HubSpot Reports Q2 2020 Results
CAMBRIDGE, Mass., Aug. 5, 2020 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for the second quarter ended June 30, 2020.
Financial Highlights:
Revenue
-- Total revenue was $203.6 million, up 25% compared to Q2'19. -- Subscription revenue was $196.4 million, up 26% compared to Q2'19. -- Professional services and other revenue was $7.2 million, down 3% compared to Q2'19.
Operating Income (Loss)
-- GAAP operating margin was (6.7%), compared to (9.6%) in Q2'19. -- Non-GAAP operating margin was 9.4%, compared to 8.4% in Q2'19. -- GAAP operating loss was ($13.6) million, compared to ($15.7) million in Q2'19. -- Non-GAAP operating income was $19.2 million, compared to $13.8 million in Q2'19.
Net Income (Loss)
-- GAAP net loss was ($29.4) million, or ($0.67) per basic and diluted share, compared to ($17.4) million, or ($0.41) per basic and diluted share in Q2'19. -- Non-GAAP net income was $16.7 million, or $0.38 per basic and $0.34 per diluted share, compared to $14.6 million, or $0.35 per basic and $0.31 per diluted share in Q2'19. -- Weighted average basic and diluted shares outstanding for GAAP net loss per share was 44.1 million, compared to 42.1 million basic and diluted shares in Q2'19. -- Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 44.1 million and 48.4 million respectively, compared to 42.1 million and 47.5 million, respectively in Q2'19.
Balance Sheet and Cash Flow
-- At the beginning of June, the company successfully executed a $460 million convertible bond offering with the concurrent repurchase of roughly 70% of the company's existing convertible bond due in 2022. -- The company's cash, cash equivalents and investments balance was $1,197 million as of June 30, 2020. -- During the second quarter, the company generated $15.0 million of operating cash flow, excluding the $48.7 million used for the repayment of our convertible notes, compared to $13.7 million generated during Q2'19. -- During the second quarter, the company generated $0.8 million of free cash flow, compared to $3.4 million during Q2'19.
Additional Recent Business Highlights
-- Grew total customers to 86,672 at June 30, 2020 up 34% compared to June 30, 2019. -- Total average subscription revenue per customer was $9,466 during the second quarter of 2020, down 5% compared to Q2'19.
"The world is evolving this year -- from offline to online, from old to new -- at a far greater pace than anyone could have expected. At HubSpot, we feel well positioned to help companies navigate that change and come out stronger on the other side," said Brian Halligan, Chief Executive Officer. "The onslaught of the pandemic was certainly felt throughout our company, customers and partners this year, but I'm encouraged by the traction HubSpot made in the second quarter and the opportunity we see ahead. The situation, of course, is still quite fluid so we'll be watching things closely and adapting along with it."
Business Outlook
Based on information available as of August 5, 2020, HubSpot is issuing guidance for the third quarter of 2020 and full year 2020 as indicated below.
Third Quarter 2020:
-- Total revenue is expected to be in the range of $210.0 million to $211.0 million. -- Non-GAAP operating income is expected to be in the range of $7.5 million to $8.5 million. -- Non-GAAP net income per common share is expected to be in the range of $0.11 to $0.13. This assumes approximately 48.8 million weighted average diluted shares outstanding.
Full Year 2020:
-- Total revenue is expected to be in the range of $828.0 million to $832.0 million. -- Non-GAAP operating income is expected to be in the range of $52.0 million to $54.0 million. -- Non-GAAP net income per common share is expected to be in the range of $0.92 to $0.96. This assumes approximately 48.5 million weighted average diluted shares outstanding.
While we continue to 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 still operating under very challenging circumstances and may re-evaluate their spend. As such, our third quarter 2020 guidance and updated full year 2020 guidance factor in the heightened uncertainty caused by the COVID-19 pandemic based on the information available to us as of August 5, 2020, and we undertake no obligation to update after such date. 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, August 5, 2020, at 4:30 p.m. Eastern Time (ET) to discuss the company's second quarter financial results and its business outlook. To register for this conference call, please use this link or visit HubSpot's Investor Relations website at ir.hubspot.com. After registering, a confirmation email will be sent, including dial in details and a unique code for entry.
Following the conference call, a replay will be available at (800) 585-8367 (domestic) or (416) 621-4642 (international). The replay passcode is 3285702. 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 86,000 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 third 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; and statements regarding our positioning for future growth and market leadership. 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 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) June 30, December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 201,086 $ 269,670 Short-term investments 934,992 691,834 Accounts receivable 86,184 92,517 Deferred commission expense 36,121 32,078 Prepaid expenses and other current assets 37,936 23,625 Total current assets 1,296,319 1,109,724 Long-term investments 61,095 53,776 Property and equipment, net 89,993 83,649 Capitalized software development costs, net 21,391 16,793 Right-of-use assets 270,462 234,390 Deferred commission expense, net of current portion 20,831 19,110 Other assets 10,875 9,824 Intangible assets, net 10,075 11,752 Goodwill 29,935 30,250 Total assets $ 1,810,976 $ 1,569,268 Liabilities and stockholders ' equity Current liabilities: Accounts payable $ 10,814 $ 12,842 Accrued compensation costs 26,513 26,318 Accrued expenses and other current liabilities 28,211 28,686 Operating lease liabilities 29,807 23,613 Deferred revenue 238,101 231,030 Total current liabilities 333,446 322,489 Operating lease liabilities, net of current portion 275,210 244,216 Deferred revenue, net of current portion 2,914 3,058 Other long-term liabilities 8,832 8,983 Convertible senior notes 467,523 340,564 Total liabilities 1,087,925 919,310 Stockholders' equity: Common stock 46 44 Additional paid-in capital 1,167,791 1,048,380 Accumulated other comprehensive loss 461 (336) Accumulated deficit (445,247) (398,130) Total stockholders' equity 723,051 649,958 Total liabilities and stockholders ' equity $ 1,810,976 $ 1,569,268
Consolidated Statements of Operations (in thousands, except per share data) For the Three Months Ended June For the Six Months Ended June 30, 30, 2020 2019 2020 2019 Revenues: Subscription $ 196,415 $ 155,876 $ 387,643 $ 300,102 Professional services and other 7,193 7,379 14,932 14,951 Total revenue 203,608 163,255 402,575 315,053 Cost of revenues: Subscription 30,400 23,578 60,135 44,879 Professional services and other 8,377 7,564 16,926 15,841 Total cost of revenues 38,777 31,142 77,061 60,720 Gross profit 164,831 132,113 325,514 254,333 Operating expenses: Research and development 49,372 40,456 95,573 75,633 Sales and marketing 102,600 84,079 204,928 158,984 General and administrative 26,484 23,303 52,741 44,477 Total operating expenses 178,456 147,838 353,242 279,094 Loss from operations (13,625) (15,725) (27,728) (24,761) Other expense: Interest income 2,135 5,424 6,192 9,598 Interest expense (16,809) (5,673) (22,761) (11,186) Other expense (91) (672) (1,143) (684) Total other expense (14,765) (921) (17,712) (2,272) Loss before income tax expense (28,390) (16,646) (45,440) (27,033) Income tax expense (1,011) (711) (1,677) (1,424) Net loss $ (29,401) $ (17,357) $ (47,117) $ (28,457) Net loss per share, basic and diluted $ (0.67) $ (0.41) $ (1.08) $ (0.69) Weighted average common shares used in computing 44,130 42,127 43,703 41,352 basic 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, 2020 2019 2020 2019 Operating Activities: Net loss $ (29,401) $ (17,357) $ (47,117) $ (28,457) Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities Depreciation and amortization 8,972 7,063 17,683 14,035 Stock-based compensation 31,374 28,663 58,837 49,869 Loss on early extinguishment of 2022 Convertible Notes 10,493 10,493 Repayment of 2022 Convertible Notes attributable to the debt discount (48,675) (48,675) Benefit for deferred income taxes (165) (107) (422) (135) Amortization of debt discount and issuance costs 5,959 5,415 11,662 10,675 Accretion of bond discount (1,336) (4,070) (3,490) (6,821) Unrealized currency translation (597) 263 184 (18) Changes in assets and liabilities Accounts receivable (3,850) (3,851) 5,930 3,907 Prepaid expenses and other assets (5,313) (7,216) (20,420) (6,330) Deferred commission expense (4,314) (2,205) (5,837) (5,539) Right-of-use assets 7,675 3,757 13,398 9,262 Accounts payable 342 81 1,837 4,992 Accrued expenses and other liabilities 5,883 5,359 444 3,288 Operating lease liabilities (7,033) (6,052) (12,314) (10,162) Deferred revenue (3,704) 3,954 7,128 12,847 Net cash and cash equivalents (used in) provided by operating (33,690) 13,697 (10,679) 51,413 activities Investing Activities: Purchases of investments (527,139) (211,301) (967,028) (597,802) Maturities of investments 327,127 158,925 710,002 342,385 Sale of investments 10,932 10,932 Purchases of property and equipment (8,799) (7,791) (19,897) (12,056) Capitalization of software development costs (5,394) (2,507) (10,163) (5,328) Purchases of strategic investments (1,000) (352) (1,000) (352) Net cash and cash equivalents used in investing activities (204,273) (63,026) (277,154) (273,153) Financing Activities: Proceeds from issuance of 2025 Convertible Notes, net of issuance costs 450,614 450,614 paid of $9.4 million Proceeds from settlement of Convertible Note Hedges related to the 2022 362,492 362,492 Convertible Notes Payments for settlement of Warrants related to the 2022 Convertible Notes (327,543) (327,543) Repayment of 2022 Convertible Notes attributable to the principal (234,366) (234,366) Payments for Capped Call Options related to the 2025 Convertible Notes (50,600) (50,600) Proceeds from common stock offering, net of offering costs paid of $365 - 342,628 Payments for common stock offering costs - (111) Employee taxes paid related to the net share settlement of stock-based (1,259) (1,651) (2,200) (2,735) awards Proceeds related to the issuance of common stock under stock plans 8,354 5,048 15,208 10,738 Repayments of finance lease obligations 2 (87) (28) (205) Net cash and cash equivalents provided by financing activities 207,694 3,199 213,577 350,426 Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,670 586 (144) (198) Net increase in cash, cash equivalents and restricted cash (28,599) (45,544) (74,400) 128,488 Cash, cash equivalents and restricted cash, beginning of period 232,714 291,146 278,515 117,114 Cash, cash equivalents and restricted cash, end of period $ 204,115 $ 245,602 $ 204,115 $ 245,602
Reconciliation of non-GAAP operating income and operating margin (in thousands, except percentages) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 GAAP operating loss $ (13,625) $ (15,725) $ (27,728) $ (24,761) Stock-based compensation 31,374 28,663 58,837 49,869 Amortization of acquired intangible assets 899 800 1,798 1,600 Acquisition related expenses 518 32 851 65 Non-GAAP operating income 19,166 $ 13,770 $ 33,758 $ 26,773 GAAP operating margin (6.7) (9.6) (6.9) (7.9) % % % % Non-GAAP operating margin 9.4 8.4 8.4 8.5 % % % %
Reconciliation of non-GAAP net income Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2020 2019 2020 2019 GAAP net loss $ (29,401) $ (17,357) $ (47,117) $ (28,457) Stock-based compensation 31,374 28,663 58,837 49,869 Amortization of acquired intangibles assets 899 800 1,798 1,600 Acquisition related expenses 518 32 851 65 Non-cash interest expense for amortization of debt discount and debt 5,959 5,415 11,662 10,675 issuance costs Loss on early extinguishment of 2022 Convertible Notes 10,493 10,493 Impairment of strategic investment 250 Income tax effects of non-GAAP items (3,160) (2,942) (6,013) (5,611) Non-GAAP net income $ 16,682 $ 14,611 $ 30,761 $ 28,141 Non-GAAP net income per share: Basic $ 0.38 $ 0.35 $ 0.70 $ 0.68 Diluted $ 0.34 $ 0.31 $ 0.64 $ 0.61 Shares used in non-GAAP per share calculations Basic 44,130 42,127 43,703 41,352 Diluted 48,367 47,532 47,988 46,394
Reconciliation of non-GAAP expense and expense as a percentage of revenue (in thousands, except percentages) Three Months Ended June 30, 2020 2019 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 $ 30,400 $ 8,377 $ 49,372 $ 102,600 $ 26,484 $ 23,578 $ 7,564 $ 40,456 $ 84,079 $ 23,303 Stock -based compensation (1,075) (628) (10,111) (12,868) (6,692) (822) (666) (10,553) (10,523) (6,099) Amortization of acquired intangible assets (879) (20) (800) Acquisition related expenses (327) (191) (32) Non-GAAP expense $ 28,446 $ 7,749 $ 38,934 $ 89,712 $ 19,601 $ 21,956 $ 6,898 $ 29,871 $ 73,556 $ 17,204 GAAP expense as a percentage of revenue 14.9 4.1 24.2 50.4 13.0 14.4 4.6 24.8 51.5 14.3 % % % % % % % % % % Non-GAAP expense as a percentage of revenue 14.0 3.8 19.1 44.1 9.6 13.4 4.2 18.3 45.1 10.5 % % % % % % % % % %
Six Months Ended June 30, 2020 2019 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 $ 60,135 $ 16,926 $ 95,573 $ 204,928 $ 52,741 $ 44,879 $ 15,841 $ 75,633 $ 158,984 $ 44,477 Stock -based compensation (1,974) (1,234) (18,819) (23,684) (13,126) (1,437) (1,685) (17,644) (18,327) (10,776) Amortization of acquired intangible assets (1,759) (39) (1,600) Acquisition related expenses (657) (194) (65) Non-GAAP expense $ 56,402 $ 15,692 $ 76,097 $ 181,205 $ 39,421 $ 41,842 $ 14,156 $ 57,924 $ 140,657 $ 33,701 GAAP expense as a percentage of revenue 14.9 4.2 23.7 50.9 13.1 14.2 5.0 24.0 50.5 14.1 % % % % % % % % % % Non-GAAP expense as a percentage of revenue 14.0 3.9 18.9 45.0 9.8 13.3 4.5 18.4 44.6 10.7 % % % % % % % % % %
Reconciliation of non-GAAP subscription margin (in thousands, except percentages) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 GAAP subscription margin $ 166,015 $ 132,298 $ 327,508 $ 255,223 Stock -based compensation 1,075 822 1,974 1,437 Amortization of acquired intangible assets 879 800 1,759 1,600 Non-GAAP subscription margin $ 167,969 $ 133,920 $ 331,241 $ 258,260 GAAP subscription margin percentage 84.5 84.9 84.5 85.0 % % % % Non-GAAP subscription margin percentage 85.5 85.9 85.5 86.1 % % % %
Reconciliation of operating cash flow (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 GAAP net cash and cash equivalents provided by $ (33,690) $ 13,697 $ (10,679) $ 51,413 operating activities Repayment of 2022 Convertible Notes attributable to 48,675 48,675 the debt discount Operating cash flow, excluding repayment of $ 14,985 $ 13,697 $ 37,996 $ 51,413 convertible debt
Reconciliation of free cash flow (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 GAAP net cash and cash equivalents provided by operating $ (33,690) $ 13,697 $ (10,679) $ 51,413 activities Purchases of property and equipment (8,799) (7,791) (19,897) (12,056) Capitalization of software development costs (5,394) (2,507) (10,163) (5,328) Repayment of 2022 Convertible Notes attributable to the debt 48,675 48,675 discount Free cash flow $ 792 $ 3,399 $ 7,936 $ 34,029
Reconciliation of forecasted non-GAAP operating income (in thousands, except percentages) Three Months Ended Year Ended September 30, 2020 December 31, 2020 GAAP operating income range ($22,680)-($21,680) ($70,825)-($68,825) Stock-based compensation 29,400 119,100 Amortization of acquired intangible assets 450 2,405 Acquisition related expenses 330 1,320 Non-GAAP operating income range $7,500 -$8,500 $52,000-$54,000
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, 2020 December 31, 2020 GAAP net loss range ($30,884)-($29,634) ($106,542)-($104,042) Stock-based compensation 29,400 119,100 Amortization of acquired intangible assets 450 2,405 Acquisition related expenses 330 1,320 Non-cash interest expense for amortization of debt discount and debt issuance 6,526 24,874 costs Loss on early extinguishment of 2022 Convertible Notes 10,493 Impairment of strategic investment 250 Income tax effects of non-GAAP items (322)-(572) (7,300)-(7,800) Non-GAAP net income range $5,500-$6,500 $44,600-$46,600 GAAP net income per basic and diluted share ($0.68)-($0.65) ($2.38)-($2.32) Non-GAAP net income per diluted share $0.11-$0.13 $0.92-$0.96 Weighted average common shares used in computing GAAP basic and diluted 45,630 44,750 net loss per share: Weighted average common shares used in computing non-GAAP diluted net loss 48,770 48,460 per share:
HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, non-cash interest expense for amortization of debt discount and debt issuance costs, loss on early extinguishment of 2022 Convertible Notes, impairment of strategic investment, and income tax effects of non-GAAP items 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, plus repayments of convertible notes attributable to debt discount. We believe information regarding free cash flow provides useful information to investors in understanding and evaluating the strength of liquidity and available cash and the exclusion of repayments of convertible notes attributable to debt discount provides a comparable framework for assessing how our business performed when compared to prior periods and also aligns the non-GAAP treatment of our debt discount that is amortized as non-cash interest expense.
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, loss on early extinguishment of 2022 Convertible Notes, impairment of strategic investment, and account for the income tax effects of the exclusion of these non-GAAP items. We believe investors may want to incorporate 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%. In June 2020, the Company issued $460 million of convertible notes due in 2025 with a coupon interest rate of 0.375%. The imputed interest rates of the convertible senior notes were approximately 6.87% and 5.71%, respectively. 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 companiesIn June 2020, the Company used a portion of the proceeds from the issuance of the convertible notes due in 2025 to repay approximately $272.1 million of its convertible notes that were due in 2022. In connection with the repayment of these notes, the Company recorded a $10.5 million loss on early extinguishment of debt, which represents the difference between the fair value and carrying value of the debt extinguished. The amount of this charge may be inconsistent in size and varies depending on the timing of the repurchase of debt. In connection with the debt extinguishment, approximately $48.7 million of the repayment of convertible notes that is attributable to debt discount was classified as operating cash flow. These activities are not considered reflective of our recurring core business operating results. As such, we believe the exclusion of these expenses and payments 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 reflect a fixed long-term projected tax rate of 20% to provide better consistency across reporting periods. To determine this long-term non-GAAP tax rate, we exclude the impact of other non-GAAP adjustments and take into account other factors such as our current operating structure and existing tax positions in various jurisdictions. We will periodically reevaluate this tax rate, as necessary, for significant events such as relevant tax law changes and material changes in our forecasted geographic earnings mix.Updated Non-GAAP Net Income Calculation
In our presentations of non-GAAP net income (which is a non-GAAP financial measure) in our earnings release for each of the quarters ending March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, and the year ended December 31, 2019, we did not include a hypothetical income tax effect due to a full valuation allowance on our U.S. deferred tax assets. We have elected to update our non-GAAP net income calculations (and our reconciliations to GAAP net loss) and non-GAAP net income per share for each of these quarters and the year ended December 31, 2019, and the updated information is provided below. No updates have been made to any other adjustments in the calculation of each of non-GAAP net income or non-GAAP net income per share for such periods, and our consolidated financial results as calculated under GAAP are not affected. Had we not updated our presentation of non-GAAP net income to reflect a hypothetical income tax effect in Q2'20, our Q2'20 non-GAAP net income would have been $19.9 million, our Q2'20 non-GAAP basic net income per share would have been $0.45, and our Q2'20 non-GAAP diluted net income per share would have been $0.41.
Reconciliation of non-GAAP net income (in thousands, except per share amounts) Three months ended Year ended March 31, June 30, September 30, December 31, March 31, December 31, 2019 2019 2019 2019 2020 2019 GAAP net loss $ (11,100) $ (17,357) $ (14,987) $ (10,302) $ (17,716) $ (53,746) Stock-based compensation 21,205 28,663 23,791 24,095 27,463 97,754 Amortization of acquired intangibles assets 800 800 762 839 900 3,201 Acquisition related expenses 32 32 30 876 333 971 Non-cash interest expense for amortization of debt 5,260 5,415 5,509 5,606 5,703 21,790 discount and debt issuance costs Impairment of strategic investment 250 Income tax effects of non-GAAP items (2,669) (2,942) (2,820) (3,184) (2,854) (11,616) Non-GAAP net income (1) $ 13,528 $ 14,611 $ 12,285 $ 17,930 $ 14,079 $ 58,354 Non-GAAP net income per share: Basic (2) $ 0.33 $ 0.35 $ 0.29 $ 0.42 $ 0.33 $ 1.39 Diluted (3) $ 0.30 $ 0.31 $ 0.26 $ 0.38 $ 0.30 $ 1.26
(1) We previously reported non-GAAP net income of $16.2 million, $17.6 million, $15.1 million, $20.9 million, and $16.7 million for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, respectively, and $69.8 million for the year ended December 31, 2019. (2) We previously reported non-GAAP basic net income per share of $0.40, $0.42, $0.36, $0.49, and $0.39 for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, respectively, and $1.66 for the year ended December 31, 2019. (3) We previously reported non-GAAP diluted net income per share of $0.36, $0.37, $0.32, $0.45, and $0.35 for the three months ended March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, respectively, and $1.50 for the year ended December 31, 2019.
View original content to download multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q2-2020-results-301106888.html
SOURCE HubSpot