HubSpot Reports Strong Q3 2015 Results

Subscription Revenue Growth Continues to Accelerate, Full-Year 2015 Guidance Raised

Nov 04, 2015, 16:05 ET from HubSpot, Inc.

CAMBRIDGE, Mass., Nov. 4, 2015 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading inbound marketing and sales software company, today announced financial results for the third quarter ended September 30, 2015.

Financial Highlights:

Revenue

  • Total revenue was $47.7 million, up 57% compared to the third quarter of 2014.
  • Subscription revenue was $44.1 million, up 59% compared to the third quarter of 2014.
  • Professional services and other revenue was $3.6 million, up 37% compared to the third quarter of 2014.

Operating Loss

  • GAAP operating margin was (27.9%) for the quarter, compared to (36.0%) in the third quarter of 2014.
  • Non-GAAP operating margin was (18.3%) for the quarter, an improvement of approximately 13.5 percentage points from (31.8%) in the third quarter of 2014.
  • GAAP operating loss was ($13.3) million for the quarter, compared to ($11.0) million in the third quarter of 2014.
  • Non-GAAP operating loss was ($8.8) million for the quarter, compared to ($9.7) million in the third quarter of 2014.

Net Loss attributable to common stockholders

  • GAAP net loss attributable to common stockholders was ($13.6) million, or ($0.40) per share for the quarter, compared to ($10.8) million, or ($1.84) per share, in the third quarter of 2014.
  • Non-GAAP net loss attributable to common stockholders was ($9.0) million, or ($0.27) per share for the quarter, compared to ($9.5) million, or ($1.62) per share, in the third quarter of 2014.
  • Third quarter weighted average common shares outstanding were 33.8 million compared to 5.9 million shares in the third quarter of 2014.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $148 million as of September 30, 2015.
  • During the third quarter, the company used ($3.8) million of operating cash flow compared to using ($5.8) million of operating cash flow during the third quarter of 2014.

Additional Recent Business Highlights

  • Grew total customers to 16,854 at September 30, 2015, up 35% from September 30, 2014.
  • Increased average subscription revenue per customer during the third quarter of 2015 to $10,607 from $9,183 in the third quarter of 2014.
  • Completed the company's highly successful annual conference, INBOUND, with more than 14,000 registered attendees. Registered attendance increased approximately 40% compared to last year's conference and made it the largest ever event focused on inbound marketing and sales professionals.
  • Announced product updates including a Reporting Add-on for marketing and sales product users; an Ads Add-on in partnership with Google and LinkedIn; predictive lead scoring within the marketing product; and improvements to HubSpot Website, HubSpot CRM and Sidekick for Business.
  • HubSpot also announced HubSpot Connect, a collection of HubSpot integrations that helps bring together data from across key front office systems into one integrated platform, and officially launched Leadin, a tool that individuals and companies can use to better understand their website visitors and leads.

"Q3 was yet another strong quarter for HubSpot and we're thrilled by the results," said Brian Halligan, Chairman and CEO.  "We maintained our momentum with strong revenue growth and improved margins – an indicator that our mission to help companies reach their customers in effective and meaningful ways is truly resonating.  We're excited that HubSpot has become the engine that helps our customers achieve their business goals."

Business Outlook

Based on information available as of November 4, 2015, HubSpot is issuing guidance for the fourth quarter of 2015 and raising guidance for full year 2015 as indicated below.

Fourth Quarter 2015:

  • Total revenue is expected to be in the range of $49.7 million to $50.7 million.
  • Non-GAAP operating loss is expected to in the range of ($6.4) million to ($5.4) million. This excludes stock-based compensation expense of approximately $5.6 million and amortization of acquired intangible assets of approximately $26 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.19) to ($0.17). This excludes stock-based compensation expense of approximately $5.6 million and amortization of acquired intangible assets of approximately $26 thousand. This assumes approximately 34.2 million weighted common shares outstanding.

Full Year 2015:

  • Total revenue is expected to be in the range of $178.5 million to $179.5 million.
  • Non-GAAP operating loss is expected to in be in the range of ($27.0) million to ($26.0) million. This excludes stock-based compensation expense of approximately $20.9 million and amortization of acquired intangible assets of approximately $96 thousand.
  • Non-GAAP net loss per common share is expected to be in the range of ($0.80) to ($0.78). This excludes stock-based compensation expense of approximately $20.9 million and amortization of acquired intangible assets of approximately $96 thousand. This assumes approximately 33.3 million weighted common shares outstanding.

Conference Call Information

HubSpot will host a conference call on Wednesday, November 4, 2015, at 5:00 p.m. Eastern Time (ET) to discuss its third quarter 2015 financial results and business outlook.  To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international).  The conference ID is 46343380. 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 11, 2015 at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 46343380. 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 16,800 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 attributable to common stockholders for the third quarter ended September 30, 2015 and 2014. 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 2015 and full year 2015, 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 7, 2015 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,




2015



2014


Assets









Current assets:









Cash and cash equivalents


$

58,809



$

123,721


Short-term investments



45,697





Accounts receivable — net of allowance for doubtful accounts of $277 and $218

   at September 30, 2015 and December 31, 2014, respectively



19,769




14,270


Deferred commission expense



6,644




5,995


Restricted cash



213




230


Prepaid hosting costs



1,593




1,777


Prepaid expenses and other current assets



4,598




3,516


Total current assets



137,323




149,509


Long-term investments



43,498





Property and equipment, net



11,840




11,381


Capitalized software development costs, net



4,468




4,433


Restricted cash



347





Other assets



462




116


Intangible assets, net



126




89


Goodwill



9,773




9,330


Total assets



207,837




174,858


Liabilities and stockholders' equity









Current liabilities:









Accounts payable



2,577




2,800


Accrued compensation costs



8,421




7,660


Other accrued expenses



12,208




7,953


Capital lease obligations



397




100


Deferred rent



87




110


Deferred revenue



54,390




40,805


Total current liabilities



78,080




59,428


Capital lease obligations, net of current portion



216




78


Deferred rent, net of current portion



4,759




4,153


Deferred revenue, net of current portion



608




500


Total liabilities



83,663




64,159


Commitments and contingencies









Stockholders' equity:









Common stock



34




32


Additional paid-in capital



314,787




265,113


Accumulated other comprehensive loss



(544)




(145)


Accumulated deficit



(190,103)




(154,301)


Total stockholders' equity



124,174




110,699


Total liabilities and stockholders' equity


$

207,837



$

174,858


 

 

 

Consolidated Statements of Operations


(in thousands, except per share data)






For the Three Months Ended September 30,



For the Nine Months Ended September 30,




2015



2014



2015



2014


Revenues:

















Subscription


$

44,091



$

27,806



$

118,303



$

74,994


Professional services and other



3,620




2,642




10,514




6,726


Total revenue



47,711




30,448




128,817




81,720


Cost of Revenues:

















Subscription



8,470




6,236




22,894




17,000


Professional services and other



4,008




2,969




11,322




8,149


Total cost of revenues



12,478




9,205




34,216




25,149


Gross profit



35,233




21,243




94,601




56,571


Operating expenses:

















Research and development



8,128




4,858




23,787




14,498


Sales and marketing



30,868




21,680




81,057




54,700


General and administrative



9,527




5,662




25,782




16,030


Total operating expenses



48,523




32,200




130,626




85,228


Loss from operations



(13,290)




(10,957)




(36,025)




(28,657)


Other (expense) income:

















Interest income



131




-




241




4


Interest expense



(31)




(138)




(140)




(259)


Other (expense) income



(186)




302




387




379


Total other (expense) income



(86)




164




488




124


Loss before provision for income taxes



(13,376)




(10,793)




(35,537)




(28,533)


Provision for income taxes



(176)







(265)





Net loss



(13,552)




(10,793)




(35,802)




(28,533)


Preferred stock accretion






(13)







(40)


Net loss attributable to common stockholders


$

(13,552)



$

(10,806)



$

(35,802)



$

(28,573)


Net loss attributable to common stockholders per share, basic and

   diluted


$

(0.40)



$

(1.84)



$

(1.09)



$

(5.00)


Weighted average common shares used in computing basic and

   diluted net loss attributable to common stockholders per share:



33,819




5,874




32,901




5,715


 

 

 

Consolidated Statements of Cash Flows


(in thousands)






Three Months Ended

September  30,



Nine Months Ended

September 30,




2015



2014



2015



2014


Operating Activities:

















Net loss


$

(13,552)



$

(10,793)



$

(35,802)



$

(28,533)


Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities

















Depreciation and amortization



1,946




1,777




5,511




4,824


Stock-based compensation



4,510




1,266




15,293




3,514


Provision for deferred income taxes



19







45





Provision for doubtful accounts



463




194




917




452


Amortization of bond premium discount



246







438





Noncash rent expense



19




30




211




236


Unrealized currency translation



50




(238)




(239)




(238)


Changes in assets and liabilities

















Accounts receivable



(4,061)




(1,531)




(6,633)




(3,864)


Prepaid expenses and other assets



2,075




349




(1,277)




146


Deferred commission expense



(635)




(256)




(649)




(846)


Accounts payable



226




(388)




(84)




(328)


Accrued expenses



(9)




960




4,533




2,192


Restricted cash












157


Deferred rent



114




193




379




1,427


Deferred revenue



4,763




2,619




14,294




10,149


Net cash and cash equivalents used in operating activities



(3,826)




(5,818)




(3,063)




(10,712)


Investing Activities:

















Purchases of investments



(15,586)







(93,869)





Maturities of investments



4,000







4,000





Purchases of property and equipment



(999)




(968)




(2,182)




(5,892)


Capitalization of software development costs



(1,333)




(1,558)




(3,125)




(3,930)


Acquisition of a business









(600)





Acquisition of intangible assets












(80)


Restricted cash



(388)







(388)




1,500


Net cash and cash equivalents used in investing activities



(14,306)




(2,526)




(96,164)




(8,402)


Financing Activities:

















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









33,669





Payment of offering costs



(10)




(483)







(1,990)


Proceeds from draw-down on line of credit






13,000







18,000


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



(365)







(8,217)





Proceeds related to issuance of common stock under stock plans



3,067




1,012




9,256




3,051


Repayments of capital lease obligations



(58)




(22)




(107)




(97)


Net cash and cash equivalents provided by financing activities



2,634




13,507




34,601




18,964


Effect of exchange rate changes on cash and cash equivalents



72




(86)




(286)




(114)


Net decrease in cash and cash equivalents



(15,426)




5,077




(64,912)




(264)


Cash and cash equivalents, beginning of period



74,235




7,302




123,721




12,643


Cash and cash equivalents, end of period


$

58,809



$

12,379



$

58,809



$

12,379


 

Reconciliation of non-GAAP operating loss and operating margin


Three Months Ended

September 30,




Nine Months Ended

September  30,




2015


2014




2015


2014


(in thousands, except percentages)
































GAAP operating loss


$

(13,290)


$

(10,957)




$

(36,025)


$

(28,657)


Stock-based compensation



4,510



1,266





15,293



3,514


Amortization of acquired intangible assets



26



13





70



125


Non-GAAP operating loss


$

(8,754)


$

(9,678)




$

(20,662)


$

(25,018)


















GAAP operating margin



(27.9%)



(36.0%)





(28.0%)



(35.1%)


Non-GAAP operating margin



(18.3%)



(31.8%)





(16.0%)



(30.6%)


 

 

 

Reconciliation of non-GAAP net loss attributable to common stockholders


Three Months Ended September 30,






Nine Months Ended September  30,




2015


2014






2015


2014


(in thousands, except per share amounts)




































GAAP net loss attributable to common stockholders


$

(13,552)


$

(10,806)






$

(35,802)


$

(28,573)


Stock-based compensation



4,510



1,266







15,293



3,514


Amortization of acquired intangibles



26



13







70



125


Non-GAAP net loss attributable to common stockholders


$

(9,016)


$

(9,527)






$

(20,439)


$

(24,934)




















Non-GAAP net loss attributable to common stockholders per share, basic and diluted

$

(0.27)


$

(1.62)






$

(0.62)


$

(4.36)


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


33,819



5,874







32,901



5,715


 

 

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


(in thousands, except percentages)





Three Months Ended September 30,



2015



2014



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

$

8,470


$

4,008


$

8,128


$

30,868


$

9,527



$

6,236


$

2,969


$

4,858


$

21,680


$

5,662


Stock -based compensation


(89)



(315)



(1,568)



(1,078)



(1,460)




(24)



(84)



(140)



(560)



(458)


Amortization of acquired intangibles


(20)



-



-



(6)



-




(6)



-



-



(7)



-


Non-GAAP expense

$

8,361


$

3,693


$

6,560


$

29,784


$

8,067



$

6,206


$

2,885


$

4,718


$

21,113


$

5,204


































GAAP expense as a percentage of revenue


17.8%



8.4%



17.0%



64.7%



20.0%




20.5%



9.8%



16.0%



71.2%



18.6%


Non-GAAP expense as a percentage of revenue


17.5%



7.7%



13.7%



62.4%



16.9%




20.4%



9.5%



15.5%



69.3%



17.1%



































































































Nine Months Ended September  30,



2015



2014



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

$

22,894


$

11,322


$

23,787


$

81,057


$

25,782



$

17,000


$

8,149


$

14,498


$

54,700


$

16,030


Stock -based compensation


(249)



(851)



(4,830)



(5,278)



(4,085)




(64)



(236)



(435)



(1,447)



(1,332)


Amortization of acquired intangibles


(50)



-



-



(20)



-




(112)



-



-



(13)



-


Non-GAAP expense

$

22,595


$

10,471


$

18,957


$

75,759


$

21,697


 `

$

16,824


$

7,913


$

14,063


$

53,240


$

14,698


































GAAP expense as a percentage of revenue


17.8%



8.8%



18.5%



62.9%



20.0%




20.8%



10.0%



17.7%



66.9%



19.6%


Non-GAAP expense as a percentage of revenue


17.5%



8.1%



14.7%



58.8%



16.8%




20.6%



9.7%



17.2%



65.1%



18.0%

%

 

 

 

Reconciliation of non-GAAP subscription margin


(in thousands, except percentages)






Three Months Ended September 30,



Nine Months Ended September  30,




2015


2014



2015


2014

















GAAP subscription margin



35,621



21,570




95,409



57,994


Stock -based compensation



89



24




249



64


Amortization of acquired intangible assets



20



6




50



112


Non-GAAP subscription margin


$

35,730


$

21,600



$

95,708


$

58,170

















GAAP subscription margin percentage



80.8%



77.6%




80.6%



77.3%


Non-GAAP subscription margin percentage



81.0%



77.7%




80.9%



77.6%


Non-GAAP Financial Measures

In this release, HubSpot's non-GAAP operating loss, operating margin, subscription margin, expense, expense as a percentage of revenue, and net loss attributable to common stockholders 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.



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