HubSpot Reports Q1 2022 Results

Consolidated Balance Sheets

(in thousands)

March 31,

December 31,

2022

2021

Assets

Current assets:

     Cash and cash equivalents

$

408,433

$

377,013

     Short-term investments

826,449

820,962

     Accounts receivable

152,729

157,362

     Deferred commission expense

63,210

59,849

     Prepaid expenses and other current assets

40,260

38,388

Total current assets

1,491,081

1,453,574

Long-term investments

195,045

174,895

Property and equipment, net

102,751

96,134

Capitalized software development costs, net

44,020

39,858

Right-of-use assets

276,548

280,828

Deferred commission expense, net of current portion

47,181

42,681

Other assets

39,918

29,244

Intangible assets, net

9,988

10,565

Goodwill

46,770

47,075

Total assets

$

2,253,302

$

2,174,854

Liabilities and stockholders' equity

Current liabilities:

     Accounts payable

$

8,321

$

2,773

     Accrued compensation costs

60,595

63,836

     Accrued expenses and other current liabilities

84,825

74,457

     Convertible senior notes

19,367

19,630

     Operating lease liabilities

30,947

26,364

     Deferred revenue

457,916

430,414

     Total current liabilities

661,971

617,474

Operating lease liabilities, net of current portion

278,056

283,873

Deferred revenue, net of current portion

4,700

4,473

Other long-term liabilities

21,992

12,134

Convertible senior notes, net of current portion

452,747

383,101

Total liabilities

1,419,466

1,301,055

Stockholders' equity:

     Common stock

48

47

     Additional paid-in capital

1,378,457

1,436,089

     Accumulated other comprehensive (loss) income

(5,696)

(1,339)

     Accumulated deficit

(538,973)

(560,998)

     Total stockholders' equity

833,836

873,799

Total liabilities and stockholders' equity

$

2,253,302

$

2,174,854

Consolidated Statements of Operations

(in thousands, except per share data)

For the Three Months Ended March 31,

2022

2021

Revenues:

     Subscription

$

384,956

$

270,263

     Professional services and other

10,643

11,102

          Total revenue

395,599

281,365

Cost of revenues:

     Subscription

59,384

43,853

     Professional services and other

13,552

10,881

          Total cost of revenues

72,936

54,734

Gross profit

322,663

226,631

Operating expenses:

     Research and development

92,736

68,396

     Sales and marketing

197,134

141,017

     General and administrative

43,947

32,250

          Total operating expenses

333,817

241,663

Loss from operations

(11,154)

(15,032)

Other expense:

     Interest income

515

475

     Interest expense

(950)

(9,399)

     Other income

3,692

660

          Total other expense

3,257

(8,264)

Loss before income tax expense

(7,897)

(23,296)

          Income tax (expense) benefit

(1,444)

137

Net loss

$

(9,341)

$

(23,159)

Net loss per share, basic and diluted

$

(0.20)

$

(0.50)

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

47,577

46,428

Consolidated Statements of Cash Flows

(in thousands)

For the Three Months Ended March 31,

2022

2021

Operating Activities:

   Net loss

(9,341)

$

(23,159)

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

     Depreciation and amortization

12,798

11,208

     Stock-based compensation

45,704

32,423

     Loss on early extinguishment of 2022 Convertible Notes

—

2,406

     Repayment of 2022 Convertible Notes attributable to the debt discount

—

(9,805)

     Gain on strategic investments

(4,221)

—

     Benefit from deferred income taxes

(246)

(1,006)

     Amortization of debt discount and issuance costs

507

6,493

     Amortization of bond discount

585

515

     Unrealized currency translation

703

(49)

     Changes in assets and liabilities

          Accounts receivable

3,552

16,475

          Prepaid expenses and other assets

(3,927)

2,715

          Deferred commission expense

(8,354)

(6,305)

          Right-of-use assets

6,528

10,354

          Accounts payable

3,625

4,598

          Accrued expenses and other liabilities

7,135

(2,429)

          Operating lease liabilities

(2,318)

(9,272)

          Deferred revenue

29,496

27,538

               Net cash and cash equivalents provided by operating activities

82,226

62,700

Investing Activities:

     Purchases of investments

(435,547)

(362,288)

     Maturities of investments

405,219

376,918

     Purchases of property and equipment

(9,940)

(3,967)

     Acquisition of a business, net of cash acquired

—

(16,810)

     Purchases of strategic investments

(5,046)

(1,850)

     Equity method investment

—

(2,308)

     Capitalization of software development costs

(9,722)

(7,341)

               Net cash and cash equivalents used in investing activities

(55,036)

(17,646)

Financing Activities:

     Proceeds from settlement of Convertible Note Hedges related to the 2022
     Convertible Notes

—

723

     Repayment of 2022 Convertible Notes attributable to the principal

—

(35,900)

     Repayment of 2025 Convertible Notes attributable to the principal

(1,619)

—

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

(4,354)

(2,964)

     Proceeds related to the issuance of common stock under stock plans

11,852

16,339

               Net cash and cash equivalents provided by (used in) financing
                 activities

5,879

(21,802)

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

(1,649)

(3,877)

Net increase in cash, cash equivalents and restricted cash

31,420

19,375

Cash, cash equivalents and restricted cash, beginning of period

380,042

381,152

Cash, cash equivalents and restricted cash, end of period

$

411,462

$

400,527

Reconciliation of non-GAAP operating income and operating margin

(in thousands, except percentages)

Three Months Ended March 31,

2022

2021

GAAP operating loss

$

(11,154)

$

(15,032)

Stock-based compensation

45,704

32,423

Amortization of acquired intangible assets

410

345

Acquisition related expenses

—

1,195

Non-GAAP operating income

$

34,960

$

18,931

GAAP operating margin

(2.8)

%

(5.3)

%

Non-GAAP operating margin

8.8

%

6.7

%

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

Three Months Ended March 31,

2022

2021

GAAP net loss

$

(9,341)

(23,159)

Stock-based compensation

45,704

32,423

Amortization of acquired intangibles assets

410

345

Acquisition related expenses

—

1,195

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

507

6,493

Gain on strategic investments

(4,221)

—

Loss on early extinguishment of 2022 Convertible Notes

—

2,406

Gain on equity method investment

(105)

—

Income tax effects of non-GAAP items

(5,436)

(4,050)

Non-GAAP net income

$

27,518

15,653

Non-GAAP net income per share:

     Basic

$

0.58

$

0.34

     Diluted

$

0.54

$

0.31

Shares used in non-GAAP per share calculations

     Basic

47,577

46,428

     Diluted

51,201

50,436

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

(in thousands, except percentages)

Three Months Ended March 31,

2022

2021

COS,
Subs-
cription

COS,
Prof.
services
& other

R&D

S&M

G&A

COS,
Subs-
cription

COS,
Prof.
services
& other

R&D

S&M

G&A

GAAP expense

$

59,384

$

13,552

$

92,736

$

197,134

$

43,947

$

43,853

$

10,881

$

68,396

$

141,017

$

32,250

Stock -based compensation

(1,823)

(835)

(16,986)

(16,869)

(9,191)

(1,310)

(697)

(11,484)

(13,629)

(5,303)

Amortization of acquired
  intangible assets

(321)

—

—

(89)

—

(239)

—

—

(106)

—

Acquisition related expenses

—

—

—

—

—

—

—

(344)

(367)

(484)

Non-GAAP expense

$

57,240

$

12,717

$

75,750

$

180,176

$

34,756

$

42,304

$

10,184

$

56,568

$

126,915

$

26,463

GAAP expense as a
  percentage of revenue

15.0

%

3.4

%

23.4

%

49.8

%

11.1

%

15.6

%

3.9

%

24.3

%

50.1

%

11.5

%

Non-GAAP expense as a
  percentage of revenue

14.5

%

3.2

%

19.1

%

45.5

%

8.8

%

15.0

%

3.6

%

20.1

%

45.1

%

9.4

%

Reconciliation of non-GAAP subscription margin

(in thousands, except percentages)

Three Months Ended March 31,

2022

2021

GAAP subscription margin

$

325,572

$

226,410

Stock -based compensation

1,823

1,310

Amortization of acquired intangible assets

321

239

Non-GAAP subscription margin

$

327,716

$

227,959

GAAP subscription margin percentage

84.6

%

83.8

%

Non-GAAP subscription margin percentage

85.1

%

84.3

%

Reconciliation of free cash flow

(in thousands)

Three Months Ended March 31,

2022

2021

GAAP net cash and cash equivalents provided by operating activities

$

82,226

$

62,700

Purchases of property and equipment

(9,940)

(3,967)

Capitalization of software development costs

(9,722)

(7,341)

Repayment of 2022 Convertible Notes attributable to the debt discount

—

9,805

Free cash flow

$

62,564

$

61,197

Reconciliation of operating cash flow

(in thousands)

Three Months Ended March 31,

2022

2021

GAAP net cash and cash equivalents provided by operating activities

$

82,226

$

62,700

Repayment of 2022 Convertible Notes attributable to the debt discount

—

9,805

Operating cash flow, excluding repayment of convertible debt

$

82,226

$

72,505

Reconciliation of forecasted non-GAAP operating income
(in thousands, except percentages)

Three Months Ended
June 30, 2022

Year Ended
December 31, 2022

GAAP operating income range

($56,323)-($55,323)

($144,786)-($142,786)

Stock-based compensation

82,920

295,167

Amortization of acquired intangible assets

403

1,619

Non-GAAP operating income range

$27,000-$28,000

$152,000-$154,000

Reconciliation of forecasted non-GAAP net income and non-GAAP net income per share
(in thousands, except per share amounts)

Three Months Ended
June 30, 2022

Year Ended
December 31, 2022

GAAP net loss range

($58,881)-($57,631)

($147,325)-($146,075)

Stock-based compensation

82,920

295,167

Amortization of acquired intangible assets

403

1,619

Non-cash interest expense for amortization of debt issuance costs

510

2,013

Gain on strategic investments

—

(4,221)

Gain on equity method investment

—

(105)

Income tax effects of  non-GAAP items

($3,452)-($3,702)

($23,648)-($23,898)

Non-GAAP net income range

$21,500-$22,500

$123,500-$124,500

GAAP net income per basic and diluted share

($1.23)-($1.20)

($3.05)-($3.02)

Non-GAAP net income per diluted share

$0.42-$0.44

$2.40-$2.42

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

47,837

48,334

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

51,200

51,466

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, 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.

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 these expenses provides for a useful comparison of our operating results to prior periods and to our peer companies, which commonly exclude these expenses.

D. 

In May 2017, the Company issued $400 million of convertible notes due in 2022 with a coupon interest rate of 0.25%.  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.

E. 

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.

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. 

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.