10-Q 1 hubs-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED March 31, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-36680

 

HubSpot, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-2632791

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

25 First Street

Cambridge, Massachusetts 02141

(Address of principal executive offices) (Zip Code)

(888) 482-7768

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

HUBS

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. YES ☐ NO ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO

There were 47,769,055 shares of the registrant’s Common Stock issued and outstanding as of April 29, 2022.

 


 

HUBSPOT, INC.

Table of Contents

 

Part I — Financial Information

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements:

 

 

 

Unaudited Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

5

 

 

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

6

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

7

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

9

 

 

Notes to Unaudited Consolidated Financial Statements

10

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

 

Controls and Procedures

31

 

Part II — Other Information

 

 

 

 

Item 1.

 

Legal Proceedings

32

Item 1A.

 

Risk Factors

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 3.

 

Default Upon Senior Securities

56

Item 4.

 

Mine Safety Disclosures

56

Item 5.

 

Other Information

56

Item 6.

 

Exhibits

57

Signatures

 

 

58

EX-31.1

 

CERTIFICATION OF THE CEO PURSUANT TO SECTION 302

 

EX-31.2

 

CERTIFICATION OF THE CFO PURSUANT TO SECTION 302

 

EX-32.1

 

CERTIFICATION OF THE CEO AND CFO PURSUANT TO SECTION 906

 

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and these statements involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross margin and operating expenses;
maintaining and expanding our customer base and increasing our average subscription revenue per customer;
the impact of competition in our industry and innovation by our competitors;
our anticipated growth and expectations regarding our ability to manage our future growth;
our expectations regarding the potential impact of the COVID-19 pandemic on our business, operations, and the markets in which we and our partners and customers operate;
our anticipated areas of investments, including sales and marketing, research and development, customer service and support, data center infrastructure and service capabilities, and expectations relating to such investments;
our predictions about industry and market trends;
our ability to anticipate and address the evolution of technology and the technological needs of our customers, to roll-out upgrades to our existing software platform and to develop new and enhanced applications to meet the needs of our customers;
our ability to maintain our brand and inbound marketing, selling and servicing thought leadership position;
the impact of our corporate culture and our ability to attract, hire and retain necessary qualified employees to expand our operations;
the anticipated effect on our business of litigation to which we are or may become a party;
our ability to successfully acquire and integrate companies and assets;
our plans regarding declaring or paying cash dividends in the foreseeable future; and
our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

3


 

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In this Quarterly Report on Form 10-Q, the terms “HubSpot,” “we,” “us,” and “our” refer to HubSpot, Inc. and its subsidiaries, unless the context indicates otherwise.

Risk Factor Summary

The risk factors detailed in Item 1A entitled “Risk Factors” in this Quarterly Report on Form 10-Q are the risks that we believe are material to our investors and a reader should carefully consider them. Those risks are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. The following is a summary of the risk factors detailed in Item 1A:

We are dependent upon customer renewals, the addition of new customers, increased revenue from existing customers and the continued growth of the market for a CRM Platform.
We face significant competition from both established and new companies offering marketing, sales and customer service software and other related applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers and grow our business.
Failure to effectively develop and expand our marketing, sales, customer service, operations, and content management capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our CRM Platform may become less competitive.
Our ability to introduce new products and features is dependent on adequate research and development resources. If we do not adequately fund our research and development efforts, we may not be able to compete effectively and our business and operating results may be harmed.
Interruptions or delays in service from our third-party data center providers could impair our ability to deliver our platform to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth, and reduction in revenue.
If our CRM Platform has outages or fails due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.
If our or our customers’ security measures are compromised or unauthorized access to data of our customers or their customers is otherwise obtained, our CRM Platform may be perceived as not being secure, our customers may be harmed and may curtail or cease their use of our platform, our reputation may be damaged and we may incur significant liabilities.
We have a history of losses and may not achieve profitability in the future.
We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
If we do not accurately predict subscription renewal rates or otherwise fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

4


 

PART I — Financial Information

 

 

Item 1. Financial Statements

HubSpot, Inc.

Unaudited 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 — net of allowance for doubtful accounts of $1,836 and
   $
1,768 at March 31, 2022 and December 31, 2021, respectively

 

 

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

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock

 

 

48

 

 

 

47

 

Additional paid-in capital

 

 

1,378,457

 

 

 

1,436,089

 

Accumulated other comprehensive loss

 

 

(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

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5


 

HubSpot, Inc.

Unaudited 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 income (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

 

 

The accompanying notes are an integral part of the consolidated financial statements.

6


 

HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

For the Three Months Ended March 31,

 

 

2022

 

 

2021

 

Net loss

$

(9,341

)

 

$

(23,159

)

Other comprehensive loss:

 

 

 

 

 

Foreign currency translation adjustment

 

(356

)

 

 

(2,489

)

Changes in unrealized loss on investments, net of income taxes
  of $
0 for the three months ended March 31, 2022 and ($36) for
  the three months ended March 31, 2021

 

(4,001

)

 

 

(240

)

Comprehensive loss

$

(13,698

)

 

$

(25,888

)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

7


 

HubSpot, Inc.

Unaudited Consolidated Statements of Stockholders' Equity

(in thousands, except per share amounts)

 

 

Common
Stock, $0.001
Par Value

 

 

Treasury Stock, $0.001
Par Value

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

 

 

 

Shares

 

 

$

 

 

Shares

 

 

$

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balances at December 31, 2021

 

47,390

 

 

$

47

 

 

 

910

 

 

$

 

 

$

1,436,089

 

 

$

(1,339

)

 

$

(560,998

)

 

 

873,799

 

Issuance of common stock under stock
  plans

 

250

 

 

 

1

 

 

 

 

 

 

 

 

 

2,144

 

 

 

 

 

 

 

 

 

2,145

 

Restricted stock units taxes paid in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,354

)

 

 

 

 

 

 

 

 

(4,354

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

46,436

 

 

 

 

 

 

 

 

 

46,436

 

Conversion of the 2025 Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

(691

)

 

 

 

 

 

 

 

 

(691

)

Cumulative adjustment from adoption of
  convertible debt standard (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,167

)

 

 

 

 

 

31,366

 

 

 

(69,801

)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(356

)

 

 

 

 

 

(356

)

Unrealized loss on investments, net of
  income taxes of $
0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,001

)

 

 

 

 

 

(4,001

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,341

)

 

 

(9,341

)

Balances at March 31, 2022

 

47,640

 

 

$

48

 

 

 

910

 

 

$

 

 

$

1,378,457

 

 

$

(5,696

)

 

$

(538,973

)

 

$

833,836

 

 

 

 

Common
Stock, $0.001
Par Value

 

 

Treasury Stock, $0.001
Par Value

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

 

 

 

Shares

 

 

$

 

 

Shares

 

 

$

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Total

 

Balances at December 31, 2020

 

46,115

 

 

$

46

 

 

 

12

 

 

$

-

 

$

1,241,167

 

 

$

4,603

 

 

$

(483,161

)

 

 

762,655

 

Issuance of common stock under stock
  plans, net of shares withheld
  for employee taxes

 

482

 

 

 

1

 

 

 

 

 

 

 

 

6,582

 

 

 

 

 

 

 

 

 

6,583

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

32,947

 

 

 

 

 

 

 

 

 

32,947

 

Equity component of the 2022
  Notes conversions

 

363

 

 

 

 

 

 

 

 

 

 

 

(2,307

)

 

 

 

 

 

 

 

 

(2,307

)

Settlement of Convertible Note Hedges

 

(364

)

 

 

 

 

 

364

 

 

 

 

 

724

 

 

 

 

 

 

 

 

 

724

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,489

)

 

 

 

 

 

(2,489

)

Unrealized gain on investments, net of
  income taxes of ($
36)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(240

)

 

 

 

 

 

(240

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,159

)

 

 

(23,159

)

Balances at March 31, 2021

 

46,596

 

 

$

47

 

 

 

376

 

 

$

 

$

1,279,113

 

 

$

1,874

 

 

$

(506,320

)

 

$

774,714

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

8


 

HubSpot, Inc.

Unaudited 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, net of acquisitions

 

 

 

 

 

 

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

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,683

 

 

$

2,215

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

3,754

 

 

$

1,276

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock for repayment of 2022 Convertible Notes

 

$