HubSpot Reports Q2 2016 Results

Written by Sample HubSpot User Sample | Aug 3, 2016 8:03:00 PM

Strong Revenue Growth with Improved Margins and Positive Cash Flow
Full-Year 2016 Guidance Raised

CAMBRIDGE, Mass., Aug. 3, 2016 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the second quarter ended June 30th, 2016.

Financial Highlights:

Revenue

  • Total revenue was $65.0 million, up 51% compared to the second quarter of 2015.
  • Subscription revenue was $60.9 million, up 55% compared to the second quarter of 2015.
  • Professional services and other revenue was $4.1 million, up 11% compared to the second quarter of 2015.

Operating Loss

  • GAAP operating margin was (17.0%) for the quarter, compared to (26.4%) in the second quarter of 2015. 
  • Non-GAAP operating margin was (3.9%) for the quarter, an improvement of approximately 9 percentage points from (13.2%) in the second quarter of 2015.
  • GAAP operating loss was ($11.0) million for the quarter, compared to ($11.3) million in the second quarter of 2015.
  • Non-GAAP operating loss was ($2.5) million for the quarter, compared to ($5.7) million in the second quarter of 2015.

Net Loss

  • GAAP net loss was ($11.1) million, or ($0.32) per share for the quarter, compared to ($11.4) million, or ($0.34) per share, in the second quarter of 2015.
  • Non-GAAP net loss was ($2.6) million, or ($0.07) per share for the quarter, compared to ($5.7) million, or ($0.17) per share, in the second quarter of 2015. 
  • Second quarter weighted average common shares outstanding were 35.0 million compared to 33.2 million shares in the second quarter of 2015.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $148 million as of June 30, 2016.
  • During the second quarter of 2016, the company generated $8.6 million of operating cash flow and invested $5.7 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of $2.9 million.  During the second quarter of 2015, the company generated $1.6 million of operating cash flow and invested $1.2 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of $400 thousand.

Additional Recent Business Highlights

  • Grew total customers to 20,444 at June 30th, 2016, up 29% from June 30th, 2015.
  • Increased average subscription revenue per customer during the second quarter of 2016 to $11,978 from $10,127 in the second quarter of 2015.

"The second quarter was another strong set of results for HubSpot," said Brian Halligan, co-founder and CEO. "We were able to deliver solid revenue growth, while showing significant operating leverage that allowed us to generate both positive operating and free cash flow in the quarter. As we continue to build on our product offerings across sales and marketing, we're really excited to help usher in a new era of doing business that matches the way modern humans buy."

Business Outlook

Based on information available as of August 3, 2016, HubSpot is issuing guidance for the third quarter of 2016 and raising guidance for full year 2016 as indicated below.

Third Quarter 2016:

  • Total revenue is expected to be in the range of $67.2 million to $68.2 million.
  • Non-GAAP operating loss is expected to in the range of ($5.2) million to ($4.2) million.  This excludes stock-based compensation expense of approximately $9.0 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 ($0.14) to ($0.12).  This excludes stock-based compensation expense of approximately $9.0 million and amortization of acquired intangible assets of approximately $20 thousand.  This assumes approximately 35.4 million weighted common shares outstanding.

Full Year 2016:

  • Total revenue is expected to be in the range of $263 million to $265 million.
  • Non-GAAP operating loss is expected to in be in the range of ($20) million to ($18) million.  This excludes stock-based compensation expense of approximately $33.2 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 ($0.55) to ($0.51).  This excludes stock-based compensation expense of approximately $33.2 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, August 3, 2016, at 5:00 p.m. Eastern Time (ET) to discuss its second 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 43638681. 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 August 10, 2016 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 43638681. 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 20,000 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 second quarter ended June 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 third 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 May 4, 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

(in thousands)







June 30,

December 31,


2016

2015

Assets







Current assets:







Cash and cash equivalents

$

58,661

$

55,580

Short-term investments

58,831


48,972

Accounts receivable — net of allowance for doubtful accounts of $306 and $371 
at June 30, 2016 and December 31, 2015, respectively

25,643


25,142

Deferred commission expense

8,128


8,114

Prepaid hosting costs

1,224


3,047

Prepaid expenses and other current assets

9,206


4,899

Total current assets

161,693


145,754

Long-term investments

30,507


40,566

Property and equipment, net

28,034


18,161

Capitalized software development costs, net

4,990


4,655

Restricted cash

370


363

Other assets

1,111


1,007

Intangible assets, net

56


100

Goodwill

9,773


9,773

Total assets

$

236,534

$

220,379

Liabilities and stockholders' equity







Current liabilities:







Accounts payable

$

2,707

$

2,588

Accrued compensation costs

11,442


11,371

Other accrued expenses

15,406


12,313

Capital lease obligations

714


542

Deferred rent

194


86

Deferred revenue

76,507


64,407

Total current liabilities

106,970


91,307

Capital lease obligations, net of current portion

259


277

Deferred rent, net of current portion

8,164


6,345

Deferred revenue, net of current portion

675


732

Other long-term liabilities

14


10

Total liabilities

116,082


98,671

Commitments and contingencies







Stockholders' equity:







Common stock

35


34

Additional paid-in capital

342,435


322,833

Accumulated other comprehensive loss

(446)


(805)

Accumulated deficit

(221,572)


(200,354)

Total stockholders' equity

120,452


121,708

Total liabilities and stockholders' equity

$

236,534

$

220,379

 

 

Consolidated Statements of Operations

(in thousands, except per share data)







For the Three Months Ended June 30,

For the Six Months Ended June 30,


2016

2015

2016

2015

Revenues:















Subscription

$

60,916

$

39,273

$

115,852

$

74,212

Professional services and other

4,058


3,668


8,082


6,895

Total revenue

64,974


42,941


123,934


81,107

Cost of Revenues:















Subscription

9,985


7,484


18,895


14,424

Professional services and other

5,210


3,789


10,271


7,314

Total cost of revenues

15,195


11,273


29,166


21,738

Gross profit

49,779


31,668


94,768


59,369

Operating expenses:















Research and development

11,278


8,158


21,082


15,658

Sales and marketing

39,140


26,291


74,338


50,188

General and administrative

10,391


8,541


20,239


16,255

Total operating expenses

60,809


42,990


115,659


82,101

Loss from operations

(11,030)


(11,322)


(20,891)


(22,732)

Other (expense) income:















Interest income

201


101


380


108

Interest expense

(93)


(79)


(180)


(109)

Other (expense) income

(202)


(55)


(535)


572

Total other (expense) income

(94)


(33)


(335)


571

Loss before income tax benefit (provision)

(11,124)


(11,355)


(21,226)


(22,161)

Income tax benefit (provision)

60


(37)


8


(89)

Net loss

$

(11,064)

$

(11,392)

$

(21,218)

$

(22,250)

Net loss per share, basic and diluted

$

(0.32)

$

(0.34)

$

(0.61)

$

(0.69)

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

35,023


33,208


34,858


32,432

 

 

Consolidated Statements of Cash Flows

(in thousands)







Three Months Ended

June 30,

Six Months Ended

June 30,


2016

2015

2016

2015

Operating Activities:















Net loss

$

(11,064)

$

(11,392)

$

(21,218)

$

(22,250)

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















Depreciation and amortization

3,022


1,818


5,223


3,565

Stock-based compensation

8,474


5,642


14,705


10,783

Provision for deferred income taxes

(168)


—


(165)


26

Amortization of bond premium discount

190


190


411


192

Noncash rent expense

837


24


1,949


192

Unrealized currency translation

188


159


(63)


(289)

Changes in assets and liabilities















Accounts receivable

(732)


(667)


(385)


(2,118)

Prepaid expenses and other assets

(221)


(2,201)


(2,624)


(3,352)

Deferred commission expense

296


(18)


(3)


(14)

Accounts payable

1,106


800


302


(310)

Accrued expenses

3,091


3,890


1,937


4,542

Deferred rent

(11)


265


(34)


265

Deferred revenue

3,634


3,068


11,786


9,531

Net cash and cash equivalents provided by operating activities

8,642


1,578


11,821


763

Investing Activities:















Purchases of investments

(12,142)


(52,499)


(21,111)


(78,283)

Maturity of investment

12,468


—


21,343


—

Purchases of property and equipment

(4,628)


(158)


(11,269)


(1,183)

Capitalization of software development costs

(1,078)


(1,022)


(2,512)


(1,792)

Acquisition of a business

—


—


—


(600)

Net cash and cash equivalents used in investing activities

(5,380)


(53,679)


(13,549)


(81,858)

Financing Activities:















Secondary offering proceeds, net of offering costs paid of $573

—


—


—


33,679

Payment of offering costs

—


(435)


—


—

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

(384)


(7,852)


(1,342)


(7,852)

Proceeds related to issuance of common stock under stock plans

3,176


5,223


6,168


6,189

Repayments of capital lease obligations

(177)


(25)


(319)


(49)

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

2,615


(3,089)


4,507


31,967

Effect of exchange rate changes on cash

(235)


50


302


(358)

Net increase (decrease) in cash and cash equivalents

5,642


(55,140)


3,081


(49,486)

Cash and cash equivalents, beginning of period

53,019


129,375


55,580


123,721

Cash and cash equivalents, end of period

$

58,661

$

74,235

$

58,661

$

74,235

 

 

Reconciliation of non-GAAP operating loss and operating
margin

Three Months Ended
June 30,

Six Months Ended June
30,


2016

2015

2016

2015

(in thousands, except percentages)




























GAAP operating loss

$

(11,030)

$

(11,322)

$

(20,891)

$

(22,732)

Stock-based compensation

8,475

5,642


14,705

10,783

Amortization of acquired intangible assets

20

26


44

44

Non-GAAP operating loss

$

(2,535)

$

(5,654)

$

(6,142)

$

(11,905)















GAAP operating margin

(17.0%)

(26.4%)


(16.9%)

(28.0%)

Non-GAAP operating margin

(3.9%)

(13.2%)


(5.0%)

(14.7%)





















Reconciliation of non-GAAP net loss

Three Months Ended
June 30,

Six Months Ended June
30,


2016

2015

2016

2015

(in thousands, except per share amounts)




























GAAP net loss

$

(11,064)

$

(11,392)

$

(21,218)

$

(22,250)

Stock-based compensation

8,475

5,642


14,705

10,783

Amortization of acquired intangibles

20

26


44

44

Non-GAAP net loss

$

(2,569)

$

(5,724)

$

(6,469)

$

(11,423)















Non-GAAP net loss per share, basic and diluted

$

(0.07)

$

(0.17)

$

(0.19)

$

(0.35)

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

35,023

33,208


34,858

32,432

 

 

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









(in thousands, except percentages)



























Three Months Ended June 30,

2016

2015

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

$

9,985

$

5,210

$

11,278

$

39,140

$

10,391

$

7,484

$

3,789

$

8,158

$

26,291

$

8,541

Stock -based compensation

(131)

(477)

(2,272)

(3,469)

(2,126)


(92)

(347)

(1,629)

(2,077)

(1,497)

Amortization of acquired intangibles

(13)

$

—

$

—

(7)

$

—


(19)

$

—

$

—

(7)

$

—

Non-GAAP expense

$

9,841

$

4,733

$

9,006

$

35,664

$

8,265

$

7,373

$

3,442

$

6,529

$

24,207

$

7,044
































GAAP expense as a percentage of revenue

15.4

%

8.0

%

17.4

%

60.2

%

16.0

%

17.4

%

8.8

%

19.0

%

61.2

%

19.9

%

Non-GAAP expense as a percentage of revenue

15.1

%

7.3

%

13.9

%

54.9

%

12.7

%

17.2

%

8.0

%

15.2

%

56.4

%

16.4

%































































































Six Months Ended June 30,

2016

2015

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

$

18,895

$

10,271

$

21,082

$

74,338

$

20,239

$

14,424

$

7,314

$

15,658

$

50,188

$

16,255

Stock -based compensation

(224)

(800)

(4,030)

(5,895)

(3,756)


(159)

(604)

(3,262)

(4,132)

(2,626)

Amortization of acquired intangibles

(31)

$

—

$

—

(13)

$

—


(30)

$

—

$

—

(14)

$

—

Non-GAAP expense

$

18,640

$

9,471

$

17,052

$

68,430

$

16,483

 `

$

14,235

$

6,710

$

12,396

$

46,042

$

13,629
































GAAP expense as a percentage of revenue

15.2

%

8.3

%

17.0

%

60.0

%

16.3

%

17.8

%

9.0

%

19.3

%

61.9

%

20.0

%

Non-GAAP expense as a percentage of revenue

15.0

%

7.6

%

13.8

%

55.2

%

13.3

%

17.6

%

8.3

%

15.3

%

56.8

%

16.8

%

 

 

Reconciliation of non-GAAP subscription margin

(in thousands, except percentages)







Three Months Ended June 30,

Six Months Ended June 30,


2016

2015

2016

2015















GAAP subscription margin

$

50,931

$             31,789

$

96,957

$

59,788

Stock -based compensation

131

92


224

159

Amortization of acquired intangible
assets

13

19


31

30

Non-GAAP subscription margin

$

51,075

$

31,900

$

97,212

$

59,977















GAAP subscription margin percentage

83.6

%

80.9

%

83.7

%

80.6

%

Non-GAAP subscription margin percentage

83.8

%

81.2

%

83.9

%

80.8

%

 

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

Investor Relations Contact: Charles MacGlashing, (857) 829-5429, investors@hubspot.com; Media Contact: Laura Moran, (857) 829-5688, lmoran@hubspot.com
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