HubSpot Reports Q3 2020 Results
CAMBRIDGE, Mass., Nov. 5, 2020 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading customer relationship management (CRM) platform, today announced financial results for the third quarter ended September 30, 2020.
Financial Highlights:
Revenue
-- Total revenue was $228.4 million, up 32% compared to Q3'19.
-- Subscription revenue was $221.1 million, up 32% compared to Q3'19.
-- Professional services and other revenue was $7.3 million, down 12%
compared to Q3'19.
Operating Income (Loss)
-- GAAP operating margin was (6.8%), compared to (8.1%) in Q3'19.
-- Non-GAAP operating margin was 7.2%, compared to 6.1% in Q3'19.
-- GAAP operating loss was ($15.5) million, compared to ($14.1) million in
Q3'19.
-- Non-GAAP operating income was $16.5 million, compared to $10.5 million
in Q3'19.
Net Income (Loss)
-- GAAP net loss was ($22.5) million, or ($0.49) per basic and diluted
share, compared to ($15.0) million, or ($0.35) per basic and diluted
share in Q3'19.
-- Non-GAAP net income was $13.6 million, or $0.30 per basic and $0.28 per
diluted share, compared to $12.3 million, or $0.29 per basic and $0.26
per diluted share in Q3'19.
-- Weighted average basic and diluted shares outstanding for GAAP net loss
per share was 45.6 million, compared to 42.5 million basic and diluted
shares in Q3'19.
-- Weighted average basic and diluted shares outstanding for non-GAAP net
income per share was 45.6 million and 49.0 million respectively,
compared to 42.5 million and 47.9 million, respectively in Q3'19.
Balance Sheet and Cash Flow
-- The company's cash, cash equivalents and investments balance was $1,228
million as of September 30, 2020.
-- During the third quarter, the company generated $38.7 million of
operating cash flow, compared to $19.7 million generated during Q3'19.
-- During the third quarter, the company generated $25.3 million of free
cash flow, compared to $6.7 million during Q3'19.
Additional Recent Business Highlights
-- Grew total customers to 95,634 at September 30, 2020 up 39% compared to
September 30, 2019.
-- Total average subscription revenue per customer was $9,669 during the
third quarter of 2020, down 3% compared to Q3'19.
"We're happy that the tailwinds continued to strengthen last quarter for HubSpot," said Brian Halligan, Chief Executive Officer. "The year is not over, but I believe the growth we've seen in the third quarter is both a sign of the ongoing digital transformation of the mid-market and a reflection of newly heightened expectations when it comes to how easy CRM platforms need to be to match rapidly changing times."
Business Outlook
Based on information available as of November 5, 2020, HubSpot is issuing guidance for the fourth quarter of 2020 and full year 2020 as indicated below.
Fourth Quarter 2020:
-- Total revenue is expected to be in the range of $235.0 million to $237.0
million.
-- Non-GAAP operating income is expected to be in the range of $13.0
million to $15.0 million.
-- Non-GAAP net income per common share is expected to be in the range of
$0.21 to $0.23. This assumes approximately 49.6 million weighted average
diluted shares outstanding.
Full Year 2020:
-- Total revenue is expected to be in the range of $866.0 million to $868.0
million.
-- Non-GAAP operating income is expected to be in the range of $63.5
million to $65.5 million.
-- Non-GAAP net income per common share is expected to be in the range of
$1.13 to $1.15. This assumes approximately 48.7 million weighted average
diluted shares outstanding.
Our fourth 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 November 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 Thursday November 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 8694405. 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 CRM platform. Over 95,000 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 fourth 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)
September 30, December
31,
2020 2019
Assets
Current assets:
Cash and cash equivalents $
124,895 $
269,670
Short-term investments 1,059,615 691,834
Accounts receivable 94,122 92,517
Deferred commission expense 39,666 32,078
Prepaid expenses and other current assets 40,516 23,625
Total current assets 1,358,814 1,109,724
Long-term investments 43,550 53,776
Property and equipment, net 95,352 83,649
Capitalized software development costs, net 22,839 16,793
Right-of-use assets 278,825 234,390
Deferred commission expense, net of current
portion 23,712 19,110
Other assets 11,719 9,824
Intangible assets, net 10,013 11,752
Goodwill 30,597 30,250
Total assets $
1,875,421 $
1,569,268
Liabilities and stockholders
'
equity
Current liabilities:
Accounts payable $
14,116 $
12,842
Accrued compensation costs 40,079 26,318
Accrued expenses and other current liabilities 31,891 28,686
Operating lease liabilities 30,252 23,613
Deferred revenue 256,034 231,030
Total current liabilities 372,372 322,489
Operating lease liabilities, net of current
portion 283,373 244,216
Deferred revenue, net of current portion 3,082 3,058
Other long-term liabilities 9,682 8,983
Convertible senior notes 474,048 340,564
Total liabilities 1,142,557 919,310
Stockholders' equity:
Common stock 46 44
Additional paid-in capital 1,198,332 1,048,380
Accumulated other comprehensive loss 2,231 (336)
Accumulated deficit (467,745) (398,130)
Total stockholders' equity 732,864 649,958
Total liabilities and stockholders
'
equity $
1,875,421 $
1,569,268
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended For the Nine Months Ended
September September
30, 30,
2020 2019 2020 2019
Revenues:
Subscription $
221,058 $
167,078 $
608,702 $
467,180
Professional services and other 7,327 6,543 22,259 21,494
Total revenue 228,385 173,621 630,961 488,674
Cost of revenues:
Subscription 33,181 25,671 93,316 70,550
Professional services and other 9,422 7,592 26,348 23,433
Total cost of revenues 42,603 33,263 119,664 93,983
Gross profit 185,782 140,358 511,297 394,691
Operating expenses:
Research and development 54,456 39,847 150,026 115,480
Sales and marketing 119,299 91,283 324,230 250,267
General and administrative 27,488 23,300 80,228 67,777
Total operating expenses 201,243 154,430 554,484 433,524
Loss from operations (15,461) (14,072) (43,187) (38,833)
Other expense:
Interest income 958 5,185 7,150 14,783
Interest expense (7,062) (5,760) (29,823) (16,946)
Other expense (7) (89) (1,152) (773)
Total other expense (6,111) (664) (23,825) (2,936)
Loss before income tax expense (21,572) (14,736) (67,012) (41,769)
Income tax expense (926) (251) (2,603) (1,675)
Net loss $
(22,498) $
(14,987) $
(69,615) $
(43,444)
Net loss per share, basic and
diluted $
(0.49) $
(0.35) $
(1.57) $
(1.04)
Weighted average common shares used in
computing basic
and diluted net
loss per share: 45,627 42,531 44,346 41,749
Consolidated Statements of Cash Flows
(in thousands)
For the Three Months Ended September For the Nine Months Ended September
30, 30,
2020 2019 2020 2019
Operating Activities:
Net loss $
(22,498) $
(14,987) $
(69,615) $
(43,444)
Adjustments to reconcile net loss to net cash and cash
equivalents provided
by operating
activities
Depreciation and amortization 9,384 7,213 27,067 21,248
Stock-based compensation 31,186 23,790 90,022 73,659
Loss on early extinguishment of 2022
Convertible Notes - 10,493
Repayment of 2022 Convertible Notes
attributable to the debt discount - (48,675)
(Benefit) provision for deferred income taxes (314) 184 (736) 49
Amortization of debt discount and issuance costs 6,526 5,509 18,188 16,184
Accretion of bond discount (226) (4,068) (3,716) (10,889)
Unrealized currency translation (305) (175) (121) (193)
Changes in assets and liabilities
Accounts receivable (6,311) (5,253) (380) (1,346)
Prepaid expenses and other assets (2,176) 113 (22,596) (6,217)
Deferred commission expense (5,514) (12) (11,351) (5,551)
Right-of-use assets 9,184 5,048 22,582 14,310
Accounts payable 1,233 1,203 3,070 6,195
Accrued expenses and other liabilities 13,336 (2,333) 13,780 955
Operating lease liabilities (9,202) (4,626) (21,516) (14,788)
Deferred revenue 14,364 8,063 21,492 20,910
Net cash and cash equivalents provided by operating
activities 38,667 19,669 27,988 71,082
Investing Activities:
Purchases of investments (410,414) (370,192) (1,377,442) (967,994)
Maturities of investments 303,268 347,229 1,013,270 689,614
Sale of investments 10,932
Purchases of property and equipment (7,856) (9,141) (27,753) (21,197)
Capitalization of software development costs (5,481) (3,811) (15,644) (9,139)
Purchases of strategic investments (1,000) (201) (2,000) (553)
Net cash and cash equivalents used in investing
activities (121,483) (36,116) (398,637) (309,269)
Financing Activities:
Proceeds from issuance of 2025 Convertible Notes, net
of issuance costs paid of $9.9 million (491) 450,123
Proceeds from settlement of Convertible Note
Hedges related to the 2022 Convertible Notes - 362,492
Payments for settlement of Warrants related
to the 2022 Convertible Notes - (327,543)
Repayment of 2022 Convertible Notes
attributable to the principal - (234,366)
Payments for Capped Call Options related to
the 2025 Convertible Notes - (50,600)
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 (2,437) (2,032) (4,637) (4,767)
Proceeds related to the issuance of common stock under
stock plans 7,048 8,188 22,256 18,926
Repayments of finance lease obligations - (44) (28) (249)
Net cash and cash equivalents provided by financing
activities 4,120 6,112 217,697 356,538
Effect of exchange rate changes on cash, cash
equivalents and restricted cash 2,505 (1,973) 2,361 (2,171)
Net increase in cash, cash equivalents and restricted
cash (76,191) (12,308) (150,591) 116,180
Cash, cash equivalents and restricted cash, beginning
of period 204,115 245,602 278,515 117,114
Cash, cash equivalents and restricted cash,
end of period $
127,924 $
233,294 $
127,924 $
233,294
Reconciliation of non- Three Months Ended September
GAAP operating income 30,
and operating margin Nine Months Ended September 30,
(in thousands, except
percentages)
2020 2019 2020 2019
GAAP operating loss $
(15,461) $
(14,072) $
(43,187) $
(38,833)
Stock-based
compensation 31,186 23,791 90,022 73,659
Amortization of
acquired intangible
assets 462 762 2,260 2,362
Acquisition related
expenses 340 30 1,191 95
Non-GAAP operating
income 16,527 $
10,511 $
50,286 $
37,283
GAAP operating margin (6.8) (8.1) (6.8) (7.9)
% % % %
Non-GAAP operating 7.2 6.1 8.0 7.6
margin % % % %
Reconciliation of non- Three Months Ended September
GAAP net income 30, Nine Months Ended September 30,
(in thousands, except
per share amounts)
2020 2019 2020 2019
GAAP net loss $
(22,498) $
(14,987) $
(69,615) $
(43,444)
Stock-based
compensation 31,186 23,791 90,022 73,659
Amortization of
acquired intangibles
assets 462 762 2,260 2,362
Acquisition related
expenses 340 30 1,191 95
Non-cash interest
expense for
amortization of debt
discount and debt
issuance costs 6,526 5,509 18,188 16,184
Loss on early
extinguishment of
2022 Convertible
Notes 10,493
Impairment of
strategic investment 250
Income tax effects of
non-GAAP items (2,462) (2,820) (8,475) (8,431)
Non-GAAP net income $
13,554 $
12,285 $
44,314 $
40,425
Non-GAAP net income
per share:
Basic $
0.30 $
0.29 $
1.00 $
0.97
Diluted $
0.28 $
0.26 $
0.92 $
0.87
Shares used in non-
GAAP per share
calculations
Basic 45,627 42,531 44,346 41,749
Diluted 48,961 47,869 48,348 46,622
Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended September 30,
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 $
33,181 $
9,422 $
54,456 $
119,299 $
27,488 $
25,671 $
7,592 $
39,847 $
91,283 $
23,300
Stock -based compensation (1,140) (652) (10,244) (13,300) (5,850) (854) (614) (8,019) (8,947) (5,357)
Amortization of acquired
intangible assets (442) (20) (762)
Acquisition related expenses (340) (30)
Non-GAAP expense $
31,599 $
8,770 $
43,872 $
105,979 $
21,638 $
24,055 $
6,978 $
31,798 $
82,336 $
17,943
GAAP expense as a percentage of 14.5 4.1 23.8 52.2 12.0 14.8 4.4 23.0 52.6 13.4
revenue % % % % % % % % % %
Non-GAAP expense as a 13.8 3.8 19.2 46.4 9.5 13.9 4.0 18.3 47.4 10.3
percentage of revenue % % % % % % % % % %
Nine Months Ended September 30,
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 $
93,316 $
26,348 $
150,026 $
324,230 $
80,228 $
70,550 $
23,433 $
115,480 $
250,267 $
67,777
Stock -based
compensation (3,114) (1,885) (29,063) (36,984) (18,976) (2,291) (2,298) (25,663) (27,275) (16,132)
Amortization of
acquired intangible
assets (2,201) (59) (2,362)
Acquisition related
expenses (1,001) (190) (95)
Non-GAAP expense $
88,001 $
24,463 $
119,962 $
287,187 $
61,062 $
65,897 $
21,135 $
89,722 $
222,992 $
51,645
GAAP expense as a
percentage of % % % % % % % % % %
revenue 14.8 4.2 23.8 51.4 12.7 14.4 4.8 23.6 51.2 13.9
Non-GAAP expense as
a percentage of % % % % % % % % % %
revenue 13.9 3.9 19.0 45.5 9.7 13.5 4.3 18.4 45.6 10.6
Reconciliation of non-GAAP
subscription margin
(in thousands, except
percentages)
Three Months Ended September Nine Months Ended September
30, 30,
2020 2019 2020 2019
GAAP subscription margin $
187,877 $
141,407 $
515,386 $
396,630
Stock -based compensation 1,140 854 3,114 2,291
Amortization of acquired
intangible assets 442 762 2,201 2,362
Non-GAAP subscription
margin $
189,459 $
143,023 $
520,701 $
401,283
GAAP subscription margin 85.0 84.6 84.7 84.9
percentage % % % %
Non-GAAP subscription 85.7 85.6 85.5 85.9
margin percentage % % % %
Reconciliation of
operating cash flow
(in thousands)
Three Months Ended Nine Months Ended September
September 30, 30,
2020 2019 2020 2019
GAAP net cash and cash
equivalents provided
by operating
activities $
38,667 $
19,669 $
27,988 $
71,082
Repayment of 2022
Convertible Notes
attributable to the
debt discount 48,675
Operating cash flow,
excluding repayment
of convertible debt $
38,667 $
19,669 $
76,663 $
71,082
Reconciliation of free cash
flow
(in thousands)
Three Months Ended September
30, Nine Months Ended September 30,
2020 2019 2020 2019
GAAP net cash and cash
equivalents provided by
operating activities $
38,667 $
19,669 $
27,988 $
71,082
Purchases of property and
equipment (7,856) (9,141) (27,753) (21,197)
Capitalization of software
development costs (5,481) (3,811) (15,644) (9,139)
Repayment of 2022
Convertible Notes
attributable to the debt
discount 48,675
Free cash flow $
25,330 $
6,717 $
33,266 $
40,746
Reconciliation of
forecasted non-GAAP
operating income
(in thousands, except
percentages)
Three Months Ended
December 31, 2020 Year Ended
December 31, 2020
GAAP operating income
range ($19,075)-($17,075) ($60,435)-($58,435)
Stock-based
compensation 31,590 120,200
Amortization of
acquired intangible
assets 155 2,415
Acquisition related
expenses 330 1,320
Non-GAAP operating
income range
$13,000 -$15,000
$63,500-$65,500
Reconciliation of forecasted non-GAAP net income and non-GAAP net income per share
(in thousands, except per share amounts)
Three Months Ended
December 31, 2020 Year Ended
December 31, 2020
GAAP net loss range ($26,856)-($25,606) ($94,838)-($93,588)
Stock-based compensation 31,590 120,200
Amortization of acquired
intangible assets 155 2,415
Acquisition related expenses 330 1,320
Non-cash interest expense for
amortization of debt discount and
debt issuance costs 6,685 24,874
Loss on early extinguishment of
2022 Convertible Notes 10,493
Impairment of strategic investment 250
Income tax effects of
non-GAAP items (1,304)-(1,554) (9,814)-(10,064)
Non-GAAP net income
range
$10,600-$11,600
$54,900-$55,900
GAAP net income per
basic and diluted
share ($0.58)-($0.56) ($2.12)-($2.09)
Non-GAAP net income
per diluted share
$0.21-$0.23
$1.13-$1.15
Weighted average common shares
used in computing GAAP basic and
diluted net loss per share: 45,957 44,750
Weighted average common shares
used in computing non-GAAP
diluted net loss per share: 49,621 48,666
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 excluded from non-GAAP expense and income measures as HubSpot views amortization of these assets as arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is a non-cash expense that is not typically affected by operations during any particular period. Valuation and subsequent amortization of intangible assets can also be inconsistent in amount and frequency because they can significantly vary based on the timing and size of acquisitions and the inherently subjective nature of the degree to which a purchase price is allocated to intangible assets. We believe that the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods, for which we have historically excluded amortization expense, and to our peer companies, which commonly exclude acquired intangible asset amortization. It is important to note that although we exclude amortization of acquired intangible assets from our non-GAAP expense and income measures, revenue generated from such intangibles is included within our non-GAAP income measures. The use of these intangible assets contributed to our revenues earned during the periods presented and will contribute to future periods as well. 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, which commonly exclude these expenses. 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 companies. In 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.View original content to download multimedia:http://www.prnewswire.com/news-releases/hubspot-reports-q3-2020-results-301167436.html
SOURCE HubSpot
