HubSpot, Inc. (NYSE: HUBS), the customer relationship management
(CRM) platform for scaling companies, today announced financial
results for the third quarter ended September 30, 2022.
Financial Highlights:
Revenue
- Total revenue was $444.0 million, up 31% compared to Q3'21.
- Subscription revenue was $435.0 million, up 32% compared to
Q3'21.
- Professional services and other revenue was $8.9 million, down
13% compared to Q3'21.
Operating Income (Loss)
- GAAP operating margin was (7.3%), compared to (4.4%) in
Q3'21.
- Non-GAAP operating margin was 9.2%, compared to 9.7% in
Q3'21.
- GAAP operating loss was ($32.2) million, compared to ($14.9)
million in Q3'21.
- Non-GAAP operating income was $40.7 million, compared to $32.9
million in Q3'21.
Net Income (Loss)
- GAAP net loss was ($31.4) million, or ($0.65) per basic and
diluted share, compared to ($13.7) million, or ($0.29) per basic
and diluted share in Q3'21.
- Non-GAAP net income was $35.1 million, or $0.73 per basic and
$0.69 per diluted share, compared to $25.6 million, or $0.54 per
basic and $0.50 per diluted share in Q3'21.
- Weighted average basic and diluted shares outstanding for GAAP
net loss per share was 48.1 million, compared to 47.0 million basic
and diluted shares in Q3'21.
- Weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 48.1 million and 51.0 million
respectively, compared to 47.0 million and 50.8 million,
respectively in Q3'21.
Balance Sheet and Cash Flow
- The company’s cash, cash equivalents, and short-term and
long-term investments balance was $1.4 billion as of September 30,
2022.
- During the third quarter, the company generated $60.1 million
of cash from operating activities and operating cash flow, compared
to $42.7 million of cash from operating activities and $54.1
million of operating cash flow, which excluded the $11.4 million
used for the repayment of our convertible notes, during Q3'21.
- During the third quarter, the company generated $35.5 million
of free cash flow, compared to $38.2 million during Q3'21.
Additional Recent Business Highlights
- Grew Customers to 158,905 at September 30, 2022, up 24% from
September 30, 2021.
- Average Subscription Revenue Per Customer was $11,233 during
the third quarter of 2022, up 7% compared to the third quarter of
2021.
“Q3 was another strong quarter for HubSpot, reflecting our
continued focus on innovation and execution,” said Yamini Rangan,
Chief Executive Officer at HubSpot. “Our platform is driving value
for customers and continues to be mission-critical as they look to
connect with their customers and increase efficiencies during this
period of uncertainty. We are operating from a position of strength
with a solid balance sheet, an incredible team, and a company
culture that allows us to attract and retain top talent. Looking
ahead, we will continue to adapt to the realities of the
environment without losing sight of our mission to become the #1
CRM platform for scaling companies.”
Business Outlook Based on information available as of
November 2, 2022, HubSpot is issuing guidance for the fourth
quarter of 2022 and full year 2022 as indicated below.
Fourth Quarter 2022:
- Total revenue is expected to be in the range of $444 million to
$446 million.
- Unfavorable foreign exchange rates are expected to be a 9 point
headwind to fourth quarter 2022 revenue growth.(1)
- Non-GAAP operating income is expected to be in the range of $47
million to $49 million.
- Non-GAAP net income per common share is expected to be in the
range of $0.82 to $0.84. This assumes approximately 51.2 million
weighted average diluted shares outstanding.
Full Year 2022:
- Total revenue is expected to be in the range of $1.705 billion
to $1.707 billion.
- Unfavorable foreign exchange rates are expected to be a 6 point
headwind to full year 2022 revenue growth(1)
- Non-GAAP operating income is expected to be in the range of
$152 million to $154 million.
- Non-GAAP net income per common share is expected to be in the
range of $2.48 to $2.50. This assumes approximately 51.1 million
weighted average diluted shares outstanding.
(1) Foreign exchange rates impact on revenue is calculated by
comparing current period rates with prior period average rates.
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
ir.hubspot.com.
Conference Call Information HubSpot will host a
conference call on Wednesday, November 2, 2022, at 4:30 p.m.
Eastern Time (ET) to discuss the company’s third quarter 2022
financial results and its business outlook. To register for this
conference call, please use this dial in registration link or visit
HubSpot's Investor Relations website at ir.hubspot.com.
Participants who wish to register for the conference call webcast
please use this link.
Following the conference call, a replay will be available at
(866) 813-9403 (domestic) or +44 (204) 525-0658 (international).
The replay passcode is 848471. 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 CRM platform that
provides software and support to help companies grow better. The
platform includes marketing, sales, service, operations, and
website management products that start free and scale to meet our
customers' needs at any stage of growth. Today, over 158,000
customers across more than 120 countries use HubSpot's powerful and
easy-to-use tools and integrations to 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, foreign currency movement, and
business outlook, including our financial guidance for the fourth
fiscal quarter of and full year 2022 and 2023; statements regarding
our positioning for future growth and market leadership; statements
regarding the economic environment; and statements regarding
expected market trends, future priorities and related investments,
and market opportunities. 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, risks associated with our history of losses; our
ability to retain existing customers and add new customers; the
continued growth of the market for a CRM 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 solutions partners; our ability to
successfully recruit and retain highly-qualified personnel; the
price volatility of our common stock; the impact of geopolitical
conflicts, inflation, foreign currency movement, macroeconomic
instability, and the COVID-19 pandemic on our business, the broader
economy, our workforce and operations, the markets in which we and
our partners and customers operate, and our ability to forecast our
future financial performance; and other risks set forth under the
caption “Risk Factors” in our 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,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
331,659
$
377,013
Short-term investments
952,697
820,962
Accounts receivable
166,667
157,362
Deferred commission expense
65,010
59,849
Prepaid expenses and other current
assets
45,060
38,388
Total current assets
1,561,093
1,453,574
Long-term investments
152,725
174,895
Property and equipment, net
102,628
96,134
Capitalized software development costs,
net
56,803
39,858
Right-of-use assets
251,422
280,828
Deferred commission expense, net of
current portion
53,240
42,681
Other assets
56,402
29,244
Intangible assets, net
17,592
10,565
Goodwill
45,014
47,075
Total assets
$
2,296,919
$
2,174,854
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
13,318
$
2,773
Accrued compensation costs
63,373
63,836
Accrued expenses and other current
liabilities
90,827
74,457
Convertible senior notes
-
19,630
Operating lease liabilities
32,155
26,364
Deferred revenue
468,536
430,414
Total current liabilities
668,209
617,474
Operating lease liabilities, net of
current portion
250,678
283,873
Deferred revenue, net of current
portion
5,188
4,473
Other long-term liabilities
12,424
12,134
Convertible senior notes, net of current
portion
453,723
383,101
Total liabilities
1,390,222
1,301,055
Stockholders’ equity:
Common stock
48
47
Additional paid-in capital
1,550,905
1,436,089
Accumulated other comprehensive loss
(17,511
)
(1,339
)
Accumulated deficit
(626,745
)
(560,998
)
Total stockholders’ equity
906,697
873,799
Total liabilities and stockholders’
equity
$
2,296,919
$
2,174,854
Consolidated Statements of
Operations
(in thousands, except per share data)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues:
Subscription
$
435,030
$
328,975
$
1,232,387
$
899,661
Professional services and other
8,928
10,220
28,926
31,688
Total revenue
443,958
339,195
1,261,313
931,349
Cost of revenues:
Subscription
67,648
57,547
191,466
152,533
Professional services and other
14,479
12,059
42,532
34,685
Total cost of revenues
82,127
69,606
233,998
187,218
Gross profit
361,831
269,589
1,027,315
744,131
Operating expenses:
Research and development
114,038
78,473
325,687
218,973
Sales and marketing
229,541
170,016
650,936
468,836
General and administrative
50,465
36,027
146,309
102,883
Total operating expenses
394,044
284,516
1,122,932
790,692
Loss from operations
(32,213
)
(14,927
)
(95,617
)
(46,561
)
Other expense:
Interest income
4,658
230
7,222
1,046
Interest expense
(923
)
(7,798
)
(2,822
)
(24,376
)
Other (expense) income
(1,185
)
9,877
(583
)
11,064
Total other income (expense)
2,550
2,309
3,817
(12,266
)
Loss before income tax expense
(29,663
)
(12,618
)
(91,800
)
(58,827
)
Income tax expense
(1,748
)
(1,117
)
(5,313
)
(2,639
)
Net loss
$
(31,411
)
$
(13,735
)
$
(97,113
)
$
(61,466
)
Net loss per share, basic and diluted
$
(0.65
)
$
(0.29
)
$
(2.03
)
$
(1.31
)
Weighted average common shares used in
computing basic and diluted net loss per share:
48,067
47,044
47,821
46,752
Consolidated Statements of Cash
Flows
(in thousands)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022
2021
2022
2021
Operating Activities:
Net loss
$
(31,411
)
$
(13,735
)
$
(97,113
)
$
(61,466
)
Adjustments to reconcile net loss to net
cash and cash equivalents provided by operating activities
Depreciation and amortization
15,562
11,452
42,625
33,188
Stock-based compensation
72,213
44,987
199,081
120,847
Loss on early extinguishment of 2022
Convertible Notes
—
1,736
—
4,824
Repayment of 2022 Convertible Notes
attributable to the debt discount
—
(11,429
)
—
(24,457
)
Gain on strategic investments
—
(10,717
)
(4,200
)
(11,739
)
Gain on termination of operating
leases
—
(4,276
)
—
(4,276
)
Loss on disposal of fixed assets
—
6,468
—
6,468
Benefit from deferred income taxes
(191
)
(201
)
(589
)
(1,321
)
Amortization of debt discount and issuance
costs
492
5,603
1,509
18,115
(Accretion) amortization of bond
discount
(3,117
)
1,273
(3,267
)
2,943
Unrealized currency translation
(1,500
)
323
480
603
Changes in assets and liabilities
Accounts receivable
(5,785
)
(11,189
)
(20,135
)
(2,249
)
Prepaid expenses and other assets
13,048
545
(8,863
)
(7,149
)
Deferred commission expense
(8,466
)
(7,969
)
(22,210
)
(24,371
)
Right-of-use assets
6,175
8,401
19,622
26,948
Accounts payable
1,700
(10,682
)
10,660
(11,951
)
Accrued expenses and other liabilities
(6,634
)
22,651
16,455
38,184
Operating lease liabilities
(3,259
)
(8,048
)
(14,589
)
(26,422
)
Deferred revenue
11,237
17,460
63,743
66,825
Net cash and cash equivalents provided by
operating activities
60,064
42,653
183,209
143,544
Investing Activities:
Purchases of investments
(394,856
)
(383,268
)
(1,258,919
)
(1,037,331
)
Maturities of investments
391,928
344,174
1,017,306
940,776
Sale of investments
—
—
124,998
—
Purchases of property and equipment
(13,112
)
(6,653
)
(31,384
)
(17,399
)
Purchases of intangible assets
—
—
(10,000
)
—
Acquisition of a business, net of cash
acquired
—
—
—
(16,810
)
Purchases of strategic investments
(5,999
)
(4,000
)
(19,872
)
(10,202
)
Equity method investment
(1,650
)
—
(1,900
)
(3,100
)
Capitalization of software development
costs
(11,419
)
(9,217
)
(31,350
)
(25,638
)
Net cash and cash equivalents used in
investing activities
(35,108
)
(58,964
)
(211,121
)
(169,704
)
Financing Activities:
Proceeds from settlement of Convertible
Note Hedges related to the 2022 Convertible Notes
—
4
60,483
729
Payment for settlement of 2022 Convertible
Notes
—
—
(79,807
)
—
Repayment of 2022 Convertible Notes
attributable to the principal
—
(35,019
)
—
(80,428
)
Repayment of 2025 Convertible Notes
attributable to the principal
—
—
(1,619
)
—
Employee taxes paid related to the net
share settlement of stock-based awards
(2,190
)
(4,815
)
(9,954
)
(11,728
)
Proceeds related to the issuance of common
stock under stock plans
10,019
9,256
29,718
34,124
Net cash and cash equivalents provided by
(used in) financing activities
7,829
(30,574
)
(1,179
)
(57,303
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(6,790
)
(3,117
)
(16,263
)
(6,326
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
25,995
(50,002
)
(45,354
)
(89,789
)
Cash, cash equivalents and restricted
cash, beginning of period
308,693
341,365
380,042
381,152
Cash, cash equivalents and restricted
cash, end of period
$
334,688
$
291,363
$
334,688
$
291,363
Reconciliation of non-GAAP operating
income and operating margin
(in thousands, except percentages)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
GAAP operating loss
$
(32,213
)
$
(14,927
)
$
(95,617
)
$
(46,561
)
Stock-based compensation
72,213
44,987
199,081
120,847
Amortization of acquired intangible
assets
738
326
1,901
1,008
Acquisition/disposition related expenses
(income)
—
350
(306
)
1,917
Gain on termination of operating
leases
—
(4,276
)
—
(4,276
)
Loss on disposal of fixed assets
—
6,468
—
6,468
Non-GAAP operating income
$
40,738
$
32,928
$
105,059
$
79,403
GAAP operating margin
(7.3
%)
(4.4
%)
(7.6
%)
(5.0
%)
Non-GAAP operating margin
9.2
%
9.7
%
8.3
%
8.5
%
Reconciliation of non-GAAP net
income
(in thousands, except per share
amounts)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
GAAP net loss
$
(31,411
)
(13,735
)
$
(97,113
)
$
(61,466
)
Stock-based compensation
72,213
44,987
199,081
120,847
Amortization of acquired intangibles
assets
738
326
1,901
1,008
Acquisition/disposition related expenses
(income)
—
350
(306
)
1,917
Gain on termination of operating
leases
—
(4,276
)
—
(4,276
)
Loss on disposal of fixed assets
—
6,468
—
6,468
Non-cash interest expense for amortization
of debt discount and debt issuance costs
492
5,603
1,509
18,115
Gain on strategic investments
—
(10,717
)
(4,200
)
(11,739
)
Loss on early extinguishment of 2022
Convertible Notes
—
1,736
—
4,824
Loss on equity method investment
39
137
38
221
Income tax effects of non-GAAP items
(7,016
)
(5,282
)
(15,932
)
(13,073
)
Non-GAAP net income
$
35,055
25,597
$
84,978
$
62,846
Non-GAAP net income per share:
Basic
$
0.73
$
0.54
$
1.78
$
1.34
Diluted
$
0.69
$
0.50
$
1.66
$
1.24
Shares used in non-GAAP per share
calculations
Basic
48,067
47,044
47,821
46,752
Diluted
51,022
50,804
51,098
50,628
Reconciliation of non-GAAP expense and
expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended September
30,
2022
2021
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
GAAP expense
$
67,648
$
14,479
$
114,038
$
229,541
$
50,465
$
57,547
$
12,059
$
78,473
$
170,016
$
36,027
Stock -based compensation
(2,311
)
(1,168
)
(28,585
)
(28,060
)
(12,089
)
(1,660
)
(748
)
(18,449
)
(17,302
)
(6,828
)
Amortization of acquired intangible
assets
(292
)
—
—
(446
)
—
(234
)
—
—
(92
)
—
Acquisition/disposition related income
(expenses)
—
—
—
—
—
—
—
(337
)
—
(13
)
Gain on termination of operating
leases
—
—
—
—
—
395
275
1,346
1,839
421
Loss on disposal of fixed assets
(600
)
(415
)
(2,036
)
(2,781
)
(636
)
Non-GAAP expense
$
65,045
$
13,311
$
85,453
$
201,035
$
38,376
$
55,448
$
11,171
$
58,997
$
151,680
$
28,971
GAAP expense as a percentage of
revenue
15.2
%
3.3
%
25.7
%
51.7
%
11.4
%
17.0
%
3.6
%
23.1
%
50.1
%
10.6
%
Non-GAAP expense as a percentage of
revenue
14.7
%
3.0
%
19.2
%
45.3
%
8.6
%
16.3
%
3.3
%
17.4
%
44.7
%
8.5
%
Nine Months Ended September
30,
2022
2021
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
GAAP expense
$
191,466
$
42,532
$
325,687
$
650,936
$
146,309
$
152,533
$
34,685
$
218,973
$
468,836
$
102,883
Stock -based compensation
(6,516
)
(3,251
)
(77,269
)
(77,113
)
(34,932
)
(4,556
)
(2,270
)
(45,014
)
(49,902
)
(19,105
)
Amortization of acquired intangible
assets
(920
)
—
—
(981
)
—
(709
)
—
—
(299
)
—
Acquisition/disposition related income
(expenses)
—
—
300
—
6
—
—
(1,021
)
(367
)
(529
)
Gain on termination of operating
leases
—
—
—
—
—
395
275
1,346
1,839
421
Loss on disposal of fixed assets
—
—
—
—
—
(600
)
(415
)
(2,036
)
(2,781
)
(636
)
Non-GAAP expense
$
184,030
$
39,281
$
248,718
$
572,842
$
111,383
$
147,063
$
32,275
$
172,248
$
417,326
$
83,034
GAAP expense as a percentage of
revenue
15.2
%
3.4
%
25.8
%
51.6
%
11.6
%
16.4
%
3.7
%
23.5
%
50.3
%
11.0
%
Non-GAAP expense as a percentage of
revenue
14.6
%
3.1
%
19.7
%
45.4
%
8.8
%
15.8
%
3.5
%
18.5
%
44.8
%
8.9
%
Reconciliation of non-GAAP subscription
margin
(in thousands, except percentages)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
GAAP subscription margin
$
367,382
$
271,428
$
1,040,921
$
747,128
Stock -based compensation
2,311
1,660
6,516
4,556
Amortization of acquired intangible
assets
292
234
920
709
Gain on termination of operating
leases
—
(395
)
—
(395
)
Loss on disposal of fixed assets
—
600
—
600
Non-GAAP subscription margin
$
369,985
$
273,527
$
1,048,357
$
752,598
GAAP subscription margin percentage
84.4
%
82.5
%
84.5
%
83.0
%
Non-GAAP subscription margin
percentage
85.0
%
83.1
%
85.1
%
83.7
%
Reconciliation of free cash
flow
(in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
GAAP net cash and cash equivalents
provided by operating activities
$
60,064
$
42,653
$
183,209
$
143,544
Purchases of property and equipment
(13,112
)
(6,653
)
(31,384
)
(17,399
)
Capitalization of software development
costs
(11,419
)
(9,217
)
(31,350
)
(25,638
)
Repayment of 2022 Convertible Notes
attributable to the debt discount
—
11,429
—
24,457
Free cash flow
$
35,533
$
38,212
$
120,475
$
124,964
Reconciliation of operating cash
flow
(in thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
GAAP net cash and cash equivalents
provided by operating activities
$
60,064
$
42,653
$
183,209
$
143,544
Repayment of 2022 Convertible Notes
attributable to the debt discount
—
11,429
—
24,457
Operating cash flow, excluding repayment
of convertible debt
$
60,064
$
54,082
$
183,209
$
168,001
Reconciliation of forecasted non-GAAP
operating income (in thousands, except percentages)
Three Months Ended December
31, 2022
Year Ended December 31,
2022
GAAP operating income range
($36,974)-($34,974
)
($129,363)-($127,363
)
Stock-based compensation
83,231
279,029
Amortization of acquired intangible
assets
743
2,640
Acquisition/disposition related (income)
expenses
—
(306
)
Non-GAAP operating income range
$47,000-$49,000
$152,000-$154,000
Reconciliation of forecasted non-GAAP
net income and non-GAAP net income per share (in thousands,
except per share amounts)
Three Months Ended December
31, 2022
Year Ended December 31,
2022
GAAP net loss range
($34,037)-($32,787
)
($127,797)-($126,547
)
Stock-based compensation
83,231
279,029
Amortization of acquired intangible
assets
743
2,640
Acquisition/disposition related (income)
expenses
—
(306
)
Non-cash interest expense for amortization
of debt issuance costs
504
2,013
Gain on strategic investments
—
(4,200
)
Income tax effects of non-GAAP items
(8,441)-(8,691
)
(24,379)-(24,629
)
Non-GAAP net income range
$42,000-$43,000
$127,000-$128,000
GAAP net income per basic and diluted
share
($0.70)-($0.67
)
($2.66)-($2.63
)
Non-GAAP net income per diluted share
$0.82-$0.84
$2.48-$2.50
Weighted average common shares used in
computing GAAP basic and diluted net loss per share:
48,814
48,074
Weighted average common shares used in
computing non-GAAP diluted net loss per share:
51,156
51,117
HubSpot’s estimates of stock-based compensation, amortization of
acquired intangible assets, non-cash interest expense for
amortization of debt issuance costs, gain or loss on strategic
investment, and income tax effects of non-GAAP items assume, among
other things, the occurrence of no additional acquisitions or
dispositions, 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, operating 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. Free
cash flow is defined as cash and cash equivalents provided by or
used in operating activities less purchases of property and
equipment and capitalization of software development costs, plus
repayments of convertible notes attributable to debt discount. We
believe information regarding free cash flow provides useful
information to investors in understanding and evaluating the
strength of liquidity and available cash provides a comparable
framework for assessing how our business performed when compared to
prior periods which excluded repayments of our convertible notes
attributable to debt discount from operating cash flow. With the
adoption of Accounting Standards Update (“ASU”) 2020-06 on January
1, 2022, there are no longer repayments of convertible notes
attributable to debt discount.
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
issuance costs, gain on termination of operating leases, loss on
disposal of fixed assets, loss on early extinguishment of 2022
Convertible Notes, gain or loss on strategic investments, gain or
loss on equity method investment, and account for the income tax
effects of the exclusion of these non-GAAP items. We believe
investors may want to incorporate the effects of these items in
order to compare our financial performance with that of other
companies and between time periods:
- 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.
- Expense for the amortization of acquired intangible assets,
excluding backlog acquired intangible assets amortized as contra
revenue, is excluded from non-GAAP expense and income measures as
HubSpot views amortization of these assets as arising from
pre-acquisition activities determined at the time of an
acquisition. While these intangible assets are evaluated for
impairment regularly, amortization of the cost of purchased
intangibles is a non-cash expense that is not typically affected by
operations during any particular period. Valuation and subsequent
amortization of intangible assets can also be inconsistent in
amount and frequency because they can significantly vary based on
the timing and size of acquisitions and the inherently subjective
nature of the degree to which a purchase price is allocated to
intangible assets. We believe that the exclusion of this
amortization expense provides for a useful comparison of our
operating results to prior periods, for which we have historically
excluded amortization expense, and to our peer companies, which
commonly exclude acquired intangible asset amortization. It is
important to note that although we exclude amortization of acquired
intangible assets from our non-GAAP expense and income measures,
revenue generated from such intangibles is included within our
non-GAAP income measures. The use of these intangible assets
contributed to our revenues earned during the periods presented and
will contribute to future periods as well.
- Acquisition related expenses, such as transaction costs and
retention payments, and disposition related income, such as
proceeds from sale of assets, are transactions that are not
necessarily reflective of our operational performance during a
period. We believe that the exclusion of these expenses and income
provides for a useful comparison of our operating results to prior
periods and to our peer companies, which commonly exclude these
expenses and income.
- In June 2020, the Company issued $460 million of convertible
notes due in 2025 with a coupon interest rate of 0.375%. In August
2020, the FASB published ASU 2020-06, which was adopted on January
1, 2022. ASU 2020-06 simplifies the accounting for convertible debt
and other equity-linked instruments and eliminates requirements to
separately account for liability and equity components of such
convertible debt instruments. Consequently, our convertible notes
are accounted for as a single liability and the discount created by
the recognition of a component of the convertible debt in equity is
eliminated. The issuance cost of the debt is amortized as interest
expense over the remaining term of the debt. We believe the
exclusion of this non-cash interest expense provides for a useful
comparison of our operating results to prior periods and to our
peer companies. Prior to January 1, 2022, the difference between
the fair value and carrying value of debt conversion settlements
was recorded as a loss on early extinguishment of debt within
interest expense. Upon the adoption of ASU 2020-06, no loss is
recognized.
- Strategic investments consist of non-controlling equity
investments in privately held companies. The recognition of gains
or losses can vary significantly across periods and we do not view
them to be indicative of our fundamental operating activities and
believe the exclusion of gains or losses provides for a useful
comparison of our operating results to prior periods and to our
peer companies.
- We made a contribution to the Black Economic Development Fund
(the “investee”) managed by the Local Initiatives Support
Corporation and have committed to make additional capital
contributions. We account for this investment under the equity
method of accounting. The proportionate share of our equity method
investee's net earnings have been excluded in order to provide a
comparable view of our operating results to prior periods and to
our peer companies. We believe this activity is not reflective of
our recurring core business operating results.
- Gain on termination of operating leases results from early
lease terminations and related improvement reimbursements from
landlords being recorded as income. Loss on fixed assets result
from the disposal of property and equipment associated with early
lease terminations. As we generally fulfill our obligations for the
full lease term and use these assets for their full useful lives,
we believe these activities are not considered reflective of our
recurring core business operating results. As such, we believe the
exclusion of these transactions provides for a useful comparison of
our operating results to prior periods and to our peer
companies.
- The effects of income taxes on non-GAAP items reflect a fixed
long-term projected tax rate of 20% to provide better consistency
across reporting periods. To determine this long-term non-GAAP tax
rate, we exclude the impact of other non-GAAP adjustments and take
into account other factors such as our current operating structure
and existing tax positions in various jurisdictions. We will
periodically reevaluate this tax rate, as necessary, for
significant events such as relevant tax law changes and material
changes in our forecasted geographic earnings mix.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221102005798/en/
Investor Relations Contact: Charles MacGlashing
investors@hubspot.com
Media Contact: Ellie Flanagan eflanagan@hubspot.com
HubSpot (NYSE:HUBS)
Historical Stock Chart
From Feb 2023 to Mar 2023
HubSpot (NYSE:HUBS)
Historical Stock Chart
From Mar 2022 to Mar 2023
