HubSpot (HUBS) 8-K HubSpot Reports Q2 2019 Results

Exhibit 99.1

HubSpot Reports Q2 2019 Results

CAMBRIDGE, MA (August 6, 2019) —HubSpot, Inc. (NYSE: HUBS), a leading growth platform, today announced financial results for second quarter ended June 30, 2019.

Financial Highlights:

Revenue

• Total revenue was $163.3 million, up 33% compared to Q2’18.

• Subscription revenue was $155.9 million, up 34% compared to Q2’18.

• Professional services and other revenue was $7.4 million, up 23% compared to Q2’18.

Operating Income (Loss)

• GAAP operating margin was (9.6%), compared to (11.5%) in Q2’18.

• Non-GAAP operating margin was 8.4%, an improvement of approximately 3.1 percentage points from 5.3% in Q2’18.

• GAAP operating loss was ($15.7) million, compared to ($14.1) million in Q2’18.

• Non-GAAP operating income was $13.8 million, compared to $6.5 million in Q2’18.

Net Income (Loss)

• GAAP net loss was ($17.4) million, or ($0.41) per basic and diluted share, compared to ($18.2) million, or ($0.48) per basic and diluted share in Q2’18.

• Non-GAAP net income was $17.6 million, or $0.42 per basic and $0.37 per diluted share, compared to $7.4 million, or $0.19 per basic and $0.18 per diluted share in Q2’18.

• Weighted average basic and diluted shares outstanding for GAAP net loss per share was 42.1 million, compared to 38.4 million in Q2’18.

• Weighted average basic and diluted shares outstanding fornon-GAAP net income per share was 42.1 million and 47.5 million respectively, compared to 38.4 million and 41.8 million, respectively in Q2’18.

Balance Sheet and Cash Flow

• The company’s cash, cash equivalents and investments balance was $993.8 million as of June 30, 2019.

• During the second quarter, the company generated $3.4 million of free cash flow compared to $5.2 million during Q2’18.

Additional Recent Business Highlights

• Grew total customers to 64,836 at June 30, 2019 up 35% from June 30, 2018.

• Total average subscription revenue per customer was $9,913 during the second quarter of 2019 down 1% compared to Q2’18.

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“Q2 was another strong quarter for HubSpot,” said Brian Halligan,co-founder and CEO. “Our suite product play is delivering a ton of value for customers and our platform flywheel play is gaining serious momentum among integration partners and our expanding user base.”

Business Outlook

Based on information available as of August 6, 2019, HubSpot is issuing guidance for the third quarter of 2019 and full year 2019 as indicated below.

Third Quarter 2019:

• Total revenue is expected to be in the range of $168.0 million to $169.0 million.

• Non-GAAP operating income is expected to be in the range of $8.0 million to $9.0 million.

• Non-GAAP net income per common share is expected to be in the range of $0.22 to $0.24. This assumes approximately 48.0 million weighted average diluted shares outstanding.

Full Year 2019:

• Total revenue is expected to be in the range of $663.0 million to $665.0 million.

• Non-GAAP operating income is expected to in be in the range of $54.0 million to $55.0 million.

• Non-GAAP net income per common share is expected to be in the range of $1.39 to $1.41 This assumes approximately 47.1 million weighted average diluted shares outstanding.

Use ofNon-GAAP Financial Measures

In our earnings press releases, conference calls, slide presentations, and webcasts, we may use or discussnon-GAAP financial measures, as defined by Regulation G. The GAAP financial measure most directly comparable to eachnon-GAAP financial measure used or discussed, and a reconciliation of the differences between eachnon-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. Our earnings press releases containing suchnon-GAAP reconciliations can be found in the Investors section of our website at ir.hubspot.com.

Conference Call Information

HubSpot will host a conference call on Tuesday, August 6, 2019 at 4:30 p.m. Eastern Time (ET) to discuss the company’s second quarter financial results and its business outlook. To access this call, dial (833)241-7257 (domestic) or (647)689-4221 (international). The conference ID is 5284634. Additionally, a live webcast of the conference call will be available on HubSpot’s Investor Relations website at ir.hubspot.com.

Following the conference call, a replay will be available at (800)585-8367 (domestic) or (416)621-4642 (international). The replay passcode is 5284634. An archived webcast of this conference call will also be available on HubSpot’s Investor Relations website atir.hubspot.com.

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

About HubSpot

HubSpot is a leading growth platform. Over 64,500 total customers in over 100 countries use HubSpot’s award-winning software, services, and support to transform the way they attract, engage, and delight customers. Learn more atwww.hubspot.com.

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Cautionary Language Concerning Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the third fiscal quarter and full year 2019; and statements regarding our positioning for future growth. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully acquire and integrate companies and assets; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption “Risk Factors” in our Quarterly Report on Form10-Q filed on May 7, 2019 and our other SEC filings. We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.

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Consolidated Balance Sheets

(in thousands)

	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	238,080		$	111,489
Short-term investments		717,115			480,761
Accounts receivable		72,999			77,100
Deferred commission expense		28,672			23,664
Restricted cash		6,019			5,175
Prepaid expenses and other current assets		19,991			14,229
Total current assets		1,082,876			712,418
Long-term investments		38,628			11,450
Property and equipment, net		58,471			52,468
Capitalized software development costs, net		13,616			12,746
Right-of-use assets		224,980			—
Deferred commission expense, net of current portion		18,600			18,114
Other assets		8,052			6,888
Intangible assets, net		3,319			4,919
Goodwill		14,950			14,950
Total assets	$	1,463,492		$	833,953
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,264		$	7,810
Accrued compensation costs		20,179			23,589
Accrued expenses and other current liabilities		28,546			22,305
Lease liabilities		15,415			—
Deferred revenue		195,509			183,305
Total current liabilities		272,913			237,009
Lease liabilities, net of current portion		234,724			—
Deferred rent, net of current portion		—			26,445
Deferred revenue, net of current portion		2,619			2,179
Other long-term liabilities		5,635			4,897
Convertible senior notes		329,457			318,782
Total liabilities		845,348			589,312
Stockholders’ equity:
Common stock		43			40
Additionalpaid-in capital		990,701			589,708
Accumulated other comprehensive loss		241			(723	)
Accumulated deficit		(372,841	)		(344,384	)
Total stockholders’ equity		618,144			244,641
Total liabilities and stockholders’ equity	$	1,463,492		$	833,953

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Consolidated Statements of Operations

(in thousands, except per share data)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Subscription	$	155,876		$	116,566		$	300,102		$	225,168
Professional services and other		7,379			6,010			14,951			11,964
Total revenue		163,255			122,576			315,053			237,132
Cost of revenues:
Subscription		23,578			16,964			44,879			32,199
Professional services and other		7,564			7,887			15,841			15,029
Total cost of revenues		31,142			24,851			60,720			47,228
Gross profit		132,113			97,725			254,333			189,904
Operating expenses:
Research and development		40,456			28,485			75,633			54,837
Sales and marketing		84,079			65,281			158,984			125,191
General and administrative		23,303			18,011			44,477			35,252
Total operating expenses		147,838			111,777			279,094			215,280
Loss from operations		(15,725	)		(14,052	)		(24,761	)		(25,376	)
Other expense:
Interest income		5,424			2,092			9,598			3,916
Interest expense		(5,673	)		(5,326	)		(11,186	)		(10,500	)
Other expense		(672	)		(527	)		(684	)		(810	)
Total other expense		(921	)		(3,761	)		(2,272	)		(7,394	)
Loss before income tax expense		(16,646	)		(17,813	)		(27,033	)		(32,770	)
Income tax expense		(711	)		(412	)		(1,424	)		(903	)
Net loss	$	(17,357	)	$	(18,225	)	$	(28,457	)	$	(33,673	)
Net loss per share, basic and diluted	$	(0.41	)	$	(0.48	)	$	(0.69	)	$	(0.88	)
Weighted average common shares used in computing basic and diluted net loss per share:		42,127			38,350			41,352			38,093

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Consolidated Statements of Cash Flows

(in thousands)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Operating Activities:
Net loss	$	(17,357	)	$	(18,225	)	$	(28,457	)	$	(33,673	)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities
Depreciation and amortization		7,063			5,429			14,035			10,539
Stock-based compensation		28,663			19,675			49,869			35,721
(Benefit) provision for deferred income taxes		(107	)		47			(135	)		47
Amortization of debt discount and issuance costs		5,415			5,054			10,675			9,962
Accretion of bond discount		(4,070	)		(1,477	)		(6,821	)		(2,641	)
Noncash rent expense		—			811			—			1,605
Unrealized currency translation		263			100			(18	)		136
Changes in assets and liabilities
Accounts receivable		(3,851	)		(218	)		3,907			6,645
Prepaid expenses and other assets		(7,216	)		(6,592	)		(6,330	)		(4,712	)
Deferred commission expense		(2,205	)		(5,021	)		(5,539	)		(10,089	)
Right-of-use assets		3,757			—			9,262			—
Accounts payable		81			588			4,992			754
Accrued expenses and other current liabilities		5,359			3,957			3,288			5,631
Lease liabilities		(6,052	)		—			(10,162	)		—
Deferred rent		—			3,954			—			3,906
Deferred revenue		3,954			5,419			12,847			16,392
Net cash and cash equivalents provided by operating activities		13,697			13,501			51,413			40,223
Investing Activities:
Purchases of investments		(211,301	)		(155,406	)		(597,802	)		(366,292	)
Maturities and sales of investments		158,925			92,300			342,385			348,550
Purchases of property and equipment		(7,791	)		(5,071	)		(12,056	)		(11,310	)
Capitalization of software development costs		(2,507	)		(3,190	)		(5,328	)		(5,806	)
Purchases of strategic investments		(352	)		—			(352	)		(250	)
Net cash and cash equivalents used in investing activities		(63,026	)		(71,367	)		(273,153	)		(35,108	)
Financing Activities:
Proceeds from common stock offering, net of offering costs paid of $365		—			—			342,628			—
Payments for common stock offering costs		(111	)		—			—			—
Employee taxes paid related to the net share settlement of stock-based awards		(1,651	)		(1,701	)		(2,735	)		(4,045	)
Proceeds related to the issuance of common stock under stock plans		5,048			5,499			10,738			11,612
Repayments of capital lease obligations		(87	)		(205	)		(205	)		(417	)
Net cash and cash equivalents provided by financing activities		3,199			3,593			350,426			7,150
Effect of exchange rate changes on cash, cash equivalents and restricted cash		586			(1,675	)		(198	)		(998	)
Net increase in cash, cash equivalents and restricted cash		(45,544	)		(55,948	)		128,488			11,267
Cash, cash equivalents and restricted cash, beginning of period		291,146			159,999			117,114			92,784
Cash, cash equivalents and restricted cash, end of period	$	245,602		$	104,051		$	245,602		$	104,051

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Reconciliation ofnon-GAAP operating income and operating margin

(in thousands, except percentages)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP operating loss	$	(15,725	)	$	(14,052	)	$	(24,761	)	$	(25,376	)
Stock-based compensation		28,663			19,675			49,869			35,721
Amortization of acquired intangible assets		800			50			1,600			100
Acquisition related expenses		32			802			65			1,604
Non-GAAP operating income	$	13,770		$	6,475		$	26,773		$	12,049
GAAP operating margin		(9.6	%)		(11.5	%)		(7.9	%)		(10.7	%)
Non-GAAP operating margin		8.4	%		5.3	%		8.5	%		5.1	%

Reconciliation ofnon-GAAP net income

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP net loss	$	(17,357	)	$	(18,225	)	$	(28,457	)	$	(33,673	)
Stock-based compensation		28,663			19,675			49,869			35,721
Amortization of acquired intangibles assets		800			50			1,600			100
Acquisition related expenses		32			802			65			1,604
Non-cash interest expense for amortization of debt discount and debt issuance costs		5,415			5,054			10,675			9,962
Income tax effects ofnon-GAAP items		—			—			—			—
Non-GAAP net income	$	17,553		$	7,356		$	33,752		$	13,714
Non-GAAP net income per share:
Basic	$	0.42		$	0.19		$	0.82		$	0.36
Diluted	$	0.37		$	0.18		$	0.73		$	0.34
Shares used innon-GAAP per share calculations
Basic		42,127			38,350			41,352			38,093
Diluted		47,532			41,788			46,394			40,892

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Reconciliation ofnon-GAAP expense and expense as a percentage of revenue

(in thousands, except percentages)

	Three Months Ended June 30,
	2019															2018
	COS, Subscription			COS, Prof. services & other			R&D			S&M			G&A			COS, Subscription			COS, Prof. services & other			R&D			S&M			G&A
GAAP expense	$	23,578		$	7,564		$	40,456		$	84,079		$	23,303		$	16,964		$	7,887		$	28,485		$	65,281		$	18,011
Stock -based compensation		(822	)		(666	)		(10,553	)		(10,523	)		(6,099	)		(317	)		(846	)		(6,111	)		(7,937	)		(4,464	)
Amortization of acquired intangible assets		(800	)		—			—			—			—			(50	)		—			—			—			—
Acquisition related expenses		—			—			(32	)		—			—			—			—			(802	)		—			—
Non-GAAP expense	$	21,956		$	6,898		$	29,871		$	73,556		$	17,204		$	16,597		$	7,041		$	21,572		$	57,344		$	13,547
GAAP expense as a percentage of revenue		14.4	%��		4.6	%		24.8	%		51.5	%		14.3	%		13.8	%		6.4	%		23.2	%		53.3	%		14.7	%
Non-GAAP expense as a percentage of revenue		13.4	%		4.2	%		18.3	%		45.1	%		10.5	%		13.5	%		5.7	%		17.6	%		46.8	%		11.1	%
	Six Months Ended June 30,
	2019															2018
	COS, Subscription			COS, Prof. services & other			R&D			S&M			G&A			COS, Subscription			COS, Prof. services & other			R&D			S&M			G&A
GAAP expense	$	44,879		$	15,841		$	75,633		$	158,984		$	44,477		$	32,199		$	15,029		$	54,837		$	125,191		$	35,252
Stock -based compensation		(1,437	)		(1,685	)		(17,644	)		(18,327	)		(10,776	)		(594	)		(1,536	)		(10,875	)		(14,429	)		(8,287	)
Amortization of acquired intangible assets		(1,600	)		—			—			—			—			(100	)		—			—			—			—
Acquisition related expenses		—			—			(65	)		—			—			—			—			(1,604	)		—			—
Non-GAAP expense	$	41,842		$	14,156		$	57,924		$	140,657		$	33,701		$	31,505		$	13,493		$	42,358		$	110,762		$	26,965
GAAP expense as a percentage of revenue		14.2	%		5.0	%		24.0	%		50.5	%		14.1	%		13.6	%		6.3	%		23.1	%		52.8	%		14.9	%
Non-GAAP expense as a percentage of revenue		13.3	%		4.5	%		18.4	%		44.6	%		10.7	%		13.3	%		5.7	%		17.9	%		46.7	%		11.4	%

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Reconciliation ofnon-GAAP subscription margin

(in thousands, except percentages)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP subscription margin	$	132,298		$	99,602		$	255,223		$	192,969
Stock -based compensation		822			317			1,437			594
Amortization of acquired intangible assets		800			50			1,600			100
Non-GAAP subscription margin	$	133,920		$	99,969		$	258,260		$	193,663
GAAP subscription margin percentage		84.9	%		85.4	%		85.0	%		85.7	%
Non-GAAP subscription margin percentage		85.9	%		85.8	%		86.1	%		86.0	%

Reconciliation of free cash flow

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP net cash and cash equivalents provided by operating activities	$	13,697		$	13,501		$	51,413		$	40,223
Purchases of property and equipment		(7,791	)		(5,071	)		(12,056	)		(11,310	)
Capitalization of software development costs		(2,507	)		(3,190	)		(5,328	)		(5,806	)
Free cash flow	$	3,399		$	5,240		$	34,029		$	23,107

Reconciliation of forecastednon-GAAP operating income

(in thousands, except percentages)

	Three Months Ended September 30, 2019			Year Ended December 31, 2019
GAAP operating income range	($	16,880)-($15,880	)	($	49,330)-($48,330	)
Stock-based compensation		24,100			100,100
Amortization of acquired intangible assets		750			3,100
Acquisition related expenses		30			130
Non-GAAP operating income range		$8,000-$9,000			$54,000-$55,000

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Reconciliation of forecastednon-GAAP net income andnon-GAAP net income per share

(in thousands, except per share amounts)

	Three Months Ended September 30, 2019			Year Ended December 31, 2019
GAAP net loss range	($	19,880)-($18,880	)	($	59,730)-($58,730	)
Stock-based compensation		24,100			100,100
Amortization of acquired intangible assets		750			3,100
Acquisition related expenses		30			130
Non-cash interest expense for amortization of debt discount and debt issuance costs		5,500			21,800
Income tax effects of non-GAAP items		—			—
Non-GAAP net income range		$10,500-$11,500			$65,400-$66,400
GAAP net income per basic and diluted share		($0.47)-($0.44	)		($1.42)-($1.40	)
Non-GAAP net income per diluted share		$0.22-$0.24			$1.39-$1.41
Weighted average common shares used in computing GAAP basic and diluted net loss per share:		42,500			42,050
Weighted average common shares used in computingnon-GAAP diluted net loss per share:		48,000			47,100

HubSpot’s estimates of stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, andnon-cash interest expense for amortization of debt discount and debt issuance costs in future periods assume, among other things, the occurrence of no additional acquisitions, investments or restructurings, and no further revisions to stock-based compensation and related expenses.

Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certainnon-cash ornon-recurring items when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. In this release, HubSpot’snon-GAAP operating income, operating margin, subscription margin, expense, expense as a percentage of revenue, net income, and free cash flow are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management believes that thesenon-GAAP financial measures provide additional means of evaluating period-over-period operating performance. Specifically, thesenon-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certainnon-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. In addition, management understands that some investors and financial analysts find this information helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors. However, thesenon-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. In addition, it should be noted that thesenon-GAAP financial measures may be different fromnon-GAAP measures

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used by other companies. We intend to provide thesenon-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of thesenon-GAAP financial measures will provide consistency in our financial reporting. Management may, however, utilize other measures to illustrate performance in the future. Investors are encouraged to review the reconciliation of thesenon-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of ournon-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included above in this press release.

Thesenon-GAAP measures exclude stock-based compensation, amortization of acquired intangible assets, acquisition related expenses,non-cash interest expense for the amortization of debt discount debt issuance costs, and income tax effects ofnon-GAAP items. We believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

A. Stock-based compensation is anon-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense allows for financial results that are more indicative of our operational performance and provide for a useful comparison of our operating results to prior periods and to our peer companies because stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price.

B. Expense for the amortization of acquired intangible assets is anon-cash item, and we believe that the exclusion of this amortization expense provides for a useful comparison of our operating results to prior periods and to our peer companies.

C. Acquisition related expenses, such as transaction costs and retention payments, are expenses that are not necessarily reflective of operational performance during a period. We believe that the exclusion of this these expenses provides for a useful comparison of our operating results to prior periods and to our peer companies.

D. In May 2017, the Company issued $400 million of convertible notes due in 2022 with a coupon interest rate of 0.25%. The imputed interest rate of the convertible senior notes was approximately 6.95%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is anon-cash item, and we believe the exclusion of this interest expense provides for a useful comparison of our operating results to prior periods and to our peer companies.

E. The effects of income taxes onnon-GAAP items for current and historical periods is zero due to our history ofnon-GAAP losses and a full valuation allowance on our U.S. deferred tax assets.

Investor Relations Contact:

Charles MacGlashing

investors@hubspot.com

Media Contact:

Ellie Flanagan

eflanagan@hubspot.com

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