HubSpot Reports Q1 2020 Results
CAMBRIDGE, Mass., May 6, 2020 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the first quarter ended March 31, 2020.
"We came into 2020 strong with the relaunch of our Marketing Hub Enterprise and a new CMS product line. While the global economic situation shifted with the onslaught of the COVID-19 health crisis and created some headwinds for us, we feel well positioned to weather this storm," said Brian Halligan, co-founder and CEO. "Our primary focus now is on doing what we can to help our customers and partners bend, not break, in the face of these tough times."
The company also announced today that JD Sherman, its President and Chief Operating Officer, will be stepping down from his position as of July 1, 2020 but will remain with the Company through January 4, 2021 to ensure a smooth transition of his duties.
"JD has been instrumental in HubSpot's global growth, and he's had a tremendous impact in helping our customers, partners, and employees grow better. He will surely be missed at HubSpot, but we look forward to rooting for him on his next adventure," said Halligan. "On behalf of HubSpot, the Board of Directors, and our employees, I want to thank JD for his significant contributions in helping us build a company our grandkids will be proud of."
"My time at HubSpot has been nothing short of amazing, and I'm grateful to have been a part of the Company's journey and growth over the past eight years," said Sherman. "It's the right time - both for me personally and because the team is so strong and well positioned right now. I'll be proud to see them lead HubSpot's next chapter of growth."
Financial Highlights:
Revenue
-- Total revenue was $199.0 million, up 31% compared to Q1'19.
-- Subscription revenue was $191.2 million, up 33% compared to Q1'19.
-- Professional services and other revenue was $7.7 million, up 2%
compared to Q1'19.
Operating Income (Loss)
-- GAAP operating margin was (7.1%), compared to (6.0%) in Q1'19.
-- Non-GAAP operating margin was 7.3%, compared to 8.6% in Q1'19.
-- GAAP operating loss was ($14.1) million, compared to ($9.0) million in
Q1'19.
-- Non-GAAP operating income was $14.6 million, compared to $13.0 million
in Q1'19.
Net Income (Loss)
-- GAAP net loss was ($17.7) million, or ($0.41) per basic and diluted
share, compared to ($11.1) million, or ($0.27) per basic and diluted
share in Q1'19.
-- Non-GAAP net income was $16.7 million, or $0.39 per basic and $0.35 per
diluted share, compared to $16.2 million, or $0.40 per basic and $0.36
per diluted share in Q1'19.
-- Weighted average basic and diluted shares outstanding for GAAP net loss
per share was 43.3 million, compared to 40.6 million basic and diluted
shares in Q1'19.
-- Weighted average basic and diluted shares outstanding for non-GAAP net
income per share was 43.3 million and 47.7 million respectively,
compared to 40.6 million and 45.5 million, respectively in Q1'19.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $1,035
million as of March 31, 2020.
-- During the first quarter, the company generated $23.0 million of
operating cash flow, compared to $37.7 million during Q1'19.
-- During the first quarter, the company generated $7.1 million of free
cash flow, compared to $30.6 million during Q1'19.
Additional Recent Business Highlights
-- Grew total customers to 78,776 at March 31, 2020 up 30% compared to
March 31, 2019.
-- Total average subscription revenue per customer was $10,018 during the
first quarter of 2020, up 2% compared to Q1'19.
Response to COVID-19
Over the last few months, we have focused on supporting our employees, customers, partners and community to navigate these unprecedented times. We have taken several proactive measures to shore up business continuity processes while prioritizing the health and safety of our employees and the communities we serve. For example, we have:
-- temporarily closed our global offices, suspended all company-related
travel, and all HubSpot employees globally are required to work from
home for the foreseeable future;
-- implemented certain changes to our pricing and packaging structure,
including reducing prices on our Starter Growth Suite, offering
discounts and flexible payment terms to customers and prospects under
more severe short-term financial strain, offering certain product
functionality free of charge, suspending marketing email send limits,
and increasing limits on calling; and
-- offered a six-month advance on commissions to certain of our Solutions
Partners in addition to expediting Q1 commissions for all Solutions
Partners.
Business Outlook
Based on information available as of May 6, 2020, HubSpot is issuing guidance for the second quarter of 2020 and full year 2020 as indicated below.
Second Quarter 2020:
-- Total revenue is expected to be in the range of $195.0 million to $196.0
million.
-- Non-GAAP operating income is expected to be in the range of $10.5
million to $11.5 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.23 to $0.25. This assumes approximately 47.2 million weighted average
diluted shares outstanding.
Full Year 2020:
-- Total revenue is expected to be in the range of $800.0 million to $810.0
million.
-- Non-GAAP operating income is expected to be in the range of $40.0
million to $42.0 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.88 to $0.92. This assumes approximately 47.4 million weighted average
diluted shares outstanding.
While we believe we are in a strong financial position to weather the impact to our business from COVID-19, many of our customers and prospects are now operating under very challenging circumstances and may re-evaluate their spend. As such, our second quarter 2020 guidance and updated full year 2020 guidance factor in the expected impact of the global uncertainty caused by the COVID-19 pandemic based on the latest data and information available to us as of May 6, 2020, and we undertake no obligation to update after such date. Our outlook assumes a challenging economic environment through the second quarter of 2020 and incorporates a wider range of outcomes for the second half of the year. Significant variation from these assumptions could cause us to modify our guidance higher or lower. These statements are forward-looking, and actual results may differ materially, as further discussed below under the heading "Cautionary Language Concerning Forward-Looking Statements".
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 Wednesday, May 6, 2020 at 4:30 p.m. Eastern Time (ET) to discuss the company's first 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 4228918. 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 4228918. 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 78,700 total customers in over 120 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 second fiscal quarter and full year 2020; statements regarding the impact of the COVID-19 pandemic and related economic conditions on our business and results of operations; statements regarding our positioning for future growth and market leadership; statements regarding the announced leadership transition; statements regarding the proposed benefits of CMS Hub; statements regarding our proposed investments; and statements regarding our expected headcount growth and hiring plans. 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, risks associated with the impact of COVID-19 on our business, the broader economy, and our ability to forecast our future financial performance as a result of COVID-19; 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 solutions 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 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)
March December
31, 31,
2020 2019
Assets
Current assets:
Cash and cash equivalents $
229,133 $
269,670
Short-term investments 739,428 691,834
Accounts receivable 81,055 92,517
Deferred commission expense 33,214 32,078
Prepaid expenses and other current
assets 29,923 23,625
Total current assets 1,112,753 1,109,724
Long-term investments 66,184 53,776
Property and equipment, net 85,653 83,649
Capitalized software development costs,
net 18,826 16,793
Right-of-use assets 230,565 234,390
Deferred commission expense, net of
current portion 18,792 19,110
Other assets 12,883 9,824
Intangible assets, net 10,898 11,752
Goodwill 29,956 30,250
Total assets $
1,586,510 $
1,569,268
Liabilities and stockholders
'
equity
Current liabilities:
Accounts payable $
10,671 $
12,842
Accrued compensation costs 23,809 26,318
Accrued expenses and other current
liabilities 29,450 28,686
Operating lease liabilities 24,542 23,613
Deferred revenue 238,913 231,030
Total current liabilities 327,385 322,489
Operating lease liabilities, net of
current portion 239,655 244,216
Deferred revenue, net of current
portion 3,334 3,058
Other long-term liabilities 8,898 8,983
Convertible senior notes 346,265 340,564
Total liabilities 925,537 919,310
Stockholders' equity:
Common stock 44 44
Additional paid-in capital 1,077,605 1,048,380
Accumulated other comprehensive loss (830) (336)
Accumulated deficit (415,846) (398,130)
Total stockholders' equity 660,973 649,958
Total liabilities and stockholders
'
equity $
1,586,510 $
1,569,268
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended March
31,
2020 2019
Revenues:
Subscription $
191,229 $
144,226
Professional services and other 7,739 7,572
Total revenue 198,968 151,798
Cost of revenues:
Subscription 29,734 21,301
Professional services and other 8,551 8,277
Total cost of revenues 38,285 29,578
Gross profit 160,683 122,220
Operating expenses:
Research and development 46,202 35,177
Sales and marketing 102,328 74,905
General and administrative 26,255 21,174
Total operating expenses 174,785 131,256
Loss from operations (14,102) (9,036)
Other expense:
Interest income 4,057 4,174
Interest expense (5,953) (5,513)
Other expense (1,052) (12)
Total other expense (2,948) (1,351)
Loss before income tax expense (17,050) (10,387)
Income tax expense (666) (713)
Net loss $
(17,716) $
(11,100)
Net loss per share, basic and
diluted $
(0.41) $
(0.27)
Weighted average common shares
used in computing basic 43,275 40,568
and diluted net loss per share:
Consolidated Statements of Cash Flows
(in thousands)
For the Three Months Ended March
31,
2020 2019
Operating Activities:
Net loss $
(17,716) $
(11,100)
Adjustments to reconcile net loss to net
cash and cash equivalents provided
by operating activities
Depreciation and amortization 8,711 6,973
Stock-based compensation 27,463 21,205
Deferred income tax benefit (257) (28)
Amortization of debt discount and issuance
costs 5,703 5,260
Accretion of bond discount (2,154) (2,751)
Unrealized currency translation 781 (281)
Changes in assets and liabilities
Accounts receivable 9,780 7,758
Prepaid expenses and other assets (15,107) 886
Deferred commission expense (1,523) (3,334)
Right-of-use assets 5,723 5,505
Accounts payable 1,495 4,911
Accrued expenses and other current
liabilities (5,439) (2,071)
Operating lease liabilities (5,281) (4,110)
Deferred revenue 10,832 8,893
Net cash and cash equivalents provided by
operating activities 23,011 37,716
Investing Activities:
Purchases of investments (439,889) (386,501)
Maturities and sales of investments 382,875 183,460
Purchases of property and equipment (11,098) (4,265)
Capitalization of software development costs (4,769) (2,821)
Net cash and cash equivalents used in
investing activities (72,881) (210,127)
Financing Activities:
Proceeds from common stock offering, net of
offering costs paid of $256 342,739
Employee taxes paid related to the net share
settlement of stock-based awards (941) (1,084)
Proceeds related to the issuance of common
stock under stock plans 6,854 5,690
Repayments of capital lease obligations (30) (118)
Net cash and cash equivalents provided by
financing activities 5,883 347,227
Effect of exchange rate changes on cash,
cash equivalents and restricted cash (1,814) (784)
Net increase in cash, cash equivalents and
restricted cash (45,801) 174,032
Cash, cash equivalents and restricted cash,
beginning of period 278,515 117,114
Cash, cash equivalents and restricted cash,
end of period $
232,714 $
291,146
Reconciliation
of
non-
GAAP
operating
income
and
operating
margin Three Months Ended March 31,
(in
thousands,
except
percentages)
2020 2019
GAAP
operating
loss $
(14,102) $
(9,036)
Stock-
based
compensation 27,463 21,205
Amortization
of
acquired
intangible
assets 900 800
Acquisition
related
expenses 333 32
Non-
GAAP
operating
income 14,594 $
13,001
GAAP
operating % %
margin (7.1) (6.0)
Non-
GAAP % %
operating
margin 7.3 8.6
Reconciliation of non-
GAAP net income Three Months Ended March 31,
(in thousands, except
per share amounts)
2020 2019
GAAP net loss $
(17,716) $
(11,100)
Stock-based
compensation 27,463 21,205
Amortization of
acquired intangibles
assets 900 800
Acquisition related
expenses 333 32
Non-cash interest
expense for
amortization of debt
discount and debt
issuance costs 5,703 5,260
Impairment of
strategic investment 250
Income tax effects of
non-GAAP items (204)
Non-GAAP net income $
16,729 $
16,197
Non-GAAP net income
per share:
Basic $
0.39 $
0.40
Diluted $
0.35 $
0.36
Shares used in non-
GAAP per share
calculations
Basic 43,275 40,568
Diluted 47,715 45,540
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended March 31,
2020 2019
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 $
29,734 $
8,551 $
46,202 $
102,328 $
26,255 $
21,301 $
8,277 $
35,177 $
74,905 $
21,174
Stock -based compensation (898) (607) (8,708) (10,816) (6,434) (614) (1,019) (7,091) (7,804) (4,677)
Amortization of acquired
intangible assets (880) (20) (800)
Acquisition related expenses (330) (3) (32)
Non-GAAP expense $
27,956 $
7,944 $
37,164 $
91,492 $
19,818 $
19,887 $
7,258 $
28,054 $
67,101 $
16,497
GAAP expense as a percentage of 14.9 4.3 23.2 51.4 13.2 14.0 5.5 23.2 49.3 13.9
revenue % % % % % % % % % %
Non-GAAP expense as a 14.1 4.0 18.7 46.0 10.0 13.1 4.8 18.5 44.2 10.9
percentage of revenue % % % % % % % % % %
Reconciliation of non-GAAP
subscription margin
(in thousands,
except percentages)
Three Months Ended March 31,
2020 2019
GAAP subscription
margin $
161,495 $
122,925
Stock -based
compensation 898 614
Amortization of
acquired intangible
assets 880 800
Non-GAAP
subscription margin $
163,273 $
124,339
GAAP subscription 84.5 85.2
margin percentage % %
Non-GAAP
subscription margin % %
percentage 85.4 86.2
Reconciliation of free cash
flow
(in thousands)
Three Months Ended March 31,
2020 2019
GAAP net cash and
cash equivalents
provided by
operating
activities $
23,011 $
37,716
Purchases of
property and
equipment (11,098) (4,265)
Capitalization of
software
development costs (4,769) (2,821)
Free cash flow $
7,144 $
30,630
Reconciliation of
forecasted non-GAAP
operating income
(in thousands, except
percentages)
Three Months Ended Year Ended
June 30, 2020
December 31, 2020
GAAP operating income
range ($21,450)-($20,450) ($84,020)-($82,020)
Stock-based
compensation 30,700 120,200
Amortization of
acquired intangible
assets 920 2,500
Acquisition related
expenses 330 1,320
Non-GAAP operating
income range
$10,500 -$11,500
$40,000-$42,000
Reconciliation of
forecasted non-GAAP
net income and non-
GAAP net income per
share
(in thousands, except
per share amounts)
Three Months
Ended June
30, 2020 Year Ended
December 31, 2020
GAAP net loss range ($26,855)-($25,855) ($104,710)-($102,710)
Stock-based
compensation 30,700 120,200
Amortization of
acquired intangible
assets 920 2,500
Acquisition related
expenses 330 1,320
Non-cash interest
expense for
amortization of debt
discount and debt
issuance costs 5,800 23,400
Income tax effects of
non-GAAP items (195) (1,010)
Non-GAAP net income
range
$10,700-$11,700
$41,700-$43,700
GAAP net income per
basic and diluted
share ($0.62)-($0.59) ($2.39)-($2.34)
Non-GAAP net income
per diluted share
$0.23-$0.25
$0.88-$0.92
Weighted average
common shares used in
computing GAAP basic
and diluted net loss
per share: 43,611 43,800
Weighted average
common shares used in
computing non-GAAP
diluted net loss per
share: 47,166 47,360
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, and income tax 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. Free cash flow is defined as cash and cash equivalents provided by or used in operating activities less purchases of property and equipment and capitalization of software development costs.
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, impairment of strategic investment, 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 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. Strategic investments consist of non-controlling equity investments in privately held companies. The recognition of gains or losses can vary significantly across periods and we do not view them to be indicative of our fundamental operating activities and believe the exclusion of gains or losses provides for a useful comparison of our operating results to prior periods and to our peer companies. f. The effects of income taxes on non-GAAP items for historical periods is zero due to a full valuation allowance on our U.S. deferred tax assets. The deferred income tax benefit from the business combination entered into in October 2019 is a non-cash item created by the difference in the carrying amount and tax basis of the assets and liabilities acquired. The deferred income tax benefit from the business combination is a non-cash item that is unique to the business combination, and we believe the exclusion of this deferred tax benefit provides for a useful comparison of our operating results to prior periods and to our peer companies.View original content to download multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q1-2020-results-301054152.html
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