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HubSpot Reports Q4 and Full Year 2018 Results

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CAMBRIDGE, Mass., Feb. 12, 2019 /PRNewswire/ -- HubSpot, Inc. (NYSE:HUBS), a leading growth platform, today announced financial results for the fourth quarter and full year ended December 31, 2018.

(PRNewsfoto/HubSpot, Inc.)

Financial Highlights:

Revenue

Fourth Quarter 2018:

  • Total revenue was $144.0 million, up 35% compared to Q4'17.
  • Subscription revenue was $136.8 million, up 35% compared to Q4'17.
  • Professional services and other revenue was $7.2 million, up 49% compared to Q4'17.

Full Year 2018:

  • Total revenue was $513.0 million, up 37% compared to 2017.
  • Subscription revenue was $487.5 million, up 37% compared to 2017.
  • Professional services and other revenue was $25.5 million, up 35% compared to 2017.

Operating Income (Loss)

Fourth Quarter 2018:

  • GAAP operating margin was (5.4%), compared to (8.9%) in Q4'17.
  • Non-GAAP operating margin was 9.8%, an improvement of approximately 5.7 percentage points from 4.1% in Q4'17.
  • GAAP operating loss was ($7.8) million, compared to ($9.4) million in Q4'17 2017.
  • Non-GAAP operating income was $14.2 million, compared to $4.3 million in Q4'17.

Full Year 2018:

  • GAAP operating margin was (9.4%), compared to (10.7%) in 2017.
  • Non-GAAP operating margin was 6.3%, an improvement of approximately 4 percentage points from 2.3% in 2017.
  • GAAP operating loss was ($48.3) million, compared to ($40.1) million in 2017.
  • Non-GAAP operating income was $32.1 million, compared to $8.6 million in 2017.

Net Income (Loss)

Fourth Quarter 2018:

  • GAAP net loss was ($11.5) million, or ($0.29) per basic and diluted share, compared to ($11.5) million, or ($0.31) per basic and diluted share, in Q4'17.
  • Non-GAAP net income was $15.8 million, or $0.40 per basic and $0.37 per diluted share, compared to $4.6 million, or $0.12 per basic and diluted share, in Q4'17.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 39.2 million, compared to 37.4 million basic and diluted shares, in Q4'17.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 39.2 million and 43.0 million respectively, compared to 37.4 million and 40.0 million, respectively, in Q4'17.

Full Year 2018:

  • GAAP net loss was ($63.8) million, or ($1.66) per basic and diluted share, compared to ($39.7) million, or ($1.08) per basic and diluted share in 2017.
  • Non-GAAP net income was $36.9 million, or $0.96 per basic and $0.89 per diluted, compared to $9.8 million, or $0.27 per basic and $0.25 per diluted share, in 2017.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 38.5 million, compared to 36.8 million basic and diluted shares 2017.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 38.5 million and 41.6 million respectively, compared to 36.8 million and 38.8 million, respectively, in 2017.

Balance Sheet and Cash Flow

  • The company's cash, cash equivalents and investments balance was $603.7 million as of December 31, 2018.
  • During the fourth quarter, the company generated $25.1 million of free cash flow compared to $7.0 million during Q4'17.
  • The company generated $51.4 million of free cash flow in 2018 compared to $22.3 million in 2017.

Additional Recent Business Highlights

  • Grew total customers to 56,628 at December 31, 2018, up 36% from December 31, 2017.
  • Total average subscription revenue per customer was $10,012 during the fourth quarter of 2018 down 2% compared to the fourth quarter of 2017.

"2018 was one of the best years in our history," said Brian Halligan, co-founder and CEO. "We started the year with a really strong marketing application business that helped our customers generate leads and a fast-growing sales enablement business. We ended the year with a full suite of marketing, sales and customer service products that helps our customers grow better by crafting a remarkable experience for their customers.  We're extremely pleased with our Q4 results, and I'm very excited on the outlook for our business entering 2019."

Business Outlook
Based on information available as of February 12, 2019, HubSpot is issuing guidance for the first quarter of 2019 and full year 2019 as indicated below.

First Quarter 2019:

  • Total revenue is expected to be in the range of $146.5 million to $147.5 million.
  • Non-GAAP operating income is expected to be in the range of $9.5 million to $10.5 million.
  • Non-GAAP net income per common share is expected to be in the range of $0.23 to $0.25. This assumes approximately 44.4 million weighted average diluted shares outstanding.

Full Year 2019:

  • Total revenue is expected to be in the range of $648 million to $652 million.
  • Non-GAAP operating income is expected to in be in the range of $46 million to $50 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.08 to $1.16. This assumes approximately 45.6 million weighted average diluted shares outstanding.

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 at ir.hubspot.com

Conference Call Information

HubSpot will host a conference call on Tuesday, February 12, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company's fourth quarter and full-year financial results and its business outlook. To access this call, dial (833) 241-7257 (domestic) or (647) 689-4221 (international). The conference ID is 3037758. Additionally, a live webcast of the conference call will be available on HubSpot's Investor Relations website at ir.hubspot.com

Following the conference call, a replay will be available at (800) 585-8367 (domestic) or (416) 621-4642 (international). The replay pass code is 3037758. 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 growth platform. Over 56,500 total customers in over 100 countries use HubSpot's award-winning software, services, and support to transform the way they 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, and business outlook, including our financial guidance for the first fiscal quarter and full year 2019; and statements regarding our positioning for future growth. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning.  These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made.  Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.  Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully acquire and integrate companies and assets; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on November 7, 2018 and our other SEC filings.  We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

 

Consolidated Balance Sheets
(in thousands)




December 31,



December 31,




2018



2017


Assets









Current assets:









Cash and cash equivalents


$

111,489



$

87,680


Short-term investments



480,761




416,663


Accounts receivable



77,100




60,676


Deferred commission expense



23,664




13,343


Restricted cash



5,175




4,757


Prepaid expenses and other current assets



14,229




19,382


Total current assets



712,418




602,501


Long-term investments



11,450




31,394


Property and equipment, net



52,468




43,294


Capitalized software development costs, net



12,746




8,760


Deferred commission expense, net of current portion



18,114





Other assets



6,888




4,964


Intangible assets



4,919




6,312


Goodwill



14,950




14,950


Total assets


$

833,953



$

712,175


Liabilities and stockholders' equity









Current liabilities:









Accounts payable


$

7,810



$

4,657


Accrued compensation costs



23,589




16,329


Accrued expenses and other current liabilities



22,305




20,430


Deferred revenue



183,305




136,880


Total current liabilities



237,009




178,296


Deferred rent, net of current portion



26,445




18,868


Deferred revenue, net of current portion



2,179




2,277


Other long-term liabilities



4,897




3,927


Convertible senior notes



318,782




298,447


Total liabilities



589,312




501,815


Stockholders' equity:









Common stock



40




38


Additional paid-in capital



589,708




496,461


Accumulated other comprehensive loss



(723)




(57)


Accumulated deficit



(344,384)




(286,082)


Total stockholders' equity



244,641




210,360


Total liabilities and stockholders' equity


$

833,953



$

712,175


 

 

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



For the Three Months Ended December 31,



Year Ended December 31,



2018



2017



2018



2017


Revenues:
















Subscription

$

136,804



$

101,697



$

487,450



$

356,727


Professional services and other


7,218




4,844




25,530




18,885


Total revenue


144,022




106,541




512,980




375,612


Cost of revenues:
















Subscription


19,742




14,729




69,718




51,563


Professional services and other


7,622




6,327




30,639




24,166


Total cost of revenues


27,364




21,056




100,357




75,729


Gross profit


116,658




85,485




412,623




299,883


Operating expenses:
















Research and development


32,005




22,286




117,603




70,373


Sales and marketing


70,960




57,575




267,444




212,859


General and administrative


21,525




15,057




75,834




56,787


Total operating expenses


124,490




94,918




460,881




340,019


Loss from operations


(7,832)




(9,433)




(48,258)




(40,136)


Other expense:
















Interest income


2,844




1,526




9,176




3,837


Interest expense


(5,493)




(5,234)




(21,386)




(13,181)


Other expense


(405)




(308)




(1,492)




(559)


Total other expense


(3,054)




(4,016)




(13,702)




(9,903)


Loss before income tax (expense) benefit


(10,886)




(13,449)




(61,960)




(50,039)


Income tax (expense) benefit


(606)




1,914




(1,868)




10,325


Net loss

$

(11,492)



$

(11,535)



$

(63,828)



$

(39,714)


Net loss per share, basic and diluted

$

(0.29)



$

(0.31)



$

(1.66)



$

(1.08)


Weighted average common shares used in
computing basic

   and diluted net loss per share:


39,153




37,385




38,529




36,827


 

 

Consolidated Statements of Cash Flows
(in thousands)



Three Months Ended

December, 31



Year Ended

December 31,



2018



2017



2018



2017


Operating Activities:
















Net loss

$

(11,492)



$

(11,535)



$

(63,828)



$

(39,714)


Adjustments to reconcile net loss to net cash and cash
equivalents provided by operating activities
















Depreciation and amortization


6,889




4,663




23,428




15,786


Stock-based compensation


20,927




12,898




76,261




47,317


Deferred income tax expense (benefit)


(7)




(2,421)




36




(11,546)


Amortization of debt discount and issuance costs


5,232




4,884




20,335




12,366


Accretion of bond discount


(2,270)




(829)




(6,787)




(1,576)


Noncash rent expense


364




696




2,336




5,039


Unrealized currency translation


268




209




483




(139)


Changes in assets and liabilities, net of acquisition
















Accounts receivable


(14,460)




(11,670)




(17,726)




(20,180)


Prepaid expenses and other assets


3,057




(225)




3,880




(5,588)


Deferred commission expense


(8,013)




(1,993)




(23,900)




(4,004)


Accounts payable


(964)




(456)




3,298




1,100


Accrued expenses and other current liabilities


8,165




1,357




11,920




8,195


Deferred rent


1,812




(22)




5,799




3,559


Deferred revenue


23,603




18,438




49,316




38,999


Net cash and cash equivalents provided by operating activities


33,111




13,994




84,851




49,614


Investing Activities:
















Purchases of investments


(156,794)




(317,373)




(681,632)




(890,009)


Maturities and sales of investments


145,525




220,600




644,375




533,660


Purchases of property and equipment


(5,617)




(5,187)




(22,305)




(20,276)


Capitalization of software development costs


(2,442)




(1,765)




(11,168)




(7,071)


Acquisition of a business and purchase of technology











(9,415)


Purchases of strategic investments


(200)




(700)




(500)




(3,500)


Net cash and cash equivalents used in investing activities


(19,528)




(104,425)




(71,230)




(396,611)


Financing Activities:
















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


(2,100)




(1,265)




(8,033)




(4,419)


Proceeds related to the issuance of common stock under stock
plans


4,786




2,677




21,555




13,086


Proceeds of the issuance of convertible notes, net of issuance
costs paid of $10,767











389,233


Purchase of note hedge related to convertible notes











(78,920)


Proceeds from the issuance of warrants related to convertible
notes, net of issuance costs of $200











58,880


Repayments of capital lease obligations


(152)




(267)




(744)




(1,054)


Net cash and cash equivalents provided by financing activities


2,534




1,145




12,778




376,806


Effect of exchange rate changes on cash, cash equivalents and restricted cash


(750)




221




(2,069)




2,790


Net increase in cash, cash equivalents and restricted cash


15,367




(89,065)




24,330




32,599


Cash, cash equivalents and restricted cash, beginning of period


101,747




181,849




92,784




60,185


Cash, cash equivalents and restricted cash, end of period

$

117,114



$

92,784



$

117,114



$

92,784


 

 

Reconciliation of non-GAAP operating income and operating

margin

(in thousands, except percentages)

Three Months Ended

December 31,



Year ended December 31,



2018


2017



2018


2017


GAAP operating loss

$

(7,832)


$

(9,433)



$

(48,258)


$

(40,136)


Stock-based compensation


20,927



12,898




76,261



47,317


Amortization of acquired intangible assets


800



50




1,394



103


Acquisition related expenses


289



827




2,696



1,266


Non-GAAP operating income

$

14,184


$

4,342



$

32,093


$

8,550
















GAAP operating margin


(5.4%)



(8.9%)




(9.4%)



(10.7%)


Non-GAAP operating margin


9.8

%


4.1

%



6.3

%


2.3

%

 

 

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

Three Months Ended

December 31,



Year ended December 31,



2018


2017



2018


2017


GAAP net loss

$

(11,492)


$

(11,535)



$

(63,828)


$

(39,714)


Stock-based compensation


20,927



12,898




76,261



47,317


Amortization of acquired intangibles assets


800



50




1,394



103


Acquisition related expenses


289



827




2,696



1,266


Non-cash interest expense for amortization of debt discount and debt issuance costs


5,232



4,884




20,335



12,367


Deferred income tax benefit from convertible notes and business combination




(2,480)






(11,573)


Income tax effects of  non-GAAP items










Non-GAAP net income

$

15,756


$

4,644



$

36,858


$

9,766
















Non-GAAP net income per share:














Basic

$

0.40


$

0.12



$

0.96


$

0.27


Diluted

$

0.37


$

0.12



$

0.89


$

0.25


Shares used in non-GAAP per share calculations














Basic


39,153



37,385




38,529



36,827


Diluted


43,024



39,978




41,595



38,798


 


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











(in thousands, except percentages)















Three Months Ended December 31,



2018



2017



COS, Subscription


COS,

Prof. services

& other


R&D


S&M


G&A



COS, Subscription


COS,

Prof. services

& other


R&D


S&M


G&A


GAAP expense

$

19,742


$

7,622


$

32,005


$

70,960


$

21,525



$

14,729


$

6,327


$

22,286


$

57,575


$

15,057


Stock -based compensation


(491)



(585)



(6,462)



(8,772)



(4,617)




(203)



(620)



(3,803)



(5,127)



(3,145)


Amortization of acquired intangible assets


(800)












(50)










Acquisition related expenses






(289)












(827)






Non-GAAP expense

$

18,451


$

7,037


$

25,254


$

62,188


$

16,908



$

14,476


$

5,707


$

17,656


$

52,448


$

11,912


































GAAP expense as a percentage of revenue


13.7

%


5.3

%


22.2

%


49.3

%


14.9

%



13.8

%


5.9

%


20.9

%


54.0

%


14.1

%

Non-GAAP expense as a percentage of revenue


12.8

%


4.9

%


17.5

%


43.2

%


11.7

%



13.6

%


5.4

%


16.6

%


49.2

%


11.2

%


































































































Year ended December 31,



2018



2017



COS, Subscription


COS,

Prof. services

& other


R&D


S&M


G&A



COS, Subscription


COS,

Prof. services

& other


R&D


S&M


G&A


GAAP expense

$

69,718


$

30,639


$

117,603


$

267,444


$

75,834



$

51,563


$

24,166


$

70,373


$

212,859


$

56,787


Stock -based compensation


(1,476)



(2,924)



(23,328)



(31,099)



(17,434)




(658)



(2,327)



(12,816)



(19,016)



(12,500)


Amortization of acquired intangible assets


(1,394)












(96)







(7)




Acquisition related expenses






(2,696)












(1,266)






Non-GAAP expense

$

66,848


$

27,715


$

91,579


$

236,345


$

58,400



$

50,809


$

21,839


$

56,291


$

193,836


$

44,287


































GAAP expense as a percentage of revenue


13.6

%


6.0

%


22.9

%


52.1

%


14.8

%



13.7

%


6.4

%


18.7

%


56.7

%


15.1

%

Non-GAAP expense as a percentage of revenue


13.0

%


5.4

%


17.9

%


46.1

%


11.4

%



13.5

%


5.8

%


15.0

%


51.6

%


11.8

%

 

 


Reconciliation of non-GAAP subscription

margin














(in thousands, except percentages)

















Three Months Ended December 31,



Year ended December 31,




2018


2017



2018


2017


GAAP subscription margin


$

117,062


$

86,968



$

417,732


$

305,164


Stock -based compensation



491



203




1,476



658


Amortization of acquired intangible assets



800



50




1,394



96


Non-GAAP subscription margin


$

118,353


$

87,221



$

420,602


$

305,918

















GAAP subscription margin percentage



85.6

%


85.5

%



85.7

%


85.5

%

Non-GAAP subscription margin percentage



86.5

%


85.8

%



86.3

%


85.8

%

 

Reconciliation of free cash flow














(in thousands)
































Three Months Ended December 31,



Year ended December 31,




2018


2017



2018


2017


GAAP net cash and cash equivalents provided by operating activities


$

33,111


$

13,994



$

84,851


$

49,614


Purchases of property and equipment



(5,617)



(5,187)




(22,305)



(20,276)


Capitalization of software development costs



(2,442)



(1,765)




(11,168)



(7,071)


Free cash flow


$

25,052


$

7,042



$

51,378


$

22,267


 

 

Reconciliation of forecasted non-GAAP operating income

(in thousands, except percentages)









Three Months Ended

March, 31 2019



Year Ended

December 31, 2019


GAAP operating income range

($12,030)-($11,030)



($61,230)-($57,230)


Stock-based compensation


20,700




104,000


Amortization of acquired intangible assets


800




3,100


Acquisition related expenses


30




130


Non-GAAP operating income range

$9,500-$10,500



$46,000-$50,000


 

Reconciliation of forecasted non-GAAP net income and non-GAAP

net income per share

(in thousands, except per share amounts)

















Three Months Ended

March 31, 2019



Year Ended

December 31, 2019


GAAP net loss range

($16,730)-($15,730)



($79,930-75,930)


Stock-based compensation


20,700




104,000


Amortization of acquired intangible assets


800




3,100


Acquisition related expenses


30




130


Non-cash interest expense for amortization of debt discount and debt issuance costs


5,300




21,800


Income tax effects of  non-GAAP items

$



$


Non-GAAP net income range

$10,100-$11,100



$49,100-$53,100










GAAP net income per basic and diluted share

($0.42)-($0.40)



($1.98)-($1.88)


Non-GAAP net income per diluted share

$0.23-$0.25



$1.08-$1.16


















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


39,600




40,300










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


44,400




45,600


 

HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets,  acquisition-related expenses, and non-cash interest expense for amortization of debt discount and debt issuance costs in future periods assume, among other things, the occurrence of no additional acquisitions, investments or restructurings, 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, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management 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 discount debt issuance costs, the deferred income tax benefit from convertible notes and acquisitions, and income tax effects of non-GAAP items. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

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

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

C.  Acquisition related expenses, such as transaction costs and retention payments, are expenses that are not necessarily reflective of operational performance during a period. We believe that the exclusion of this these expenses provides for a useful comparison of our operating results to prior periods and to our peer companies.

D.  In May 2017, the Company issued $400 million of convertible notes due in 2022 with a coupon interest rate of 0.25%. The imputed interest rate of the convertible senior notes was approximately 6.95%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense provides for a useful comparison of our operating results to prior periods and to our peer companies.

E.  The deferred income tax benefit from the convertible notes issued in May 2017 is a non-cash item created by the difference in the carrying amount and tax basis of the convertible notes. This taxable temporary difference resulted in the Company recognizing a $9.4 million deferred tax liability which was recorded as an adjustment to additional paid-in capital on the consolidated balance sheet. The creation of the deferred tax liability is recognized as a component of equity and represents a source of future taxable income which supports the realization of a portion of the income tax benefit associated with the current year loss from operations. The deferred income tax benefit from the convertible notes is a non-cash item that is unique to the issuance of the Company's convertible notes, and we believe the exclusion of this deferred tax benefit provides for a useful comparison of our operating results to prior periods and to our peer companies.

F.  The deferred income tax benefit from the business combination entered into in September 2017 is a non-cash item created by the difference in the carrying amount and tax basis of the assets and liabilities acquired. This taxable temporary difference resulted in the Company recognizing a $2.2 million deferred tax liability which was recorded as an adjustment to goodwill on the consolidated balance sheet. The creation of the deferred tax liability represents a source of future taxable income which supports the realization of a portion of the income tax benefit associated with historical net operating losses. The deferred income tax benefit from the business combination is a non-cash item that is unique to the business combination, and we believe the exclusion of this deferred tax benefit provides for a useful comparison of our operating results to prior periods and to our peer companies.

G.  The effects of income taxes on non-GAAP items for current and historical periods is zero due to our history of non-GAAP losses and a full valuation allowance on our U.S. deferred tax assets.

 

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