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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, 2023

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 50,330,543 shares of the registrant’s Common Stock issued and outstanding as of November 3, 2023.

 


 

HUBSPOT, INC.

Table of Contents

Part I — Financial Information

 

 

 

 

Item 1.

Unaudited Consolidated Financial Statements:

 

Unaudited Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

6

Unaudited Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2023 and 2022

7

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months ended September 30, 2023 and 2022

8

 

 

Unaudited Consolidated Statements of Stockholders' Equity for the Three and Nine Months ended September 30, 2023 and 2022

9

Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months ended September 30, 2023 and 2022

10

Notes to Unaudited Consolidated Financial Statements

11

Item 2.

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

23

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

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61

Signatures

62

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 CRM 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, including evolving artificial intelligence and machine learning technologies, evolving industry standards and changing customer needs or requirements, our CRM 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 CRM Platform has outages or fails due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.
If our or our customers’ security measures are compromised or unauthorized access to data of our customers or their customers is otherwise obtained, our CRM Platform may be perceived as not being secure, our customers may be harmed and may curtail or cease their use of our platform, our reputation may be damaged and we may incur significant liabilities.
We have a history of losses and may not achieve profitability in the future.

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.
Our Restructuring Plan and associated organizational changes may not adequately reduce our operating costs or improve operating margins, may lead to additional workforce attrition, and may cause operational disruptions.

5


 

PART I — Financial Information

 

 

Item 1. Financial Statements

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(in thousands)

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

535,545

 

 

$

331,022

 

Short-term investments

 

 

1,061,526

 

 

 

1,081,662

 

Accounts receivable — net of allowance for doubtful accounts of $4,378 
    at September 30, 2023 and $
3,266 at December 31, 2022

 

 

212,409

 

 

 

226,849

 

Deferred commission expense

 

 

86,913

 

 

 

70,992

 

Prepaid expenses and other current assets

 

 

78,542

 

 

 

44,074

 

Total current assets

 

 

1,974,935

 

 

 

1,754,599

 

Long-term investments

 

 

150,861

 

 

 

112,791

 

Property and equipment, net

 

 

104,949

 

 

 

105,227

 

Capitalized software development costs, net

 

 

96,569

 

 

 

63,790

 

Right-of-use assets

 

 

254,483

 

 

 

319,304

 

Deferred commission expense, net of current portion

 

 

103,488

 

 

 

66,559

 

Other assets

 

 

70,931

 

 

 

58,795

 

Intangible assets, net

 

 

13,382

 

 

 

17,446

 

Goodwill

 

 

46,050

 

 

 

46,227

 

Total assets

 

$

2,815,648

 

 

$

2,544,738

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,808

 

 

$

20,883

 

Accrued compensation costs

 

 

79,450

 

 

 

62,846

 

Accrued expenses and other current liabilities

 

 

134,908

 

 

 

102,122

 

Operating lease liabilities

 

 

29,756

 

 

 

35,928

 

Deferred revenue

 

 

578,280

 

 

 

539,874

 

Total current liabilities

 

 

839,202

 

 

 

761,653

 

Operating lease liabilities, net of current portion

 

 

301,661

 

 

 

316,184

 

Deferred revenue, net of current portion

 

 

4,212

 

 

 

5,904

 

Other long-term liabilities

 

 

28,535

 

 

 

14,546

 

Convertible senior notes

 

 

455,699

 

 

 

454,227

 

Total liabilities

 

 

1,629,309

 

 

 

1,552,514

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock

 

 

50

 

 

 

49

 

Additional paid-in capital

 

 

2,000,739

 

 

 

1,647,446

 

Accumulated other comprehensive loss

 

 

(9,378

)

 

 

(12,890

)

Accumulated deficit

 

 

(805,072

)

 

 

(642,381

)

Total stockholders’ equity

 

 

1,186,339

 

 

 

992,224

 

Total liabilities and stockholders’ equity

 

$

2,815,648

 

 

$

2,544,738

 

 

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 September 30,

 

 

For the Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

545,832

 

 

$

435,030

 

 

$

1,553,253

 

 

$

1,232,387

 

Professional services and other

 

11,725

 

 

 

8,928

 

 

 

35,062

 

 

 

28,926

 

Total revenue

 

557,557

 

 

 

443,958

 

 

 

1,588,315

 

 

 

1,261,313

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

73,781

 

 

 

67,648

 

 

 

215,944

 

 

 

191,466

 

Professional services and other

 

13,745

 

 

 

14,479

 

 

 

40,910

 

 

 

42,532

 

Total cost of revenues

 

87,526

 

 

 

82,127

 

 

 

256,854

 

 

 

233,998

 

Gross profit

 

470,031

 

 

 

361,831

 

 

 

1,331,461

 

 

 

1,027,315

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

156,871

 

 

 

114,038

 

 

 

454,511

 

 

 

325,687

 

Sales and marketing

 

271,448

 

 

 

229,541

 

 

 

787,423

 

 

 

650,936

 

General and administrative

 

61,308

 

 

 

50,465

 

 

 

179,939

 

 

 

146,309

 

Restructuring (Note 15)

 

846

 

 

 

 

 

 

93,296

 

 

 

 

Total operating expenses

 

490,473

 

 

 

394,044

 

 

 

1,515,169

 

 

 

1,122,932

 

Loss from operations

 

(20,442

)

 

 

(32,213

)

 

 

(183,708

)

 

 

(95,617

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

16,181

 

 

 

4,658

 

 

 

40,195

 

 

 

7,222

 

Interest expense

 

(950

)

 

 

(923

)

 

 

(2,817

)

 

 

(2,822

)

Other expense

 

(1,664

)

 

 

(1,185

)

 

 

(2,128

)

 

 

(583

)

Total other income

 

13,567

 

 

 

2,550

 

 

 

35,250

 

 

 

3,817

 

Loss before income tax expense

 

(6,875

)

 

 

(29,663

)

 

 

(148,458

)

 

 

(91,800

)

Income tax benefit (expense)

 

1,412

 

 

 

(1,748

)

 

 

(14,233

)

 

 

(5,313

)

Net loss

$

(5,463

)

 

$

(31,411

)

 

$

(162,691

)

 

$

(97,113

)

Net loss per share, basic and diluted

$

(0.11

)

 

$

(0.65

)

 

$

(3.27

)

 

$

(2.03

)

Weighted average common shares used in
  computing basic and diluted net loss per share:

 

50,051

 

 

 

48,067

 

 

 

49,719

 

 

 

47,821

 

 

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 September 30,

 

 

For the Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

$

(5,463

)

 

$

(31,411

)

 

$

(162,691

)

 

$

(97,113

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,832

)

 

 

(2,793

)

 

 

(1,805

)

 

 

(5,818

)

Changes in unrealized gain (loss) on investments, net of
  income taxes of $
0 for the three and nine months ended
 September 30, 2023 and 2022

 

1,839

 

 

 

(3,701

)

 

 

5,317

 

 

 

(10,354

)

Comprehensive loss

$

(6,456

)

 

$

(37,905

)

 

$

(159,179

)

 

$

(113,285

)

 

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, 2022

 

49,217

 

 

$

49

 

 

 

910

 

 

$

 

 

$

1,647,446

 

 

$

(12,890

)

 

$

(642,381

)

 

 

992,224

 

Issuance of common stock under stock
  plans

 

635

 

 

 

1

 

 

 

 

 

 

 

 

 

23,978

 

 

 

 

 

 

 

 

 

23,979

 

Restricted stock units taxes paid in cash

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

(4,102

)

 

 

 

 

 

 

 

 

(4,102

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

223,087

 

 

 

 

 

 

 

 

 

223,087

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,026

 

 

 

 

 

 

1,026

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,479

 

 

 

 

 

 

3,479

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(157,228

)

 

 

(157,228

)

Balances at June 30, 2023

 

49,841

 

 

$

50

 

 

 

910

 

 

$

 

 

$

1,890,409

 

 

$

(8,385

)

 

$

(799,609

)

 

$

1,082,465

 

Issuance of common stock under stock
  plans

 

280

 

 

 

 

 

 

 

 

 

 

 

 

1,316

 

 

 

 

 

 

 

 

 

1,316

 

Restricted stock units taxes paid in cash

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

(3,468

)

 

 

 

 

 

 

 

 

(3,468

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

112,482

 

 

 

 

 

 

 

 

 

112,482

 

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,832

)

 

 

 

 

 

(2,832

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,839

 

 

 

 

 

 

1,839

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,463

)

 

 

(5,463

)

Balances at September 30, 2023

 

50,114

 

 

$

50

 

 

 

910

 

 

$

-

 

 

$

2,000,739

 

 

$

(9,378

)

 

$

(805,072

)

 

$

1,186,339

 

 

 

 

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, 2021

 

47,390

 

 

$

47

 

 

 

910

 

 

$

 

 

$

1,436,089

 

 

$

(1,339

)

 

$

(560,998

)

 

 

873,799

 

Issuance of common stock under stock
  plans

 

506

 

 

 

1

 

 

 

 

 

 

 

 

 

20,692

 

 

 

 

 

 

 

 

 

20,693

 

Restricted stock units taxes paid in cash

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,763

)

 

 

 

 

 

 

 

 

(7,763

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

130,549

 

 

 

 

 

 

 

 

 

130,549

 

Conversion of the 2025 Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

(691

)

 

 

 

 

 

 

 

 

(691

)

Conversion of the 2022 Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

(60,422

)

 

 

 

 

 

 

 

 

(60,422

)

Settlement of Convertible Note Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

60,483

 

 

 

 

 

 

 

 

 

60,483

 

Cumulative adjustment from adoption
  of convertible debt standard

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,167

)

 

 

 

 

 

31,366

 

 

 

(69,801

)

Cumulative translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,025

)

 

 

 

 

 

(3,025

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,653

)

 

 

 

 

 

(6,653

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,702

)

 

 

(65,702

)

Balances at June 30, 2022

 

47,896

 

 

$

48

 

 

 

910

 

 

$

 

 

$

1,477,770

 

 

$

(11,017

)

 

$

(595,334

)

 

$

871,467

 

Issuance of common stock under stock
  plans