HubSpot Reports Q3 2019 Results
CAMBRIDGE, Mass., Nov. 5, 2019 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the third quarter ended September 30, 2019.
Financial Highlights:
Revenue
-- Total revenue was $173.6 million, up 32% compared to Q3'18.
-- Subscription revenue was $167.1 million, up 33% compared to Q3'18.
-- Professional services and other revenue was $6.5 million, up 3% compared
to Q3'18.
Operating Income (Loss)
-- GAAP operating margin was (8.1%), compared to (11.4%) in Q3'18.
-- Non-GAAP operating margin was 6.1%, an improvement of approximately 1.7
percentage points from 4.4% in Q3'18.
-- GAAP operating loss was ($14.1) million, compared to ($15.1) million in
Q3'18.
-- Non-GAAP operating income was $10.5 million, compared to $5.9 million in
Q3'18.
Net Income (Loss)
-- GAAP net loss was ($15.0) million, or ($0.35) per basic and diluted
share, compared to ($18.7) million, or ($0.48) per basic and diluted
share in Q3'18.
-- Non-GAAP net income was $15.1 million, or $0.36 per basic and $0.32 per
diluted share, compared to $7.4 million, or $0.19 per basic and $0.17
per diluted share in Q3'18.
-- Weighted average basic and diluted shares outstanding for GAAP net loss
per share was 42.5 million, compared to 38.8 million basic and diluted
shares in Q3'18.
-- Weighted average basic and diluted shares outstanding for non-GAAP net
income per share was 42.5 million and 47.9 million respectively,
compared to 38.8 million and 43.1 million, respectively in Q3'18.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $1,008
million as of September 30, 2019.
-- During the third quarter, the company generated $6.7 million of free
cash flow compared to $3.2 million during Q3'18.
Additional Recent Business Highlights
-- Grew total customers to 68,803 at September 30, 2019 up 31% from
September 30, 2018.
-- Total average subscription revenue per customer was $9,992 during the
third quarter of 2019 up 0.3% compared to Q3'18.
"In the last year we've really expanded from an all-in-one suite to an all-on-one platform," said Brian Halligan, co-founder and CEO. "Our ecosystem is strong and getting stronger, which is one of the reasons we're really happy to have announced our acquisition of PieSync this week. PieSync helps ensure that as our ecosystem expands, our customers can keep their data whole across the tools they use."
Business Outlook
Based on information available as of November 5, 2019, HubSpot is issuing guidance for the fourth quarter of 2019 and full year 2019 as indicated below.
Fourth Quarter 2019:
-- Total revenue is expected to be in the range of $180.3 million to $181.3
million.
-- Non-GAAP operating income is expected to be in the range of $17.1
million to $18.1 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.40 to $0.42. This assumes approximately 47.0 million weighted average
diluted shares outstanding.
Full Year 2019:
-- Total revenue is expected to be in the range of $669.0 million to $670.0
million.
-- Non-GAAP operating income is expected to be in the range of $54.5
million to $55.5 million.
-- Non-GAAP net income per common share is expected to be in the range of
$1.44 to $1.46. This assumes approximately 47.0 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, November 5, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's third quarter financial results and its business outlook. To access this call, dial (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 8576778. 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 8576778. 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 68,800 total customers in over 100 countries use HubSpot's award-winning software, services, and support to transform the way they attract, engage, and delight customers. Learn more at www.hubspot.com.
Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the fourth fiscal quarter and full year 2019; statements regarding our positioning for future growth; and statements regarding the anticipated benefits from our recent acquisition of PieSync. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully acquire and integrate companies and assets; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 6, 2019 and our other SEC filings, including our upcoming Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.
Consolidated Balance Sheets
(in thousands)
September 30, December
31,
2019 2018
Assets
Current assets:
Cash and cash equivalents $
225,770 $
111,489
Short-term investments 722,767 480,761
Accounts receivable 77,551 77,100
Deferred commission expense 29,080 23,664
Restricted cash 6,019 5,175
Prepaid expenses and other current assets 20,052 14,229
Total current assets 1,081,239 712,418
Long-term investments 59,783 11,450
Property and equipment, net 63,959 52,468
Capitalized software development costs, net 15,095 12,746
Right-of-use assets 215,797
Deferred commission expense, net of current portion 17,608 18,114
Other assets 7,894 6,888
Intangible assets, net 2,556 4,919
Goodwill 14,950 14,950
Total assets $
1,478,881 $
833,953
Liabilities and stockholders
'
equity
Current liabilities:
Accounts payable $
14,882 $
7,810
Accrued compensation costs 23,913 23,589
Accrued expenses and other current liabilities 25,706 22,305
Lease liabilities 15,646
Deferred revenue 200,771 183,305
Total current liabilities 280,918 237,009
Lease liabilities, net of current portion 225,628
Deferred rent, net of current portion 26,445
Deferred revenue, net of current portion 2,835 2,179
Other long-term liabilities 6,182 4,897
Convertible senior notes 334,966 318,782
Total liabilities 850,529 589,312
Stockholders' equity:
Common stock 43 40
Additional paid-in capital 1,017,046 589,708
Accumulated other comprehensive loss (909) (723)
Accumulated deficit (387,828) (344,384)
Total stockholders' equity 628,352 244,641
Total liabilities and stockholders
'
equity $
1,478,881 $
833,953
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---
2019 2018 2019 2018
---
Revenues:
Subscription $
167,078 $
125,478 $
467,180 $
350,646
Professional services and other 6,543 6,348 21,494 18,312
Total revenue 173,621 131,826 488,674 368,958
Cost of revenues:
Subscription 25,671 17,777 70,550 49,976
Professional services and other 7,592 7,988 23,433 23,017
Total cost of revenues 33,263 25,765 93,983 72,993
Gross profit 140,358 106,061 394,691 295,965
Operating expenses:
Research and development 39,847 30,761 115,480 85,598
Sales and marketing 91,283 71,293 250,267 196,484
General and administrative 23,300 19,057 67,777 54,309
Total operating expenses 154,430 121,111 433,524 336,391
Loss from operations (14,072) (15,050) (38,833) (40,426)
Other expense:
Interest income 5,185 2,416 14,783 6,332
Interest expense (5,760) (5,393) (16,946) (15,893)
Other expense (89) (277) (773) (1,087)
Total other expense (664) (3,254) (2,936) (10,648)
Loss before income tax expense (14,736) (18,304) (41,769) (51,074)
Income tax expense (251) (359) (1,675) (1,262)
Net loss $
(14,987) $
(18,663) $
(43,444) $
(52,336)
===
Net loss per share, basic and diluted $
(0.35) $
(0.48) $
(1.04) $
(1.37)
Weighted average common shares used in computing basic 42,531 38,762 41,749 38,319
and diluted net loss per share:
Consolidated Statements of Cash Flows
(in thousands)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---
2019 2018 2019 2018
---
Operating Activities:
Net loss $
(14,987) $
(18,663) $
(43,444) $
(52,336)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities
Depreciation and amortization 7,213 6,000 21,248 16,539
Stock-based compensation 23,790 19,613 73,659 55,334
Provision (benefit) for deferred income taxes 184 (4) 49 43
Amortization of debt discount and issuance costs 5,509 5,141 16,184 15,103
Accretion of bond discount (4,068) (1,876) (10,889) (4,517)
Noncash rent expense 367 1,972
Unrealized currency translation (175) 79 (193) 215
Changes in assets and liabilities
Accounts receivable (5,253) (9,911) (1,346) (3,266)
Prepaid expenses and other assets 113 5,535 (6,217) 823
Deferred commission expense (12) (5,798) (5,551) (15,887)
Right-of-use assets 5,048 14,310
Accounts payable 1,203 3,508 6,195 4,262
Accrued expenses and other current liabilities (2,333) (1,876) 955 3,755
Lease liabilities (4,626) (14,788)
Deferred rent 81 3,987
Deferred revenue 8,063 9,321 20,910 25,713
Net cash and cash equivalents provided by operating activities 19,669 11,517 71,082 51,740
Investing Activities:
Purchases of investments (370,192) (158,546) (967,994) (524,838)
Maturities and sales of investments 347,229 150,300 689,614 498,850
Purchases of property and equipment (9,141) (5,378) (21,197) (16,688)
Capitalization of software development costs (3,811) (2,920) (9,139) (8,726)
Purchases of strategic investments (201) (50) (553) (300)
Net cash and cash equivalents used in investing activities (36,116) (16,594) (309,269) (51,702)
Financing Activities:
Proceeds from common stock offering, net of offering costs paid of $365 342,628
Employee taxes paid related to the net share settlement of stock-based awards (2,032) (1,888) (4,767) (5,933)
Proceeds related to the issuance of common stock under stock plans 8,188 5,157 18,926 16,769
Repayments of capital lease obligations (44) (175) (249) (592)
Net cash and cash equivalents provided by financing activities 6,112 3,094 356,538 10,244
Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,973) (321) (2,171) (1,319)
Net increase in cash, cash equivalents and restricted cash (12,308) (2,304) 116,180 8,963
Cash, cash equivalents and restricted cash, beginning of period 245,602 104,051 117,114 92,784
Cash, cash equivalents and restricted cash, end of period $
233,294 $
101,747 $
233,294 $
101,747
===
Reconciliation of non-GAAP operating income and operating margin Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except percentages)
2019 2018 2019 2018
GAAP operating loss $
(14,072) $
(15,050) $
(38,833) $
(40,426)
Stock-based compensation 23,791 19,612 73,659 55,334
Amortization of acquired intangible assets 762 494 2,362 594
Acquisition related expenses 30 802 95 2,407
Non-GAAP operating income $
10,511 $
5,858 $
37,283 $
17,909
GAAP operating margin (8.1) (11.4) (7.9) (11.0)
% % % %
Non-GAAP operating margin 6.1 4.4 7.6 4.9
% % % %
Reconciliation of non-GAAP net income Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts)
2019 2018 2019 2018
GAAP net loss $
(14,987) $
(18,663) $
(43,444) $
(52,336)
Stock-based compensation 23,791 19,612 73,659 55,334
Amortization of acquired intangibles assets 762 494 2,362 594
Acquisition related expenses 30 802 95 2,407
Non-cash interest expense for amortization of debt discount and debt issuance costs 5,509 5,141 16,184 15,103
Income tax effects of non-GAAP items
Non-GAAP net income $
15,105 $
7,386 $
48,856 $
21,102
Non-GAAP net income per share:
Basic $
0.36 $
0.19 $
1.17 $
0.55
Diluted $
0.32 $
0.17 $
1.05 $
0.51
Shares used in non-GAAP per share calculations
Basic 42,531 38,762 41,749 38,319
Diluted 47,869 43,101 46,622 41,314
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended September 30,
2019 2018
COS, COS, R&D S&M G&A COS, COS, R&D S&M G&A
Subscription Prof. Subscription Prof.
services services
& other & other
GAAP expense $
25,671 $
7,592 $
39,847 $
91,283 $
23,300 $
17,777 $
7,988 $
30,761 $
71,293 $
19,057
Stock -based compensation (854) (614) (8,019) (8,947) (5,357) (391) (803) (5,990) (7,898) (4,530)
Amortization of acquired intangible assets (762) (494)
Acquisition related expenses (30) (802)
Non-GAAP expense $
24,055 $
6,978 $
31,798 $
82,336 $
17,943 $
16,892 $
7,185 $
23,969 $
63,395 $
14,527
GAAP expense as a percentage of revenue 14.8 4.4 23.0 52.6 13.4 13.5 6.1 23.3 54.1 14.5
% % % % % % % % % %
Non-GAAP expense as a percentage of revenue 13.9 4.0 18.3 47.4 10.3 12.8 5.5 18.2 48.1 11.0
% % % % % % % % % %
Nine Months Ended September 30,
2019 2018
---
COS, COS, R&D S&M G&A COS, COS, R&D S&M G&A
Subscription Prof. Subscription Prof.
services services
& other & other
GAAP expense $
70,550 $
23,433 $
115,480 $
250,267 $
67,777 $
49,976 $
23,017 $
85,598 $
196,484 $
54,309
Stock -based compensation (2,291) (2,298) (25,663) (27,275) (16,132) (985) (2,339) (16,866) (22,327) (12,817)
Amortization of acquired intangible assets (2,362) (594)
Acquisition related expenses (95) (2,407)
Non-GAAP expense $
65,897 $
21,135 $
89,722 $
222,992 $
51,645 $
48,397 $
20,678 $
66,325 $
174,157 $
41,492
GAAP expense as a percentage of revenue 14.4 4.8 23.6 51.2 13.9 13.5 6.2 23.2 53.3 14.7
% % % % % % % % % %
Non-GAAP expense as a percentage of revenue 13.5 4.3 18.4 45.6 10.6 13.1 5.6 18.0 47.2 11.2
% % % % % % % % % %
Reconciliation of non-GAAP subscription margin
(in thousands, except percentages)
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
GAAP subscription margin $
141,407 $
107,701 $
396,630 $
300,670
Stock -based compensation 854 391 2,291 985
Amortization of acquired intangible assets 762 494 2,362 594
Non-GAAP subscription margin $
143,023 $
108,586 $
401,283 $
302,249
GAAP subscription margin percentage 84.6 85.8 84.9 85.7
% % % %
Non-GAAP subscription margin percentage 85.6 86.5 85.9 86.2
% % % %
Reconciliation of free cash flow
(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
GAAP net cash and cash equivalents provided by operating activities $
19,669 $
11,517 $
71,082 $
51,740
Purchases of property and equipment (9,141) (5,378) (21,197) (16,688)
Capitalization of software development costs (3,811) (2,920) (9,139) (8,726)
Free cash flow $
6,717 $
3,219 $
40,746 $
26,326
Reconciliation of forecasted non-GAAP operating income
(in thousands, except percentages)
Three Months Ended Year Ended
December 31, 2019
December 31, 2019
GAAP operating income range ($7,980)-($6,980) ($46,030)-($45,030)
Stock-based compensation 24,300 97,300
Amortization of acquired intangible assets 750 3,100
Acquisition related expenses 30 130
Non-GAAP operating income range
$17,100-$18,100
$54,500-$55,500
Reconciliation of forecasted non-GAAP net income and non-GAAP net income per share
(in thousands, except per share amounts)
Three Months Ended Year Ended
December 31, 2019
December 31, 2019
GAAP net loss range ($11,880)-($10,880) ($54,530)-($53,530)
Stock-based compensation 24,300 97,300
Amortization of acquired intangible assets 750 3,100
Acquisition related expenses 30 130
Non-cash interest expense for amortization of debt discount and debt issuance costs 5,600 21,800
Income tax effects of non-GAAP items
Non-GAAP net income range
$18,800-$19,800
$67,800-$68,800
GAAP net income per basic and diluted share ($0.28)-($0.25) ($1.30)-($1.27)
Non-GAAP net income per diluted share
$0.40-$0.42
$1.44-$1.46
Weighted average common shares used in computing GAAP basic and diluted net loss per
share:
42,900 42,000
Weighted average common shares used in computing non-GAAP diluted net loss per
share:
47,000 47,000
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. HubSpot has not included estimates related to the recently completed acquisition of PieSync NV for acquisition-related expenses, amortization of acquired intangibles, and any stock-based compensation for the three months ended December 31, 2019 because these expenses are unable to be determined at this time without unreasonable effort.
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.View original content to download multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q3-2019-results-300952183.html
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