HubSpot, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; financial amounts below are in U.S. dollars. HubSpot provides a cloud-based CRM platform, with revenue primarily from subscriptions.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $421.8m | $310.8m | $817.4m | $592.2m |
| Subscription revenue | $412.4m | $300.4m | $797.4m | $570.7m |
| Gross profit | $342.8m | $247.9m | $665.5m | $474.5m |
| Gross margin | 81% | 80% | 81% | 80% |
| Operating loss | $(52.3)m | $(16.6)m | $(63.4)m | $(31.6)m |
| Net loss | $(56.4)m | $(24.6)m | $(65.7)m | $(47.7)m |
| Net loss per share, diluted | $(1.18) | $(0.53) | $(1.38) | $(1.02) |
- Q2 revenue increased 36% year over year; subscription revenue rose 37%. For the six months, revenue increased 38% and subscription revenue rose 40%.
- Q2 operating expenses grew 49% to $395.1m, faster than revenue. Sales and marketing was $224.3m (+42%); research and development $118.9m (+65%); general and administrative $51.9m (+50%).
- Stock-based compensation was $81.2m in Q2 and $126.9m for the first half, versus $43.4m and $75.9m, respectively, in 2021.
- Q2 operating margin was approximately (12)% versus (5)% a year earlier; net margin was approximately (13)% versus (8)%. Gross margin edged up one percentage point.
Cash flow, balance sheet and debt
- First-half operating cash flow was $123.1m, up from $100.9m. Investing used $176.0m and financing used $9.0m. Cash, cash equivalents and restricted cash ended at $308.7m; cash and cash equivalents on the balance sheet were $305.7m.
- Short- and long-term investments totaled $1.103bn at fair value. Cash and investments together were approximately $1.409bn. Working capital was $869.6m.
- Total liabilities were $1.402bn and stockholders’ equity was $871.5m. Convertible senior notes had a $453.2m net carrying amount, with $459.1m principal outstanding and a 0.375% coupon, due June 2025. The 2022 notes matured and were settled on June 1, 2022.
- Current deferred revenue was $469.6m. Revenue expected from remaining performance obligations with original terms exceeding one year was approximately $423.7m; about 93% is expected to be recognized within 24 months.
- Operating lease liabilities totaled approximately $293.0m ($28.7m current and $264.2m long-term). Future lease payments shown in the filing total $359.8m; extending certain leases beyond optional termination dates could add approximately $76.7m.
Changes, outlook and risks
- Management attributed subscription growth to customer additions, upgrades and demand for Professional and Enterprise products. Customers grew to 150,865 from 121,048 year over year; Q2 average subscription revenue per customer rose to $11,198 from $10,198.
- Management said higher operating costs primarily reflected headcount growth and continued investment in product development, sales and marketing, customer support, and infrastructure. Gross margin remained relatively stable despite higher hosting and employee costs.
- HubSpot stated that it does not expect to be profitable in the near term, while believing existing cash, investments and anticipated operating cash flows would fund working capital and operating needs for the next 12 months. The filing provides no specific numerical revenue or earnings guidance.
- Macroeconomic uncertainty, inflation, rising interest rates and foreign-exchange movements could affect demand, costs and results. Euro weakness contributed to currency-related losses and weighed on subscription revenue per customer; management said the broader implications remained uncertain.
- Key risks include customer renewals and acquisition, competition, execution of growth investments, service availability and cybersecurity, privacy regulation, talent retention, and international operations. The company reported no material pending litigation and no material changes to internal control over financial reporting during the quarter.
- Unusual or notable items: adoption of updated convertible-debt accounting on January 1, 2022 increased opening retained earnings by $31.4m and reduced additional paid-in capital by $101.2m; the 2022 notes’ maturity settlement included $60.4m of conversion premium, partly offset by $60.5m received from settlement of related note hedges. A $4.2m gain on a strategic investment was recorded in the first half. The company also purchased the connect.com domain for $10.0m.
Investor verification points
- Assess whether customer growth and higher revenue per customer can continue, especially amid renewal, competition and economic risks.
- Track operating expense growth, stock-based compensation and the path toward profitability.
- Review operating cash flow quality, including the contribution from deferred revenue and non-cash stock compensation, and monitor investment portfolio valuation changes.
- Verify the 2025 notes’ conversion terms, cash-settlement exposure and potential dilution, including outstanding warrants.
- Monitor currency effects, customer demand, hosting costs, cybersecurity and privacy developments, and the company’s stated 12-month liquidity assessment.