HubSpot Reports Q3 2016 Results
Strong Revenue Growth with Improved Profitability
Full-Year 2016 Guidance Raised
CAMBRIDGE, Mass., Nov. 2, 2016 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the third quarter ended September 30th, 2016.
Financial Highlights:
Revenue
- Total revenue was $70.6 million, up 48% compared to the third quarter of 2015.
- Subscription revenue was $66.5 million, up 51% compared to the third quarter of 2015.
- Professional services and other revenue was $4.1 million, up 13% compared to the third quarter of 2015.
Operating Loss
- GAAP operating margin was (14.1%) for the quarter, compared to (27.9%) in the third quarter of 2015.
- Non-GAAP operating margin was (1.8%) for the quarter, an improvement of approximately 16.5 percentage points from (18.3%) in the third quarter of 2015.
- GAAP operating loss was ($10.0) million for the quarter, compared to ($13.3) million in the third quarter of 2015.
- Non-GAAP operating loss was ($1.2) million for the quarter, compared to ($8.8) million in the third quarter of 2015.
Net Loss
- GAAP net loss was ($10.5) million, or ($0.30) per share for the quarter, compared to ($13.6) million, or ($0.40) per share, in the third quarter of 2015.
- Non-GAAP net loss was ($1.8) million, or ($0.05) per share for the quarter, compared to ($9.0) million, or ($0.27) per share, in the third quarter of 2015.
- Third quarter weighted average common shares outstanding were 35.4 million compared to 33.8 million shares in the third quarter of 2015.
Balance Sheet and Cash Flow
- The company's cash, cash equivalents and investments balance was $151.7 million as of September 30th, 2016.
- During the third quarter of 2016, the company generated $5.27 million of operating cash flow and invested $3.74 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of $1.53 million. During the third quarter of 2015, the company used ($3.83) million of operating cash flow and invested $2.33 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of ($6.16) million.
Additional Recent Business Highlights
- Grew total customers to 21,658 at September 30th, 2016, up 29% from September 30th, 2015.
- Increased average subscription revenue per customer during the third quarter of 2016 to $12,320 from $10,607 in the third quarter of 2015.
- Increased average subscription revenue per customer during the third quarter of 2016 to $12,320, up 16% from $10,607 in the third quarter of 2015.
"We are proud to have delivered another strong quarter in Q3 of this year. For the third quarter in a row, we have reported positive cash flow, providing proof of our momentum and our commitment to strong, consistent growth across the business," said Brian Halligan, HubSpot co-founder and CEO. "We've always said that the power of HubSpot is how helpful, human-centric and holistic our platform and philosophy are -- those three special ingredients have helped us grow a global inbound community that reached new heights this quarter."
Business Outlook
Based on information available as of November 2, 2016, HubSpot is issuing guidance for the fourth quarter of 2016 and raising guidance for full year 2016 as indicated below.
Fourth Quarter 2016:
- Total revenue is expected to be in the range of $73.7 million to $74.7 million.
- Non-GAAP operating loss is expected to in the range of ($7.6) million to ($6.6) million. This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand.
- Non-GAAP net loss per common share is expected to be in the range of ($0.22) to ($0.20). This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand. This assumes approximately 35.7 million weighted common shares outstanding.
Full Year 2016:
- Total revenue is expected to be in the range of $268.2 million to $269.2 million.
- Non-GAAP operating loss is expected to in be in the range of ($15.0) million to ($14.0) million. This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand.
- Non-GAAP net loss per common share is expected to be in the range of ($0.45) to ($0.43). This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand. This assumes approximately 35.2 million weighted common shares outstanding.
Conference Call Information
HubSpot will host a conference call on Wednesday, November 2nd, 2016, at 4:30 p.m. Eastern Time (ET) to discuss its third quarter 2016 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 92793380. Additionally, a live webcast of the conference call will be available in the "Investor" section of the HubSpot's web site at www.hubspot.com.
Following the conference call, a replay will be available until 11 pm on November 9, 2016 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 92793380. An archived webcast of this conference call will also be available in the "Investor" section of HubSpot's web site at www.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 inbound marketing and sales platform. Over 21,500 customers in over 90 countries use HubSpot's award-winning software, services, and support to create an inbound experience that will attract, engage, and delight customers. Learn more at www.hubspot.com.
The tables at the end of this press release include a reconciliation of generally accepted accounting principles ("GAAP") to non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss for the third quarter ended September 30, 2016 and 2015. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."
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 concerning our financial guidance for the fourth fiscal quarter of 2016 and full year 2016, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform. 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 recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 3, 2016 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 |
||||||
| September 30, |
December 31, |
|||||
| 2016 |
2015 |
|||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ |
61,439 |
$ |
55,580 |
||
| Short-term investments |
52,555 |
48,972 |
||||
| Accounts receivable — net of allowance for doubtful accounts of $520 and $371 |
30,436 |
25,142 |
||||
| Deferred commission expense |
8,205 |
8,114 |
||||
| Prepaid hosting costs |
1,240 |
3,047 |
||||
| Prepaid expenses and other current assets |
10,187 |
4,899 |
||||
| Total current assets |
164,062 |
145,754 |
||||
| Long-term investments |
37,669 |
40,566 |
||||
| Property and equipment, net |
29,041 |
18,161 |
||||
| Capitalized software development costs, net |
5,840 |
4,655 |
||||
| Restricted cash |
380 |
363 |
||||
| Other assets |
985 |
1,007 |
||||
| Intangible assets, net |
36 |
100 |
||||
| Goodwill |
9,773 |
9,773 |
||||
| Total assets |
$ |
247,786 |
$ |
220,379 |
||
| Liabilities and stockholders' equity |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ |
3,004 |
$ |
2,588 |
||
| Accrued compensation costs |
10,284 |
11,371 |
||||
| Other accrued expenses |
17,383 |
12,313 |
||||
| Capital lease obligations |
764 |
542 |
||||
| Deferred rent |
207 |
86 |
||||
| Deferred revenue |
83,328 |
64,407 |
||||
| Total current liabilities |
114,970 |
91,307 |
||||
| Capital lease obligations, net of current portion |
247 |
277 |
||||
| Deferred rent, net of current portion |
8,849 |
6,345 |
||||
| Deferred revenue, net of current portion |
918 |
732 |
||||
| Other long-term liabilities |
644 |
10 |
||||
| Total liabilities |
125,628 |
98,671 |
||||
| Stockholders' equity: |
||||||
| Common stock |
35 |
34 |
||||
| Additional paid-in capital |
354,743 |
322,833 |
||||
| Accumulated other comprehensive loss |
(533) |
(805) |
||||
| Accumulated deficit |
(232,087) |
(200,354) |
||||
| Total stockholders' equity |
122,158 |
121,708 |
||||
| Total liabilities and stockholders' equity |
$ |
247,786 |
$ |
220,379 |
||
| Consolidated Statements of Operations |
||||||||||||||
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||
| 2016 |
2015 |
2016 |
2015 |
|||||||||||
| Revenues: |
||||||||||||||
| Subscription |
$ |
66,505 |
$ |
44,091 |
$ |
182,357 |
$ |
118,303 |
||||||
| Professional services and other |
4,084 |
3,620 |
12,166 |
10,514 |
||||||||||
| Total revenue |
70,589 |
47,711 |
194,523 |
128,817 |
||||||||||
| Cost of Revenues: |
||||||||||||||
| Subscription |
10,655 |
8,470 |
29,550 |
22,894 |
||||||||||
| Professional services and other |
5,157 |
4,008 |
15,428 |
11,322 |
||||||||||
| Total cost of revenues |
15,812 |
12,478 |
44,978 |
34,216 |
||||||||||
| Gross profit |
54,777 |
35,233 |
149,545 |
94,601 |
||||||||||
| Operating expenses: |
||||||||||||||
| Research and development |
12,100 |
8,128 |
33,182 |
23,787 |
||||||||||
| Sales and marketing |
41,193 |
30,868 |
115,531 |
81,057 |
||||||||||
| General and administrative |
11,435 |
9,527 |
31,674 |
25,782 |
||||||||||
| Total operating expenses |
64,728 |
48,523 |
180,387 |
130,626 |
||||||||||
| Loss from operations |
(9,951) |
(13,290) |
(30,842) |
(36,025) |
||||||||||
| Other (expense) income: |
||||||||||||||
| Interest income |
224 |
131 |
604 |
241 |
||||||||||
| Interest expense |
(97) |
(31) |
(277) |
(140) |
||||||||||
| Other (expense) income |
(365) |
(186) |
(900) |
387 |
||||||||||
| Total other (expense) income |
(238) |
(86) |
(573) |
488 |
||||||||||
| Loss before income tax provision |
(10,189) |
(13,376) |
(31,415) |
(35,537) |
||||||||||
| Income tax provision |
(326) |
(176) |
(318) |
(265) |
||||||||||
| Net loss |
$ |
(10,515) |
$ |
(13,552) |
$ |
(31,733) |
$ |
(35,802) |
||||||
| Net loss per share, basic and diluted |
$ |
(0.30) |
$ |
(0.40) |
$ |
(0.91) |
$ |
(1.09) |
||||||
| Weighted average common shares used in computing basic |
35,393 |
33,819 |
35,038 |
32,901 |
||||||||||
| Consolidated Statements of Cash Flows |
||||||||||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
| 2016 |
2015 |
2016 |
2015 |
|||||||||||
| Operating Activities: |
||||||||||||||
| Net loss |
$ |
(10,515) |
$ |
(13,552) |
$ |
(31,733) |
$ |
(35,802) |
||||||
| Adjustments to reconcile net loss to net cash and cash |
||||||||||||||
| Depreciation and amortization |
2,769 |
1,946 |
7,992 |
5,511 |
||||||||||
| Stock-based compensation |
8,695 |
4,510 |
23,401 |
15,293 |
||||||||||
| Provision for deferred income taxes |
— |
19 |
(165) |
45 |
||||||||||
| Amortization of bond premium discount |
136 |
246 |
547 |
438 |
||||||||||
| Noncash rent expense |
744 |
19 |
2,693 |
211 |
||||||||||
| Unrealized currency translation |
(82) |
50 |
(146) |
(239) |
||||||||||
| Changes in assets and liabilities |
||||||||||||||
| Accounts receivable |
(4,755) |
(3,598) |
(5,140) |
(5,716) |
||||||||||
| Prepaid expenses and other assets |
(762) |
2,075 |
(3,386) |
(1,277) |
||||||||||
| Deferred commission expense |
(77) |
(635) |
(80) |
(649) |
||||||||||
| Accounts payable |
431 |
226 |
733 |
(84) |
||||||||||
| Accrued expenses |
1,800 |
(9) |
3,737 |
4,533 |
||||||||||
| Deferred rent |
(41) |
114 |
(75) |
379 |
||||||||||
| Deferred revenue |
6,929 |
4,763 |
18,715 |
14,294 |
||||||||||
| Net cash and cash equivalents provided by (used in) |
5,272 |
(3,826) |
17,093 |
(3,063) |
||||||||||
| Investing Activities: |
||||||||||||||
| Purchases of investments |
(23,212) |
(15,586) |
(44,323) |
(93,869) |
||||||||||
| Maturity of investment |
22,045 |
4,000 |
43,388 |
4,000 |
||||||||||
| Purchases of property and equipment |
(2,081) |
(999) |
(13,350) |
(2,182) |
||||||||||
| Capitalization of software development costs |
(1,661) |
(1,333) |
(4,173) |
(3,125) |
||||||||||
| Acquisition of a business |
— |
— |
— |
(600) |
||||||||||
| Restricted cash |
— |
(388) |
— |
(388) |
||||||||||
| Net cash and cash equivalents used in investing |
(4,909) |
(14,306) |
(18,458) |
(96,164) |
||||||||||
| Financing Activities: |
||||||||||||||
| Secondary offering proceeds, net of offering costs paid of $583 |
— |
— |
— |
33,669 |
||||||||||
| Payment of offering costs |
— |
(10) |
— |
- |
||||||||||
| Employee taxes paid related to the net share settlement of stock-based awards |
(478) |
(365) |
(1,820) |
(8,217) |
||||||||||
| Proceeds related to issuance of common stock under stock plans |
2,977 |
3,067 |
9,145 |
9,256 |
||||||||||
| Repayments of capital lease obligations |
(209) |
(58) |
(528) |
(107) |
||||||||||
| Net cash and cash equivalents provided by financing |
2,290 |
2,634 |
6,797 |
34,601 |
||||||||||
| Effect of exchange rate changes on cash |
125 |
72 |
427 |
(286) |
||||||||||
| Net increase (decrease) in cash and cash equivalents |
2,778 |
(15,426) |
5,859 |
(64,912) |
||||||||||
| Cash and cash equivalents, beginning of period |
58,661 |
74,235 |
55,580 |
123,721 |
||||||||||
| Cash and cash equivalents, end of period |
$ |
61,439 |
$ |
58,809 |
$ |
61,439 |
$ |
58,809 |
||||||
| Reconciliation of non-GAAP operating loss and |
Three Months Ended |
Nine Months Ended |
|||||||||||
| 2016 |
2015 |
2016 |
2015 |
||||||||||
| (in thousands, except percentages) |
|||||||||||||
| GAAP operating loss |
$ |
(9,951) |
$ |
(13,290) |
$ |
(30,842) |
$ |
(36,025) |
|||||
| Stock-based compensation |
8,695 |
4,510 |
23,401 |
15,293 |
|||||||||
| Amortization of acquired intangible assets |
20 |
26 |
64 |
70 |
|||||||||
| Non-GAAP operating loss |
$ |
(1,236) |
$ |
(8,754) |
$ |
(7,377) |
$ |
(20,662) |
|||||
| GAAP operating margin |
(14.1%) |
(27.9%) |
(15.9%) |
(28.0%) |
|||||||||
| Non-GAAP operating margin |
(1.8%) |
(18.3%) |
(3.8%) |
(16.0%) |
|||||||||
| Reconciliation of non-GAAP net loss |
Three Months Ended |
Nine Months Ended |
|||||||||||
| 2016 |
2015 |
2016 |
2015 |
||||||||||
| (in thousands, except per share amounts) |
|||||||||||||
| GAAP net loss |
$ |
(10,515) |
$ |
(13,552) |
$ |
(31,733) |
$ |
(35,802) |
|||||
| Stock-based compensation |
8,695 |
4,510 |
23,401 |
15,293 |
|||||||||
| Amortization of acquired intangibles |
20 |
26 |
64 |
70 |
|||||||||
| Non-GAAP net loss |
$ |
(1,800) |
$ |
(9,016) |
$ |
(8,268) |
$ |
(20,439) |
|||||
| Non-GAAP net loss per share, basic and diluted |
$ |
(0.05) |
$ |
(0.27) |
$ |
(0.24) |
$ |
(0.62) |
|||||
| Weighted average common shares used in computing basic and |
35,393 |
33,819 |
35,038 |
32,901 |
|||||||||
|
Reconciliation of non-GAAP expense and expense as a percentage of revenue
|
||||||||||||||||||||||||||||||
| Three Months Ended September 30, |
||||||||||||||||||||||||||||||
| 2016 |
2015 |
|||||||||||||||||||||||||||||
| COS, Subscription |
COS, |
R&D |
S&M |
G&A |
COS, Subscription |
COS, |
R&D |
S&M |
G&A |
|||||||||||||||||||||
| GAAP expense |
$ |
10,655 |
$ |
5,157 |
$ |
12,100 |
$ |
41,193 |
$ |
11,435 |
$ |
8,470 |
$ |
4,008 |
$ |
8,128 |
$ |
30,868 |
$ |
9,527 |
||||||||||
| Stock -based compensation |
(139) |
(438) |
(2,341) |
(3,473) |
(2,304) |
(89) |
(315) |
(1,568) |
(1,078) |
(1,460) |
||||||||||||||||||||
| Amortization of acquired intangibles |
(13) |
- |
- |
(7) |
- |
(20) |
- |
- |
(6) |
- |
||||||||||||||||||||
| Non-GAAP expense |
$ |
10,503 |
$ |
4,719 |
$ |
9,759 |
$ |
37,713 |
$ |
9,131 |
$ |
8,361 |
$ |
3,693 |
$ |
6,560 |
$ |
29,784 |
$ |
8,067 |
||||||||||
| GAAP expense as a percentage of revenue |
15.1% |
7.3% |
17.1% |
58.4% |
16.2% |
17.8% |
8.4% |
17.0% |
64.7% |
20.0% |
||||||||||||||||||||
| Non-GAAP expense as a percentage of revenue |
14.9% |
6.7% |
13.8% |
53.4% |
12.9% |
17.5% |
7.7% |
13.7% |
62.4% |
16.9% |
||||||||||||||||||||
| Nine Months Ended September 30, |
||||||||||||||||||||||||||||||
| 2016 |
2015 |
|||||||||||||||||||||||||||||
| COS, Subscription |
COS, |
R&D |
S&M |
G&A |
COS, Subscription |
COS, |
R&D |
S&M |
G&A |
|||||||||||||||||||||
| GAAP expense |
$ |
29,550 |
$ |
15,428 |
$ |
33,182 |
$ |
115,531 |
$ |
31,674 |
$ |
22,894 |
$ |
11,322 |
$ |
23,787 |
$ |
81,057 |
$ |
25,782 |
||||||||||
| Stock -based compensation |
(363) |
(1,238) |
(6,371) |
(9,368) |
(6,061) |
(249) |
(851) |
(4,830) |
(5,278) |
(4,085) |
||||||||||||||||||||
| Amortization of acquired intangibles |
(44) |
- |
- |
(20) |
- |
(50) |
- |
- |
(20) |
- |
||||||||||||||||||||
| Non-GAAP expense |
$ |
29,143 |
$ |
14,190 |
$ |
26,811 |
$ |
106,143 |
$ |
25,613 |
$ |
22,595 |
$ |
10,471 |
$ |
18,957 |
$ |
75,759 |
$ |
21,697 |
||||||||||
| GAAP expense as a percentage of revenue |
15.2% |
7.9% |
17.1% |
59.4% |
16.3% |
17.8% |
8.8% |
18.5% |
62.9% |
20.0% |
||||||||||||||||||||
| Non-GAAP expense as a percentage of revenue |
15.0% |
7.3% |
13.8% |
54.6% |
13.2% |
17.5% |
8.1% |
14.7% |
58.8% |
16.8% |
||||||||||||||||||||
| Reconciliation of non-GAAP subscription margin |
|||||||||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
| 2016 |
2015 |
2016 |
2015 |
||||||||||
| GAAP subscription margin |
$ |
55,850 |
$ |
35,621 |
$ |
152,807 |
$ |
95,409 |
|||||
| Stock -based compensation |
139 |
89 |
363 |
249 |
|||||||||
| Amortization of acquired intangible |
13 |
20 |
44 |
50 |
|||||||||
| Non-GAAP subscription margin |
$ |
56,002 |
$ |
35,730 |
$ |
153,214 |
$ |
95,708 |
|||||
| GAAP subscription margin percentage |
84.0% |
80.8% |
83.8% |
80.6% |
|||||||||
| Non-GAAP subscription margin percentage |
84.2% |
81.0% |
84.0% |
80.9% |
|||||||||
Non-GAAP Financial Measures
In this release, HubSpot's non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, net loss, 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 presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. 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. 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. 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 share-based compensation and amortization of acquired intangible assets. 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. |
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SOURCE HubSpot, Inc.
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