HubSpot Reports Q3 2016 Results

Written by Sample HubSpot User Sample | Nov 2, 2016 8:08:00 PM

Strong Revenue Growth with Improved Profitability
Full-Year 2016 Guidance Raised

CAMBRIDGE, Mass., Nov. 2, 2016 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the third quarter ended September 30th, 2016.

Financial Highlights:
Revenue

  • Total revenue was $70.6 million, up 48% compared to the third quarter of 2015.
  • Subscription revenue was $66.5 million, up 51% compared to the third quarter of 2015.
  • Professional services and other revenue was $4.1 million, up 13% compared to the third quarter of 2015.

Operating Loss

  • GAAP operating margin was (14.1%) for the quarter, compared to (27.9%) in the third quarter of 2015.
  • Non-GAAP operating margin was (1.8%) for the quarter, an improvement of approximately 16.5 percentage points from (18.3%) in the third quarter of 2015.
  • GAAP operating loss was ($10.0) million for the quarter, compared to ($13.3) million in the third quarter of 2015.
  • Non-GAAP operating loss was ($1.2) million for the quarter, compared to ($8.8) million in the third quarter of 2015.

Net Loss

  • GAAP net loss was ($10.5) million, or ($0.30) per share for the quarter, compared to ($13.6) million, or ($0.40) per share, in the third quarter of 2015.
  • Non-GAAP net loss was ($1.8) million, or ($0.05) per share for the quarter, compared to ($9.0) million, or ($0.27) per share, in the third quarter of 2015.
  • Third quarter weighted average common shares outstanding were 35.4 million compared to 33.8 million shares in the third quarter of 2015.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $151.7 million as of September 30th, 2016.
  • During the third quarter of 2016, the company generated $5.27 million of operating cash flow and invested $3.74 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of $1.53 million. During the third quarter of 2015, the company used ($3.83) million of operating cash flow and invested $2.33 million in purchases of property and equipment and capitalization of internally developed software, resulting in free cash flow of ($6.16) million.           

Additional Recent Business Highlights

  • Grew total customers to 21,658 at September 30th, 2016, up 29% from September 30th, 2015.
  • Increased average subscription revenue per customer during the third quarter of 2016 to $12,320 from $10,607 in the third quarter of 2015.
  • Increased average subscription revenue per customer during the third quarter of 2016 to $12,320, up 16% from $10,607 in the third quarter of 2015.

"We are proud to have delivered another strong quarter in Q3 of this year. For the third quarter in a row, we have reported positive cash flow, providing proof of our momentum and our commitment to strong, consistent growth across the business," said Brian Halligan, HubSpot co-founder and CEO. "We've always said that the power of HubSpot is how helpful, human-centric and holistic our platform and philosophy are -- those three special ingredients have helped us grow a global inbound community that reached new heights this quarter."

Business Outlook
Based on information available as of November 2, 2016, HubSpot is issuing guidance for the fourth quarter of 2016 and raising guidance for full year 2016 as indicated below.

Fourth Quarter 2016:

  • Total revenue is expected to be in the range of $73.7 million to $74.7 million.
  • Non-GAAP operating loss is expected to in the range of ($7.6) million to ($6.6) million. This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.22) to ($0.20). This excludes stock-based compensation expense of approximately $9.6 million and amortization of acquired intangible assets of approximately $20 thousand. This assumes approximately 35.7 million weighted common shares outstanding.

Full Year 2016:

  • Total revenue is expected to be in the range of $268.2 million to $269.2 million.
  • Non-GAAP operating loss is expected to in be in the range of ($15.0) million to ($14.0) million. This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.45) to ($0.43). This excludes stock-based compensation expense of approximately $33.0 million and amortization of acquired intangible assets of approximately $84 thousand. This assumes approximately 35.2 million weighted common shares outstanding.

Conference Call Information
HubSpot will host a conference call on Wednesday, November 2nd, 2016, at 4:30 p.m. Eastern Time (ET) to discuss its third quarter 2016 financial results and business outlook. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international). The conference ID is 92793380. Additionally, a live webcast of the conference call will be available in the "Investor" section of the HubSpot's web site at www.hubspot.com.

Following the conference call, a replay will be available until 11 pm on November 9, 2016 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 92793380. An archived webcast of this conference call will also be available in the "Investor" section of HubSpot's web site at www.hubspot.com. The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

About HubSpot
HubSpot is a leading inbound marketing and sales platform. Over 21,500 customers in over 90 countries use HubSpot's award-winning software, services, and support to create an inbound experience that will attract, engage, and delight customers. Learn more at www.hubspot.com.

The tables at the end of this press release include a reconciliation of generally accepted accounting principles ("GAAP") to non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss for the third quarter ended September 30, 2016 and 2015. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Cautionary Language Concerning Forward-Looking Statements
This press release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our financial guidance for the fourth fiscal quarter of 2016 and full year 2016, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform.  These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning.  These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made.  Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.  Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on August 3, 2016 and our other SEC filings.  We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

 

 

Consolidated Balance Sheets
(in thousands)










September 30,

December 31,

2016

2015

Assets





Current assets:





Cash and cash equivalents

$

61,439

$

55,580

Short-term investments

52,555

48,972

Accounts receivable — net of allowance for doubtful accounts of $520 and $371 
     at September 30, 2016 and December 31, 2015, respectively

30,436

25,142

Deferred commission expense

8,205

8,114

Prepaid hosting costs

1,240

3,047

Prepaid expenses and other current assets

10,187

4,899

Total current assets

164,062

145,754

Long-term investments

37,669

40,566

Property and equipment, net

29,041

18,161

Capitalized software development costs, net

5,840

4,655

Restricted cash

380

363

Other assets

985

1,007

Intangible assets, net

36

100

Goodwill

9,773

9,773

Total assets

$

247,786

$

220,379

Liabilities and stockholders' equity





Current liabilities:





Accounts payable

$

3,004

$

2,588

Accrued compensation costs

10,284

11,371

Other accrued expenses

17,383

12,313

Capital lease obligations

764

542

Deferred rent

207

86

Deferred revenue

83,328

64,407

Total current liabilities

114,970

91,307

Capital lease obligations, net of current portion

247

277

Deferred rent, net of current portion

8,849

6,345

Deferred revenue, net of current portion

918

732

Other long-term liabilities

644

10

Total liabilities

125,628

98,671

Stockholders' equity:





Common stock

35

34

Additional paid-in capital

354,743

322,833

Accumulated other comprehensive loss

(533)

(805)

Accumulated deficit

(232,087)

(200,354)

Total stockholders' equity

122,158

121,708

Total liabilities and stockholders' equity

$

247,786

$

220,379

 

 

Consolidated Statements of Operations
(in thousands, except per share data)










For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2016

2015

2016

2015

Revenues:













Subscription

$

66,505

$

44,091

$

182,357

$

118,303

Professional services and other

4,084


3,620

12,166


10,514

Total revenue

70,589


47,711

194,523


128,817

Cost of Revenues:













Subscription

10,655


8,470

29,550


22,894

Professional services and other

5,157


4,008

15,428


11,322

Total cost of revenues

15,812


12,478

44,978


34,216

Gross profit

54,777


35,233

149,545


94,601

Operating expenses:













Research and development

12,100


8,128

33,182


23,787

Sales and marketing

41,193


30,868

115,531


81,057

General and administrative

11,435


9,527

31,674


25,782

Total operating expenses

64,728


48,523

180,387


130,626

Loss from operations

(9,951)


(13,290)

(30,842)


(36,025)

Other (expense) income:













Interest income

224


131

604


241

Interest expense

(97)


(31)

(277)


(140)

Other (expense) income

(365)


(186)

(900)


387

Total other (expense) income

(238)


(86)

(573)


488

Loss before income tax provision

(10,189)


(13,376)

(31,415)


(35,537)

Income tax provision

(326)


(176)

(318)


(265)

Net loss

$

(10,515)

$

(13,552)

$

(31,733)

$

(35,802)

Net loss per share, basic and diluted

$

(0.30)

$

(0.40)

$

(0.91)

$

(1.09)

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

35,393


33,819

35,038


32,901

 

 

Consolidated Statements of Cash Flows
(in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2016

2015

2016

2015

Operating Activities:











Net loss

$

(10,515)

$

(13,552)

$

(31,733)

$

(35,802)

Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities











Depreciation and amortization

2,769

1,946

7,992

5,511

Stock-based compensation

8,695

4,510

23,401

15,293

Provision for deferred income taxes

—

19

(165)

45

Amortization of bond premium discount

136

246

547

438

Noncash rent expense

744

19

2,693

211

Unrealized currency translation

(82)

50

(146)

(239)

Changes in assets and liabilities











Accounts receivable

(4,755)

(3,598)

(5,140)

(5,716)

Prepaid expenses and other assets

(762)

2,075

(3,386)

(1,277)

Deferred commission expense

(77)

(635)

(80)

(649)

Accounts payable

431

226

733

(84)

Accrued expenses

1,800

(9)

3,737

4,533

Deferred rent

(41)

114

(75)

379

Deferred revenue

6,929

4,763

18,715

14,294

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

5,272

(3,826)

17,093

(3,063)

Investing Activities:











Purchases of investments

(23,212)

(15,586)

(44,323)

(93,869)

Maturity of investment

22,045

4,000

43,388

4,000

Purchases of property and equipment

(2,081)

(999)

(13,350)

(2,182)

Capitalization of software development costs

(1,661)

(1,333)

(4,173)

(3,125)

Acquisition of a business

—

—

—

(600)

Restricted cash

—

(388)

—

(388)

Net cash and cash equivalents used in investing
activities

(4,909)

(14,306)

(18,458)

(96,164)

Financing Activities:











Secondary offering  proceeds, net of offering costs paid of $583

—

—

—

33,669

Payment of offering costs

—

(10)

—

-

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

(478)

(365)

(1,820)

(8,217)

Proceeds related to issuance of common stock under stock plans

2,977

3,067

9,145

9,256

Repayments of capital lease obligations

(209)

(58)

(528)

(107)

Net cash and cash equivalents provided by financing
activities

2,290

2,634

6,797

34,601

Effect of exchange rate changes on cash

125

72

427

(286)

Net increase (decrease) in cash and cash equivalents

2,778

(15,426)

5,859

(64,912)

Cash and cash equivalents, beginning of period

58,661

74,235

55,580

123,721

Cash and cash equivalents, end of period

$

61,439

$

58,809

$

61,439

$

58,809

 

 

Reconciliation of non-GAAP operating loss and
operating margin

Three Months Ended
September  30,

Nine Months Ended
September  30,

2016

2015

2016

2015

(in thousands, except percentages)


























GAAP operating loss

$

(9,951)

$

(13,290)

$

(30,842)

$

(36,025)

Stock-based compensation

8,695

4,510


23,401

15,293

Amortization of acquired intangible assets

20

26


64

70

Non-GAAP operating loss

$

(1,236)

$

(8,754)

$

(7,377)

$

(20,662)












GAAP operating margin

(14.1%)

(27.9%)


(15.9%)

(28.0%)

Non-GAAP operating margin

(1.8%)

(18.3%)


(3.8%)

(16.0%)






















































Reconciliation of non-GAAP net loss

Three Months Ended
September  30,

Nine Months Ended
September  30,

2016

2015

2016

2015

(in thousands, except per share amounts)
























GAAP net loss

$

(10,515)

$

(13,552)

$

(31,733)

$

(35,802)

Stock-based compensation

8,695

4,510


23,401

15,293

Amortization of acquired intangibles

20

26


64

70

Non-GAAP net loss

$

(1,800)

$

(9,016)

$

(8,268)

$

(20,439)












Non-GAAP net loss per share, basic and diluted

$

(0.05)

$

(0.27)

$

(0.24)

$

(0.62)

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

35,393

33,819


 

35,038

32,901

 

 

 

Reconciliation of non-GAAP expense and expense as a percentage of revenue
(in thousands, except percentages)

 

Three Months Ended September  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

$

10,655

$

5,157

$

12,100

$

41,193

$

11,435

$

8,470

$

4,008

$

8,128

$

30,868

$

9,527

Stock -based compensation

(139)

(438)

(2,341)

(3,473)

(2,304)


(89)

(315)

(1,568)

(1,078)

(1,460)

Amortization of acquired intangibles

(13)

-

-

(7)

-


(20)

-

-

(6)

-

Non-GAAP expense

$

10,503

$

4,719

$

9,759

$

37,713

$

9,131

$

8,361

$

3,693

$

6,560

$

29,784

$

8,067





























GAAP expense as a percentage of revenue

15.1%

7.3%

17.1%

58.4%

16.2%


17.8%

8.4%

17.0%

64.7%

20.0%

Non-GAAP expense as a percentage of revenue

14.9%

6.7%

13.8%

53.4%

12.9%


17.5%

7.7%

13.7%

62.4%

16.9%




























































































Nine Months Ended September  30,

2016

2015

COS, Subscription

COS,
Prof.
services
&
other

R&D

S&M

G&A

COS, Subscription

COS,
Prof.
services
&
other

R&D

S&M

G&A

GAAP expense

$

29,550

$

15,428

$

33,182

$

115,531

$

31,674

$

22,894

$

11,322

$

23,787

$

81,057

$

25,782

Stock -based compensation

(363)

(1,238)

(6,371)

(9,368)

(6,061)


(249)

(851)

(4,830)

(5,278)

(4,085)

Amortization of acquired intangibles

(44)

-

-

(20)

-


(50)

-

-

(20)

-

Non-GAAP expense

$

29,143

$

14,190

$

26,811

$

106,143

$

25,613

$

22,595

$

10,471

$

18,957

$

75,759

$

21,697





























GAAP expense as a percentage of revenue

15.2%

7.9%

17.1%

59.4%

16.3%


17.8%

8.8%

18.5%

62.9%

20.0%

Non-GAAP expense as a percentage of revenue

15.0%

7.3%

13.8%

54.6%

13.2%


17.5%

8.1%

14.7%

58.8%

16.8%

 

 

Reconciliation of non-GAAP subscription margin
(in thousands, except percentages)






Three Months Ended September 30,

Nine Months Ended September  30,

2016

2015

2016

2015












GAAP subscription margin

$

55,850

$

35,621

$

152,807

$

95,409

Stock -based compensation

139

89


363

249

Amortization of acquired intangible
assets

13

20


44

50

Non-GAAP subscription margin

$

56,002

$

35,730

$

153,214

$

95,708












GAAP subscription margin percentage

84.0%

80.8%


83.8%

80.6%

Non-GAAP subscription margin percentage

84.2%

81.0%


84.0%

80.9%

 

 

Non-GAAP Financial Measures

In this release, HubSpot's non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, net loss, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included above in this press release.

These non-GAAP measures exclude share-based compensation and amortization of acquired intangible assets. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

(a)

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



(b)

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

 

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SOURCE HubSpot, Inc.

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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