Company Quick10K Filing
Hubspot
Price154.21 EPS-1
Shares43 P/E-119
MCap6,559 P/FCF92
Net Debt-233 EBIT-36
TEV6,325 TEV/EBIT-176
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-05-05
10-K 2020-12-31 Filed 2021-02-16
10-Q 2020-09-30 Filed 2020-11-05
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-12
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-02-12
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-02-13
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-16
10-Q 2016-09-30 Filed 2016-11-02
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-03-05
10-Q 2014-09-30 Filed 2014-11-13
8-K 2020-11-05
8-K 2020-09-15
8-K 2020-08-05
8-K 2020-06-17
8-K 2020-06-04
8-K 2020-06-01
8-K 2020-05-01
8-K 2020-02-12
8-K 2019-11-05
8-K 2019-08-06
8-K 2019-06-05
8-K 2019-05-31
8-K 2019-05-07
8-K 2019-02-13
8-K 2019-02-12
8-K 2018-11-12
8-K 2018-11-07
8-K 2018-08-20
8-K 2018-08-01
8-K 2018-06-13
8-K 2018-06-06
8-K 2018-05-10
8-K 2018-04-23
8-K 2018-02-09

HUBS 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults on Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 hubs-ex311_7.htm
EX-31.2 hubs-ex312_8.htm
EX-32.1 hubs-ex321_6.htm

Hubspot Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
1.51.20.80.50.1-0.22014201620182020
Assets, Equity
0.20.10.10.0-0.0-0.12014201620182020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32014201620182020
Ops, Inv, Fin

hubs-10q_20190930.htm
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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 September 30, 2019

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)

(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 42,821,424 shares of the registrant’s Common Stock issued and outstanding as of November 1, 2019.

 

 

 

 


 

HUBSPOT, INC.

Table of Contents

 

Part I — Financial Information

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements:

 

 

 

Unaudited Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

4

 

 

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

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

51

Item 3.

 

Default Upon Senior Securities

51

Item 4.

 

Mine Safety Disclosures

51

Item 5.

 

Other Information

51

Item 6.

 

Exhibits

52

Signatures

 

 

 

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 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;

 

the U.S. federal tax consequences due to dividends received as part of the move to a territorial tax system for foreign subsidiary earnings;

 

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.

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.

3


 

PART I — Financial Information

 

 

Item 1.

Financial Statements

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

225,770

 

 

$

111,489

 

Short-term investments

 

 

722,767

 

 

 

480,761

 

Accounts receivable — net of allowance for doubtful accounts of $1,258 and $1,317

   at September 30, 2019 and December 31, 2018, respectively

 

 

77,551

 

 

 

77,100

 

Deferred commission expense

 

 

29,080

 

 

 

23,664

 

Restricted cash

 

 

6,019

 

 

 

5,175

 

Prepaid expenses and other current assets

 

 

20,052

 

 

 

14,229

 

Total current assets

 

 

1,081,239

 

 

 

712,418

 

Long-term investments

 

 

59,783

 

 

 

11,450

 

Property and equipment, net

 

 

63,959

 

 

 

52,468

 

Capitalized software development costs, net

 

 

15,095

 

 

 

12,746

 

Right-of-use assets

 

 

215,797

 

 

 

 

Deferred commission expense, net of current portion

 

 

17,608

 

 

 

18,114

 

Other assets

 

 

7,894

 

 

 

6,888

 

Intangible assets, net

 

 

2,556

 

 

 

4,919

 

Goodwill

 

 

14,950

 

 

 

14,950

 

Total assets

 

$

1,478,881

 

 

$

833,953

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,882

 

 

$

7,810

 

Accrued compensation costs

 

 

23,913

 

 

 

23,589

 

Accrued expenses and other current liabilities

 

 

25,706

 

 

 

22,305

 

Lease liabilities

 

 

15,646

 

 

 

 

Deferred revenue

 

 

200,771

 

 

 

183,305

 

Total current liabilities

 

 

280,918

 

 

 

237,009

 

Lease liabilities, net of current portion

 

 

225,628

 

 

 

 

Deferred rent, net of current portion

 

 

 

 

 

26,445

 

Deferred revenue, net of current portion

 

 

2,835

 

 

 

2,179

 

Other long-term liabilities

 

 

6,182

 

 

 

4,897

 

Convertible senior notes

 

 

334,966

 

 

 

318,782

 

Total liabilities

 

 

850,529

 

 

 

589,312

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

43

 

 

 

40

 

Additional paid-in capital

 

 

1,017,046

 

 

 

589,708

 

Accumulated other comprehensive loss

 

 

(909

)

 

 

(723

)

Accumulated deficit

 

 

(387,828

)

 

 

(344,384

)

Total stockholders’ equity

 

 

628,352

 

 

 

244,641

 

Total liabilities and stockholders’ equity

 

$

1,478,881

 

 

$

833,953

 

 

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

4


 

HubSpot, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

167,078

 

 

$

125,478

 

 

$

467,180

 

 

$

350,646

 

Professional services and other

 

6,543

 

 

 

6,348

 

 

 

21,494

 

 

 

18,312

 

Total revenue

 

173,621

 

 

 

131,826

 

 

 

488,674

 

 

 

368,958

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

25,671

 

 

 

17,777

 

 

 

70,550

 

 

 

49,976

 

Professional services and other

 

7,592

 

 

 

7,988

 

 

 

23,433

 

 

 

23,017

 

Total cost of revenues

 

33,263

 

 

 

25,765

 

 

 

93,983

 

 

 

72,993

 

Gross profit

 

140,358

 

 

 

106,061

 

 

 

394,691

 

 

 

295,965

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

39,847

 

 

 

30,761

 

 

 

115,480

 

 

 

85,598

 

Sales and marketing

 

91,283

 

 

 

71,293

 

 

 

250,267

 

 

 

196,484

 

General and administrative

 

23,300

 

 

 

19,057

 

 

 

67,777

 

 

 

54,309

 

Total operating expenses

 

154,430

 

 

 

121,111

 

 

 

433,524

 

 

 

336,391

 

Loss from operations

 

(14,072

)

 

 

(15,050

)

 

 

(38,833

)

 

 

(40,426

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

5,185

 

 

 

2,416

 

 

 

14,783

 

 

 

6,332

 

Interest expense

 

(5,760

)

 

 

(5,393

)

 

 

(16,946

)

 

 

(15,893

)

Other expense

 

(89

)

 

 

(277

)

 

 

(773

)

 

 

(1,087

)

Total other expense

 

(664

)

 

 

(3,254

)

 

 

(2,936

)

 

 

(10,648

)

Loss before income tax expense

 

(14,736

)

 

 

(18,304

)

 

 

(41,769

)

 

 

(51,074

)

Income tax expense

 

(251

)

 

 

(359

)

 

 

(1,675

)

 

 

(1,262

)

Net loss

$

(14,987

)

 

$

(18,663

)

 

$

(43,444

)

 

$

(52,336

)

Net loss per share, basic and diluted

$

(0.35

)

 

$

(0.48

)

 

$

(1.04

)

 

$

(1.37

)

Weighted average common shares used in computing basic

   and diluted net loss per share:

 

42,531

 

 

 

38,762

 

 

 

41,749

 

 

 

38,319

 

 

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

5


 

HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

$

(14,987

)

 

$

(18,663

)

 

$

(43,444

)

 

$

(52,336

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(947

)

 

 

(127

)

 

 

(997

)

 

 

(548

)

Changes in unrealized gain (loss) on investments, net of income

   taxes of $(12) thousand and $257 thousand for the three and
   nine months ended September 30, 2019, respectively, and $0
   for the three and nine months ended September 30, 2018.

 

(203

)

 

 

72

 

 

 

811

 

 

 

(164

)

Comprehensive loss

$

(16,137

)

 

$

(18,718

)

 

$

(43,630

)

 

$

(53,048

)

 

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

6


 

HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(43,444

)

 

$

(52,336

)

Adjustments to reconcile net loss to net cash and cash equivalents provided

   by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,248

 

 

 

16,539

 

Stock-based compensation

 

 

73,659

 

 

 

55,334

 

Provision for deferred income taxes

 

 

49

 

 

 

43

 

Amortization of debt discount and issuance costs

 

 

16,184

 

 

 

15,103

 

Accretion of bond discount

 

 

(10,889

)

 

 

(4,517

)

Noncash lease expense

 

 

 

 

 

1,972

 

Unrealized currency translation

 

 

(193

)

 

 

215

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,346

)

 

 

(3,266

)

Prepaid expenses and other assets

 

 

(6,217

)

 

 

823

 

Deferred commission expense

 

 

(5,551

)

 

 

(15,887

)

Right-of-use assets

 

 

14,310

 

 

 

 

Accounts payable

 

 

6,195

 

 

 

4,262

 

Accrued expenses and other liabilities

 

 

955

 

 

 

3,755

 

Lease liabilities

 

 

(14,788

)

 

 

 

Deferred rent

 

 

 

 

 

3,987

 

Deferred revenue

 

 

20,910

 

 

 

25,713

 

Net cash and cash equivalents provided by operating activities

 

 

71,082

 

 

 

51,740

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(967,994

)

 

 

(524,838

)

Maturities of investments

 

 

689,614

 

 

 

498,850

 

Purchases of property and equipment

 

 

(21,197

)

 

 

(16,688

)

Capitalization of software development costs

 

 

(9,139

)

 

 

(8,726

)

Purchases of strategic investments

 

 

(553

)

 

 

(300

)

Net cash and cash equivalents used in investing activities

 

 

(309,269

)

 

 

(51,702

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from common stock offering, net of offering costs paid of $365

 

 

342,628

 

 

 

 

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

 

 

(4,767

)

 

 

(5,933

)

Proceeds related to the issuance of common stock under stock plans

 

 

18,926

 

 

 

16,769

 

Repayments of finance lease obligations

 

 

(249

)

 

 

(592

)

Net cash and cash equivalents provided by financing activities

 

 

356,538

 

 

 

10,244

 

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

 

 

(2,171

)

 

 

(1,319

)

Net increase in cash, cash equivalents and restricted cash

 

 

116,180

 

 

 

8,963

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

117,114

 

 

 

92,784

 

Cash, cash equivalents and restricted cash, end of period

 

$

233,294

 

 

$

101,747

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

503

 

 

$

527

 

Cash paid for income taxes

 

$

2,395

 

 

$

1,016

 

Right of use assets obtained in exchange for operating lease liabilities

 

$

81,744

 

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

1,871

 

 

$

2,018

 

Asset retirement obligations

 

$

1,106

 

 

$

347

 

 

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

7


 

HubSpot, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Organization and Operations

HubSpot, Inc. (the “Company”) provides a cloud-based inbound marketing, sales and customer service platform, which is referred to in this document as the Company’s Growth Platform, that enables businesses to grow better. The Company’s Growth Platform, comprised of Marketing Hub, Sales Hub, Service Hub, and a free customer relationship management, or CRM system, features integrated applications and tools that enable businesses to create a cohesive and adaptable customer experience throughout the customer lifecycle.

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, 2018, 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, 2019. 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 12, 2019. 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, except the adoption of updated guidance related to accounting for leases as described within Note 2 of these consolidated financial statements.

On February 19, 2019, the Company closed a common stock offering whereby 2.2 million shares of common stock were sold. The Company received aggregate proceeds of approximately $343.0 million from the offering, net of underwriters’ discounts and commissions, but before deduction of offering expenses of approximately $0.4 million.

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 June 2018, the Financial Accounting Standards Board (“FASB”) issued guidance for stock-based compensation to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance was adopted on January 1, 2019 and did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on the consolidated financial statements.

In June 2016, the FASB issued guidance that introduces a new methodology for accounting for credit losses on financial instruments. The guidance establishes a new forward-looking "expected loss model" that requires entities to estimate current expected credit losses on accounts receivable and financial instruments by using all practical and relevant information. The guidance will be effective for the Company on January 1, 2020. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company does not believe the adoption of this guidance will have a material impact on the consolidated financial statements.

8


 

In February 2016, the FASB issued guidance related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet, while maintaining consistency with historical accounting for the recognition of expense on their income statements. Most prominent among the changes in the guidance is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The Company adopted the updated guidance as of January 1, 2019 using a modified retrospective transition method with a cumulative-effect adjustment as of the adoption date, as permitted by the guidance. Comparative periods are not adjusted.  See Note 2 of these consolidated financial statements for further details.

 

2. Leases

 

Adoption of Updated Leasing Guidance

 

On January 1, 2019, the Company adopted the new lease guidance using a modified retrospective transition method applied to those leases which were not completed as of January 1, 2019. Results for reporting periods beginning after December 31, 2018 are presented under the new guidance, while prior period comparative amounts are not adjusted and continue to be reported in accordance with historical guidance.  The Company applied the new standard using the package of practical expedients permitted under the transition guidance where the Company:

 

 

did not reassess whether any expired or existing contracts contain a lease;

 

did not reassess the classification of existing leases; and

 

did not reassess initial direct costs for any existing leases.

 

In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases.

 

The resulting impact, as of the adoption date, to the consolidated balance sheet of applying the new guidance in 2019 versus the prior guidance was an increase to right-of-use assets of $152.2 million, a decrease to other assets of $0.3 million, an increase to total assets of $151.9 million, an increase to short-term lease liabilities of $14.1 million, a decrease to accrued expenses and other current liabilities of $0.5 million, an increase to total current liabilities of $13.5 million, an increase to long-term lease liabilities of $164.8 million, a decrease to deferred rent, net of current portion, of $26.4 million and an increase to total liabilities of $151.9 million. There was no impact to stockholders’ equity or the consolidated statements of operations as a result of adopting the new guidance.  There was no impact to total operating or financing cash flows of applying the new guidance in 2019 versus the prior guidance other than renaming or adding line items to the statements of cash flows to conform to the accounting for, and presentation of, the new standard.

 

The Company determines if an arrangement contains a lease at inception and does not separate lease and non-lease components of an arrangement determined to contain a lease. Operating and finance leases with a duration of less than 12 months are excluded from right-of-use-assets and lease liabilities and related expense is recorded as incurred.

The Company leases its office facilities under non-cancelable operating leases that expire at various dates through May 2031. Certain leases contain optional termination dates. The table below only considers lease obligations through the optional termination dates, as the Company is not reasonably certain to extend lease agreements beyond those dates.

9


 

The following table provides a summary of lease assets and liabilities as of September 30, 2019:

 

Leases

 

Balance sheet classification

 

Amount

(in thousands)

 

Assets:

 

 

 

 

 

 

Operating lease assets

 

Right-of-use assets

 

$

215,797

 

Finance lease assets

 

Fixed assets

 

 

96

 

Total leased assets

 

 

 

$

215,893

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Current

 

 

 

 

 

 

Operating lease liabilities

 

Lease liabilities

 

$

15,646

 

Finance lease liabilities

 

Accrued expenses and other current liabilities

 

 

57

 

Noncurrent

 

 

 

 

 

 

Operating

 

Lease liabilities, net of current portion

 

 

225,628

 

Total lease liabilities

 

 

 

$

241,331

 

 

Operating lease costs were $9.0 million for the three months ended September 30, 2019, net of $0.6 million of operating sublease income related to certain office facilities subleased to third parties. Operating lease costs were $23.4 million for the nine months ended September 30, 2019, net of $1.7 million of operating sublease income related to certain office facilities subleased to third parties. Finance lease costs consisted of $0 million related to the amortization finance lease assets and $0 million of interest expense for the three months ended September 30, 2019. Finance lease costs consisted of $0.2 million related to the amortization finance lease assets and $0.1 million of interest expense for the nine months ended September 30, 2019.

 

 

The following table provides a reconciliation between non-cancelable lease commitments and lease liabilities as of September 30, 2019:

 

 

 

Operating leases

 

 

Finance Leases

 

Lease commitments (Note 10)

 

$

357,756

 

 

$

57

 

Less: Legally binding minimum lease payments for

   leases signed but not yet commenced

 

 

(41,314

)

 

 

 

Less: Present value discount

 

 

(75,168

)

 

 

 

Total lease liabilities

 

$

241,274

 

 

$

57

 

 

Lease Term and Discount Rate

 

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of operating lease payments. To determine the estimated incremental borrowing rate, the Company uses publicly available credit ratings for peer companies. The Company estimates the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.

 

The following table provides weighted average remaining lease terms and weighted average discount rate for operating and finance leases as of September 30, 2019:

 

Weighted-average remaining lease term:

 

 

Operating leases

 

9.5 years

Finance leases

 

0.5 years

Weighted-average discount rate:

 

 

Operating leases

 

5.8%

Finance leases

 

3.8%

 

Other Information

Cash payments related to our operating lease liabilities were $8.3 million for the three months ended September 30, 2019 and $23.0 million for the nine months ended September 30, 2019. Cash payments related to our financing lease liabilities were $0 million for the three months ended September 30, 2019 and $0.2 million for the nine months ended September 30, 2019.

 

 

10


 

3Revenues

 

Disaggregation of Revenue

 

The Company provides disaggregation of revenue based on geographic region (Note 14) 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, Deferred Commission Expense, and Accrued Expenses and Other Current Liabilities

 

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 nine months ended September 30, 2019 increased by $18.1 million resulting from $506.8 million of additional invoicing and was offset by revenue recognized of $488.7 million during the same period. $105.1 million of revenue was recognized during the three month period ended September 30, 2019 that was included in deferred revenue at the beginning of the period. $163.2 million of revenue was recognized during the nine month period ended September 30, 2019 that was included in deferred revenue at the beginning of the period. As of September 30, 2019, approximately $153.5 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 94.3% of these remaining performance obligations over the next 24 months, with the balance recognized thereafter.  

 

Additional contract liabilities of $1.4 million and $1.6 million were included in accrued expenses and other current liabilities on the consolidated balance sheet as of September 30, 2019 and December 31, 2018.

The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximately one to three years.  The one to three-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 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 September 30, 2019 decreased by $0.6 million as a result of deferring incremental costs of obtaining a contract of $8.5 million and was offset by amortization of $9.1 million during the same period. Deferred commission expense during the nine months ended September 30, 2019 increased by $4.9 million as a result of deferring incremental costs of obtaining a contract of $28.8 million and was offset by amortization of $23.9 million during the same period.  

 

 

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4. Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net 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”), Employee Stock Purchase Plan (“ESPP”), common stock warrants, and the Conversion Option of the 2022 Notes 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 September 30,

 

 

Nine Months Ended September 30,