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.