10-Q 1 hubs-20240331.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, 2024

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.)

 

Two Canal Park

Cambridge, Massachusetts 02141

 (Address of principal executive offices)

(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, a 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. ☐

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 50,962,443 shares of the registrant’s Common Stock issued and outstanding as of May 2, 2024.

 


 

HUBSPOT, INC.

Table of Contents

Part I — Financial Information

 

 

 

 

Item 1.

Unaudited Consolidated Financial Statements:

 

Unaudited Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

6

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023

7

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

8

 

 

Unaudited Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

9

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

10

Notes to Unaudited Consolidated Financial Statements

11

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

Item 4.

Controls and Procedures

34

Part II — Other Information

 

 

 

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Default Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Signatures

63

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 and operational 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, including as a result of new or better use of evolving artificial intelligence technologies;
our anticipated growth and expectations regarding our ability to manage our future growth;
our expectations regarding the potential impact of geo-political conflicts, inflationary pressures, foreign currency movement, macroeconomic stability, and catastrophic events, such as the COVID-19 pandemic, 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 future financial performance;
our anticipated areas of investments, including sales and marketing, research and development, including with respect to artificial intelligence and machine learning, 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, including with respect to artificial intelligence and machine learning;
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

3


 

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.

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 customer platform.
We face significant competition from both established and new companies offering marketing, sales, customer service, operations and content management 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 customer platform may become less competitive.
Our ability to introduce new products and features, including new products and features that utilize artificial intelligence, 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.
We are exposed to fluctuations in currency exchange rates that could adversely affect our financial results.
The current economic downturn may lead to decreased demand for our products and services and otherwise harm our business and results of operations.
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 customer 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 customer 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.

4


 

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.

5


 

PART I — Financial Information

 

 

Item 1. Financial Statements

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

447,793

 

 

$

387,987

 

Short-term investments

 

 

1,070,872

 

 

 

1,000,245

 

Accounts receivable — net of allowance for doubtful accounts of $4,937 
    at March 31, 2024 and $
5,516 at December 31, 2023

 

 

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

 

 

456,704

 

 

 

456,206

 

Total liabilities

 

 

1,743,986

 

 

 

1,737,044

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock

 

 

51

 

 

 

50

 

Additional paid-in capital

 

 

2,250,549

 

 

 

2,136,908

 

Accumulated other comprehensive 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

 

 

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

6


 

HubSpot, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

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 income (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

)

 

 

(2,418

)

Net income (loss)

$

5,934

 

 

$

(36,720

)

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

 

 

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

7


 

HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net income (loss)

$

5,934

 

 

$

(36,720

)

Other comprehensive loss:

 

 

 

 

 

Foreign currency translation adjustment

 

(2,044

)

 

 

627

 

Changes in unrealized loss on investments, net of income taxes
  of $
0 for the three months ended March 31, 2024 and 2023

 

(2,763

)

 

 

4,507

 

Comprehensive loss

$

1,127

 

 

$

(31,586

)

 

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

 

8


 

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

 

 

(Loss)

 

 

Deficit

 

 

Total

 

Balances at December 31, 2023

 

50,448

 

 

$

50

 

 

 

910

 

 

$

 

 

$

2,136,908

 

 

$

1,827

 

 

$

(804,437

)

 

 

1,334,348

 

Issuance of common stock under
  stock plans

 

332

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

6,513

 

 

 

 

 

 

 

 

 

6,514

 

Restricted stock units taxes paid
  in cash

 

(20

)

 

 

 

 

 

 

 

 

 

 

 

(8,791

)

 

 

 

 

 

 

 

 

(8,791

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

115,919

 

 

 

 

 

 

 

 

 

115,919

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,044

)

 

 

 

 

 

(2,044

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,763

)

 

 

 

 

 

(2,763

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,934

 

 

 

5,934

 

Balances at March 31, 2024

 

50,760

 

 

$

51

 

 

 

909

 

 

$

 

 

$

2,250,549

 

 

$

(2,980

)

 

$

(798,503

)

 

$

1,449,117

 

 

 

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, 2022

 

49,217

 

 

$

49

 

 

 

910

 

 

$

 

 

$

1,647,446

 

 

$

(12,890

)

 

$

(639,927

)

 

 

994,678

 

Issuance of common stock under
  stock plans

 

260

 

 

 

 

 

 

 

 

 

 

 

 

1,196

 

 

 

 

 

 

 

 

 

1,196

 

Restricted stock units taxes paid
  in cash

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

(1,198

)

 

 

 

 

 

 

 

 

(1,198

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

87,305

 

 

 

 

 

 

 

 

 

87,305

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

627

 

 

 

 

 

 

627

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,507

 

 

 

 

 

 

4,507

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,720

)

 

 

(36,720

)

Balances at March 31, 2023

 

49,473

 

 

$

49

 

 

 

910

 

 

$

 

 

$

1,734,749

 

 

$

(7,756

)

 

$

(676,647

)

 

$

1,050,395

 

 

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

 

9


 

HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

 

5,934

 

 

$

(36,720

)

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

 

 

 

 

 

 

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

)

 

 

22,659

 

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

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid for income taxes

 

$

3,100

 

 

$

4,063

 

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

 

$

504

 

 

$

 

Right-of-use asset reductions related to operating lease terminations

 

$

 

 

$

(1,235

)

Non-cash investing and financing activities:

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

1,737

 

 

$

5,919

 

Asset retirement obligations

 

$

 

 

$

(108

)

 

 

 

 

 

 

 

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

10


 

HubSpot, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Organization and Operations

HubSpot, Inc. (the “Company”) provides a customer platform that helps businesses connect and grow better. The Company delivers seamless connection for customer-facing teams with a unified platform that includes three layers: AI-powered engagement hubs, a Smart customer relationship management product (“CRM”), and a connected ecosystem supporting the customer platform with a marketplace of integrations, templates, and expert partners, a community network, and an academy of educational content.

The engagement hubs include Marketing Hub, Sales Hub, Service Hub, Operations Hub, Content Hub and Commerce Hub, as well as other tools and integrations that enable companies to attract, engage, and delight customers throughout the customer experience.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2023, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation.

The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2024. The year-end balance sheet data was derived from audited financial statements, but this Form 10-Q does not include all disclosures required under GAAP. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted under the rules and regulations of the SEC.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 14, 2024. There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes.

Recent Accounting Pronouncements

Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations.

In November 2023, the Financial Accounting Standards Board ("FASB") issued guidance enhancing the disclosures of reportable segment information, primarily about significant segment expenses. The new standard will be effective for the Company for the annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the disclosure impact of adoption of the standard on its consolidated financial statements.

In December 2023, the FASB issued guidance enhancing income tax disclosure requirements by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. The new standard will be effective for the Company on January 1, 2025, with early adoption permitted. The Company is currently evaluating the disclosure impact of adoption of the standard on its consolidated financial statements.

In March 2024, the SEC adopted the final rules designed to enhance disclosures related to the risks and impacts of climate-related matters. The disclosure requirements will be effective for the Company on January 1, 2025. The Company is currently evaluating the disclosure impact of adoption of the standard on its consolidated financial statements.

Revision of Previously Issued Financial Statements

During the financial close process for the first quarter of 2024, we identified an error related to the calculation of contractual credits in one of our third-party vendor agreements which impacted our previously issued financial statements beginning with the quarter ended December 31, 2021. The error impacted subsequent annual and quarterly reporting periods through December 31, 2023. We assessed the materiality of the error on prior period consolidated financial statements in accordance with the Securities and

11


 

Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, “Materiality,” codified in ASC 250, Accounting Changes and Error Corrections (“ASC 250”). Based on this assessment, in consideration of both quantitative and qualitative factors, we concluded that the error is not material to any previously presented interim or annual financial statements. We revised our financial statements for the periods impacted. In connection with the revisions, we also corrected a previously identified immaterial error related to the recording of certain deferred tax balances. The Company will also correct previously reported financial information for these errors in future filings, as applicable.

The impact of the revisions to the annual periods ending December 31, 2022 and December 31, 2023, and the quarterly periods ending March 31, 2023, June 30, 2023, and September 30, 2023 are discussed below. The errors created immaterial impacts to the Consolidated Statements of Cash Flows, however, there was no net impact to classification of the cash flows so a revision table was not included below. The impact to the Consolidated Statements of Stockholders' Equity was isolated to net income and accumulated deficit as revised in the other statements.

 

12


 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss

 

For the 12 Months Ended December 31, 2022

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Cost of revenues - Subscription

 

$

257,513

 

 

$

(6,239

)

 

$

251,274

 

Total cost of revenues

 

 

314,259

 

 

 

(6,239

)

 

 

308,020

 

Gross profit

 

 

1,416,710

 

 

 

6,239

 

 

 

1,422,949

 

Loss from operations

 

 

(109,101

)

 

 

6,239

 

 

 

(102,862

)

Loss before income tax expense

 

 

(104,692

)

 

 

6,239

 

 

 

(98,453

)

Income tax expense

 

 

(8,057

)

 

 

(837

)

 

 

(8,894

)

Net loss

 

 

(112,749

)

 

 

5,402

 

 

 

(107,347

)

Comprehensive loss

 

 

(124,300

)

 

 

5,402

 

 

 

(118,898

)

Net loss per common share, basic and diluted

 

$

(2.35

)

 

$

0.12

 

 

$

(2.23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 3 Months Ended March 31, 2023

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Cost of revenues - Subscription

 

$

68,339

 

 

$

(1,717

)

 

$

66,622

 

Total cost of revenues

 

 

82,046

 

 

 

(1,717

)

 

 

80,329

 

Gross profit

 

 

419,574

 

 

 

1,717

 

 

 

421,291

 

Loss from operations

 

 

(44,767

)

 

 

1,717

 

 

 

(43,050

)

Loss before income tax expense

 

 

(36,019

)

 

 

1,717

 

 

 

(34,302

)

Income tax expense

 

 

(2,263

)

 

 

(155

)

 

 

(2,418

)

Net loss

 

 

(38,282

)

 

 

1,562

 

 

 

(36,720

)

Comprehensive loss

 

 

(33,148

)

 

 

1,562

 

 

 

(31,586

)

Net loss per common share, basic and diluted

 

$

(0.78

)

 

$

0.04

 

 

$

(0.74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 3 Months Ended June 30, 2023

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Cost of revenues - Subscription

 

$

73,824

 

 

$

(2,330

)

 

$

71,494

 

Total cost of revenues

 

 

87,286

 

 

 

(2,330

)

 

 

84,956

 

Gross profit

 

 

441,852

 

 

 

2,330

 

 

 

444,182

 

Loss from operations

 

 

(118,499

)

 

 

2,330

 

 

 

(116,169

)

Loss before income tax expense

 

 

(105,564

)

 

 

2,330

 

 

 

(103,234

)

Income tax expense

 

 

(13,382

)

 

 

4,813

 

 

 

(8,569

)

Net loss

 

 

(118,946

)

 

 

7,143

 

 

 

(111,803

)

Comprehensive loss

 

 

(119,575

)

 

 

7,143

 

 

 

(112,432

)

Net loss per common share, basic and diluted

 

$

(2.39

)

 

$

0.14

 

 

$

(2.25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 3 Months Ended September 30, 2023

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Cost of revenues - Subscription

 

$

73,781

 

 

$

(1,886

)

 

$

71,895

 

Total cost of revenues

 

 

87,526

 

 

 

(1,886

)

 

 

85,640

 

Gross profit

 

 

470,031

 

 

 

1,886

 

 

 

471,917

 

Loss from operations

 

 

(20,442

)

 

 

1,886

 

 

 

(18,556

)

Loss before income tax expense

 

 

(6,875

)

 

 

1,886

 

 

 

(4,989

)

Net loss

 

 

(5,463

)

 

 

1,886

 

 

 

(3,577

)

Comprehensive loss

 

 

(6,456

)

 

 

1,886

 

 

 

(4,570

)

Net loss per common share, basic and diluted

 

$

(0.11

)

 

$

0.04

 

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the 12 Months Ended December 31, 2023

 

13


 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Cost of revenues - Subscription

 

$

290,802

 

 

$

(7,127

)

 

$

283,675

 

Total cost of revenues

 

 

345,489

 

 

 

(7,127

)

 

 

338,362

 

Gross profit

 

 

1,824,741

 

 

 

7,127

 

 

 

1,831,868

 

Loss from operations

 

 

(208,056

)

 

 

7,127

 

 

 

(200,929

)

Loss before income tax expense

 

 

(157,702

)

 

 

7,127

 

 

 

(150,575

)

Income tax expense

 

 

(18,593

)

 

 

4,658

 

 

 

(13,935

)

Net loss

 

 

(176,295

)

 

 

11,785

 

 

 

(164,510

)

Comprehensive loss

 

 

(161,578

)

 

 

11,785

 

 

 

(149,793

)

Net loss per common share, basic and diluted

 

$

(3.53

)

 

$

0.23

 

 

$

(3.30

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

December 31, 2022

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Total assets

 

$

2,544,738

 

 

$

-

 

 

$

2,544,738

 

Accrued expenses and other current liabilities

 

 

102,122

 

 

 

(7,112

)

 

 

95,010

 

Total current liabilities

 

 

761,653

 

 

 

(7,112

)

 

 

754,541

 

Other long-term liabilities

 

 

14,546

 

 

 

4,658

 

 

 

19,204

 

Total liabilities

 

 

1,552,514

 

 

 

(2,454

)

 

 

1,550,060

 

Accumulated deficit

 

 

(642,381

)

 

 

2,454

 

 

 

(639,927

)

Total stockholders’ equity

 

 

992,224

 

 

 

2,454

 

 

 

994,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

(in thousands)

 

Total assets

 

$

3,071,392

 

 

$

-

 

 

$

3,071,392

 

Accrued expenses and other current liabilities

 

 

108,313

 

 

 

(14,239

)

 

 

94,074

 

Total current liabilities

 

 

956,247

 

 

 

(14,239

)

 

 

942,008

 

Total liabilities

 

 

1,751,283

 

 

 

(14,239

)

 

 

1,737,044

 

Accumulated deficit

 

 

(818,676

)

 

 

14,239

 

 

 

(804,437

)

Total stockholders’ equity

 

 

1,320,109

 

 

 

14,239

 

 

 

1,334,348

 

 

2. Revenues

Disaggregation of Revenue

The Company provides disaggregation of revenue based on geographic region (Note 13) and based on the subscription versus professional services and other classification on the consolidated statements of operations as it believes these best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Deferred Revenue and Deferred Commission Expense

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as long-term deferred revenue. Deferred revenue during the three months ended March 31, 2024 increased by $23.8 million resulting from $641.2 million of additional invoicing and was offset by revenue recognized of $617.4 million during the same period. $359.6 million of revenue was recognized during the three months ended March 31, 2024 that was included in deferred revenue at the beginning of the period. As of March 31, 2024, approximately $827.1 million of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one year. The Company expects to recognize revenue on approximately 91% of these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

14


 

Additional contract liabilities of $5.6 million and $4.5 million were included in accrued expenses and other current liabilities on the consolidated balance sheet as of March 31, 2024 and December 31, 2023.

The incremental direct costs of obtaining a contract, which primarily consist of sales and Solutions Partner commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximately two to four years. The two to four-year period has been determined by taking into consideration the type of product sold, the commitment term of the customer contract, the nature of the Company’s technology development life-cycle, and an estimated customer relationship period. Sales and Solutions Partner commissions for upgrade contracts are deferred and amortized on a straight-line basis over the remaining estimated customer relationship period of the related customer. Deferred commission expense that will be recorded as expense during the succeeding 12-month period is recorded as current deferred commission expense, and the remaining portion is recorded as long-term deferred commission expense.

Deferred commission expense during the three months ended March 31, 2024 increased by $14.5 million as a result of deferring incremental costs of obtaining a contract of $46.6 million and was offset by amortization of $32.1 million during the same period.

3. Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock units (“RSUs”), shares issued pursuant to the Employee Stock Purchase Plan (“ESPP”), performance restricted stock units (“PSUs”), and the Conversion Option of the 2025 Notes (the “Conversion Options”) (Note 8) are considered to be potential common stock equivalents.

A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows:

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net income (loss)

$

5,934

 

 

$

(36,720

)

Weighted-average common shares outstanding — basic

 

50,689

 

 

 

49,395

 

Dilutive effect of share equivalents resulting from stock
   options, RSUs, ESPP, PSUs, and the Conversion Options

 

809

 

 

 

 

Weighted-average common shares, outstanding — diluted

 

51,498

 

 

 

49,395

 

Net income (loss) per share, basic

$

0.12

 

 

$

(0.74

)

Net income (loss) per share, diluted

$

0.12

 

 

$

(0.74

)

Since the Company incurred a net loss for the three months ended March 31, 2023, diluted net loss per share is the same as basic net loss per share. All of the Company’s outstanding stock options, RSUs, PSUs, and shares issuable under the ESPP, as well as the Conversion Options were excluded in the calculation of diluted net loss per share as the effect would be anti-dilutive.

The Company uses the if-converted method when calculating any potential dilutive effect of the Conversion Options, which assumes conversion of outstanding convertible securities at the beginning of the reporting period or date of issuance, if the convertible security was issued during the period.

The following table contains all potentially dilutive common stock equivalents.

 

As of March 31,

 

 

 

2023

 

 

(in thousands)

 

Options to purchase common shares

 

 

511

 

RSUs

 

 

1,698

 

Conversion Option of the 2025 Notes

 

 

1,625

 

PSUs

 

 

 

ESPP

 

 

 

 

15


 

4. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at March 31, 2024 and December 31, 2023: