAAP subscription margin $ 132,298 $ 99,602 $ 255,223 $ 192,969 Stock -based compensation 822 317 1,437 594 Amortization of acquired intangible assets 800 50 1,600 100 Non-GAAP subscription margin $ 133,920 $ 99,969 $ 258,260 $ 193,663 GAAP subscription margin percentage 84.9 85.4 85.0 85.7 % % % % Non-GAAP subscription margin percentage 85.9 85.8 86.1 86.0 % % % %
Reconciliation of free cash flow (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 GAAP net cash and cash equivalents provided $ 13,697 $ 13,501 $ 51,413 $ 40,223 by operating activities Purchases of property and equipment (7,791) (5,071) (12,056) (11,310) Capitalization of software development costs (2,507) (3,190) (5,328) (5,806) Free cash flow $ 3,399 $ 5,240 $ 34,029 $ 23,107
Reconciliation of forecasted non-GAAP operating income (in thousands, except percentages) Three Months Ended Year Ended September 30, 2019 December 31, 2019 GAAP operating income range ($16,880)-($15,880) ($49,330)-($48,330) Stock-based compensation 24,100 100,100 Amortization of acquired intangible assets 750 3,100 Acquisition related expenses 30 130 Non-GAAP operating income range $8,000-$9,000 $54,000-$55,000
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 September 30, 2019 December 31, 2019 GAAP net loss range ($19,880)-($18,880) ($59,730)-($58,730) Stock-based compensation 24,100 100,100 Amortization of acquired intangible assets 750 3,100 Acquisition related expenses 30 130 Non-cash interest expense for amortization of debt discount and debt 5,500 21,800 issuance costs Income tax effects of non-GAAP items Non-GAAP net income range $10,500-$11,500 $65,400-$66,400 GAAP net income per basic and diluted share ($0.47)-($0.44) ($1.42)-($1.40) Non-GAAP net income per diluted share $0.22-$0.24 $1.39-$1.41 Weighted average common shares used in computing GAAP basic 42,500 42,050 and diluted net loss per share: Weighted average common shares used in computing non-GAAP 48,000 47,100 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 stock-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount debt issuance costs, 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 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.