HubSpot Reports Q3 2022 Results
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:
$ 331,659 $ 377,013
Cash and cash equivalents
952,697 820,962
Short-term investments
166,667 157,362
Accounts receivable
65,010 59,849
Deferred commission expense
45,060 38,388
Prepaid expenses and other current assets
-------------------- ---------- -------------------- ----------
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:
$ 13,318 $ 2,773
Accounts payable
63,373 63,836
Accrued compensation costs
90,827 74,457
Accrued expenses and other current liabilities
- 19,630
Convertible senior notes
32,155 26,364
Operating lease liabilities
468,536 430,414
Deferred revenue
-------------------- ---------- -------------------- ----------
668,209 617,474
Total current liabilities
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:
48 47
Common stock
1,550,905 1,436,089
Additional paid-in capital
(17,511 ) (1,339 )
Accumulated other comprehensive loss
(626,745 ) (560,998 )
Accumulated deficit
-------------------- ---------- -------------------- ----------
906,697 873,799
Total stockholders' equity
-------------------- ---------- -------------------- ----------
Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------
2022 2021 2022 2021
------------------------------ ------------------------------ ------------------------------ ------------------------------
Revenues:
$ 435,030 $ 328,975 $ 1,232,387 $ 899,661
Subscription
8,928 10,220 28,926 31,688
Professional services and other
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
443,958 339,195 1,261,313 931,349
Total revenue
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Cost of revenues:
67,648 57,547 191,466 152,533
Subscription
14,479 12,059 42,532 34,685
Professional services and other
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
82,127 69,606 233,998 187,218
Total cost of revenues
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Gross profit 361,831 269,589 1,027,315 744,131
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Operating expenses:
114,038 78,473 325,687 218,973
Research and development
229,541 170,016 650,936 468,836
Sales and marketing
50,465 36,027 146,309 102,883
General and administrative
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
394,044 284,516 1,122,932 790,692
Total operating expenses
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Loss from operations (32,213 ) (14,927 ) (95,617 ) (46,561 )
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Other expense:
4,658 230 7,222 1,046
Interest income
(923 ) (7,798 ) (2,822 ) (24,376 )
Interest expense
(1,185 ) 9,877 (583 ) 11,064
Other (expense) income
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
2,550 2,309 3,817 (12,266 )
Total other income (expense)
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Loss before income tax expense (29,663 ) (12,618 ) (91,800 ) (58,827 )
(1,748 ) (1,117 ) (5,313 ) (2,639 )
Income tax expense
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
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 )
Consolidated Statements of Cash Flows
(in thousands)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------
2022 2021 2022 2021
------------------------------ ------------------------------ ------------------------------ ------------------------------
Operating Activities:
$ (31,411 ) $ (13,735 ) $ (97,113 ) $ (61,466 )
Net loss
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities
15,562 11,452 42,625 33,188
Depreciation and amortization
72,213 44,987 199,081 120,847
Stock-based compensation
-- 1,736 -- 4,824
Loss on early extinguishment of 2022 Convertible Notes
-- (11,429 ) -- (24,457 )
Repayment of 2022 Convertible Notes attributable to the debt discount
-- (10,717 ) (4,200 ) (11,739 )
Gain on strategic investments
-- (4,276 ) -- (4,276 )
Gain on termination of operating leases
-- 6,468 -- 6,468
Loss on disposal of fixed assets
(191 ) (201 ) (589 ) (1,321 )
Benefit from deferred income taxes
492 5,603 1,509 18,115
Amortization of debt discount and issuance costs
(3,117 ) 1,273 (3,267 ) 2,943
(Accretion) amortization of bond discount
(1,500 ) 323 480 603
Unrealized currency translation
Changes in assets and liabilities
(5,785 ) (11,189 ) (20,135 ) (2,249 )
Accounts receivable
13,048 545 (8,863 ) (7,149 )
Prepaid expenses and other assets
(8,466 ) (7,969 ) (22,210 ) (24,371 )
Deferred commission expense
6,175 8,401 19,622 26,948
Right-of-use assets
1,700 (10,682 ) 10,660 (11,951 )
Accounts payable
(6,634 ) 22,651 16,455 38,184
Accrued expenses and other liabilities
(3,259 ) (8,048 ) (14,589 ) (26,422 )
Operating lease liabilities
11,237 17,460 63,743 66,825
Deferred revenue
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
60,064 42,653 183,209 143,544
Net cash and cash equivalents provided by operating activities
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Investing Activities:
(394,856 ) (383,268 ) (1,258,919 ) (1,037,331 )
Purchases of investments
391,928 344,174 1,017,306 940,776
Maturities of investments
-- -- 124,998 --
Sale of investments
(13,112 ) (6,653 ) (31,384 ) (17,399 )
Purchases of property and equipment
-- -- (10,000 ) --
Purchases of intangible assets
-- -- -- (16,810 )
Acquisition of a business, net of cash acquired
(5,999 ) (4,000 ) (19,872 ) (10,202 )
Purchases of strategic investments
(1,650 ) -- (1,900 ) (3,100 )
Equity method investment
(11,419 ) (9,217 ) (31,350 ) (25,638 )
Capitalization of software development costs
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
(35,108 ) (58,964 ) (211,121 ) (169,704 )
Net cash and cash equivalents used in investing activities
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
Financing Activities:
-- 4 60,483 729
Proceeds from settlement of Convertible Note Hedges related to the 2022 Convertible Notes
-- -- (79,807 ) --
Payment for settlement of 2022 Convertible Notes
-- (35,019 ) -- (80,428 )
Repayment of 2022 Convertible Notes attributable to the principal
-- -- (1,619 ) --
Repayment of 2025 Convertible Notes attributable to the principal
(2,190 ) (4,815 ) (9,954 ) (11,728 )
Employee taxes paid related to the net share settlement of stock-based awards
10,019 9,256 29,718 34,124
Proceeds related to the issuance of common stock under stock plans
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
7,829 (30,574 ) (1,179 ) (57,303 )
Net cash and cash equivalents provided by (used in) financing activities
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
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
-------------------- ---------- -------------------- ---------- -------------------- ---------- -------------------- ----------
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 %)
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:
$ 0.73 $ $ 0.54 $ 1.78 $ $ 1.34
Basic
$ 0.69 $ $ 0.50 $ 1.66 $ $ 1.24
Diluted
Shares used in non-GAAP per share calculations
48,067 47,044 47,821 46,752
Basic
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- COS, Prof. services & other R&D S&M G&A COS, Subs- COS, Prof. services & other R&D S&M G&A
cription cription
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- COS, Prof. services & other R&D S&M G&A COS, Subs- COS, Prof. services & other R&D S&M G&A
cription cription
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 %
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 %
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
------------------------------ -------------------- -------------------- ---------- ------------------------------ -------------------- -------------------- ----------
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
-------------- -------------------- ------ -------------- -------------------- -------
Reconciliation of forecasted non-GAAP operating income
(in thousands, except percentages)
Three Months Ended Year Ended
December 31, 2022 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 )
------------------ -------------------- -------------------- --------------------
Reconciliation of forecasted non-GAAP net income and non-GAAP net income per share
(in thousands, except per share amounts)
Three Months Ended Year Ended
December 31, 2022 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
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/
SOURCE: HubSpot, Inc.
Investor Relations Contact: Charles MacGlashing investors@hubspot.com Media Contact: Ellie Flanagan eflanagan@hubspot.com
COMTEX_417955474/1006/2022-11-02T16:10:01