HubSpot Reports Q1 2019 Results

News provided by

HubSpot

May 07, 2019, 16:10 ET

CAMBRIDGE, Mass., May 7, 2019 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for first quarter ended March 31, 2019.

Financial Highlights:

Revenue

  • Total revenue was $151.8 million, up 33% compared to Q1'18.
  • Subscription revenue was $144.2 million, up 33% compared to Q1'18.
  • Professional services and other revenue was $7.6 million, up 27% compared to Q1'18.

Operating Income (Loss)

  • GAAP operating margin was (6.0%), compared to (9.9%) in Q1'18.
  • Non-GAAP operating margin was 8.6%, an improvement of approximately 3.7 percentage points from 4.9% in Q1'18.
  • GAAP operating loss was ($9.0) million, compared to ($11.3) million in Q1'18.
  • Non-GAAP operating income was $13.0 million, compared to $5.6 million in Q1'18.

Net Income (Loss)

  • GAAP net loss was ($11.1) million, or ($0.27) per basic and diluted share, compared to ($15.4) million, or ($0.41) per basic and diluted share in Q1'18.
  • Non-GAAP net income was $16.2 million, or $0.40 per basic and $0.36 per diluted share, compared to $6.4 million, or $0.17 per basic and $0.15 per diluted share in Q1'18.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 40.6 million, compared to 37.8 million basic and diluted shares in Q1'18.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 40.6 million and 45.5 million respectively, compared to 37.8 million and 41.0 million, respectively in Q1'18.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $983.7 million as of March 31, 2019.
  • During the first quarter, the company generated $30.6 million of free cash flow compared to $17.9 million during Q1'18.

Additional Recent Business Highlights

  • Grew total customers to 60,814 at March 31, 2019 up 35% from March 31, 2018.
  • Total average subscription revenue per customer was $9,811 during the first quarter of 2019 down 2% compared to Q1'18.

"We're off to a strong start to 2019," said Brian Halligan, co-founder and CEO. "Our suite product play is paying dividends as our customers are investing in HubSpot as their full marketing, sales and service front office; and our flywheel play is reducing friction so it's easier than ever for customers to try, buy and get up and running with HubSpot." 

Business Outlook
Based on information available as of May 7, 2019, HubSpot is issuing guidance for the second quarter of 2019 and full year 2019 as indicated below.

Second Quarter 2019:

  • Total revenue is expected to be in the range of $156.5 million to $157.5 million.
  • Non-GAAP operating income is expected to be in the range of $9.2 million to $10.2 million.
  • Non-GAAP net income per common share is expected to be in the range of $0.24 to $0.26. This assumes approximately 47.6 million weighted average diluted shares outstanding.

Full Year 2019:

  • Total revenue is expected to be in the range of $655.5 million to $658.5 million.
  • Non-GAAP operating income is expected to in be in the range of $50.0 million to $52.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.26 to $1.30. This assumes approximately 47.5 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, May 7, 2019 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 8374447. 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 8374447.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 60,500 total customers in over 100 countries use HubSpot's award-winning software, services, and support to transform the way they attract, engage, and delight customers. Learn more at www.hubspot.com.

Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the second fiscal quarter and full year 2019; and statements regarding our positioning for future growth. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning.  These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made.  Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.  Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully acquire and integrate companies and assets; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Annual Report on Form 10-K filed on February 12, 2019 and our other SEC filings.  We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

Consolidated Balance Sheets

(in thousands)









March 31,

December 31,


2019

2018

Assets







Current assets:







Cash and cash equivalents

$

285,126

$

111,489

Short-term investments

683,994


480,761

Accounts receivable



69,249


77,100

Deferred commission expense

26,370


23,664

Restricted cash

5,569


5,175

Prepaid expenses and other current assets

13,143


14,229

Total current assets

1,083,451


712,418

Long-term investments

14,548


11,450

Property and equipment, net

54,995


52,468

Capitalized software development costs, net

13,365


12,746

Right-of-use assets

159,096


—

Deferred commission expense, net of current portion

18,535


18,114

Other assets

7,066


6,888

Intangible assets, net

4,119


4,919

Goodwill

14,950


14,950

Total assets

$

1,370,125

$

833,953

Liabilities and stockholders' equity







Current liabilities:







Accounts payable

$

14,859

$

7,810

Accrued compensation costs

21,360


23,589

Accrued expenses and other current liabilities

25,284


22,305

Lease liabilities

15,928


—

Deferred revenue

191,193


183,305

Total current liabilities

268,624


237,009

Lease liabilities, net of current portion

171,200


—

Deferred rent, net of current portion

—


26,445

Deferred revenue, net of current portion

2,263


2,179

Other long-term liabilities

4,993


4,897

Convertible senior notes

324,042


318,782

Total liabilities

771,122


589,312

Stockholders' equity:







Common stock

43


40

Additional paid-in capital

955,045


589,708

Accumulated other comprehensive loss

(601)


(723)

Accumulated deficit

(355,484)


(344,384)

Total stockholders' equity

599,003


244,641

Total liabilities and stockholders' equity

$

1,370,125

$

833,953

Consolidated Statements of Operations

(in thousands, except per share data)




For the Three Months Ended March 31,

2019

2018

Revenues:






Subscription

$

144,226

$

108,602

Professional services and other

7,572


5,954

Total revenue

151,798


114,556

Cost of revenues:






Subscription

21,301


15,235

Professional services and other

8,277


7,142

Total cost of revenues

29,578


22,377

Gross profit

122,220


92,179

Operating expenses:






Research and development

35,177


26,352

Sales and marketing

74,905


59,910

General and administrative

21,174


17,241

Total operating expenses

131,256


103,503

Loss from operations

(9,036)


(11,324)

Other expense:






Interest income

4,174


1,824

Interest expense

(5,513)


(5,174)

Other expense

(12)


(283)

Total other expense

(1,351)


(3,633)

Loss before income tax expense

(10,387)


(14,957)

Income tax expense

(713)


(491)

Net loss

$

(11,100)

$

(15,448)

Net loss per share, basic and diluted

$

(0.27)

$

(0.41)

Weighted average common shares used in computing basic

   and diluted net loss per share:

40,568


37,832

Consolidated Statements of Cash Flows

(in thousands)




For the Three Months Ended

March 31,

2019

2018

Operating Activities:






Net loss

$

(11,100)

$

(15,448)

Adjustments to reconcile net loss to net cash and cash equivalents provided

   by operating activities






Depreciation and amortization

6,973


5,110

Stock-based compensation

21,205


16,046

Benefit for deferred income taxes

(28)


—

Amortization of debt discount and issuance costs

5,260


4,908

Accretion of bond discount

(2,751)


(1,164)

Noncash lease expense

—


794

Unrealized currency translation

(281)


36

Changes in assets and liabilities






Accounts receivable

7,758


6,863

Prepaid expenses and other assets

886


1,880

Deferred commission expense

(3,334)


(5,068)

Right-of-use assets

5,505


—

Accounts payable

4,911


166

Accrued expenses and other current liabilities

(2,071)


1,674

Lease liabilities

(4,110)


—

Deferred rent

—


(48)

Deferred revenue

8,893


10,973

Net cash and cash equivalents provided by operating activities

37,716


26,722

Investing Activities:






Purchases of investments

(386,501)


(210,886)

Maturities of investments

183,460


256,250

Purchases of property and equipment

(4,265)


(6,239)

Capitalization of software development costs

(2,821)


(2,616)

Purchases of strategic investments

—


(250)

Net cash and cash equivalents (used in) provided by investing activities

(210,127)


36,259

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

(1,084)


(2,344)

Proceeds related to the issuance of common stock under stock plans

5,690


6,113

Repayments of capital lease obligations

(118)


(212)

Net cash and cash equivalents provided by financing activities

347,227


3,557

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(784)


677

Net increase in cash, cash equivalents and restricted cash

174,032


67,215

Cash, cash equivalents and restricted cash, beginning of period

117,114


92,784

Cash, cash equivalents and restricted cash, end of period

$

291,146

$

159,999

Reconciliation of non-GAAP operating income and operating margin

(in thousands, except percentages)

Three Months Ended

March 31,

2019

2018

GAAP operating loss

$

(9,036)

$

(11,324)

Stock-based compensation

21,205

16,046

Amortization of acquired intangible assets

800

50

Acquisition related expenses

32

802

Non-GAAP operating income

$

13,001

$

5,574







GAAP operating margin

(6.0)

%

(9.9)

%

Non-GAAP operating margin

8.6

%

4.9

%

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

Three Months Ended 

March 31,

2019

2018

GAAP net loss

$

(11,100)

$

(15,448)

Stock-based compensation

21,205

16,046

Amortization of acquired intangibles assets

800

50

Acquisition related expenses

32

802

Non-cash interest expense for amortization of debt discount and debt issuance costs

5,260

4,908

Income tax effects of  non-GAAP items

—

—

Non-GAAP net income

$

16,197

$

6,358







Non-GAAP net income per share:





Basic

$

0.40

$

0.17

Diluted

$

0.36

$

0.15

Shares used in non-GAAP per share calculations





Basic

40,568

37,832

Diluted

45,540

41,048

Reconciliation of non-GAAP expense and expense as a percentage of revenue









(in thousands, except percentages)













Three Months Ended March 31,

2019

2018

COS,

Subscription

COS,

Prof.

services

& other

R&D

S&M

G&A

COS,

Subscription

COS,

Prof.

services

& other

R&D

S&M

G&A

GAAP expense

$

21,301

$

8,277

$

35,177

$

74,905

$

21,174

$

15,235

$

7,142

$

26,352

$

59,910

$

17,241

Stock -based compensation

(614)

(1,019)

(7,091)

(7,804)

(4,677)


(277)

(690)

(4,764)

(6,492)

(3,823)

Amortization of acquired intangible

assets

(800)

—

—

—

—


(50)

—

—

—

—

Acquisition related expenses

—

—

(32)

—

—


—

—

(802)

—

—

Non-GAAP expense

$

19,887

$

7,258

$

28,054

$

67,101

$

16,497

$

14,908

$

6,452

$

20,786

$

53,418

$

13,418
































GAAP expense as a percentage of

revenue

14.0

%

5.5

%

23.2

%

49.3

%

13.9

%

13.3

%

6.2

%

23.0

%

52.3

%

15.1

%

Non-GAAP expense as a percentage of

revenue

13.1

%

4.8

%

18.5

%

44.2

%

10.9

%

13.0

%

5.6

%

18.1

%

46.6

%

11.7

%

Reconciliation of non-GAAP subscription margin





(in thousands, except percentages)








Three Months Ended March 31,


2019

2018

GAAP subscription margin

$

122,925

$

93,367

Stock -based compensation

614

277

Amortization of acquired intangible assets

800

50

Non-GAAP subscription margin

$

124,339

$

93,694








GAAP subscription margin percentage

85.2

%

86.0

%

Non-GAAP subscription margin percentage

86.2

%

86.3

%

Reconciliation of free cash flow





(in thousands)
















Three Months Ended March 31,


2019

2018

GAAP net cash and cash equivalents provided by operating activities

$

37,716

$

26,722

Purchases of property and equipment

(4,265)

(6,239)

Capitalization of software development costs

(2,821)

(2,616)

Free cash flow

$

30,630

$

17,867

Reconciliation of forecasted non-GAAP operating income

(in thousands)







Three Months Ended

June 30, 2019

Year Ended

December 31, 2019

GAAP operating income range

($20,730)-($19,730)

($58,730)-($56,730)

Stock-based compensation

29,100


105,500

Amortization of acquired intangible assets

800


3,100

Acquisition related expenses

30


130

Non-GAAP operating income range

$9,200 -$10,200

$50,000-$52,000

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, 2019

Year Ended

December 31, 2019

GAAP net loss range

($24,130)-($23,130)

($70,830)-($68,830)

Stock-based compensation

29,100


105,500

Amortization of acquired intangible assets

800


3,100

Acquisition related expenses

30


130

Non-cash interest expense for amortization of debt discount and

debt issuance costs

5,400


21,800

Income tax effects of  non-GAAP items

—


—

Non-GAAP net income range

$11,200-$12,200

$59,700-$61,700








GAAP net income per basic and diluted share

($0.57)-($0.55)

($1.68)-($1.64)

Non-GAAP net income per diluted share

$0.24-$0.26

$1.26-$1.30
















Weighted average common shares used in computing GAAP basic

and diluted net loss per share:

42,162


42,070








Weighted average common shares used in computing non-GAAP

diluted net loss per share:

47,558


47,500








HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets,  acquisition-related expenses, and non-cash interest expense for amortization of debt discount and debt issuance costs in future periods assume, among other things, the occurrence of no additional acquisitions, investments or restructurings, and no further revisions to stock-based compensation and related expenses.

Non-GAAP Financial Measures 

We report our financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. In this release, HubSpot's non-GAAP operating income, operating margin, subscription margin, expense, expense as a percentage of revenue, net income, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. Specifically, these non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management's ability to make useful forecasts. In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Management may, however, utilize other measures to illustrate performance in the future. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included above in this press release.

These non-GAAP measures exclude stock-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount debt issuance costs, and income tax effects of non-GAAP items. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:       

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

SOURCE HubSpot

Related Links

http://hubspot.com

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