HubSpot, Inc. (NYSE: HUBS), the customer platform for scaling
businesses, today announced financial results for the third quarter
ended September 30, 2023.
Financial Highlights:
Revenue
- Total revenue was $557.6 million, up 26% compared to Q3'22.
- Subscription revenue was $545.8 million, up 25% compared to
Q3'22.
- Professional services and other revenue was $11.7 million, up
31% compared to Q3'22.
Operating Income (Loss)
- GAAP operating margin was (3.7%), compared to (7.3%) in
Q3'22.
- Non-GAAP operating margin was 16.2%, compared to 9.2% in
Q3'22.
- GAAP operating loss was ($20.4) million, compared to ($32.2)
million in Q3'22.
- Non-GAAP operating income was $90.2 million, compared to $40.7
million in Q3'22.
Net Income (Loss)
- GAAP net loss was ($5.5) million, or ($0.11) per basic and
diluted share, compared to ($31.4) million, or ($0.65) per basic
and diluted share in Q3'22.
- Non-GAAP net income was $83.4 million, or $1.67 per basic and
$1.59 per diluted share, compared to $35.1 million, or $0.73 per
basic and $0.69 per diluted share in Q3'22.
- Weighted average basic and diluted shares outstanding for GAAP
net loss per share was 50.1 million, compared to 48.1 million basic
and diluted shares in Q3'22.
- Weighted average basic and diluted shares outstanding for
non-GAAP net income per share was 50.1 million and 52.5 million
respectively, compared to 48.1 million and 51.0 million,
respectively in Q3'22.
Balance Sheet and Cash Flow
- The company’s cash, cash equivalents, and short-term and
long-term investments balance was $1.7 billion as of September 30,
2023.
- During the third quarter, the company generated $89.0 million
of cash from operating cash flow, compared to $60.1 million during
Q3'22.
- During the third quarter, the company generated $93.3 million
of cash from non-GAAP operating cash flow and $64.7 million of
non-GAAP free cash flow, compared to $60.1 million of cash from
non-GAAP operating cash flow and $35.5 million of non-GAAP free
cash flow during Q3'22.
Additional Recent Business Highlights
- Grew Customers to 194,098 at September 30, 2023, up 22% from
September 30, 2022.
- Average Subscription Revenue Per Customer was $11,520 during
the third quarter of 2023, up 3% compared to the third quarter of
2022.
- The company had 7,478 full-time employees, up 1% from September
30, 2022.
“We had another quarter of strong momentum, driven by the team’s
focused execution and rapid product innovation as we make progress
towards becoming the #1 customer platform for scaling companies,”
said Yamini Rangan, Chief Executive Officer at HubSpot. “Our
easy-to-use, easy-to-scale connected customer platform is deeply
resonating with SMBs as they look to optimize spend and boost
productivity in this challenging environment. Looking ahead, we
will remain focused on driving outsized value for our customers to
drive durable and profitable growth for many years to come.”
Business Outlook
Based on information available as of November 8, 2023, HubSpot
is issuing guidance for the fourth quarter of 2023 and full year
2023 as indicated below.
Fourth Quarter 2023:
- Total revenue is expected to be in the range of $556 million to
$558 million.
- Favorable foreign exchange rates are expected to be a 2 point
tailwind to fourth quarter 2023 revenue growth(1).
- Non-GAAP operating income is expected to be in the range of $85
million to $86 million(2).
- Non-GAAP net income per common share is expected to be in the
range of $1.53 to $1.55. This assumes approximately 52.7 million
weighted average diluted shares outstanding.
Full Year 2023:
- Total revenue is expected to be in the range of $2.144 billion
to $2.146 billion.
- Foreign exchange rates are expected to have a neutral impact on
full year 2023 revenue growth(1).
- Non-GAAP operating income is expected to be in the range of
$317 million to $318 million(2).
- Non-GAAP net income per common share is expected to be in the
range of $5.66 to $5.68. This assumes approximately 52.2 million
weighted average diluted shares outstanding.
(1)
Foreign exchange rates impact on
revenue is calculated by comparing current period average rates
with prior period average rates.
(2)
The impact of restructuring
charges, which include employee severance and lease consolidation
costs, are excluded from our non-GAAP operating income and non-GAAP
net income per common share business outlook.
Use of Non-GAAP Financial Measures
In our earnings press releases, conference calls, slide
presentations, and webcasts, we may use or discuss non-GAAP
financial measures, as defined by Regulation G. The GAAP financial
measure most directly comparable to each non-GAAP financial measure
used or discussed, and a reconciliation of the differences between
each non-GAAP financial measure and the comparable GAAP financial
measure, are included in this press release after the consolidated
financial statements. Our earnings press releases containing such
non-GAAP reconciliations can be found in the Investors section of
our website ir.hubspot.com.
Conference Call Information
HubSpot will host a conference call on Wednesday, November 8,
2023, at 4:30 p.m. Eastern Time (ET) to discuss the company’s third
quarter 2023 financial results and its business outlook. To
register for this conference call, please use this dial in
registration link or visit HubSpot's Investor Relations website at
ir.hubspot.com. Participants who wish to register for the
conference call webcast please use this link.
Following the conference call, a replay will be available at
(866) 813-9403 (domestic) or +44 (204) 525-0658 (international).
The replay passcode is 704156. 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 nearly 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 fourth
fiscal quarter of and full year 2023 and our long-term financial
framework; statements regarding our positioning for future growth
and market leadership; statements regarding the economic
environment; statements regarding the expected timing and benefits
of the proposed Clearbit acquisition; and statements regarding
expected market trends, future priorities and related investments,
and market opportunities. These forward-looking statements include,
but are not limited to, plans, objectives, expectations and
intentions and other statements contained in this press release
that are not historical facts and statements identified by words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates” or words of similar meaning. These
forward-looking statements reflect our current views about our
plans, intentions, expectations, strategies and prospects, which
are based on the information currently available to us and on
assumptions we have made. Although we believe that our plans,
intentions, expectations, strategies and prospects as reflected in
or suggested by those forward-looking statements are reasonable, we
can give no assurance that the plans, intentions, expectations or
strategies will be attained or achieved. Furthermore, actual
results may differ materially from those described in the
forward-looking statements and will be affected by a variety of
risks and factors that are beyond our control including, without
limitation, risks associated with our history of losses; our
ability to retain existing customers and add new customers; the
continued growth of the market for a CRM platform; our ability to
develop new products and technologies and differentiate our
platform from competing products and technologies, including
artificial intelligence and machine learning technologies; our
ability to manage our growth effectively over the long-term to
maintain our high level of service; our ability to maintain and
expand relationships with our solutions partners; the price
volatility of our common stock; the impact of geopolitical
conflicts, inflation, foreign currency movement, and macroeconomic
instability on our business, the broader economy, our workforce and
operations, the markets in which we and our partners and customers
operate, and our ability to forecast our future financial
performance; regulatory and legislative developments on the use of
artificial intelligence and machine learning; and other risks set
forth under the caption “Risk Factors” in our SEC filings. We
assume no obligation to update any forward-looking statements
contained in this document as a result of new information, future
events or otherwise.
Consolidated Balance Sheets (in thousands)
September 30,
December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
535,545
$
331,022
Short-term investments
1,061,526
1,081,662
Accounts receivable
212,409
226,849
Deferred commission expense
86,913
70,992
Prepaid expenses and other current
assets
78,542
44,074
Total current assets
1,974,935
1,754,599
Long-term investments
150,861
112,791
Property and equipment, net
104,949
105,227
Capitalized software development costs,
net
96,569
63,790
Right-of-use assets
254,483
319,304
Deferred commission expense, net of
current portion
103,488
66,559
Other assets
70,931
58,795
Intangible assets, net
13,382
17,446
Goodwill
46,050
46,227
Total assets
$
2,815,648
$
2,544,738
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
16,808
$
20,883
Accrued compensation costs
79,450
62,846
Accrued expenses and other current
liabilities
134,908
102,122
Operating lease liabilities
29,756
35,928
Deferred revenue
578,280
539,874
Total current liabilities
839,202
761,653
Operating lease liabilities, net of
current portion
301,661
316,184
Deferred revenue, net of current
portion
4,212
5,904
Other long-term liabilities
28,535
14,546
Convertible senior notes
455,699
454,227
Total liabilities
1,629,309
1,552,514
Stockholders’ equity:
Common stock
50
49
Additional paid-in capital
2,000,739
1,647,446
Accumulated other comprehensive loss
(9,378
)
(12,890
)
Accumulated deficit
(805,072
)
(642,381
)
Total stockholders’ equity
1,186,339
992,224
Total liabilities and stockholders’
equity
$
2,815,648
$
2,544,738
Consolidated Statements of Operations (in thousands,
except per share data)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023
2022
2023
2022
Revenues:
Subscription
$
545,832
$
435,030
$
1,553,253
$
1,232,387
Professional services and other
11,725
8,928
35,062
28,926
Total revenue
557,557
443,958
1,588,315
1,261,313
Cost of revenues:
Subscription
73,781
67,648
215,944
191,466
Professional services and other
13,745
14,479
40,910
42,532
Total cost of revenues
87,526
82,127
256,854
233,998
Gross profit
470,031
361,831
1,331,461
1,027,315
Operating expenses:
Research and development
156,871
114,038
454,511
325,687
Sales and marketing
271,448
229,541
787,423
650,936
General and administrative
61,308
50,465
179,939
146,309
Restructuring
846
—
93,296
—
Total operating expenses
490,473
394,044
1,515,169
1,122,932
Loss from operations
(20,442
)
(32,213
)
(183,708
)
(95,617
)
Other expense:
Interest income
16,181
4,658
40,195
7,222
Interest expense
(950
)
(923
)
(2,817
)
(2,822
)
Other expense
(1,664
)
(1,185
)
(2,128
)
(583
)
Total other expense
13,567
2,550
35,250
3,817
Loss before income tax expense
(6,875
)
(29,663
)
(148,458
)
(91,800
)
Income tax benefit (expense)
1,412
(1,748
)
(14,233
)
(5,313
)
Net loss
$
(5,463
)
$
(31,411
)
$
(162,691
)
$
(97,113
)
Net loss per share, basic and diluted
$
(0.11
)
$
(0.65
)
$
(3.27
)
$
(2.03
)
Weighted average common shares used in
computing basic and diluted net loss per share:
50,051
48,067
49,719
47,821
Consolidated Statements of Cash Flows (in thousands)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023
2022
2023
2022
Operating Activities:
Net loss
(5,463
)
$
(31,411
)
$
(162,691
)
$
(97,113
)
Adjustments to reconcile net loss to net
cash and cash equivalents provided by operating activities
Depreciation and amortization
20,509
15,562
53,508
42,625
Stock-based compensation
107,506
72,213
318,545
199,081
Restructuring charges
—
—
64,938
—
Gain on strategic investments
—
—
—
(4,200
)
Provision for (benefit from) deferred
income taxes
141
(191
)
4,943
(589
)
Amortization of debt discount and issuance
costs
497
492
1,477
1,509
Accretion of bond discount
(11,436
)
(3,117
)
(30,213
)
(3,267
)
Unrealized currency translation
(1,258
)
(1,500
)
(1,380
)
480
Changes in assets and liabilities
-
Accounts receivable
(8,448
)
(5,785
)
13,178
(20,135
)
Prepaid expenses and other assets
11,423
13,048
(36,023
)
(8,863
)
Deferred commission expense
(17,301
)
(8,466
)
(54,335
)
(22,210
)
Right-of-use assets
2,272
6,175
23,244
19,622
Accounts payable
12,649
1,700
(5,165
)
10,660
Accrued expenses and other liabilities
(10,365
)
(6,634
)
44,867
16,455
Operating lease liabilities
(10,948
)
(3,259
)
(28,933
)
(14,589
)
Deferred revenue
(732
)
11,237
40,699
63,743
Net cash and cash equivalents provided by
operating activities
89,046
60,064
246,659
183,209
Investing Activities:
Purchases of investments
(405,920
)
(394,856
)
(1,137,283
)
(1,258,919
)
Maturities of investments
424,950
391,928
1,154,784
1,017,306
Sale of investments
—
—
—
124,998
Purchases of property and equipment
(10,842
)
(13,112
)
(25,031
)
(31,384
)
Purchases of strategic investments
(3,250
)
(5,999
)
(9,250
)
(19,872
)
Purchases of intangible assets
—
—
—
(10,000
)
Equity method investment
(2,250
)
(1,650
)
(2,250
)
(1,900
)
Capitalization of software development
costs
(17,693
)
(11,419
)
(49,288
)
(31,350
)
Net cash and cash equivalents provided by
(used in) investing activities
(15,005
)
(35,108
)
(68,318
)
(211,121
)
Financing Activities:
Proceeds from settlement of Convertible
Note Hedges related to the 2022 Convertible Notes
—
—
—
60,483
Payment for settlement of 2022 Convertible
Notes
—
—
—
(79,807
)
Repayment of 2025 Convertible Notes
attributable to the principal
—
—
—
(1,619
)
Employee taxes paid related to the net
share settlement of stock-based awards
(3,469
)
(2,190
)
(7,571
)
(9,954
)
Proceeds related to the issuance of common
stock under stock plans
13,384
10,019
37,934
29,718
Net cash and cash equivalents provided by
(used in) financing activities
9,915
7,829
30,363
(1,179
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(5,629
)
(6,790
)
(4,181
)
(16,263
)
Net (decrease) increase in cash, cash
equivalents and restricted cash
78,327
25,995
204,523
(45,354
)
Cash, cash equivalents and restricted
cash, beginning of period
460,371
308,693
334,175
380,042
Cash, cash equivalents and restricted
cash, end of period
$
538,698
$
334,688
$
538,698
$
334,688
Reconciliation of non-GAAP operating income and operating
margin (in thousands, except percentages)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP operating loss
$
(20,442
)
$
(32,213
)
$
(183,708
)
$
(95,617
)
Stock-based compensation
107,506
72,213
318,545
199,081
Amortization of acquired intangible
assets
2,311
738
4,007
1,901
Acquisition/disposition related income
—
—
—
(306
)
Restructuring charges
846
—
93,296
—
Non-GAAP operating income
$
90,221
$
40,738
$
232,140
$
105,059
GAAP operating margin
(3.7
%)
(7.3
%)
(11.6
%)
(7.6
%)
Non-GAAP operating margin
16.2
%
9.2
%
14.6
%
8.3
%
Reconciliation of non-GAAP net income (in thousands,
except per share amounts)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP net loss
$
(5,463
)
(31,411
)
$
(162,691
)
$
(97,113
)
Stock-based compensation
107,506
72,213
318,545
199,081
Amortization of acquired intangibles
assets
2,311
738
4,007
1,901
Acquisition/disposition related income
—
—
—
(306
)
Restructuring charges
846
—
93,296
—
Non-cash interest expense for amortization
of debt issuance costs
497
492
1,477
1,509
Gain on strategic investments
—
—
—
(4,200
)
(Gain) loss on equity method
investment
(30
)
39
(96
)
38
Income tax effects of non-GAAP items
(22,263
)
(7,016
)
(39,521
)
(15,932
)
Non-GAAP net income
$
83,404
35,055
$
215,017
$
84,978
Non-GAAP net income per share:
Basic
$
1.67
$
0.73
$
4.32
$
1.78
Diluted
$
1.59
$
0.69
$
4.13
$
1.66
Shares used in non-GAAP per share
calculations
Basic
50,051
48,067
49,719
47,821
Diluted
52,521
51,022
52,039
51,098
Reconciliation of non-GAAP expense and expense as a
percentage of revenue (in thousands, except percentages)
Three Months Ended September
30,
2023
2022
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
GAAP expense
$
73,781
$
13,745
$
156,871
$
271,448
$
61,308
$
67,648
$
14,479
$
114,038
$
229,541
$
50,465
Stock -based compensation
(3,157
)
(1,201
)
(49,460
)
(34,439
)
(19,249
)
(2,311
)
(1,168
)
(28,585
)
(28,060
)
(12,089
)
Amortization of acquired intangible
assets
(408
)
—
—
(1,903
)
—
(292
)
—
—
(446
)
—
Non-GAAP expense
$
70,216
$
12,544
$
107,411
$
235,106
$
42,059
$
65,045
$
13,311
$
85,453
$
201,035
$
38,376
GAAP expense as a percentage of
revenue
13.2
%
2.5
%
28.1
%
48.7
%
11.0
%
15.2
%
3.3
%
25.7
%
51.7
%
11.4
%
Non-GAAP expense as a percentage of
revenue
12.6
%
2.2
%
19.3
%
42.2
%
7.5
%
14.7
%
3.0
%
19.2
%
45.3
%
8.6
%
Nine Months Ended September
30,
2023
2022
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
COS, Subs- cription
COS, Prof. services &
other
R&D
S&M
G&A
GAAP expense
$
215,944
$
40,910
$
454,511
$
787,423
$
179,939
$
191,466
$
42,532
$
325,687
$
650,936
$
146,309
Stock -based compensation
(9,110
)
(3,748
)
(146,845
)
(103,233
)
(55,609
)
(6,516
)
(3,251
)
(77,269
)
(77,113
)
(34,932
)
Amortization of acquired intangible
assets
(1,212
)
—
—
(2,795
)
—
(920
)
—
—
(981
)
—
Acquisition/disposition related income
(expenses)
—
—
—
—
—
—
—
300
—
6
Non-GAAP expense
$
205,622
$
37,162
$
307,666
$
681,395
$
124,330
$
184,030
$
39,281
$
248,718
$
572,842
$
111,383
GAAP expense as a percentage of
revenue
13.6
%
2.6
%
28.6
%
49.6
%
11.3
%
15.2
%
3.4
%
25.8
%
51.6
%
11.6
%
Non-GAAP expense as a percentage of
revenue
12.9
%
2.3
%
19.4
%
42.9
%
7.8
%
14.6
%
3.1
%
19.7
%
45.4
%
8.8
%
Reconciliation of non-GAAP subscription margin (in
thousands, except percentages)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP subscription margin
$
472,051
$
367,382
$
1,337,309
$
1,040,921
Stock-based compensation
3,157
2,311
9,110
6,516
Amortization of acquired intangible
assets
408
292
1,212
920
Non-GAAP subscription margin
$
475,616
$
369,985
$
1,347,631
$
1,048,357
GAAP subscription margin percentage
86.5
%
84.4
%
86.1
%
84.5
%
Non-GAAP subscription margin
percentage
87.1
%
85.0
%
86.8
%
85.1
%
Reconciliation of non-GAAP operating cash flow (in
thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP net cash and cash equivalents
provided by operating activities
$
89,046
$
60,064
$
246,659
$
183,209
Payment of restructuring charges
4,225
—
37,164
—
Non-GAAP operating cash flow
$
93,271
$
60,064
$
283,823
$
183,209
Reconciliation of non-GAAP free cash flow (in
thousands)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP net cash and cash equivalents
provided by operating activities
$
89,046
$
60,064
$
246,659
$
183,209
Purchases of property and equipment
(10,842
)
(13,112
)
(25,031
)
(31,384
)
Capitalization of software development
costs
(17,693
)
(11,419
)
(49,288
)
(31,350
)
Payment of restructuring charges
4,225
—
37,164
—
Non-GAAP free cash flow
$
64,736
$
35,533
$
209,504
$
120,475
Reconciliation of forecasted non-GAAP operating income
(in thousands, except percentages)
Three Months Ended December
31, 2023
Year Ended December 31,
2023
GAAP operating income range
($48,991)-($49,991)
($248,508)-($249,508)
Stock-based compensation
131,497
466,013
Amortization of acquired intangible
assets
494
4,495
Restructuring charges
2,000-4,000
95,000-97,000
Non-GAAP operating income range
$85,000-$86,000
$317,000-$318,000
Reconciliation of forecasted non-GAAP net income and non-GAAP
net income per share (in thousands, except per share
amounts)
Three Months Ended December
31, 2023
Year Ended December 31,
2023
GAAP net loss range
($35,765)-($36,515)
($214,145)-($214,895)
Stock-based compensation
131,497
466,013
Amortization of acquired intangible
assets
494
4,495
Non-cash interest expense for amortization
of debt issuance costs
508
1,985
Restructuring charges
2,000-4,000
95,000-97,000
Gain on equity method investment
—
(96
)
Income tax effects of non-GAAP items
(18,234)-(18,484)
(57,752)-(58,002)
Non-GAAP net income range
$80,500-$81,500
$295,500-$296,500
GAAP net income per basic and diluted
share
($0.71)-($0.72)
($4.29)-($4.31)
Non-GAAP net income per diluted share
$1.53-$1.55
$5.66-$5.68
Weighted average common shares used in
computing GAAP basic and diluted net loss per share:
50,368
49,882
Weighted average common shares used in
computing non-GAAP diluted net loss per share:
52,671
52,214
HubSpot’s estimates of stock-based compensation, amortization of
acquired intangible assets, non-cash interest expense for
amortization of debt issuance costs, restructuring charges, loss of
equity method investment, and income tax effects of non-GAAP items
assume, among other things, the occurrence of no additional
acquisitions or dispositions, and no further revisions to
stock-based compensation and related expenses.
Non-GAAP Financial Measures
We report our financial results in accordance with accounting
principles generally accepted in the United States of America, or
GAAP. However, management believes that, in order to properly
understand our short-term and long-term financial and operational
trends, investors may wish to consider the impact of certain
non-cash or non-recurring items when used as a supplement to
financial performance measures in accordance with GAAP. These items
result from facts and circumstances that vary in frequency and
impact on continuing operations. In this release, HubSpot’s
non-GAAP operating income, operating margin, subscription margin,
expense, expense as a percentage of revenue, net income, operating
and free cash flow are not presented in accordance with GAAP and
are not intended to be used in lieu of GAAP presentations of
results of operations. Non-GAAP operating cash flow is defined as
cash and cash equivalents provided by or used in operating
activities plus payment of restructuring charges. 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 liquidity and provides
a comparable framework for assessing how our business performed
when compared to prior periods which were not impacted by
restructuring charges paid from operating cash flow.
Management believes that these non-GAAP financial measures
provide additional means of evaluating period-over-period operating
performance. Specifically, these non-GAAP financial measures
provide management with additional means to understand and evaluate
the operating results and trends in our ongoing business by
eliminating certain non-cash expenses and other items that
management believes might otherwise make comparisons of our ongoing
business with prior periods more difficult, obscure trends in
ongoing operations, or reduce management’s ability to make useful
forecasts. In addition, management understands that some investors
and financial analysts find this information helpful in analyzing
our financial and operational performance and comparing this
performance to our peers and competitors. However, these non-GAAP
financial measures have limitations as an analytical tool and are
not intended to be an alternative to financial measures prepared in
accordance with GAAP. In addition, it should be noted that these
non-GAAP financial measures may be different from non-GAAP measures
used by other companies. We intend to provide these non-GAAP
financial measures as part of our future earnings discussions and,
therefore, the inclusion of these non-GAAP financial measures will
provide consistency in our financial reporting. Management may,
however, utilize other measures to illustrate performance in the
future. Investors are encouraged to review the reconciliation of
these non-GAAP measures to their most directly comparable GAAP
financial measures. A reconciliation of our non-GAAP financial
measures to their most directly comparable GAAP measures has been
provided in the financial statement tables included above in this
press release.
These non-GAAP measures exclude stock-based compensation,
amortization of acquired intangible assets, acquisition related
expenses, non-cash interest expense for the amortization of debt
issuance costs, gain or impairment losses on strategic investments,
gain or loss on equity method investment, restructuring charges,
and account for the income tax effects of the exclusion of these
non-GAAP items. We believe investors may want to incorporate the
effects of these items in order to compare our financial
performance with that of other companies and between time
periods:
A.
Stock-based compensation is a
non-cash expense accounted for in accordance with FASB ASC Topic
718. We believe that the exclusion of stock-based compensation
expense allows for financial results that are more indicative of
our operational performance and provide for a useful comparison of
our operating results to prior periods and to our peer companies
because stock-based compensation expense varies from period to
period and company to company due to such things as differing
valuation methodologies and changes in stock price.
B.
Expense for the amortization of
acquired intangible assets is excluded from non-GAAP expense and
income measures as HubSpot views amortization of these assets as
arising from pre-acquisition activities determined at the time of
an acquisition. While these intangible assets are evaluated for
impairment regularly, amortization of the cost of purchased
intangibles is a non-cash expense that is not typically affected by
operations during any particular period. Valuation and subsequent
amortization of intangible assets can also be inconsistent in
amount and frequency because they can significantly vary based on
the timing and size of acquisitions and the inherently subjective
nature of the degree to which a purchase price is allocated to
intangible assets. We believe that the exclusion of this
amortization expense provides for a useful comparison of our
operating results to prior periods, for which we have historically
excluded amortization expense, and to our peer companies, which
commonly exclude acquired intangible asset amortization. It is
important to note that although we exclude amortization of acquired
intangible assets from our non-GAAP expense and income measures,
revenue generated from such intangibles is included within our
non-GAAP income measures. The use of these intangible assets
contributed to our revenues earned during the periods presented and
will contribute to future periods as well.
C.
Acquisition related expenses,
such as transaction costs and retention payments, and disposition
related income, such as proceeds from sale of assets, are
transactions that are not necessarily reflective of our operational
performance during a period. We believe that the exclusion of these
expenses and income provides for a useful comparison of our
operating results to prior periods and to our peer companies, which
commonly exclude these expenses and income.
D.
In June 2020, we issued $460
million of convertible notes due in 2025 with a coupon interest
rate of 0.375%. The issuance cost of the debt is amortized as
interest expense over the remaining term of the debt. We believe
the exclusion of this non-cash interest expense provides for a
useful comparison of our operating results to prior periods and to
our peer companies.
E.
Strategic investments consist of
non-controlling equity investments in privately held companies. The
recognition of gains or impairment losses can vary significantly
across periods and we do not view them to be indicative of our
fundamental operating activities and believe the exclusion of gains
or impairment losses provides for a useful comparison of our
operating results to prior periods and to our peer companies.
F.
We made a contribution to the
Black Economic Development Fund (the “investee”) managed by the
Local Initiatives Support Corporation and have committed to make
additional capital contributions. We account for this investment
under the equity method of accounting. The proportionate share of
our equity method investee's net earnings have been excluded in
order to provide a comparable view of our operating results to
prior periods and to our peer companies. We believe this activity
is not reflective of our recurring core business operating
results.
G.
Restructuring charges are related
to severance, employee related benefits, facilities and other costs
associated with the restructuring plan implemented in January 2023.
Restructuring charges fluctuate in amount and frequency and are not
reflective of our core business operating results. In addition to
the restructuring charges incurred during the nine months ended
September 30, 2023, over the next four years (into 2027), we expect
to both incur incremental restructuring charges and make cash
payments related to the facilities that we abandoned in 2023. The
abandonment of facilities was part of the restructuring plan we
authorized on January 25, 2023 and is intended to consolidate our
lease space and create higher density across our workspaces. The
incremental charges we expect to incur relate to continuing costs
for the abandoned facilities and are expected to be in the range of
$20-22 million and will be paid in cash over the next four years.
We also expect to make cash payments related to approximately $59.0
million in fixed rent payments for the abandoned facilities that
will be made in monthly installments over the next four years for
which we have taken the full P&L restructuring charge during
the nine months ended September 30, 2023. We plan on excluding both
the incremental charges and cash payments and the related
restructuring cash rent payments from our non-GAAP earnings,
operating cash flow, and free cash flow metrics. We believe
exclusion of these charges and cash payments provides useful
information to investors in understanding and evaluating the
strength of earnings and liquidity and provides a comparable
framework for assessing how our business performed when compared to
prior periods which were not impacted by excluded restructuring
charges paid from operating cash flow.
H.
The effects of income taxes on
non-GAAP items reflect a fixed long-term projected tax rate of 20%
to provide better consistency across reporting periods. To
determine this long-term non-GAAP tax rate, we exclude the impact
of other non-GAAP adjustments and take into account other factors
such as our current operating structure and existing tax positions
in various jurisdictions. We will periodically reevaluate this tax
rate, as necessary, for significant events such as relevant tax law
changes and material changes in our forecasted geographic earnings
mix.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231108036702/en/
Investor Relations Contact: Charles MacGlashing
investors@hubspot.com Media Contact: media@hubspot.com
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