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 September 30, |
For the Nine Months Ended September 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 30, |
For the Nine Months Ended September 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-GAAP operating income and operating margin (in thousands, except percentages) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
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 margin |
7.2 |
% |
6.1 |
% |
8.0 |
% |
7.6 |
% |
|||||
Reconciliation of non-GAAP net income (in thousands, except per share amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
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, 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 |
$ |
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 revenue |
14.5 |
% |
4.1 |
% |
23.8 |
% |
52.2 |
% |
12.0 |
% |
14.8 |
% |
4.4 |
% |
23.0 |
% |
52.6 |
% |
13.4 |
% |
|||||||||||
Non-GAAP expense as a percentage of revenue |
13.8 |
% |
3.8 |
% |
19.2 |
% |
46.4 |
% |
9.5 |
% |
13.9 |
% |
4.0 |
% |
18.3 |
% |
47.4 |
% |
10.3 |
% |
|||||||||||
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
2020 |
2019 |
||||||||||||||||||||||||||||||
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 |
$ |
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 30, |
Nine Months Ended September 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 percentage |
85.0 |
% |
84.6 |
% |
84.7 |
% |
84.9 |
% |
||||||
Non-GAAP subscription margin percentage |
85.7 |
% |
85.6 |
% |
85.5 |
% |
85.9 |
% |
||||||
Reconciliation of operating 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 |
||||||
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
SOURCE HubSpot
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article