HubSpot Reports Q1 2024 Results

HubSpot, Inc. (NYSE: HUBS), the customer platform for scaling companies, today announced financial results for the first quarter ended March 31, 2024.

Financial Highlights:

Revenue

  • Total revenue was $617.4 million, up 23% compared to Q1'23.
    • Subscription revenue was $603.8 million, up 23% compared to Q1'23.
    • Professional services and other revenue was $13.6 million, up 15% compared to Q1'23.

Operating Income (Loss)

  • GAAP operating margin was (3.8%), compared to (8.6%) in Q1'23.
  • Non-GAAP operating margin was 15.0%, compared to 13.8% in Q1'23.
  • GAAP operating loss was ($23.2) million, compared to ($43.1) million in Q1'23.
  • Non-GAAP operating income was $92.6 million, compared to $69.4 million in Q1'23.

Net Income (Loss)

  • GAAP net income was $5.9 million, or $0.12 per basic and diluted share, compared to net loss of ($36.6) million, or ($0.74) per basic and diluted share in Q1'23.
  • Non-GAAP net income was $89.1 million, or $1.76 per basic and $1.68 per diluted share, compared to $63.0 million, or $1.28 per basic and $1.22 per diluted share in Q1'23.
  • Weighted average basic and diluted shares outstanding for GAAP net loss per share was 50.7 million, compared to 49.4 million basic and diluted shares in Q1'23.
  • Weighted average basic and diluted shares outstanding for non-GAAP net income per share was 50.7 million and 53.1 million respectively, compared to 49.4 million and 51.5 million, respectively in Q1'23.

Balance Sheet and Cash Flow

  • The company’s cash, cash equivalents, and short-term and long-term investments balance was $1.8 billion as of March 31, 2024.
  • During the first quarter, the company generated $127.1 million of cash from operating cash flow, compared to $81.1 million during Q1'23.
  • During the first quarter, the company generated $131.3 million of cash from non-GAAP operating cash flow and $103.8 million of non-GAAP free cash flow, compared to $103.6 million of cash from non-GAAP operating cash flow and $85.2 million of non-GAAP free cash flow during Q1'23.

Additional Recent Business Highlights

  • Grew Customers to 216,840 at March 31, 2024, up 22% from March 31, 2023.
  • Average Subscription Revenue Per Customer was $11,447 during the first quarter of 2024, up 1% compared to the first quarter of 2023.

“We kicked off the year with solid revenue growth and another good quarter of operating margin expansion. Customers across all segments are consolidating on HubSpot because it is easy to use, easy to scale and delivers fast time to value,” said Yamini Rangan, Chief Executive Officer at HubSpot. “While the macro environment remains challenging, the pace of innovation has accelerated in our industry with AI. We are setting that pace for scaling companies and are becoming the de facto standard which gives me confidence in our ability to drive long-term durable growth.”

Business Outlook

Based on information available as of May 8, 2024, HubSpot is issuing guidance for the second quarter of 2024 and full year 2024 as indicated below.

Second Quarter 2024:

  • Total revenue is expected to be in the range of $617.0 million to $619.0 million.
    • Foreign exchange rates are expected to be a 1 point headwind to second quarter 2024 revenue growth(1).
  • Non-GAAP operating income is expected to be in the range of $92.0 million to $93.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $1.62 to $1.64. This assumes approximately 53.3 million weighted average diluted shares outstanding.

Full Year 2024:

  • Total revenue is expected to be in the range of $2.55 billion to $2.56 billion.
    • Foreign exchange rates are expected to be a 1 point headwind to full year 2024 revenue growth(1).
  • Non-GAAP operating income is expected to be in the range of $426.0 million to $430.0 million.
  • Non-GAAP net income per common share is expected to be in the range of $7.30 to $7.38. This assumes approximately 53.5 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, May 8, 2024 at 4:30 p.m. Eastern Time (ET) to discuss the company’s first quarter 2024 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. After registering, a confirmation email will be sent, including dial-in details and a unique code for entry. 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 545107. 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 the customer platform that helps businesses connect and grow better. HubSpot delivers seamless connection for customer-facing teams with a unified platform that includes AI-powered engagement hubs, a Smart CRM, and a connected ecosystem with over 1,500 App Marketplace integrations, a community network, and educational content. 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 second fiscal quarter of and full year 2024 and our 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 customer 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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023 (1)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

447,793

 

 

$

387,987

 

Short-term investments

 

 

1,070,872

 

 

 

1,000,245

 

Accounts receivable

 

 

266,862

 

 

 

295,303

 

Deferred commission expense

 

 

107,424

 

 

 

99,326

 

Prepaid expenses and other current assets

 

 

92,301

 

 

 

88,679

 

Total current assets

 

 

1,985,252

 

 

 

1,871,540

 

Long-term investments

 

 

311,526

 

 

 

325,703

 

Property and equipment, net

 

 

103,362

 

 

 

103,331

 

Capitalized software development costs, net

 

 

119,554

 

 

 

106,229

 

Right-of-use assets

 

 

243,279

 

 

 

251,071

 

Deferred commission expense, net of current portion

 

 

128,580

 

 

 

122,194

 

Other assets

 

 

88,058

 

 

 

75,247

 

Intangible assets, net

 

 

39,825

 

 

 

42,316

 

Goodwill

 

 

173,667

 

 

 

173,761

 

Total assets

 

$

3,193,103

 

 

$

3,071,392

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,928

 

 

$

9,106

 

Accrued compensation costs

 

 

68,752

 

 

 

53,462

 

Accrued commissions

 

 

67,355

 

 

 

78,169

 

Accrued expenses and other current liabilities

 

 

85,852

 

 

 

94,074

 

Operating lease liabilities

 

 

32,869

 

 

 

35,047

 

Deferred revenue

 

 

696,878

 

 

 

672,150

 

Total current liabilities

 

 

959,634

 

 

 

942,008

 

Operating lease liabilities, net of current portion

 

 

284,489

 

 

 

296,561

 

Deferred revenue, net of current portion

 

 

4,916

 

 

 

5,810

 

Other long-term liabilities

 

 

38,243

 

 

 

36,459

 

Convertible senior notes, net of current portion

 

 

456,704

 

 

 

456,206

 

Total liabilities

 

 

1,743,986

 

 

 

1,737,044

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock

 

 

51

 

 

 

50

 

Additional paid-in capital

 

 

2,250,549

 

 

 

2,136,908

 

Accumulated other comprehensive income (loss)

 

 

(2,980

)

 

 

1,827

 

Accumulated deficit

 

 

(798,503

)

 

 

(804,437

)

Total stockholders’ equity

 

 

1,449,117

 

 

 

1,334,348

 

Total liabilities and stockholders’ equity

 

$

3,193,103

 

 

$

3,071,392

 

(1) In connection with the quarter close, we discovered an immaterial error in our calculation of Cost of Revenues—Subscription related to how we calculate contractual credits in one of our third-party vendor agreements. As a result, we have revised the Consolidated Statement of Operations for the period ending March 31, 2023 by reducing Cost of Revenues- Subscription by $1.7 million to reflect the revised impact of the credits on that period. We have also revised the balance sheet as of December 31, 2023 to reflect the cumulative impact of the error on prior periods, resulting in a decrease to accrued expenses and other current liabilities and a decrease to accumulated deficit totaling $14.2 million. Lastly, we have updated certain line items within the operating section of the statement of cash flows for the period ending March 31, 2023 but note no net impact to cash flows provided by operating activities. In conjunction with the revisions, we plan to also correct for certain other previously identified immaterial errors. All amounts are preliminary. We plan to revise our financial statements to correct this matter in our Form 10-Q for the three months ended March 31, 2024 (“Form 10-Q”), which we expect to file on May 10, 2024. Refer to our Form 10-Q for additional information.

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023 (1)

 

Revenues:

 

 

 

 

 

Subscription

$

603,798

 

 

$

489,743

 

Professional services and other

 

13,616

 

 

 

11,877

 

Total revenue

 

617,414

 

 

 

501,620

 

Cost of revenues:

 

 

 

 

 

Subscription

 

80,725

 

 

 

66,622

 

Professional services and other

 

14,363

 

 

 

13,707

 

Total cost of revenues

 

95,088

 

 

 

80,329

 

Gross profit

 

522,326

 

 

 

421,291

 

Operating expenses:

 

 

 

 

 

Research and development

 

175,637

 

 

 

127,683

 

Sales and marketing

 

300,282

 

 

 

250,683

 

General and administrative

 

68,858

 

 

 

57,405

 

Restructuring

 

782

 

 

 

28,570

 

Total operating expenses

 

545,559

 

 

 

464,341

 

Loss from operations

 

(23,233

)

 

 

(43,050

)

Other expense:

 

 

 

 

 

Interest income

 

18,727

 

 

 

10,472

 

Interest expense

 

(935

)

 

 

(930

)

Other expense

 

13,161

 

 

 

(794

)

Total other income

 

30,953

 

 

 

8,748

 

Income (loss) before income tax expense

 

7,720

 

 

 

(34,302

)

Income tax expense

 

(1,786

)

 

 

(2,263

)

Net income (loss)

$

5,934

 

 

$

(36,565

)

Net income (loss) per share, basic

$

0.12

 

 

$

(0.74

)

Net income (loss) per share, diluted

$

0.12

 

 

$

(0.74

)

Weighted average common shares used in computing basic net income (loss) per share:

 

50,689

 

 

 

49,395

 

Weighted average common shares used in computing diluted net income (loss) per share:

 

51,498

 

 

 

49,395

 

(1) In connection with the quarter close, we discovered an immaterial error in our calculation of Cost of Revenues—Subscription related to how we calculate contractual credits in one of our third-party vendor agreements. As a result, we have revised the Consolidated Statement of Operations for the period ending March 31, 2023 by reducing Cost of Revenues- Subscription by $1.7 million to reflect the revised impact of the credits on that period. We have also revised the balance sheet as of December 31, 2023 to reflect the cumulative impact of the error on prior periods, resulting in a decrease to accrued expenses and other current liabilities and a decrease to accumulated deficit totaling $14.2 million. Lastly, we have updated certain line items within the operating section of the statement of cash flows for the period ending March 31, 2023 but note no net impact to cash flows provided by operating activities. In conjunction with the revisions, we plan to also correct for certain other previously identified immaterial errors. All amounts are preliminary. We plan to revise our financial statements to correct this matter in our Form 10-Q for the three months ended March 31, 2024 (“Form 10-Q”), which we expect to file on May 10, 2024. Refer to our Form 10-Q for additional information.

Consolidated Statements of Cash Flows

(in thousands)

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023 (1)

 

Operating Activities:

 

 

 

 

 

Net income (loss)

$

5,934

 

 

$

(36,565

)

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

 

 

 

 

 

Depreciation and amortization

 

21,234

 

 

 

16,570

 

Stock-based compensation

 

111,122

 

 

 

83,037

 

Restructuring charges

 

 

 

2,281

 

Gain on strategic investments

 

(16,353

)

 

 

Impairment of strategic investments

 

3,615

 

 

 

(Benefit from) provision for deferred income taxes

 

(167

)

 

 

47

 

Amortization of debt discount and issuance costs

 

500

 

 

 

484

 

Accretion of bond discount

 

(12,563

)

 

 

(8,008

)

Unrealized currency translation

 

538

 

 

 

(358

)

Changes in assets and liabilities

 

 

 

 

 

Accounts receivable

 

25,423

 

 

 

30,615

 

Prepaid expenses and other assets

 

(5,473

)

 

 

(20,417

)

Deferred commission expense

 

(17,001

)

 

 

(18,539

)

Right-of-use assets

 

6,390

 

 

 

8,483

 

Accounts payable

 

(1,300

)

 

 

(17,873

)

Accrued expenses and other liabilities

 

(13,281

)

 

 

22,504

 

Operating lease liabilities

 

(12,743

)

 

 

(9,829

)

Deferred revenue

 

31,213

 

 

 

28,638

 

Net cash and cash equivalents provided by operating activities

 

127,088

 

 

 

81,070

 

Investing Activities:

 

 

 

 

 

Purchases of investments

 

(399,378

)

 

 

(362,246

)

Maturities of investments

 

352,790

 

 

 

287,967

 

Purchases of property and equipment

 

(5,882

)

 

 

(3,310

)

Purchases of strategic investments

 

(27

)

 

 

(6,000

)

Capitalization of software development costs

 

(21,634

)

 

 

(15,122

)

Net cash and cash equivalents used in investing activities

 

(74,131

)

 

 

(98,711

)

Financing Activities:

 

 

 

 

 

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

 

(8,788

)

 

 

(1,198

)

Proceeds related to the issuance of common stock under stock plans

 

19,943

 

 

 

11,254

 

Net cash and cash equivalents provided by financing activities

 

11,155

 

 

 

10,056

 

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

 

(4,306

)

 

 

1,722

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

59,806

 

 

 

(5,863

)

Cash, cash equivalents and restricted cash, beginning of period

 

392,040

 

 

 

334,175

 

Cash, cash equivalents and restricted cash, end of period

$

451,846

 

 

$

328,312

 

(1) In connection with the quarter close, we discovered an immaterial error in our calculation of Cost of Revenues—Subscription related to how we calculate contractual credits in one of our third-party vendor agreements. As a result, we have revised the Consolidated Statement of Operations for the period ending March 31, 2023 by reducing Cost of Revenues- Subscription by $1.7 million to reflect the revised impact of the credits on that period. We have also revised the balance sheet as of December 31, 2023 to reflect the cumulative impact of the error on prior periods, resulting in a decrease to accrued expenses and other current liabilities and a decrease to accumulated deficit totaling $14.2 million. Lastly, we have updated certain line items within the operating section of the statement of cash flows for the period ending March 31, 2023 but note no net impact to cash flows provided by operating activities. In conjunction with the revisions, we plan to also correct for certain other previously identified immaterial errors. All amounts are preliminary. We plan to revise our financial statements to correct this matter in our Form 10-Q for the three months ended March 31, 2024 (“Form 10-Q”), which we expect to file on May 10, 2024. Refer to our Form 10-Q for additional information.

Reconciliation of non-GAAP operating income and operating margin

(in thousands, except percentages)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

GAAP operating loss

$

(23,233

)

 

$

(43,050

)

Stock-based compensation

 

111,122

 

 

 

83,037

 

Amortization of acquired intangible assets

 

2,344

 

 

 

845

 

Acquisition related expense

 

1,552

 

 

 

 

Restructuring charges

 

782

 

 

 

28,570

 

Non-GAAP operating income

$

92,567

 

 

$

69,402

 

 

 

 

 

 

 

GAAP operating margin

 

(3.8

%)

 

 

(8.6

%)

Non-GAAP operating margin

 

15.0

%

 

 

13.8

%

Reconciliation of non-GAAP net income

(in thousands, except per share amounts)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

GAAP net income (loss)

$

5,934

 

 

$

(36,565

)

Stock-based compensation

 

111,122

 

 

 

83,037

 

Acquisition related expense

 

1,552

 

 

 

Amortization of acquired intangibles assets

 

2,344

 

 

 

845

 

Restructuring charges

 

782

 

 

 

28,570

 

Non-cash interest expense for amortization of debt issuance costs

 

500

 

 

 

484

 

Gain on strategic investments

 

(12,738

)

 

 

Loss on equity method investment

 

65

 

 

 

122

 

Income tax effects of non-GAAP items

 

(20,483

)

 

 

(13,488

)

Non-GAAP net income

$

89,078

 

 

$

63,005

 

 

 

 

 

 

 

Non-GAAP net income per share:

 

 

 

 

 

Basic

$

1.76

 

 

$

1.28

 

Diluted

$

1.68

 

 

$

1.22

 

Shares used in non-GAAP per share calculations

 

 

 

 

 

Basic

 

50,689

 

 

 

49,395

 

Diluted

 

53,123

 

(1)

 

51,497

 

(1) The non-GAAP diluted share count includes shares related to our 2025 notes using the if converted method. The GAAP diluted share count excludes shares related to our 2025 notes using the if converted method because inclusion of those shares would be anti-dilutive.

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

(in thousands, except percentages)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

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

$

80,725

 

$

14,363

 

$

175,637

 

$

300,282

 

$

68,858

 

 

$

66,622

 

$

13,707

 

$

127,683

 

$

250,683

 

$

57,405

 

Stock -based compensation

 

(4,960

)

 

(1,086

)

 

(50,627

)

 

(35,157

)

 

(19,292

)

 

 

(2,745

)

 

(1,087

)

 

(33,324

)

 

(30,169

)

 

(15,712

)

Amortization of acquired intangible assets

 

(1,882

)

 

 

 

 

 

(357

)

 

(105

)

 

 

(399

)

 

 

 

 

 

(446

)

 

 

Acquisition/disposition related expense

 

 

 

 

 

(1,046

)

 

 

 

(506

)

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP expense

$

73,883

 

$

13,277

 

$

123,964

 

$

264,768

 

$

48,955

 

 

$

63,478

 

$

12,620

 

$

94,359

 

$

220,068

 

$

41,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

GAAP expense as a percentage of revenue

 

13.1

%

 

2.3

%

 

28.4

%

 

48.6

%

 

11.2

%

 

 

13.3

%

 

2.7

%

 

25.5

%

 

50.0

%

 

11.4

%

Non-GAAP expense as a percentage of revenue

 

12.0

%

 

2.2

%

 

20.1

%

 

42.9

%

 

7.9

%

 

 

12.7

%

 

2.5

%

 

18.8

%

 

43.9

%

 

8.3

%

Reconciliation of non-GAAP subscription margin

(in thousands, except percentages)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

GAAP subscription margin

 

$

523,073

 

$

423,121

 

Stock-based compensation

 

 

4,960

 

 

2,745

 

Amortization of acquired intangible assets

 

 

1,882

 

 

399

 

Non-GAAP subscription margin

 

$

529,915

 

$

426,265

 

 

 

 

 

 

 

GAAP subscription margin percentage

 

 

86.6

%

 

86.4

%

Non-GAAP subscription margin percentage

 

 

87.8

%

 

87.0

%

Reconciliation of free cash flow

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

GAAP net cash and cash equivalents provided by operating activities

 

$

127,088

 

$

81,070

 

Purchases of property and equipment

 

 

(5,882

)

 

(3,310

)

Capitalization of software development costs

 

 

(21,634

)

 

(15,122

)

Payment of restructuring charges

 

 

4,190

 

 

22,513

 

Non-GAAP free cash flow

 

$

103,762

 

$

85,151

 

Reconciliation of operating cash flow

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

2023

 

GAAP net cash and cash equivalents provided by operating activities

 

$

127,088

 

$

81,070

 

Payment of restructuring charges

 

 

4,190

 

 

22,513

 

Non-GAAP operating cash flow

 

$

131,278

 

$

103,583

 

Reconciliation of forecasted non-GAAP operating income

 

 

 

 

 

(in thousands, except percentages)

 

Three Months Ended

June 30, 2024

 

 

Year Ended

December 31, 2024

 

GAAP operating income range

($57,657)-($56,807)

 

 

($138,799)-($135,399)

 

Stock-based compensation

145,357

 

 

547,396

 

Amortization of acquired intangible assets

2,350

 

 

9,403

 

Acquisition related expense

1,000

 

 

4,200

 

Restructuring charges

950-1,100

 

 

3,800-4,400

 

Non-GAAP operating income range

$92,000-$93,000

 

 

$426,000-$430,000

 

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, 2024

 

Year Ended

December 31, 2024

GAAP net loss range

($39,628)-($38,528)

 

($85,490)-($80,465)

Stock-based compensation

145,357

 

547,396

Amortization of acquired intangible assets

2,350

 

9,403

Acquisition related expense

1,000

 

4,200

Non-cash interest expense for amortization of debt issuance costs

500

 

2,017

Gain on strategic investments

(12,738)

 

(12,738)

Loss on equity method investment

65

 

65

Restructuring charges

950-1,100

 

3,800-4,400

Income tax effects of non-GAAP items

(11,256)-(11,506)

 

(78,153)-(79,278)

Non-GAAP net income range

$86,600-$87,600

 

$390,500-$395,000

 

 

 

 

GAAP net income per basic and diluted share

($0.78)-($0.76)

 

($1.67)-($1.57)

Non-GAAP net income per diluted share

$1.62-$1.64

 

$7.30-$7.38

 

 

 

 

 

 

 

 

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

50,998

 

51,187

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

53,347

 

53,505

HubSpot’s estimates of stock-based compensation, amortization of acquired intangible assets, non-cash interest expense for amortization of debt issuance costs, gain on or impairment of strategic investments, loss of equity method investment, restructuring charges, and income tax effects of non-GAAP items assume, among other things, the occurrence of no additional acquisitions, 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. Non-GAAP 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 non-GAAP free cash flow are not residual cash flow available for our discretionary expenditures, we believe information regarding non-GAAP operating cash flow and non-GAAP free cash flow provide useful information to investors in understanding and evaluating the strength of our 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, disposition related income, 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, retention payments, and holdback 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 on January 25, 2023. Restructuring charges fluctuate in amount and frequency and are not reflective of our core business operating results. Over the next three 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 is part of the restructuring plan we authorized in January 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 $14-17 million and will be paid in cash over the next three years. We also expect to make cash payments of approximately $54.0 million in fixed rent payments for the abandoned facilities that will be made in monthly installments over the next three years for which we have taken the full P&L restructuring charge during the year ended 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.

 

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