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 )
    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 )
               
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  

 

  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 %

 

 

  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  

 

               
  Three Months Ended June 30, 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

  

  Three Months Ended June 30, 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:

A. Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense allows for financial results that are more indicative of our operational performance and provide for a useful comparison of our operating results to prior periods and to our peer companies because stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price.


B. Expense for the amortization of acquired intangible assets is a non-cash item, and we believe that the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods and to our peer companies.


C. Acquisition related expenses, such as transaction costs and retention payments, are expenses that are not necessarily reflective of operational performance during a period. We believe that the exclusion of this these expenses provides for a useful comparison of our operating results to prior periods and to our peer companies.


D. In May 2017, the Company issued $400 million of convertible notes due in 2022 with a coupon interest rate of 0.25%. 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.


E. 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.


 

Investor Relations Contact:

Charles MacGlashing

investors@hubspot.com

 

Media Contact:

Ellie Flanagan

eflanagan@hubspot.com 

 

###

 

Originally published May 7, 2019 4:10:00 PM, updated May 07 2019

earnings