HubSpot, Inc. (NYSE: HUBS), the customer relationship management
(CRM) platform for scaling companies, today announced financial
results for the second quarter ended June 30, 2023.
Financial Highlights:
Revenue
- Total revenue was $529.1 million, up 25% compared to Q2'22.
- Subscription revenue was $517.7 million, up 26% compared to
Q2'22.
- Professional services and other revenue was $11.5 million, up
23% compared to Q2'22.
Operating Income (Loss)
- GAAP operating margin was (22.4%), compared to (12.4%) in
Q2'22.
- Non-GAAP operating margin was 14.0%, compared to 7.0% in
Q2'22.
- GAAP operating loss was ($118.5) million, compared to ($52.3)
million in Q2'22.
- Non-GAAP operating income was $74.2 million, compared to $29.4
million in Q2'22.
Net Income (Loss)
- GAAP net loss was ($118.9) million, or ($2.39) per basic and
diluted share, compared to ($56.4) million, or ($1.18) per basic
and diluted share in Q2'22.
- Non-GAAP net income was $70.0 million, or $1.41 per basic and
$1.34 per diluted share, compared to $22.4 million, or $0.47 per
basic and $0.44 per diluted share in Q2'22.
- Weighted average basic and diluted shares outstanding for GAAP
net loss per share was 49.7 million, compared to 47.8 million basic
and diluted shares in Q2'22.
- Weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 49.7 million and 52.1 million
respectively, compared to 47.8 million and 51.1 million,
respectively in Q2'22.
Balance Sheet and Cash Flow
- The company’s cash, cash equivalents, and short-term and
long-term investments balance was $1.7 billion as of June 30,
2023.
- During the second quarter, the company generated $76.5 million
of cash from operating cash flow, compared to $40.9 million during
Q2'22.
- During the second quarter, the company generated $87.0 million
of cash from non-GAAP operating cash flow and $59.6 million of free
cash flow, compared to $40.9 million of cash from non-GAAP
operating cash flow and $22.4 million of free cash flow during
Q2'22.
Additional Recent Business Highlights
- Grew Customers to 184,924 at June 30, 2023, up 23% from June
30, 2022.
- Average Subscription Revenue Per Customer was $11,432 during
the second quarter of 2023, up 2% compared to the second quarter of
2022.
- The company had 7,136 full-time employees, up 1% from June 30,
2022.
“We had another solid quarter and I’m pleased with the continued
momentum we have in becoming the platform of choice for scaling
companies,” said Yamini Rangan, Chief Executive Officer at HubSpot.
“Our teams are driving the pace of product innovation, iterating
fast with AI while executing on our bi-modal strategy, despite a
still challenging macroeconomic environment. This focus and
alignment is what will continue to set us apart to drive durable
and profitable growth over the long term.”
Business Outlook Based on information available as of
August 2, 2023, HubSpot is issuing guidance for the third quarter
of 2023 and full year 2023 as indicated below.
Third Quarter 2023:
- Total revenue is expected to be in the range of $532.0 million
to $534.0 million.
- Favorable foreign exchange rates are expected to be a one to
two point tailwind to third quarter 2023 revenue growth.(1)
- Non-GAAP operating income is expected to be in the range of
$67.0 million to $69.0 million(2).
- Non-GAAP net income per common share is expected to be in the
range of $1.22 to $1.24. This assumes approximately 52.6 million
weighted average diluted shares outstanding.
Full Year 2023:
- Total revenue is expected to be in the range of $2.116 billion
to $2.122 billion.
- Favorable foreign exchange rates are expected to be a 50 basis
points tailwind to full year 2023 revenue growth.(1)
- Non-GAAP operating income is expected to be in the range of
$293.0 million to $297.0 million(2).
- Non-GAAP net income per common share is expected to be in the
range of $5.24 to $5.29. This assumes approximately 52.3 million
weighted average diluted shares outstanding.
(1) Foreign exchange rates impact on
revenue is calculated by comparing current period average rates
with prior period average rates.
(2) The impact of restructuring charges,
which include employee severance and lease consolidation costs, are
excluded from our non-GAAP operating income and non-GAAP net income
per common share business outlook.
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, August 2, 2023, at 4:30 p.m. Eastern
Time (ET) to discuss the company’s second quarter 2023 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 067108. 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 184,000
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 third
fiscal quarter of and full year 2023 and out long-term financial
framework; 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 develop new products and
technologies and differentiate our platform from competing products
and technologies, including artificial intelligence and machine
learning technologies; our ability to manage our growth effectively
over the long-term to maintain our high level of service; our
ability to maintain and expand relationships with our solutions
partners; the price volatility of our common stock; the impact of
geopolitical conflicts, inflation, foreign currency movement, and
macroeconomic instability 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; regulatory and legislative developments on
the use of artificial intelligence and machine learning; 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)
June 30,
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
457,218
$
331,022
Short-term investments
1,071,927
1,081,662
Accounts receivable
206,697
226,849
Deferred commission expense
82,158
70,992
Prepaid expenses and other current
assets
89,845
44,074
Total current assets
1,907,845
1,754,599
Long-term investments
146,245
112,791
Property and equipment, net
104,227
105,227
Capitalized software development costs,
net
86,548
63,790
Right-of-use assets
262,759
319,304
Deferred commission expense, net of
current portion
93,277
66,559
Other assets
65,876
58,795
Intangible assets, net
15,854
17,446
Goodwill
46,464
46,227
Total assets
$
2,729,095
$
2,544,738
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
3,133
$
20,883
Accrued compensation costs
69,758
62,846
Accrued expenses and other current
liabilities
157,485
102,122
Operating lease liabilities
31,145
35,928
Deferred revenue
585,934
539,874
Total current liabilities
847,455
761,653
Operating lease liabilities, net of
current portion
313,632
316,184
Deferred revenue, net of current
portion
4,568
5,904
Other long-term liabilities
25,768
14,546
Convertible senior notes
455,207
454,227
Total liabilities
1,646,630
1,552,514
Stockholders’ equity:
Common stock
50
49
Additional paid-in capital
1,890,409
1,647,446
Accumulated other comprehensive loss
(8,385
)
(12,890
)
Accumulated deficit
(799,609
)
(642,381
)
Total stockholders’ equity
1,082,465
992,224
Total liabilities and stockholders’
equity
$
2,729,095
$
2,544,738
Consolidated Statements of
Operations
(in thousands, except per share data)
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2023
2022
2023
2022
Revenues:
Subscription
$
517,678
$
412,401
$
1,007,421
$
797,356
Professional services and other
11,460
9,354
23,337
19,998
Total revenue
529,138
421,755
1,030,758
817,354
Cost of revenues:
Subscription
73,824
64,431
142,163
123,816
Professional services and other
13,462
14,500
27,169
28,053
Total cost of revenues
87,286
78,931
169,332
151,869
Gross profit
441,852
342,824
861,426
665,485
Operating expenses:
Research and development
169,955
118,914
297,639
211,650
Sales and marketing
265,294
224,262
515,971
421,396
General and administrative
61,222
51,898
118,630
95,844
Restructuring
63,880
—
92,450
—
Total operating expenses
560,351
395,074
1,024,690
728,890
Loss from operations
(118,499
)
(52,250
)
(163,264
)
(63,405
)
Other expense:
Interest income
13,542
2,050
24,013
2,564
Interest expense
(937
)
(949
)
(1,867
)
(1,898
)
Other income (expense)
330
(3,091
)
(465
)
602
Total other expense
12,935
(1,990
)
21,681
1,268
Loss before income tax expense
(105,564
)
(54,240
)
(141,583
)
(62,137
)
Income tax expense
(13,382
)
(2,121
)
(15,645
)
(3,565
)
Net loss
$
(118,946
)
$
(56,361
)
$
(157,228
)
$
(65,702
)
Net loss per share, basic and diluted
$
(2.39
)
$
(1.18
)
$
(3.17
)
$
(1.38
)
Weighted average common shares used in
computing basic and diluted net loss per share:
49,703
47,815
49,550
47,697
Consolidated Statements of Cash
Flows
(in thousands)
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2023
2022
2023
2022
Operating Activities:
Net loss
(118,946
)
$
(56,361
)
$
(157,228
)
$
(65,702
)
Adjustments to reconcile net loss to net
cash and cash equivalents provided by operating activities
Depreciation and amortization
16,429
14,265
32,999
27,063
Stock-based compensation
128,003
81,165
211,038
126,868
Restructuring charges
62,657
—
64,938
—
Loss (gain) on strategic investments
—
21
—
(4,200
)
Provision for (benefit from) deferred
income taxes
4,755
(152
)
4,802
(398
)
Amortization of debt discount and issuance
costs
496
510
980
1,017
Accretion of bond discount
(10,769
)
(735
)
(18,777
)
(150
)
Unrealized currency translation
236
1,277
(122
)
1,980
Changes in assets and liabilities
Accounts receivable
(8,991
)
(17,901
)
21,626
(14,349
)
Prepaid expenses and other assets
(27,028
)
(17,984
)
(47,445
)
(21,911
)
Deferred commission expense
(18,495
)
(5,390
)
(37,034
)
(13,744
)
Right-of-use assets
12,489
6,919
20,972
13,447
Accounts payable
59
5,335
(17,814
)
8,960
Accrued expenses and other liabilities
31,011
15,954
55,232
23,089
Operating lease liabilities
(8,156
)
(9,012
)
(17,985
)
(11,330
)
Deferred revenue
12,793
23,010
41,431
52,506
Net cash and cash equivalents provided by
operating activities
76,543
40,921
157,613
123,146
Investing Activities:
Purchases of investments
(369,117
)
(428,516
)
(731,363
)
(864,063
)
Maturities of investments
441,867
220,159
729,834
625,378
Sale of investments
—
124,998
—
124,998
Purchases of property and equipment
(10,879
)
(8,332
)
(14,189
)
(18,272
)
Purchases of strategic investments
—
(8,827
)
(6,000
)
(13,873
)
Purchases of intangible assets
—
(10,000
)
—
(10,000
)
Equity method investment
—
(250
)
—
(250
)
Capitalization of software development
costs
(16,473
)
(10,209
)
(31,595
)
(19,931
)
Net cash and cash equivalents provided by
(used in) investing activities
45,398
(120,977
)
(53,313
)
(176,013
)
Financing Activities:
Proceeds from settlement of Convertible
Note Hedges related to the 2022 Convertible Notes
—
60,483
—
60,483
Payment for settlement of 2022 Convertible
Notes
—
(79,807
)
—
(79,807
)
Repayment of 2025 Convertible Notes
attributable to the principal
—
—
—
(1,619
)
Employee taxes paid related to the net
share settlement of stock-based awards
(2,904
)
(3,410
)
(4,102
)
(7,764
)
Proceeds related to the issuance of common
stock under stock plans
13,296
7,847
24,550
19,699
Net cash and cash equivalents provided by
(used in) financing activities
10,392
(14,887
)
20,448
(9,008
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(274
)
(7,826
)
1,448
(9,474
)
Net (decrease) increase in cash, cash
equivalents and restricted cash
132,059
(102,769
)
126,196
(71,349
)
Cash, cash equivalents and restricted
cash, beginning of period
328,312
411,462
334,175
380,042
Cash, cash equivalents and restricted
cash, end of period
$
460,371
$
308,693
$
460,371
$
308,693
Reconciliation of non-GAAP operating
income and operating margin
(in thousands, except percentages)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP operating loss
$
(118,499
)
$
(52,250
)
$
(163,264
)
$
(63,405
)
Stock-based compensation
128,003
81,165
211,038
126,868
Amortization of acquired intangible
assets
851
752
1,696
1,163
Acquisition related expenses
—
(281
)
—
(288
)
Restructuring charges
63,880
—
92,450
—
Non-GAAP operating income
$
74,235
$
29,386
$
141,920
$
64,338
GAAP operating margin
(22.4
%)
(12.4
%)
(15.8
%)
(7.8
%)
Non-GAAP operating margin
14.0
%
7.0
%
13.8
%
7.9
%
Reconciliation of non-GAAP net
income
(in thousands, except per share
amounts)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP net loss
$
(118,946
)
(56,361
)
$
(157,228
)
$
(65,702
)
Stock-based compensation
128,003
81,165
211,038
126,868
Amortization of acquired intangibles
assets
851
752
1,696
1,163
Acquisition related expenses
—
(281
)
—
(288
)
Restructuring charges
63,880
—
92,450
—
Non-cash interest expense for amortization
of debt issuance costs
496
510
980
1,017
Loss (gain) on strategic investments
—
21
—
(4,200
)
(Gain) loss on equity method
investment
(188
)
103
(66
)
—
Income tax effects of non-GAAP items
(4,114
)
(3,485
)
(17,258
)
(8,920
)
Non-GAAP net income
$
69,982
22,424
$
131,612
$
49,938
Non-GAAP net income per share:
Basic
$
1.41
$
0.47
$
2.66
$
1.05
Diluted
$
1.34
$
0.44
$
2.54
$
0.98
Shares used in non-GAAP per share
calculations
Basic
49,703
47,815
49,550
47,697
Diluted
52,100
51,066
51,798
51,082
Reconciliation of non-GAAP expense and
expense as a percentage of revenue
(in thousands, except percentages)
Three Months Ended June
30,
2023
2022
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
$
73,824
$
13,462
$
169,955
$
265,294
$
61,222
$
64,431
$
14,500
$
118,914
$
224,262
$
51,898
Stock -based compensation
(3,516
)
(1,459
)
(64,060
)
(38,625
)
(20,343
)
(2,383
)
(1,248
)
(31,698
)
(32,183
)
(13,653
)
Amortization of acquired intangible
assets
(405
)
—
—
(446
)
—
(306
)
—
—
(446
)
—
Acquisition/disposition related income
(expenses)
—
—
—
—
—
—
—
300
—
(19
)
Non-GAAP expense
$
69,903
$
12,003
$
105,895
$
226,223
$
40,879
$
61,742
$
13,252
$
87,516
$
191,633
$
38,226
GAAP expense as a percentage of
revenue
14.0
%
2.5
%
32.1
%
50.1
%
11.6
%
15.3
%
3.4
%
28.2
%
53.2
%
12.3
%
Non-GAAP expense as a percentage of
revenue
13.2
%
2.3
%
20.0
%
42.8
%
7.7
%
14.6
%
3.1
%
20.8
%
45.4
%
9.1
%
Six Months Ended June
30,
2023
2022
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
$
142,163
$
27,169
$
297,639
$
515,971
$
118,630
$
123,816
$
28,053
$
211,650
$
421,396
$
95,844
Stock -based compensation
(6,259
)
(2,546
)
(97,384
)
(68,794
)
(36,055
)
(4,206
)
(2,083
)
(48,684
)
(49,052
)
(22,843
)
Amortization of acquired intangible
assets
(804
)
—
—
(892
)
—
(628
)
—
—
(535
)
—
Acquisition/disposition related income
(expenses)
—
—
—
—
—
—
—
300
—
(12
)
Non-GAAP expense
$
135,100
$
24,623
$
200,255
$
446,285
$
82,575
$
118,982
$
25,970
$
163,266
$
371,809
$
72,989
GAAP expense as a percentage of
revenue
13.8
%
2.6
%
28.9
%
50.1
%
11.5
%
15.1
%
3.4
%
25.9
%
51.6
%
11.7
%
Non-GAAP expense as a percentage of
revenue
13.1
%
2.4
%
19.4
%
43.3
%
8.0
%
14.6
%
3.2
%
20.0
%
45.5
%
8.9
%
Reconciliation of non-GAAP subscription
margin
(in thousands, except percentages)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP subscription margin
$
443,854
$
347,970
$
865,258
$
673,540
Stock-based compensation
3,516
2,383
6,259
4,206
Amortization of acquired intangible
assets
405
306
804
628
Non-GAAP subscription margin
$
447,775
$
350,659
$
872,321
$
678,374
GAAP subscription margin percentage
85.7
%
84.4
%
85.9
%
84.5
%
Non-GAAP subscription margin
percentage
86.5
%
85.0
%
86.6
%
85.1
%
Reconciliation of non-GAAP operating
cash flow
(in thousands)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP net cash and cash equivalents
provided by operating activities
$
76,543
$
40,921
$
157,613
$
123,146
Payment of restructuring charges
10,425
—
32,939
—
Non-GAAP operating cash flow
$
86,968
$
40,921
$
190,552
$
123,146
Reconciliation of free cash
flow
(in thousands)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP net cash and cash equivalents
provided by operating activities
$
76,543
$
40,921
$
157,613
$
123,146
Purchases of property and equipment
(10,879
)
(8,332
)
(14,189
)
(18,272
)
Capitalization of software development
costs
(16,473
)
(10,209
)
(31,595
)
(19,931
)
Payment of restructuring charges
10,425
—
32,939
—
Free cash flow
$
59,616
$
22,380
$
144,768
$
84,943
Reconciliation of forecasted non-GAAP
operating income (in thousands, except percentages)
Three Months Ended September
30, 2023
Year Ended December 31,
2023
GAAP operating income range
($50,376)
($257,045)
Stock-based compensation
115,531
452,212
Amortization of acquired intangible
assets
845
3,383
Restructuring charges
1,000-3,000
94,450-98,450
Non-GAAP operating income range
$67,000-$69,000
$293,000-$297,000
Reconciliation of forecasted non-GAAP
net income and non-GAAP net income per share (in thousands,
except per share amounts)
Three Months Ended September
30, 2023
Year Ended December 31,
2023
GAAP net loss range
($39,678)-($40,428)
($229,623)-($230,498)
Stock-based compensation
115,531
452,212
Amortization of acquired intangible
assets
845
3,383
Non-cash interest expense for amortization
of debt issuance costs
497
1,985
Restructuring charges
1,000-3,000
94,450-98,450
Gain on equity method investment
—
(66)
Income tax effects of non-GAAP items
(13,895)-(14,145)
(48,591)-(49,216)
Non-GAAP net income range
$64,300-$65,300
$273,750-$276,250
GAAP net income per basic and diluted
share
($0.79)-($0.81)
($4.60)-($4.63)
Non-GAAP net income per diluted share
$1.22-$1.24
$5.24-$5.29
Weighted average common shares used in
computing GAAP basic and diluted net loss per share:
50,074
49,896
Weighted average common shares used in
computing non-GAAP diluted net loss per share:
52,597
52,270
HubSpot’s estimates of stock-based compensation, amortization of
acquired intangible assets, non-cash interest expense for
amortization of debt issuance costs, restructuring charges, loss of
equity method 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.
Non-GAAP operating cash flow is defined as cash and cash
equivalents provided by or used in operating activities plus
payment of restructuring charges. 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 payment of restructuring charges.
Although non-GAAP operating cash flow and free cash flow are not
residual cash flow available for our discretionary expenditures, we
believe information regarding non-GAAP operating cash flow and free
cash flow provide useful information to investors in understanding
and evaluating the strength of liquidity and provides a comparable
framework for assessing how our business performed when compared to
prior periods which were not impacted by restructuring charges paid
from operating cash flow.
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 or impairment losses on strategic investments,
gain or loss on equity method investment, restructuring charges,
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:
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
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.
C.
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.
D.
In June 2020, we issued $460 million of convertible notes due in
2025 with a coupon interest rate of 0.375%. 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.
E.
Strategic investments consist of non-controlling equity
investments in privately held companies. The recognition of gains
or impairment 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 impairment losses
provides for a useful comparison of our operating results to prior
periods and to our peer companies.
F.
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.
G.
Restructuring charges are related to severance, employee related
benefits, facilities and other costs associated with the
restructuring plan implemented in January 2023. Restructuring
charges fluctuate in amount and frequency and are not reflective of
our core business operating results. In addition to the
restructuring charges incurred during the six months ended June 30,
2023, over the next four years (into 2027), we expect to both incur
incremental restructuring charges and make cash payments related to
the facilities that we abandoned in 2023. The abandonment of
facilities was part of the restructuring plan we authorized on
January 25, 2023 and is intended to consolidate our lease space and
create higher density across our workspaces. The incremental
charges we expect to incur relate to continuing costs for the
abandoned facilities and are expected to be in the range of $20-24
million and will be paid in cash over the next four years. We also
expect to make cash payments related to approximately $61.0 million
in fixed rent payments for the abandoned facilities that will be
made in monthly installments over the next four years for which we
have taken the full P&L restructuring charge during the six
months ended June 30, 2023. We plan on excluding both the
incremental charges and cash payments and the related restructuring
cash rent payments from our non-GAAP earnings, operating cash flow,
and free cash flow metrics. We believe exclusion of these charges
and cash payments provides useful information to investors in
understanding and evaluating the strength of earnings and liquidity
and provides a comparable framework for assessing how our business
performed when compared to prior periods which were not impacted by
excluded restructuring charges paid from operating cash flow.
H.
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/20230802523196/en/
Investor Relations Contact: Charles MacGlashing
investors@hubspot.com Media Contact: media@hubspot.com
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