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HubSpot Reports Q2 2019 Results

CAMBRIDGE, Mass., Aug. 6, 2019 /PRNewswire/ -- HubSpot, Inc. (HUBS), a leading growth platform, today announced financial results for second quarter ended June 30, 2019.

(PRNewsfoto/HubSpot, Inc.)

Financial Highlights:

Revenue

  • Total revenue was $163.3 million, up 33% compared to Q2'18.
  • Subscription revenue was $155.9 million, up 34% compared to Q2'18.
  • Professional services and other revenue was $7.4 million, up 23% compared to Q2'18.

Operating Income (Loss)

  • GAAP operating margin was (9.6%), compared to (11.5%) in Q2'18.
  • Non-GAAP operating margin was 8.4%, an improvement of approximately 3.1 percentage points from 5.3% in Q2'18.
  • GAAP operating loss was ($15.7) million, compared to ($14.1) million in Q2'18.
  • Non-GAAP operating income was $13.8 million, compared to $6.5 million in Q2'18.

Net Income (Loss)

  • GAAP net loss was ($17.4) million, or ($0.41) per basic and diluted share, compared to ($18.2) million, or ($0.48) per basic and diluted share in Q2'18.
  • Non-GAAP net income was $17.6 million, or $0.42 per basic and $0.37 per diluted share, compared to $7.4 million, or $0.19 per basic and $0.18 per diluted share in Q2'18.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 42.1 million, compared to 38.4 million in Q2'18.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 42.1 million and 47.5 million respectively, compared to 38.4 million and 41.8 million, respectively in Q2'18.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $993.8 million as of June 30, 2019.
  • During the second quarter, the company generated $3.4 million of free cash flow compared to $5.2 million during Q2'18.

Additional Recent Business Highlights

  • Grew total customers to 64,836 at June 30, 2019 up 35% from June 30, 2018.
  • Total average subscription revenue per customer was $9,913 during the second quarter of 2019 down 1% compared to Q2'18.

"Q2 was another strong quarter for HubSpot," said Brian Halligan, co-founder and CEO. "Our suite product play is delivering a ton of value for customers and our platform flywheel play is gaining serious momentum among integration partners and our expanding user base." 

Business Outlook
Based on information available as of August 6, 2019, HubSpot is issuing guidance for the third quarter of 2019 and full year 2019 as indicated below.

Third Quarter 2019:

  • Total revenue is expected to be in the range of $168.0 million to $169.0 million.
  • Non-GAAP operating income is expected to be in the range of $8.0 million to $9.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $0.22 to $0.24. This assumes approximately 48.0 million weighted average diluted shares outstanding.

Full Year 2019:

  • Total revenue is expected to be in the range of $663.0 million to $665.0 million.
  • Non-GAAP operating income is expected to in be in the range of $54.0 million to $55.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.39 to $1.41. This assumes approximately 47.1 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, August 6, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's second 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 5284634. 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 5284634. 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 64,500 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 third 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 Quarterly Report on Form 10-Q filed on May 7, 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)




June 30,



December 31,




2019



2018


Assets









Current assets:









Cash and cash equivalents


$

238,080



$

111,489


Short-term investments



717,115




480,761


Accounts receivable



72,999




77,100


Deferred commission expense



28,672




23,664


Restricted cash



6,019




5,175


Prepaid expenses and other current assets



19,991




14,229


Total current assets



1,082,876




712,418


Long-term investments



38,628




11,450


Property and equipment, net



58,471




52,468


Capitalized software development costs, net



13,616




12,746


Right-of-use assets



224,980





Deferred commission expense, net of current portion



18,600




18,114


Other assets



8,052




6,888


Intangible assets, net



3,319




4,919


Goodwill



14,950




14,950


Total assets


$

1,463,492



$

833,953


Liabilities and stockholders' equity









Current liabilities:









Accounts payable


$

13,264



$

7,810


Accrued compensation costs



20,179




23,589


Accrued expenses and other current liabilities



28,546




22,305


Lease liabilities



15,415





Deferred revenue



195,509




183,305


Total current liabilities



272,913




237,009


Lease liabilities, net of current portion



234,724





Deferred rent, net of current portion






26,445


Deferred revenue, net of current portion



2,619




2,179


Other long-term liabilities



5,635




4,897


Convertible senior notes



329,457




318,782


Total liabilities



845,348




589,312


Stockholders' equity:









Common stock



43




40


Additional paid-in capital



990,701




589,708


Accumulated other comprehensive loss



241




(723)


Accumulated deficit



(372,841)




(344,384)


Total stockholders' equity



618,144




244,641


Total liabilities and stockholders' equity


$

1,463,492



$

833,953


 

 

Consolidated Statements of Operations

(in thousands, except per share data)



For the Three Months Ended June 30,


For the Six Months Ended June 30,



2019


2018

2019


2018


Revenues:










Subscription

$

155,876

$

116,566

$

300,102

$

225,168


Professional services and other


7,379


6,010


14,951


11,964


Total revenue


163,255


122,576


315,053


237,132


Cost of revenues:










Subscription


23,578


16,964


44,879


32,199


Professional services and other


7,564


7,887


15,841


15,029


Total cost of revenues


31,142


24,851


60,720


47,228


Gross profit


132,113


97,725


254,333


189,904


Operating expenses:










Research and development


40,456


28,485


75,633


54,837


Sales and marketing


84,079


65,281


158,984


125,191


General and administrative


23,303


18,011


44,477


35,252


Total operating expenses


147,838


111,777


279,094


215,280


Loss from operations


(15,725)


(14,052)


(24,761)


(25,376)


Other expense:










Interest income


5,424


2,092


9,598


3,916


Interest expense


(5,673)


(5,326)


(11,186)


(10,500)


Other expense


(672)


(527)


(684)


(810)


Total other expense


(921)


(3,761)


(2,272)


(7,394)


Loss before income tax expense


(16,646)


(17,813)


(27,033)


(32,770)


Income tax expense


(711)


(412)


(1,424)


(903)


Net loss

$

(17,357)

$

(18,225)

$

(28,457)

$

(33,673)


Net loss per share, basic and diluted

$

(0.41)

$

(0.48)

$

(0.69)

$

(0.88)


Weighted average common shares used in computing basic

   and diluted net loss per share:


42,127


38,350


41,352


38,093


 

 

Consolidated Statements of Cash Flows

(in thousands)



For the Three Months
Ended June 30,


For the Six Months
Ended June
 30,



2019


2018

2019


2018


Operating Activities:










Net loss

$

(17,357)

$

(18,225)

$

(28,457)

$

(33,673)


Adjustments to reconcile net loss to net cash and cash
equivalents provided by operating activities










Depreciation and amortization


7,063


5,429


14,035


10,539


Stock-based compensation


28,663


19,675


49,869


35,721


(Benefit) provision for deferred income taxes


(107)


47


(135)


47


Amortization of debt discount and issuance costs


5,415


5,054


10,675


9,962


Accretion of bond discount


(4,070)


(1,477)


(6,821)


(2,641)


Noncash rent expense



811



1,605


Unrealized currency translation


263


100


(18)


136


Changes in assets and liabilities










Accounts receivable


(3,851)


(218)


3,907


6,645


Prepaid expenses and other assets


(7,216)


(6,592)


(6,330)


(4,712)


Deferred commission expense


(2,205)


(5,021)


(5,539)


(10,089)


Right-of-use assets


3,757



9,262



Accounts payable


81


588


4,992


754


Accrued expenses and other current liabilities


5,359


3,957


3,288


5,631


Lease liabilities


(6,052)



(10,162)



Deferred rent



3,954



3,906


Deferred revenue


3,954


5,419


12,847


16,392


Net cash and cash equivalents provided by
operating activities


13,697


13,501


51,413


40,223


Investing Activities:










Purchases of investments


(211,301)


(155,406)


(597,802)


(366,292)


Maturities and sales of investments


158,925


92,300


342,385


348,550


Purchases of property and equipment


(7,791)


(5,071)


(12,056)


(11,310)


Capitalization of software development costs


(2,507)


(3,190)


(5,328)


(5,806)


Purchases of strategic investments


(352)



(352)


(250)


Net cash and cash equivalents used in investing
activities


(63,026)


(71,367)


(273,153)


(35,108)


Financing Activities:










Proceeds from common stock offering, net of offering costs
paid of $365




342,628



Payments for common stock offering costs


(111)





Employee taxes paid related to the net share settlement of
stock-based awards


(1,651)


(1,701)


(2,735)


(4,045)


Proceeds related to the issuance of common stock under stock
plans


5,048


5,499


10,738


11,612


Repayments of capital lease obligations


(87)


(205)


(205)


(417)


Net cash and cash equivalents provided by
financing activities


3,199


3,593


350,426


7,150


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


586


(1,675)


(198)


(998)


Net increase in cash, cash equivalents and restricted cash


(45,544)


(55,948)


128,488


11,267


Cash, cash equivalents and restricted cash, beginning of period


291,146


159,999


117,114


92,784


Cash, cash equivalents and restricted cash, end of period

$

245,602

$

104,051

$

245,602

$

104,051


 

 

Reconciliation of non-GAAP operating income and operating margin

(in thousands, except percentages)

Three Months Ended
June 30,



Six Months Ended
June 30,



2019


2018



2019


2018


GAAP operating loss

$

(15,725)


$

(14,052)



$

(24,761)


$

(25,376)


Stock-based compensation


28,663



19,675




49,869



35,721


Amortization of acquired intangible assets


800



50




1,600



100


Acquisition related expenses


32



802




65



1,604


Non-GAAP operating income

$

13,770


$

6,475



$

26,773


$

12,049
















GAAP operating margin


(9.6)

%


(11.5)

%



(7.9)

%


(10.7)

%

Non-GAAP operating margin


8.4

%


5.3

%



8.5

%


5.1

%

 

 

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

Three Months Ended
June 30,



Six Months Ended 
June 30,



2019


2018



2019


2018


GAAP net loss

$

(17,357)


$

(18,225)



$

(28,457)


$

(33,673)


Stock-based compensation


28,663



19,675




49,869



35,721


Amortization of acquired intangibles assets


800



50




1,600



100


Acquisition related expenses


32



802




65



1,604


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


5,415



5,054




10,675



9,962


Income tax effects of non-GAAP items










Non-GAAP net income

$

17,553


$

7,356



$

33,752


$

13,714
















Non-GAAP net income per share:














Basic

$

0.42


$

0.19



$

0.82


$

0.36


Diluted

$

0.37


$

0.18



$

0.73


$

0.34


Shares used in non-GAAP per share calculations














Basic


42,127



38,350




41,352



38,093


Diluted


47,532



41,788




46,394



40,892


 

 


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











(in thousands, except percentages)















Three Months Ended June 30,



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

$

23,578


$

7,564


$

40,456


$

84,079


$

23,303



$

16,964


$

7,887


$

28,485


$

65,281


$

18,011


Stock -based compensation


(822)



(666)



(10,553)



(10,523)



(6,099)




(317)



(846)



(6,111)



(7,937)



(4,464)


Amortization of acquired intangible
assets


(800)












(50)










Acquisition related expenses






(32)












(802)






Non-GAAP expense

$

21,956


$

6,898


$

29,871


$

73,556


$

17,204



$

16,597


$

7,041


$

21,572


$

57,344


$

13,547


































GAAP expense as a percentage of
revenue


14.4

%


4.6

%


24.8

%


51.5

%


14.3

%



13.8

%


6.4

%


23.2

%


53.3

%


14.7

%

Non-GAAP expense as a percentage of
revenue


13.4

%


4.2

%


18.3

%


45.1

%


10.5

%



13.5

%


5.7

%


17.6

%


46.8

%


11.1

%


































































































Six Months Ended June 30,



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

$

44,879


$

15,841


$

75,633


$

158,984


$

44,477



$

32,199


$

15,029


$

54,837


$

125,191


$

35,252


Stock -based compensation


(1,437)



(1,685)



(17,644)



(18,327)



(10,776)




(594)



(1,536)



(10,875)



(14,429)



(8,287)


Amortization of acquired intangible
assets


(1,600)












(100)










Acquisition related expenses






(65)












(1,604)






Non-GAAP expense

$

41,842


$

14,156


$

57,924


$

140,657


$

33,701



$

31,505


$

13,493


$

42,358


$

110,762


$

26,965


































GAAP expense as a percentage of
revenue


14.2

%


5.0

%


24.0

%


50.5

%


14.1

%



13.6

%


6.3

%


23.1

%


52.8

%


14.9

%

Non-GAAP expense as a percentage of
revenue


13.3

%


4.5

%


18.4

%


44.6

%


10.7

%



13.3

%


5.7

%


17.9

%


46.7

%


11.4

%

 

 


Reconciliation of non-GAAP subscription margin














(in thousands, except percentages)

















Three Months Ended June 30,



Six Months Ended June 30,




2019


2018



2019


2018


GAAP subscription margin


$

132,298


$

99,602



$

255,223


$

192,969


Stock -based compensation



822



317




1,437



594


Amortization of acquired intangible assets



800



50




1,600



100


Non-GAAP subscription margin


$

133,920


$

99,969



$

258,260


$

193,663

















GAAP subscription margin percentage



84.9

%


85.4

%



85.0

%


85.7

%

Non-GAAP subscription margin percentage



85.9

%


85.8

%



86.1

%


86.0

%

 

 

Reconciliation of free cash flow














(in thousands)
































Three Months Ended June 30,



Six Months Ended June 30,




2019


2018



2019


2018


GAAP net cash and cash equivalents provided
by operating activities


$

13,697


$

13,501



$

51,413


$

40,223


Purchases of property and equipment



(7,791)



(5,071)




(12,056)



(11,310)


Capitalization of software development costs



(2,507)



(3,190)




(5,328)



(5,806)


Free cash flow


$

3,399


$

5,240



$

34,029


$

23,107


 

 

Reconciliation of forecasted non-GAAP operating income

(in thousands, except percentages)









Three Months Ended
September 30, 2019



Year Ended

December 31, 2019


GAAP operating income range

($16,880)-($15,880)



($49,330)-($48,330)


Stock-based compensation

24,100



100,100


Amortization of acquired intangible assets

750



3,100


Acquisition related expenses

30



130


Non-GAAP operating income range

$8,000-$9,000



$54,000-$55,000


 

 


Reconciliation of forecasted non-GAAP net income and non-
GAAP net income per share

(in thousands, except per share amounts)

















Three Months Ended
September 30, 2019



Year Ended

December 31, 2019


GAAP net loss range

($19,880)-($18,880)



($59,730)-($58,730)


Stock-based compensation

24,100



100,100


Amortization of acquired intangible assets

750



3,100


Acquisition related expenses

30



130


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

5,500



21,800


Income tax effects of  non-GAAP items






Non-GAAP net income range

$10,500-$11,500



$65,400-$66,400










GAAP net income per basic and diluted share

($0.47)-($0.44)



($1.42)-($1.40)


Non-GAAP net income per diluted share

$0.22-$0.24



$1.39-$1.41


















Weighted average common shares used in computing GAAP basic
and diluted net loss per share:

42,500



42,050










Weighted average common shares used in computing non-GAAP
diluted net loss per share:

48,000



47,100


 

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.

 

Cision

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