UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

FOR THE QUARTERLY PERIOD ENDED September 30, 2015

OR

FOR THE TRANSITION PERIOD FROM                       TO                     

COMMISSION FILE NUMBER 001-36680

 

HubSpot, Inc.

(Exact name of registrant as specified in its charter)

 

 

25 First Street, 2nd Floor

Cambridge, Massachusetts, 02141

(Address of principal executive offices)

(888) 482-7768

(Registrant’s telephone number, including area code)

 

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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted 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 and post such files).    YES  x    NO  ¨

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

 

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

There were 34,096,619 shares of the registrant’s Common Stock issued and outstanding as of October 30, 2015.

 

 

 

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HUBSPOT, INC.

Table of Contents

 

 

 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. 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:

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.

 

 

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PART I — Financial Information

 

 

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(In thousands)

 

 

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

 

 

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HubSpot, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

 

 

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

 

 

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HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

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

 

 

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HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

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

 

 

 

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HubSpot, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Organization and Operations

HubSpot, Inc. (the “Company”), was formed as a limited liability company in Delaware on April 4, 2005. The Company converted to a Delaware corporation on June 7, 2007. The Company provides a cloud-based inbound marketing and sales platform which features integrated applications to help businesses attract visitors to their websites, convert visitors into leads, close leads into customers and delight customers so they become promoters of those businesses. These integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics, and reporting.

The Company is headquartered in Cambridge, Massachusetts, and has wholly-owned subsidiaries in Dublin, Ireland, which commenced operations in January of 2013 and in Sydney, Australia, which commenced operations in August of 2014.

On March 24, 2015, the Company closed a common stock public offering whereby 971,891 shares of common stock were sold to the public, including the underwriters’ overallotment option of 121,891 shares of common stock, at a price of $37.00 per share. The Company received aggregate proceeds of approximately $34.3 million from the offering, net of underwriters’ discounts and commissions, but before deduction of offering expenses of approximately $583 thousand.

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 had prepared the accompanying unaudited financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2014, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation 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, 2015. 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 March 5, 2015. 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 other than the addition of investments described below.

Investments

Investments consist of corporate debt securities. Securities having remaining maturities of more than three months at the date of purchase and less than one year from the date of the balance sheets are classified as short-term, and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the consolidated balance sheets. The Company classifies its debt investments with readily determinable market values as available-for-sale. These investments are classified as investments on the consolidated balance sheets and are carried at fair market value, with unrealized gains and losses considered to be temporary in nature reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. The Company reviews all investments for reductions in fair value that are other-than-temporary. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of operations. Gains and losses on investments are calculated on the basis of specific identification.

Investments are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company periodically evaluates whether a decline in fair value below cost basis is other-than-temporary by considering available evidence regarding these investments including, among other factors: the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health of, and business outlook for the issuer, including industry and sector performance and operational and financing cash flow factors; overall market conditions and trends and the Company’s intent and ability to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a new cost basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if recorded, could be materially different from the actual market performance of investments in the Company’s portfolio if, among other things, relevant information related to the investment was not publicly available.

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued updated guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard now is effective for annual reporting periods beginning January 1, 2018. The FASB will permit companies to adopt the new standard early, but not before the original effective date of January 1, 2017. The Company is evaluating the potential impact of adopting this new accounting guidance.

In June 2014, the FASB issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. We do not expect it to have a material impact on our consolidated financial position, results of operations or cash flows.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year’s presentation. During the three and nine months ended September 30, 2015, the Company classified $729 thousand and $2.1 million, respectively, of credit card fees associated with customer payments within general and administrative expenses on the consolidated statement of operations. Accordingly, the Company reclassified $500 thousand of credit card fees associated with customer payments for the three months ended September 30, 2014 and $1.4 million for the nine months ended September 30, 2014 from cost of revenues, subscription to general and administrative expenses to confirm with this presentation. The Company will also reclassify credit card fees of $593 thousand for the three months ended December 31, 2014.

 

 

2. Net Loss per Share

Basic net loss attributable to common stockholders per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders 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, common stock warrants, restricted stock units (“RSUs”) and redeemable convertible preferred stock are considered to be potential common stock equivalents. The Company applied the two-class method to calculate its basic and diluted net loss per share of common stock for the three and nine months ended September 30, 2014, as its convertible preferred stock and common stock are participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company was in a loss position for the three and nine months ended September 30, 2014 and preferred stockholders did not participate in losses.

A reconciliation of the denominator used in the calculation of basic and diluted loss attributable to common stockholders per share is as follows:

 

 

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Additionally, since the Company incurred net losses for each of the periods presented, diluted net loss attributable to common stockholders per share is the same as basic net loss attributable to common stockholders per share. The Company’s outstanding stock options, RSUs, common stock warrants, and redeemable convertible preferred stock were not included in the calculation of diluted loss attributable to common stockholders per share as the effect would be anti-dilutive. The following table contains all potentially dilutive common stock equivalents.

 

 

 

 

3. 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:

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at September 30, 2015 and December 31, 2014.

 

 

 

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets.

Certain holdings classified as commercial paper and corporate bonds above had original maturities to the Company of less than 90 days, and therefore have been included within cash and cash equivalents within the consolidated balance sheets.

For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

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The following tables summarize the composition of our short- and long-term investments at September 30, 2015. The Company did not have any investments at December 31, 2014.

 

 

For all of our securities for which the amortized cost basis was greater than the fair value at September 30, 2015, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. In making the determination as to whether the unrealized loss is other-than-temporary, the Company considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Contractual Maturities

The contractual maturities of short-term and long-term investments held at September 30, 2015 are as follows:

 

 

 

4. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

Depreciation expense was $673 thousand for the three months ended September 30, 2015, $2.0 million for the nine months ended September 30, 2015, $702 thousand for the three months ended September 30, 2014, and $1.9 million for the nine months ended September 30, 2014.

 

 

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5. Capitalized Software Development Costs

Capitalized software development costs consisted of the following:

 

 

The following table summarizes software development costs capitalized, stock-based compensation included in capitalized software development costs, and amortization of capitalized software development costs:

 

 

 

6. Business Combination, Intangible Assets and Goodwill

During the nine months ended September 30, 2015 the Company acquired certain assets and treated this purchase as a business combination. The Company paid cash considerations of $600 thousand for these assets and allocated $107 thousand to acquired technology, $50 thousand to certain other assets, and the remaining $443 thousand to goodwill.

Intangible assets as of September 30, 2015 and December 31, 2014 were as follows:

 

 

Amortization expense related to intangible assets was $26 thousand for the three months ended September 30, 2015, $70 thousand for the nine months ended September 30, 2015, $13 thousand for the three months ended September 30, 2014 and $125 thousand for the nine months ended September 30, 2014. Amortization expense of acquired technology is included in cost of subscription revenue in the consolidated statements of operations. Amortization expense of acquired intellectual property is included in sales and marketing expense in the consolidated statements of operations. The remaining weighted-average useful life of acquired technology and acquired intellectual property is 16 months and 18 months, respectively.

Remaining amortization expense for intangible assets is as follows:

 

 

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The changes in the carrying amount of goodwill for the nine months ended September 30, 2015 were as follows:

 

 

 

7. Commitments and Contingencies

In September 2015, the Company entered into a 5 year property lease. The lease commences on October 1, 2015 and the Company will pay an aggregate of approximately $1.3 million in rent over the 5 year lease period.

In April 2015, the Company entered into a new 10 year property lease. The lease commences on January 1, 2016 and the Company will pay an aggregate of approximately $37 million in rent over the 10 year lease period.

Future minimum payments under all operating and capital lease agreements as of September 30, 2015, are as follows:

 

 

Additionally, in May 2015, the Company entered into a renewal agreement with a customer relationship management vendor. The Company’s contractual obligation under this agreement is approximately $30 million, payable over the sixty month term of the agreement.

Legal Contingencies

From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax, and other matters. We currently have no material pending litigation.

 

 

8. Changes in Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, which is reported as a component of stockholders’ deficit, for the nine months ended September 30, 2015.