HubSpot Reports Strong Q4 and Full Year 2017 Results

CAMBRIDGE, Mass., Feb. 13, 2018 /PRNewswire/ -- HubSpot, Inc. (NYSE: HUBS), a leading CRM, marketing, sales and customer experience platform, today announced financial results for the fourth quarter and full year ended December 31, 2017. The company also announced today that John Kinzer, its Chief Financial Officer, will be leaving at the end of 2018.  The Company has initiated a search for a new CFO, and Mr. Kinzer will work to ensure a smooth transition of his duties once a new CFO is appointed.

"On behalf of the entire HubSpot team, I want to thank John for his many contributions since joining the company in 2013.  He was an instrumental part of our successful transition from a private to a public company and our success in scaling up our business," said Brian Halligan, HubSpot Co-founder and CEO.  "We will miss him following his departure and wish him the best."

"My more than four years at HubSpot have been an amazing experience, working with a very talented group of people to help our customers grow better, and building a big business in the process," said Kinzer.  "Heading into 2018 HubSpot has never been on stronger footing, and I look forward to ensuring a smooth transition in the coming months."

Financial Highlights:

Revenue

Fourth Quarter 2017:

• Total revenue was $106.5 million, up 39% compared to the fourth quarter of 2016.
• Subscription revenue was $101.7 million, up 40% compared to the fourth quarter of 2016.
• Professional services and other revenue was $4.8 million, up 20% compared to the fourth quarter of 2016.

Full Year 2017:

• Total revenue was $375.6 million, up 39% compared to 2016.
• Subscription revenue was $356.7 million, up 40% compared to 2016.
• Professional services and other revenue was $18.9 million, up 17% compared to 2016.

Operating Income (Loss)

Fourth Quarter 2017:

• GAAP operating margin was (8.9%) for the quarter, compared to (18.1%) in the fourth quarter of 2016.
• Non-GAAP operating margin was 4.1% for the quarter, an improvement of approximately 10 percentage points from (5.9%) in the fourth quarter of 2016.
• GAAP operating loss was ($9.4) million for the quarter, compared to ($13.8) million in the fourth quarter of 2016.
• Non-GAAP operating income was $4.3 million for the quarter, compared to a loss of ($4.5) million in the fourth quarter of 2016. Non-GAAP operating income (loss) excludes stock-based compensation expense, amortization of acquired intangible assets, and acquisition related expenses.

Full Year 2017:

• GAAP operating margin was (10.7%) for 2017, compared to (16.5%) in 2016.
• Non-GAAP operating margin was 2.3% for 2017, an improvement of approximately 6.7 percentage points from (4.4%) in 2016.
• GAAP operating loss was ($40.1) million for 2017, compared to ($44.7) million in 2016.
• Non-GAAP operating income was $8.6 million in 2017, compared to a loss of ($11.9) million in 2016. Non-GAAP operating income (loss) excludes stock-based compensation expense, amortization of acquired intangible assets, and acquisition related expenses.

Net Income (Loss)

Fourth Quarter 2017:

• GAAP net loss was ($11.5) million, or ($0.31) per basic and diluted share for the quarter, compared to ($13.8) million, or ($0.39) per basic and diluted share, in the fourth quarter of 2016.
• Non-GAAP net income was $4.6 million, or $0.12 per basic and diluted share for the quarter, compared to a net loss of ($4.5) million, or ($0.13) per basic and diluted share, in the fourth quarter of 2016. Non-GAAP net income (loss) per share excludes stock-based compensation expense, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for amortization of debt discount and debt issuance costs, and the deferred income tax benefit from convertible notes and business combination.
• Fourth quarter weighted average basic and diluted shares outstanding for GAAP net loss per share was 37.4 million, compared to 35.7 million basic and diluted shares in the fourth quarter of 2016.
• Fourth quarter weighted average basic and diluted shares outstanding for non-GAAP net income per share was 37.4 million and 40.0 million, respectively, compared to 35.7 million weighted average basic and diluted shares in the fourth quarter of 2016.

Full Year 2017:

• GAAP net loss was ($39.7) million, or ($1.08) per basic and diluted share for 2017, compared to ($45.6) million, or ($1.29) per basic and diluted share, in 2016.
• Non-GAAP net income was $9.8 million, or $0.27 per basic share and $0.25 per diluted share for 2017, compared to a net loss of ($12.8) million, or ($0.36) per basic and diluted share, in 2016. Non-GAAP net income (loss) per share excludes stock-based compensation expense, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for amortization of debt discount and debt issuance costs, and the deferred income tax benefit from convertible notes and business combination.
• 2017 weighted average basic and diluted shares outstanding for GAAP net loss per share was 36.8 million, compared to 35.2 million basic and diluted shares in 2016.
• 2017 weighted average basic and diluted shares outstanding for non-GAAP net income per share was 36.8 million and 38.8 million, respectively, compared to 35.2 million weighted average basic and diluted in 2016.

Balance Sheet and Cash Flow

• The company's cash, cash equivalents and investments balance was $535.7 million as of December 31, 2017.
• During the fourth quarter, the company generated $7.0 million of free cash flow compared to using ($1.7) million of free cash flow during the fourth quarter of 2016.
• During the full year, the company generated $22.3 million of free cash flow compared to using ($2.2) million during the full year 2016.

Additional Recent Business Highlights

• Grew total customers to 41,593 at December 31, 2017, up 48% from December 31, 2016.
• Total average subscription revenue per customer was $10,255 during the fourth quarter of 2017.

"2017 was another exciting year for HubSpot. We made great strides in building out our freemium model, found more ways to delight our customers and continued our evolution from a single product application company to a front office suite with the goal of becoming the growth platform for SMB's," said Halligan.  "As we head into 2018, I think we have a clear set of plays in place that will set us up for continued success into the future."

Business Outlook
Based on information available as of February 13, 2018, HubSpot is issuing guidance for the first quarter and full year of 2018 as indicated below.

First Quarter 2018:

• Total revenue is expected to be in the range of $109.2 million to $110.2 million.
• Non-GAAP operating income is expected to be in the range of $4.0 million to $5.0 million. This excludes stock-based compensation expense of approximately $15.2 million, amortization of acquired intangible assets of approximately $50 thousand, and acquisition related expenses of approximately $800 thousand.
• Non-GAAP net income per common share is expected to be in the range of $0.10 to $0.12. This excludes stock-based compensation expense of approximately $15.2 million, amortization of acquired intangible assets of approximately $50 thousand, acquisition related expenses of approximately $800 thousand, and non-cash interest expense for the amortization of debt discount and debt issuance costs of approximately $4.9 million. This assumes approximately 40.3 million weighted average diluted shares outstanding.

Full Year 2018:

• Total revenue is expected to be in the range of $481 million to $485 million.
• Non-GAAP operating income is expected to in be in the range of $20.0 million to $24.0 million. This excludes stock-based compensation expense of approximately $76.0 million, amortization of acquired intangible assets of approximately $200 thousand, and acquisition related expenses of approximately $2.7 million.
• Non-GAAP net income per common share is expected to be in the range of $0.51 to $0.59. This excludes stock-based compensation expense of approximately $76.0 million, amortization of acquired intangible assets of approximately $200 thousand, acquisition related expenses of approximately $2.7 million, and non-cash interest expense for the amortization of debt discount and debt issuance costs of approximately $20.3 million. This assumes approximately 40.7 million weighted average diluted shares outstanding.

HubSpot's estimates of stock-based compensation, amortization of acquired intangible assets, and acquisition-related expenses 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.

Conference Call Information
HubSpot will host a conference call on Tuesday, February 13, 2018 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 (866) 393-4306 (domestic) or (734) 385-2616 (international).  The conference ID is 9863059.  Additionally, a live webcast of the conference call will be available in the "Investors" section of HubSpot's website at www.hubspot.com.

Following the conference call, a replay will be available at (855) 859-2056 (domestic) or (404) 537-3406 (international). The replay pass code is 9863059.  An archived webcast of this conference call will also be available in the "Investors" section of HubSpot's website at www.hubspot.com.

The company has used, and intends to continue to use, the investor relations portion of its website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD.

About HubSpot
HubSpot is a leading CRM, marketing, sales, and customer experience platform. Over 41,500 total customers in over 90 countries use HubSpot's award-winning software, services, and support to create an inbound experience that will attract, engage, and delight customers. Learn more at www.hubspot.com.

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP operating income (loss), operating margin, subscription margin, expense, expense as a percentage of revenue, net income (loss), and free cash flow for the three months and year ended December 31, 2017 and 2016. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

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 2018; statements regarding the announced leadership transition; and statements regarding our ability to achieve continued success into the future.  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 and sales 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 1, 2017 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.

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 (loss), operating margin, subscription margin, expense, expense as a percentage of revenue, net income (loss), 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. Management uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. 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 share-based compensation, amortization of acquired intangible assets, acquisition related expenses, non-cash interest expense for the amortization of debt discount and debt issuance costs, and the deferred income tax benefit from convertible notes and business combination. 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:

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SOURCE HubSpot